If you listen only to the sceptics, the Chinese market is losing its shine. Trade barriers, reputation damage, and supply chain disruptions are frequently shouted from the front pages. However, if you look beyond the headlines, you will see that China’s ‘emerging’ industries are developing at a promising pace. Upcoming sectors including MedTech, novel foods, AI, and renewables are boosting the high-tech segment of the Chinese economy. Our experience shows that with the right approach, the opportunities for international business far outweigh the risks.
As businesses active in the Chinese market know, unexpected developments and temporary setbacks have become daily routine and effectively managing risks in China is more important than ever before. EQ+ recently took on a project which demonstrates how diligent risk management goes beyond avoiding risks but can also help companies seize exciting opportunities.
Hesitation and stagnation
With fifteen years of experience in the food industry in China, our international client has weathered periods of both economic up- and downturn. Recently, the opportunity arose for a strategic partnership between their Chinese entity with a leading Chinese company. By co-funding research and development of new products, they could greatly enhance their position in the Chinese market. Embarking on this partnership would require a strong commitment from the European headquarters.
However, managers back home were hesitant to move forward. Results had been disappointing over the last years, and they regularly received reports about China’s push for self-reliance in the food sector. Internal discussions were becoming increasingly fraught, resulting in opposing camps and no clear way forward. As trust between headquarters and local management in China weakened, key members of the local team were considering leaving the company.
Solution: from analysis to action
This was the situation we encountered. Our first step was to conduct a comprehensive risk analysis to identify all potential threats and provide a clear understanding of the organisation’s position in relation to competition, governments, and other influential stakeholders. The conclusion was that withdrawing from China now would leave the company vulnerable in the long run. Chinese competitors would inevitably continue to advance, leveraging their innovation capabilities and scale. This would not only result in intensified competition in China but could also pose significant threats to the company’s home markets.
The recommendations from our risk analysis laid out several principles for future planning. Headquarters agreed to support these strategies and to use the available cash reserves in China for the new R&D venture, thereby limiting exposure to potential downturns. To enhance internal communication, we established a China Task Force, representing the interests of both the European headquarters and the China team. This decision-making body was designed to enable swift yet well-informed decisions on strategic issues related to the company’s operations in China.
As a result, our client is leveraging China’s data output to power its R&D efforts. The new venture has recently been established and is on track to double its turnover in China within the next year.
Conclusion
We believe this case study perfectly demonstrates the myriad benefits of investing in thorough risk management for your China business. It shows the many themes that are covered when an analysis is executed correctly ranging from forecasting, profit repatriation, and geopolitics to partnerships.
Process and stakeholder management is key, especially when decision-making is dispersed across national offices and management layers. Additionally, we ensure effective governance structures are in place and share fact-based findings at all stages of the process to make sure all teams are in support of a shared China Strategy.
With our risk analysis, companies can proactively mitigate risks and build preventive frameworks into their organisations. Allowing management teams to regain control of the situation and look ahead, adapting effectively to future developments both good and bad. Taking China risk management seriously does not only mean averting worst-case scenarios but also seizing exciting opportunities that were previously overlooked.
