Radiocor Interview with Enrico Ricotta, Founding Partner and Managing Partner of Mandarin Capital.
If the first foray of Italian companies into China was focused on low cost production for export, partnership with local companies, and the search for manual labor, Phase 2.0 will have to be shaped by new factors, given the transformation and maturation of the local market. Enrico Ricotta, founding partner and managing partner of Mandarin Capital Partners – a private equity fund that invests in Italian and Chinese companies – points out five mistakes that Italian entrepreneurs should avoid when looking towards Beijing, and offers five alternate solutions. First: sell to the local market. “In the first place, the correct strategy is to take advantage of the local market,” he explains. “China is a complex country where it is becoming increasingly difficult to produce with the lone objective of lowering costs: manufacturers need to obtain permits that should not always be taken for granted, especially if they are offering value added goods or if they are not working in innovative sectors.” Second: quality is good, but it needs to be accessible. “There is demand for high quality products, but revised and reengineered to be appropriate in terms of cost: it is useless to enter China with very high level machinery and products – essential characteristics for Western countries – when they are only accessible to 1% of the local consumer base.” Third: Better alone than in bad company. “The third mistake to avoid is local partnership at all costs: an ally is only necessary in the case of complex niches, otherwise it is better to maintain control of the entire production chain. Joint ventures are often a disappointment, and they run the risk of providing the partner with know-how and technology that will then be used elsewhere. In other words, it is better to go into China alone.” Fourth: don’t stop at just China. “Producing in China often opens the door to even other Western countries. Many US or EU groups keep their purchasing department in China because they buy a large part of their components there: being in China means access to these groups, and consequently their markets.” Fifth: no presumptions. “Asian countries have by now become the source of technological solutions, and it would be wrong to think of China as lacking in this respect. The point is another, actually: despite the presence of very advanced solutions, many times they lack the necessary quality and productive standards to be able to sell on Western markets.”