MBO & China

With a population of over 1.3 billion and a strong manufacturing base it’s no wonder many Western businesses are looking to engage with China. Before finalising your Management Buy Out, forging a local partnership in the country could be the beneficial solution your company has been looking for.

MBOManufacturing

If you are currently working on or contemplating an MBO, you might want to put the ‘China’ factor into the mix before you reach any decisions. China is now one of the biggest manufacturing and commercial bases in the world and establishing a base there could provide you with a valuable partner and a multitude of resources that will help your new company succeed in today’s competitive marketplace.

It’s true that companies in China could be your partner, your competitor, your customer or potentially the ultimate buyer of your ‘newco’ company depending on the circumstances. Your carefully thought out SWOT analysis and spreadsheets may well struggle to address any of these possibilities without considering the market more carefully. China, as many businesses that operate there will tell you, is a complicated place. It needs in depth research before any decision is made.

China: No longer an emerging economy
It is well known that China has a vast and capable production base. Getting access to it, however, can be a challenge for companies without a local office or inside knowledge of the market. The traditional view of Chinese manufacturers is that they are a low cost production base but lack the innovative knowledge of their western counterparts. This is a pretty outdated view and has been for some time – not only do Chinese manufacturers have advanced production technology, they are increasingly looking to innovate and also have ambitions for controlling a greater proportion of the supply chain.

Depending on your goals, this could be good or bad news for your company. The key is deciding whether you want to compete or want to benefit by partnering with a Chinese company.

Doing Business in China
Taking those first steps and forging a new path through the Chinese market can be more difficult than in many other countries, particularly if you don’t have the right support. The demographic is highly varied, right down from the Tier 1 cities such as Shanghai to more rural areas. There’s no doubt, however, that China presents an exciting oportunity for many companies, whether they are SMEs or major corporations. Having the right partner helps clear the way to doing business in a big, vibrant country with much to offer. It also makes success more likely.

MBO China Case Study
We can supply the identity and reference details of the following company to potential customers, but here is what their director had to say recently about their MBO and the partnership they formed with a Chinese company:

“Prior to finalising our MBO, we realised that our new company had to change. We had identified a manufacturing partner through 1.2 and placed initial tooling in China. This proved a crucial decision because, shortly after we bought the company, our customer demanded cost down on a product that represented 70% of our UK production.”

“Because of our partnership in China, we were able to respond quickly and transfer the production. At the same time, we were able to refocus our UK production on new more profitable opportunities. Since those early days, our Chinese partner now supplies over 60% of our turnover. This has allowed us to adapt to changing market conditions which we could not have achieved with UK production alone. This strategy played a major part in helping us survive the recession and allowed us to become an award winning market leader in our industry.”

Many SME Chinese companies have struggled to operate overseas and found it hard to adapt their products to suit foreign markets. As their knowledge and capability has increased, however, so has the opportunity for them to develop strategic alliances with local distributors. The important issue to consider is whether having a competitor or partner suits your business model best. As the example above shows, forming a partnership can introduce valuable flexibility into any business model.

China partnerships have many benefits
Our belief is that partnership is key in China. At its most beneficial, partnership can give a company instant access to lower operational costs, reduced development costs, advanced capital equipment, and a highly flexible labour force.

Of course, you don’t want to compromise on quality either. That’s why choosing the right team who know their way around Chinese business and the corporate landscape in this vast country is important if you want to succeed with the right partner.

We are able to answer most of the important questions in advance of your MBO by working with you to assess and determine if there are partnership options and how this might impact your business plan for the future. MBO agreements traditionally have a habit of dragging on a bit. The good news is this allows you to find new ways of making money and look at markets such as China to unlock more productive ways of operating. There’s plenty of time to actively engage with a partner with the opportunity to develop the strong ‘guanxi’ (relationship), something that is vital for long term cooperation and success. The Chinese believe more in friendship than business relationships – without nurturing that trust and a much deeper connection you are not likely to succeed.

Future
Our philosophy is based on establishing trust with our customers and working to manage their long term interests in China. We operate a complete ‘open’ policy towards all suppliers and actively encourage our customers to travel to meet stakeholders, working with us and them to agree on appropriate actions and plans for the future.

Once we understand your needs, we can manage all your long term interests in China. That includes giving you the good news as well as the bad so you can make more informed and timely decisions on the future of your business. To do this we provide an experienced management team who know all about working with Chinese organisations and are able to provide all the resources and knowledge you need that support ongoing development.

For a confidential conversation on whether we can help your new business, please call 01225 460 388 or contact mail@onepointtwo.com

Manufacturing partnerships in China