BEIJING (Reuters) - Chinese entrepreneur Feng Jun tried five times to set up overseas branches to market his MP3 players and other consumer electronics goods. Three of the branches made money, the other two failed, but he said they were all a “total headache.”
It was the headaches that inspired Feng’s latest venture, the Aigo Entrepreneurs Alliance (AEA), a club to help private Chinese companies navigate the uncertain world outside China.
Private enterprises account for the majority of jobs created in China, but they are often disadvantaged compared with their state-owned brethren in tapping financing or government support, both at home and overseas.
It is a bigger problem overseas, given the scant knowledge most Chinese entrepreneurs have of operating in alien surroundings. China has a decade-old “going out” policy, but it is primarily oriented toward helping the biggest state-owned firms establish themselves internationally.
“Managing from afar was tough, and also there’s the problem of scale,” said Feng, who is the founder of Aigo Electronics. The name of the firm translates roughly into ‘patriot’.
“Going out by yourself, if you aren’t very familiar, it’s very hard from a management perspective.”
Chinese companies are “going out” in droves, trying to secure raw materials, buy foreign technology and brands or simply sell products without having to go through a middleman.
The notion conjures fears overseas of a monolithic Chinese business juggernaut driving Western firms out of business, undercutting prices and forcing factory shutdowns. But for the Chinese companies, the experience has been far from a uniform success: many have crashed head-on into walls of unexpected regulation, labor laws and unfamiliar languages.
While state-owned enterprises can count on institutional support from the Chinese government, private firms are more often left to fend for themselves, the vacuum AEA hopes to fill.
“This is an excellent solution to a problem in China, which is that the official mechanisms that would help Chinese companies coordinate and pool resources aren’t doing that job,” said Scott Kennedy, director of the Research Center for Chinese Politics & Business at Indiana University.
The largest state-owned firms account for about 80 percent of China’s overseas investment, most of it geared towards acquiring energy and resources and building the infrastructure to bring that back to China. Unlike the private firms, only a few, primarily in the telecoms sector, are engaged in directly selling to external markets.
“The state-owned enterprises are a pillar domestically, but that’s hard to translate internationally,” said Feng.
Private firms account for about a third of China’s exports, but many lack the overseas presence to make or market their goods directly in foreign countries.
Overseas markets generally mean better profits, without the margin-killing competition found in China. And success overseas means prestige among status-conscious Chinese consumers.
“If you are only present in China and not internationally then you are not a global brand, only a regional brand,” Feng said.
“If you do well internationally, it will raise your credibility with Chinese consumers.”
With 16 founding members who lend their names to the venture and almost 500 private companies in tow, the AEA organizes investment road shows to potential destinations with the aim of ultimately negotiating joint office space and other services to give members a quick start in setting up overseas.
Feng figures that the global financial crisis has created plenty of office buildings and warehouses eager to give a break to a new group of Chinese tenants.
The idea is that members can plug in to a physical office and tap know-how on how to register their business, hire a secretary, consult a legal adviser and all the other steps that often bewilder an entrepreneur who is big in his home province in China but nowhere else.
About 80 full members pay 200,000 yuan a year while over 400 second-tier “learning and developing club” members chip in 29,800 yuan a year. Both classes of members have a choice in which of AEA’s initiatives to sign on to.
The most concrete initiative to date is in Belgium, where property developer Group Bernaerts — which itself is expanding into China — has wooed the Chinese arrivals with 300 plane tickets and a year of free rent on an office and warehouse complex still under construction half-way between the port of Antwerp and the European Union capital, Brussels.
The Chinese will provide the base tenants for 200,000 square meters of planned conference rooms and exhibition space in Group Bernaerts planned European Market City.
“We may not forget that for all business people, the step to go global is an important step and must be guided by local people to be successful in a short time and not waste money,” Guido Bernaerts wrote in an email.
A second base is underway near the port of Antwerp, the entry into Europe for many Chinese exports.
The Belgian deal came after an AEA delegation toured Belgium, the Netherlands, Denmark and Britain in December looking for a foothold in the European market. Only the Netherlands failed to make the cut, with members voting that the Dutch had failed to offer enough government or business support.
In Denmark, the group now has a toehold after it set up a contact office, with an eye to establishing a bigger incubator office, the Danish foreign ministry said in mid-June.
An AEA delegation held meetings with business associations and property developers near Greenwich on a follow-up trip to London this week.
Acting collectively has helped overcome a feeling many private Chinese companies have of being ignored overseas, Feng said, adding that part of the feeling could be unfamiliarity with a different business environment.
“Chinese companies when they first go abroad expect it to be a lot like expanding in China - they go talk to the party secretary or mayor first, make sure they are happy and that paves the way for everything else,” Kennedy said.
“Americans and elsewhere typically don’t roll out the official red carpet and Chinese are not prepared for that.”
The main challenge will come in October, when the AEA plans to tour five American cities. That will be just a month before the U.S. presidential election, where the economic reach of China is likely to be a hot topic.
Feng says the key to success for Chinese faced with a daunting international corporate landscape is safety in numbers.
“If everyone helps each other, one plus one can equal eleven. If you are always working alone, then one will always equal one.”
Editing by Brian Rhoads and Raju Gopalakrishnan