Inna Gehrt of Mandarin Capital Partners on German corporates’ options of tapping the Chinese market
(The following is a summary on an interview with Inna Gehrt, published in Frankfurter Allgemeine Zeitung’s “Zukunft Mittelstand” special on October 19, 2017.)
While expansion into China is an attractive prospect for many German SMEs, most of them are sensible and aware of their limitations regarding the resources for such a step. For setting up your own production in China you need time and money, plus finding the right experts on the ground can be daunting.
At the same time, more and more Chinese companies are turning the tables and globalizing their businesses. These companies have left the “extended workbench stage” of former days and are exacerbating competition for foreign competitors in China, making market entry all the more difficult to plan. Finding reliable and integer partners is key.
These are some of the challenges German corporates face: Before market entry you need to identify sales partners in China, as well as potential take-over targets or joint-venture partners, if that were your strategy of choice. For setting up a production site, regulatory know how and a reliable local network are indispensable. Finally, finding and hiring the right local management can be tricky. Lack of transparency, regulatory complexity, bureaucracy, competition with cheap local products and limited influence on local partners are further factors.
So why bother with China at all?
Because the opportunities outweigh the risks by far – provided you know how to tap them. The Chinese market is more dynamic than the markets in the West, growth rates are higher, and German products enjoy an excellent reputation. Production in Asia helps promoting your brand and products. There is a strong demand in China for precision manufacturing and products that help raise production efficiency and quality. Further growth industries include health, medical devices, rail technology and the Internet of things. German companies enjoy an excellent position for tapping these opportunities.
A question of finding the right partners
Our approach at MCP is twofold: We provide growth capital – the investors of our current fund are institutional investors and family offices in Europe and the United States. And we provide consultancy through a skilled team on the ground in both Europe and China. In particular the team in China get very much involved when one of our portfolio companies sets up shop there. For our portfolio companies, the combination of capital and advice makes the difference.