Scotland’s long march towards significant SME exports to China has seen a burst of acceleration following a successful trade visit to Beijing and Shandong Province.
In the most concerted Scottish private sector-led initiative to date in the world’s second largest economy, the Scottish Chambers of Commerce has agreed a breakthrough Memorandum of Understanding for trade partnership with the China Council for the Promotion of International Trade (CCPIT).
The document, covering “trade engagement and partnership” is one of several formal expressions of the good will engendered by the week-long visit. It opens an exciting new channel to China for Scottish traders, whether existing Chambers’ members or not.
Likewise, the opening of the SCC’s first international trade office within the Commercial Bureau of Yantai Municipal Government gives concrete expression to the shared wish to do deals between Scotland and Shandong.
The success of the May 2017 visit has been praised by China’s Consul General in Scotland, Mr Pan Xinchun, a strong supporter of stronger business-to-business ties. He described the SCC’s initiative as “very productive” and “a clear signal that the Scottish business sector is very committed to strengthening commercial links to China”.
Mr Pan continued: “As a very well-established organisation representing 11,000 different size businesses, the SCC is well placed [to lead]. The opening of the Shandong office gives a strong message to the Chinese market that the SCC is very serious about developing links further. Also, this presence will provide a good platform for Scottish companies to gain a better knowledge of the Chinese market and will undoubtedly lead to closer economic, trade and investment between the two sides.”
The 7-day SCC-led trade visit by the China Scotland Business Alliance, backed by the Scottish Government and headed by the newly-appointed SCC President Tim Allan, is part of the Chambers’ new “Global Scotland” drive to boost Scotland’s exporting capacity. Including heads of Chambers from Aberdeen and Grampian, Ayrshire, Dundee and Angus, Edinburgh, Glasgow, and West Lothian, the visit is likely to be followed up with an SCC business-led trade mission towards the end of 2017.
Long a key Scottish trade target, China’s vast complexities and shifting dynamics demand a concerted and sustained investment of time and relationship-building. Scotland’s Trade & Investment Strategy 2016-2021, published by the Scottish Government last year, regretted that growth in China had so far been “relatively slow” and advocated “enabl[ing] businesses to realise opportunities” there.
Spurred by this sense of urgency and a £400,000 Scottish Government funding package, this new private sector initiative, aligned with in-market public agencies such as Scottish Development International (SDI), and the China Britain Business Council (CBBC), is designed to shorten the distance between Scottish companies and their Chinese counterparts, allowing B2B traffic to flow more freely. Its timing coincides with a new rreceptiveness to trade links from the Chinese Communist regime due to its “Belt and Road Initiative”, the attempt by the Peoples’ Republic to create a trans-global network of suppliers and partners.
According to Tim Allan, SCC President: “The background to the visit was a perception shared between the Scottish Government and the Scottish Chambers, that, just as Scottish SMEs need to be scaling up in the way that we have seen with only a handful of “unicorn” businesses, we need to be exporting more routinely and openly with markets which are frankly colossal. China is a case in point.”
“We were lucky in that David Valentine, a former Vice President of Dundee and Angus Chambers of Commerce, has a longstanding relationship with China and particularly with Shandong Province, a region with a third more people than the entire population of France. If it were a country it would be the 14th most populous in the world.”
“Flying across China you quickly appreciate that this is a continent, not a country. You cannot ‘do business with China’ it’s too big. You have to be more focused and the Shandong connection offers us the best opportunity for the sectors that we are strong in, including food and drink, tourism, oil and gas services, biosciences, pharmaceuticals , artificial intelligence and sports management.”
Scotland’s link with Shandong, cradle of Han Chinese culture and birthplace of Confucius, dates back to 1999. David Valentine, described by Tim Allan as a “visionary”, forged a twinning arrangement between Angus and Yantai, a city of which he was made an honorary citizen in 2008. These days Valentine is hailed as an “old friend of China”. The Lancastrian-born former local public servant is happy to leverage this hard-won status for the greater good of “Scotland plc”.
Pledges of co-operation, friendship and mutual understanding are common between Chinese provinces, cities and state-owned (“parastatal”) organisations and overseas entities. Many are not followed through, and exist only on paper. What is significant about the Scottish Chambers new venture, according to Tim Allan, is mutual commitment to ensuring that SCC’s Chinese-character brass plaque in Yantai’s International Commercial Bureau amounts to more than just a symbol of vague diplomatic friendship.
The likelihood of that happening is greatly increased by the maturity of existing relationships, largely thanks to David Valentine, who has visited China about fifty times in his career in Scottish local government, as a chambers executive and now as a private businessman. The network of connections both at a local level, including Shandong Vice Governor Wang Shujian and the Vice Mayor of Yantai city, Madame Zhang Bo, and at a national level with powerful minister-level figures in the State Administration of Foreign Experts Affairs (SAFEA) and the Scots businessman Alistair Michie, Vice President of the Hampton Group based in Beijing and one of President Xi Jinping’s five chief advisers to the Chinese government’s Foreign Experts Advisory Committee (FEAC) ensuring that any strong Scottish proposition will receive a good hearing.
“The whole premise for this initiative is that we use our private sector connections to provide real additionality for companies on both sides.” David Valentine says.
