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Cold feet makes Belgium SME’s lose ample opportunities - Time for China (story published on 8/12/2016 – Trends Magazine – in Dutch)

China is hungry for Western Technology. That creates huge opportunities for innovative SME’s. But too many Belgians look the other way, afraid to get hurt by this enormous, but difficult market. The Sinnolabs platform wants to guide them across that bridge.

In Bar Rouge, a hip establishment on the banks of the Huangpu-river in Shanghai one can hear western music. In the sofas on the terrace – with broad view on the iconic towers of the commercial district of Pudong – rich Chinese are drinking western brands. They drive western sport cars and their girlfriends are wearing western handbags.

But don’t be fooled. A Westerner does not get the Chinese market for free. Not even when he can show off with impressive technology or premium clients. AVT Europe from Essen manufactures self-driving transportation robots that can lift airplane engines, rockets or other heavy loads within a factory hall. The company supplies to large names such as airplane manufacturer Airbus and the particle accelerator CERN, and recently closed a deal with ITER, the experimental nuclear fusion reactor in South of France. But many doors in China opened up after lots of effort.

Luc Van Thillo, the founder of AVT Europe, had not saved any time or effort. “We participated in numerous tenders, but none of them got us anywhere”, says Van Thillo. “It turned out China did not work the same way. Doing business in China happens through friends and relations, and so it’s a matter of finding the right contacts. It took me a long time. When we finally got in, it opened up a dozen of projects in the railroad industry.”

Why does Van Thillo go through all this? “The Chinese market is humongous”, says the SME boss out from the Kempen. “When you get access here, the growth curve goes straight up. My China order book for 2017 is three times as big as 2016. These kinds of growth rates are unseen in Europe today; and I am only talking about the railroad industry.”

The five lucky ones

Sinnolabs started last month its operations in China. On this occasion, five Belgian SMEs would enjoy a full week of the Sinnolabs services for free. The five had to demonstrate some uniqueness, because with low cost you can’t win China anymore. Amongst the selected were the automation specialist AVT Europe, the Big Data analyst Vadis, and the video company Keemotion. Also partaking was the company Sentiance from Antwerp, who visualizes consumer profile behavior through sensor usage in smartphones, in order to help companies offer better tailor-made services. The last lucky one was the Gent based Trinean, which manufactures equipment for quality control tests of DNA-material.

Rule of Law

Many foreign SME’s are facing the same dilemma when it comes to China. The potential is huge, yet success unsure. Those who persevere in this market of 1,4 billion people get a front seat next to the big global players of tomorrow. But the Belgians are less than compelled to join. Go-getters like Van Thillo are rare.

It’s a real pity according to business lawyer Philippe Snel. He knows China inside out. Since 15 years his office De Wolf Law Firm provides legal advice to Belgian companies active in China. “So far, China was the playing field of Western multinationals, but now there are unseen opportunities for innovative SME’s”, says Snel. “China wants to cut lose its low value and polluting mass productions.”

The top Chinese party officials are putting all efforts into innovation and creation of added value. The hunger for technology is insatiable. Money is no problem. To the contrary, government- and private funds seem almost in excess.

But the Chinese financial institutions merely know the Western multinationals. Promising SMEs stay under the radar. Snel decided to jump at this chance. Together with some likeminded people he established Sinnolabs, a platform that helps innovative SMEs – against a fee – to penetrate the Chinese market and become visible to the Chinese funds (see text: The bridge to China)

Not every SME can work with Sinnolabs. The platform selects it clients based on some specific criteria. The main precondition is the undivided engagement of the shareholders of the SME, including financially. “China is a big market,” says Snel. “That requires a solid investment. It is not a country you quickly add to the list, next to South Africa and Columbia. Every plane landing in Shanghai is full of foreign business people. If you don’t come to China, someone else gladly will.”

Are suspicious entrepreneurs wrong? China is not exactly a schoolbook example of rule of law. “The legal framework can’t catch up with the swift economical development”, Snel admits. “Here you don’t quickly seek refuge to the juridical system. Even Chinese companies do not easily go to court. Justice is not independent and corruption has not disappeared yet, despite the though eradication campaign of the government. To enforce your rights, always and everywhere is still not a reality in China.”

The big exception is the enforceability of intellectual property; a message Snel is challenged to get across with Western entrepreneurs, due to the reputation of China as copycat paradise. “The Chinese law on Intellectual Property is based on Western principles, and got a real grip on it”, says Snel. “The Chinese justice system is strict and determined in action when it comes to illegal copying and patent infringements. It is a question of well-understood self-fulfilling benefits. If China wants to climb the economic value ladder with assistance of new technologies, it has no option but to offer such protection.”

The bridge to China

In essence, Sinnolabs is a broker. China wants to attract Technology companies and is willing to pay the price for it. Europe has innovative SMEs seeking growth markets. Sinnolabs is the link between both.

