Source: Nikkei Asian Review
Amid tensions with the U.S., Europe is rising in importance for China and for Chinese companies.
Businesses including Haier Group, Midea Group, Huawei Technologies and Industrial and Commercial Bank of China (ICBC) see Europe both as a market for growth and a place to acquire technologies and skills.
Yet just as in the U.S., Chinese companies are increasingly encountering suspicions and worries in Europe. Some on the continent worry that Chinese businesses will cherry-pick innovations to bring back to China and then slash jobs in Europe.
Just days ahead of a March 21-24 visit to France and Italy by Chinese President Xi Jinping, the European Commission reminded member states of the potential security risks posed by Chinese companies investing in critical infrastructure and other important assets.
Chinese companies will increasingly have to face these issues head on. Addressing them will require Chinese groups to engage more deeply with the European public and take on more of a European identity.
Few Chinese brands have so far managed to make a name for themselves in Western Europe despite heavy advertising and a visible presence in major airports and city centers. A key issue is that Europeans still do not know much about Chinese companies and find their governance obscure. The role that the Chinese Communist Party plays in what seems like a thriving capitalist market is puzzling to many Europeans, including business people.
Chinese brands also have yet to build up trust in developed markets like Europe. Interbrand, a U.S.-based consultancy which ranks the world's top 100 brands based on consumer trust and other factors each year, included only one Chinese name on its latest list as compared with four South Korean ones and eight from Japan.
Huawei, the only Chinese name on the Interbrand list, is nonetheless viewed with suspicion due in part to its founder's past service in the Chinese military. The arrest in Poland in February of a Huawei executive on espionage charges drew further negative attention. Despite a recent public outreach effort, the unlisted company is still seen as secretive and impenetrable for independent analysts.
Members of the general public see less and less of a difference between Chinese companies and the Chinese state, with the Xi administration tightening its hold over every organization in the country.
Chinese executives don't always help their case for being regarded independently. "To talk to China, you need to talk to Huawei," said a company representative at a recent conference in the U.K. called "China in the world." This is a strange notion for a corporation which consistently insists that it is privately owned.
Although Chinese companies have been underwriting cultural, educational and sporting activities in Europe, engagement with the general public has been minimal. Sponsored Chinese New Year events, including cocktail receptions, concerts and artistic performances, are aimed at clients and institutional contacts in most European countries and thus do little to allay public suspicions.
Part of the problem is that Chinese companies often do not share the same definition of corporate social responsibility as their European counterparts. A senior executive at telecommunication equipment company ZTE once told me that "providing access to data and mobile technology is part of CSR."
Assuming a more European face could help. The number of European executives at Chinese companies remains dismal. Too often, European operations are run from China, with European executives given limited responsibility beyond external relations, sales and marketing.
Putting Europeans in positions of responsibility has helped other foreign companies to win acceptance in the region.
Toyota Motor started manufacturing in several European countries in the 1990s. While its European work force has tumbled from around 80,000 staff in the 1990s to only about 20,000, its brand remains well accepted. Frenchman Didier Leroy leads Toyota's European headquarters near Brussels where it can be hard to spot any Japanese staff.
General Electric, with 92,000 employees in Europe, has been promoting women engineers and became a major sponsor of women's forums over the past decade. Native Slovak Peter Stracar heads its European operations from Prague.
It has been culturally difficult for Chinese enterprises to hire Europeans, who can find it difficult to deal with distant corporate headquarters and very hierarchical corporate cultures. Communications issues, top-down management and a lack of trust can make it difficult for foreigners to climb up the corporate ladder.
For obvious reasons, the state-owned enterprises that account for 70% of Chinese foreign direct investment in Europe do not appoint foreigners as senior executives on the ground. While Chinese financial institutions such as ICBC have been openly hunting for European bankers to fill positions in places like Barcelona and London, senior directors are always expatriates from Beijing.
Similarly, a vast majority of Huawei's 10,000 employees in Europe are Chinese. Computer manufacturer Lenovo can pride itself on having a truly international board and local country managers as well as an Italian president and chief operating officer in Gianfranco Lanci. Its adaptive success in Europe is likely due in part to the personnel it acquired when it took over IBM's personal computer business in 2005.
The chemistry at European companies acquired by Chinese entities has not been that good. Till Reuter, chief executive of German robot maker Kuka, was abruptly ousted last November, less than two years after the company was acquired by Midea Group. Some 250 engineers were laid off a year before. Directors at Spain's NH Hotel Group were awkwardly displaced from its board when China's HNA Group took a controlling stake in 2014.
Perhaps technology companies like Lenovo are best positioned to pioneer better links with the European public. According to survey by consultancy Kantar Public, many young Europeans admire the performance of Chinese digital companies but are still unconvinced that Chinese social media and tech brands are suitable for their societies. More Chinese tech executives should join conferences and events in Europe to improve engagement.
Beijing's aggressive rhetoric under the umbrella of its "Made in China 2025" plan about surpassing the West economically and technologically has put obstacles in the way of Chinese businesses in Europe. Recent moves to downplay the strategy could give private Chinese entrepreneurs a fresh chance to contribute to Europe. They would be well advised to seize the opening.
This article was originally published by Nikkei Asian Review.