“Basically the MoU is all about helping each other to match opportunities. If a Chinese or Scottish business is looking to collaborate with a particular type of company or to source a specific product, we now have an additional opportunity to connect them. When a Chinese company invests in Scotland and needs support then we can plug them into their local business network or help them by joining their local Chamber!”
“There is no point in duplicating what the public agencies are doing anyway, but by working together I believe that Scotland plc could be doing even better. Personally, I would like to see a legacy come from the strong government and business connections I’ve nurtured over the last 20 years. I am not ‘using’ these contacts, I am helping them. The Chinese organisations and individuals involved want to connect with counterpart Scottish companies and they want to see tangible outcomes.
Chief Executive of the SCC, Liz Cameron said: “We now have a deeper understanding of how we can achieve the best exchange for business in China, where the opportunities exist for Scottish organisations and how we can best pursue these.”
“We’ve also identified a number of potential opportunities for inward investment into Scotland and will be working with Scottish Government and SDI as well as other trade organisations to explore these and leverage the momentum of change within China.”
Liz Cameron claims to be struck with the overwhelming importance of ecommerce in the realm of Chinese trade (the business of China’s two largest companies Alibaba and TenCent). The supremacy of this marketplace is causing her to step up efforts to boost the Chambers capacity in this stratospherically high-growth medium through the emerging Ecommerce Action Scotland partnership with the Scottish Government and SDI.
Nora Senior, former Scottish Chambers President whose own company Weber Shandwick PR has been active in China for 25 years, believes that the maturing of Scotland’s networks of influence is coinciding with a pivotal point in China’s development. Her impressions from the recent trip, she says, were of a “change in attitude” amounting to a new interest in what Scottish firms have to offer.
“Even with the new spirit of co-operation engendered by this visit, it will take time to foster relationships and develop trust between Chinese and Scottish companies.
“But the big thing I noticed was a new willingness to move towards partnership working and to look to Scottish companies for goods and services that they don’t have. Partly this is a social and cultural thing. People who traditionally come from the countryside are moving into these big conurbations. The authorities need to provide housing, they need to provide energy, they need to provide recreation and leisure for those groups of people.”
They are building schools and universities at an unheard of rate. The Chinese population are becoming, better educated better housed and that brings with it a demand for goods and services. That’s why I think the change in attitude is happening. As they become more educated with more disposable income they are looking for things that they currently don’t have.”
Ms Senior backs the Shandong-first strategy largely on the grounds that “cracking” the already well-served Beijing and Shanghai markets is for SMEs, “the equivalent of cracking London and just as difficult”. A less well-served market where the connections are already strong is an obvious target, especially as the contacts are now well-established.
“Show me a network of contacts and trust that doesn’t work” She says. “It’s people you trust recommending that you get in touch with people whom might be able to do something for them while doing their own business some good. It is a successful recipe and I can’t see it changing.”
“My message would be if you are not a member of your local Chamber, this is a good reason to become a member”.
Current circumstances in China, says Tim Allan, are looking promising for Scottish business. In the last Peoples’ Congress in March, President Xi Jinping effectively directed state-owned enterprises to stick more to their core competence which means selling off extraneous commercial operations. This in turn means knocking them into shape in advance. He also sees exciting possibilities for repackaging and value-adding within Shandong’s special economic zones, offering cost-cutting duty free options based on competitive Chinese labour for producers of high quality Scots primary products, especially food and drink.
Meanwhile the Chinese consumer increasingly craves foreign brands, especially in the food sector. In provincial China they don’t have to be elite global brands either, so the playing field for Scots SMEs is unusually level.
The onus is on Scottish companies to do their China research and show they have products or services to meet a market need there. And they need to invest in their relationships, which means visiting and visiting again. “Don’t be a butterfly” warns David Valentine.
“In China you need to be introduced to the right people and you need to properly understand each other and have a serious, sustainable relationship based on mutual trust and confidence. You then have to focus and keep working at it, which means going out there year in year out, otherwise the business relationship won’t work.”
With so much to play for in China, the Global Scotland initiative has given only glimpses of the potential now within the reach of Scotland’s most enterprising SMEs. They now have every reason and plenty of opportunity to convert twenty years of polite exchanges and bridge-building into quantifiable gains in growth, jobs and exports.
Nurturing Links
As well as Beijing and Yantai the SCC delegation also visited the city of Jinan (Shandong’s capital) home to one of the first national high-tech business incubators. Since its foundation in 2002, it has incubated more than 1,000 small and medium sized science and technology enterprises. It focuses on cultivating fast-growing sectors such as biomedicine, ecommerce, energy, environmental protection and new materials. The Scotland-Shandong connections date back to 2006 when the late Tom McCabe MSP, then finance minister in the Scottish Executive, signed a co-operation agreement covering “trade and investment, science and technology, tourism, education and environment.”
Shandong: Scotland’s Base Camps
Shandong Province is the third largest provincial economy in China with a population of over 97 million and GDP in excess of 6.3 trillion yuan (£700 billion). It also ranks as number one for the diversity, producing wheat, maize and cotton, wine, beer and other drinks. It is strong in oil & gas exploration and production, as well as precious metals including gold and diamonds. The port of Yantai (population 7m) is a major North China maritime hub [have since discovered Qingdao is much bigger!] in North China and in 2016, it imported over $19 billion (£14.7 billion) of goods and services.
