12 Oct Gateway to China: old rules don’t apply
The market in China for advanced aviation technologies from Europe is booming. But don’t think you can just send over a company sales rep. In China these days, it’s all about joint ventures and minority shareholders. So what are the new rules?
China’s aviation boom
In China’s growing aviation market, Chinese companies are busy setting themselves up to operate with the best technology. But instead of starting from scratch and doing research and development themselves, they are opting to invest in mature technologies directly from European suppliers.
Forget sales reps; think Chinese investors instead.
And for Western companies seeing China as a growth market, it has long been clear that the usual sales and marketing model doesn’t translate well. In fact, the whole concept of sales representatives selling your wares to a tidy client list of Chinese buyers won’t get you far in the market for aviation technology. So forget sales reps; think Chinese investors instead.
Chinese client? Chinese investor!
While more and more Chinese companies are interested in Western technology, they are not satisfied with just buying it. They prefer to buy shares in European technology companies or start joint ventures.
That may sound extreme compared to how sales work in the West, but there is a sensible logic behind it that reflects the current Chinese market. In certain industries, it is beneficial, sometimes even required, to have a Chinese partner. The main buyers of aviation technology, China’s airports and airlines, are nearly all state-owned.
There are a number of advantages to this M&A business style:
- It shows the Chinese government and state-owned companies that ties are solid, and that maintenance and services can be guaranteed locally.
- Product prices are determined by, or together with, the Chinese investor so profit margins can be set on the Chinese side. Since most of these Chinese investors are publicly-listed companies, share prices are higher if the margin is higher.
- Intellectual property rights are less troublesome with a Chinese shareholder. Because it is their own business and they market it as European technology in China, they have a vested interest in protecting it from being copied.
- The European company’s operations remain unchanged, including employees and managing directors (who often receive shares to ensure a strong commitment).
The market for Western-made aircraft engines, helicopters, radar, and other aviation equipment and systems is expanding quickly in China. And many of these Chinese companies want an integral involvement with manufacturers and systems suppliers, preferring to build a working relationship rather than a customer relationship.
But it is still important to find the right business partners. Here at the to70 China office, we have already helped a number of European companies successfully navigate the M&A style of the Chinese market for advanced aviation technologies.
About To70. To70 is one of the world’s leading aviation consultancies, founded in the Netherlands with offices in Europe, Australia, Asia, and Latin America. To70 believes that society’s growing demand for transport and mobility can be met in a safe, efficient, environmentally friendly and economically viable manner. For more information, please refer to www.to70.com