Take Time to Look at New Situation Before Entering China

The motto of Massimo Bagnasco's architectural business is "Less ego, more eco", reflecting its focus on integrated design that pays full heed to environmental concerns. That ethos now seems particularly apt for a company with a presence in China, where business traits once regarded as a must－big and getting bigger, growing rapidly and growing more rapidly still－suddenly seem to be passe.

So much so that as many multinational companies shut down factories in the country or reduce investment, smaller, more resilient companies and business people like Bagnasco are beginning to find that their best days in China may lie ahead.

After 12 years in China generally enjoying success that paralleled the spectacular growth of the host country's economy, Bagnasco's company Progetto CMR, whose headquarters is in Milan, went through a rough patch in 2013, he says.

Making the most of its circumstances, the company "took time to look at the new situation in China and what could be new areas to develop, and we got a clear idea of how to develop our business", he says.

One realization was that Progetto CMR's concept of integrated sustainable urban planning and green building was at last beginning to take off in China.

That reassessment of a company's relationship with China reflects the process much of the world is now going through as it grapples with the idea of how to deal with the country's so-called economic new normal.

China has been a preoccupation with businesspeople, economists and politicians worldwide for several years now as its GDP growth has headed seemingly inexorably below 7 percent. However, many experts regard an economy that is more consumption-driven, service-oriented and that focuses on high-technology and innovation as one that produces more opportunities for European small and medium-sized enterprises.

Mats Harborn, vice-president of the European Union Chamber of Commerce, says: "In the past, the Chinese government cared a lot about quick growth, and being big in different areas.

"Now the country is moving into a new economic phase, with the focus on moving up the value chain and thinking about what kind of value can be optimized."

This "business logic" is something that Europeans can readily recognize, he says, because it is much closer to the European way of doing business.

"Now it is not about low cost, but about value. So there are millions of opportunities for European small and medium-sized enterprises."

Harborn estimates that Europe's small and medium-sized enterprises account for about 99 percent of European businesses. They play a pivotal role in the creation of wealth and economic growth, and are important drivers of innovation.

The European chamber says it represents about 1,800 companies in China, 80 percent of them SMEs. China is now Europe's second-largest business partner, and Europe is China's biggest business partners. Every day, bilateral trade between China and Europe exceeds 1 billion euros, Harborn said.

Companies like Progetto CMR now say that winds of change in China, hopefully soon, will breathe new life into their business. Bagnasco points to what he sees as huge opportunities in the National New-type Urbanization Plan (2014-20), the country's first official plan on urbanization. The plan, published last year, lays great stress on environmental issues and quality as urbanization proceeds.

In the past in China, quantity and speed rather than quality and design added-value were the chief concern of most stockholders embarking on a construction project, Bagnasco said.

"When they saw a design they would say, 'Maybe this is too expensive, and it's going to take too much time,' and then keep maybe 10 percent of your design, but build in another way, because they had to build quickly.

"We welcome the new plan for urbanization, because it completely changes the approach toward city development. The focus used to be on speed and quantity. Now we really expect it will be different. People see the value of the experience, and the management of the project development process we are able to do is different.

"They are now focusing on something that has social importance, and on people, realizing that you should provide new services to people, you should provide healthcare, education and should also take into consideration culture, historical heritage environment protection, natural resource preservation, starting by a sensible improvement in land use efficiency."

Therein lie huge opportunities for European companies, he said.

Russell Brown, managing partner of LehmanBrown, an accounting, taxation and business advisory firm that specializes in China, says his company has helped bring hundreds of European companies to China over the past 14 years. The company has operations in Beijing, Shanghai, Hong Kong, Macao, Shenzhen, Guangzhou and Tianjin.

Brown says that when he set the company up 14 years ago his aim was to build an international firm that could help foreign companies do business in China and Chinese companies do business abroad.

The Chinese government's plan to rebalance the economy means reducing low-cost manufacturing, increasing the use of technology and creating technology and service industries, Brown said.

"So, it's a natural progression. For SMEs, which are usually strong in innovation, high-tech, and the services industry it provides great opportunity.

"We see a significant increase in SMEs in innovation, high-tech and service sectors looking to the Chinese market, to look at either establishing themselves here or where they have intellectual property or the ability to create intellectual property and or to get intellectual property rights for special products. They can find companies in China that can help take them to market through venturing or cooperation."

Benjamin Denis, general manager of Mixel Inc, a French company that designs and manufactures custom-made mixers for various applications, says the attention China is now paying to the environment has created more opportunities for his company, whose products are bought by companies in areas such as water treatment, bio-energy and agriculture. Mixel employs 55 people in France and 22 in China, Denis said, and it says it plans to continue to focus on the niche market.

"We are small, but we are very specialized in the mixing industry. China is a very big market for sure, and a big country, and we need to focus in order to be successful." The company set up a factory in Beijing in 2005, and at first sold mainly to foreign companies.

Chris Cheung, director of the EU SME Center in Beijing, said that recent figures show that out of Europe's 22 million SMEs about 10 percent of them exporting beyond the internal market are exporting to China.

The EU-funded center helps SMEs prepare to do business in China, providing practical information, advice and training in business development, legal issues, standards and human resources.

The center, which opened in 2010, has 6,000 registered members, of which 55 percent have not yet done business in China, the other 45 percent are already exporting or investing in China.

Xiao Qiang, director of the China Small and Medium-Size Enterprise Institute, says that as China moves up the value chain, companies from Europe will bring more innovation and excellent experience to China.