The services Sinnolabs offers are not free, but the founders do not really aim for profit, says Pascal Coppens, director Europe for Sinnolabs. “Our shareholders do hope this initiative will somehow benefit their business in China. When in search of a business lawyer in China, Sinnolabs will gladly refer to De Wolf Law Firm, for an accountant to Moore Stephens and for a financial advisor to Riverbanks. But the SME has no obligation to follow this introduction.”

For other Sinnolabs shareholder, it’s not as much about turnover. The Belgium Federal Fund FPIM, is active in China, and aspires for Sinnolabs to find interesting projects in China for them. The same can be said for the Chinese industrial group Zhong Lu. A human resource company like Blue Sea on the other hand, wants to position itself as an innovative HR specialist. The Chemical group Solvay – which has a large research center and seventeen production facilities in China – sees its support to Sinnolabs as a way of acting upon its corporate social responsibility.

Sinnolabs signed a cooperation agreement with the Chinese government. The local government of Shanghai offers financial and logistical support, including an office facility of 400 square meters in the commercial center of the city. Its SME clients can occupy these offices.

The selection of the SMEs has to limit the failure rates. Sinnolabs politely rejects starters. The SME has to show revenue, with a proven technology that is not yet available in China. Its management needs to have the bandwidth of time and resources to support a project in a far-away market, and has the buy-in from shareholders.

Network

During one year long and against payment, selected SMEs will get guidance by a mentor with business acumen in China. The biggest value of Sinnolabs is its vast network. “In China, one can waste a lot of time with the wrong contacts” says Coppens. “Through the network of Sinnolabs you will get much faster to the right connection, which on their turn can introduce you to other networks. This differentiates us from consultants in China. They work in depth: they make a market study or seek a distributor. We work in width with a broad network and vast market experiences. Etienne Charlier, the director of Sinnolabs in Shanghai, has 20 years of business experience in China”.

Sinnolabs does not want to hamper FIT (Flanders Investment and Trade), the Flemish agency for export promotion, with three offices in China. Whilst Sinnolabs selects a number of technology companies it decides to work with, the government entity FIT remains accessible to any Flemish company. Also its services between the two organizations differ widely. “FIT is more a provider of information, while we offer mentoring to companies”, says Coppens. “While FIT seeks to stimulate export to create more employment in Flanders, we help companies grow in China.”

WeChat

That does not mean that China is now an open road for all western technologies. To access the market, there is an exchange happening. “He who wants the Chinese market, has to share its technology”, says Snel. “Obviously a company has no obligation to do so. But only multinationals can try to use its own resources to conquer the market independently. SMEs will have to make a deal with a local partner, for example in the form of a joint venture. The local partner will expect that joint venture will become co-owner of the technology over time.

To resist this process is useless according to Snel. “If you don’t give something, you won’t get anything back. The Chinese are much aware of the huge potential of their own market.”

Not every Western company has to give up something. “Our applications are the result of years of research, says Claude Delcour, co-founder of Vadis, a big-data analyst which predicts client behavior and company risks. The Brussels based company has a small team in China. “I don’t claim nobody can copy our technology. But it would be a lengthy and cumbersome process. Meanwhile, Vadis could retain its lead, due to our permanent research.”

Snoopers does not even worry Bob Bogaerts. Together with two Americans, the Belgian established Clearcut in Shanghai. The company makes sure enterprises do not have to install four or five payment systems – like PayPal and others – on their websites and APP. Clearcut integrates the systems into one user-friendly platform. “Our software will most likely get copied,” Bogaert reacts indifferently. “A few million dollar and ten programmers is enough. We’d rather compete on faster client acquisition and better performance of our platform. And we listen to the client. Their problems bring us to new applications. That way, we keep our lead.”

But Chinese do catch up quickly with the Western companies, warns Bert Van Genechten, Chief Operations in China for IT consultant Delaware Consulting. “The taxi-APP Uber has already six competitors in China, amongst which some are performing better than the original one, says Van Genechten. “ The Chinese APP WeChat does not even find its match in the West. It is a combination of Facebook, messenger WhatsApp and online shopping. I pay my gas- and electricity bill with the APP, buy a plane ticket or hold a group chat with my colleagues.”

A daring strategy

The growing creativity infiltrates also within the aspirations of the Chinese employees. He, who wants to attract talent, needs to offer more than routine jobs. “Chinese enjoy learning more”, says Van Genechten, the only foreigner amongst a 150 people strong Chinese team of Delaware Consulting. “That is why we are constantly searching for new technologies and invest heavily in training. You have to let your Chinese employee grow with you. Many Western companies dare not give the control of their activities to their Chinese coworkers. We do. I have been director of Delaware Consulting in China for seven years, but I have now given that responsibility to a Chinese colleague. Our Chinese employees can even become shareholders.”

An employer in China has to earn the trust of its staff, according to Ruddy Swinnen, who is already ten years active in Shanghai as HR specialist. “Opportunities are everywhere, specifically for candidates with a special expertise or management profile. Their preference goes towards Western multinationals or their Chinese equals. After that they will consider Chinese state-owned companies and only thereafter Western SMEs. To attract good candidates, an SME will have to come up with a daring strategy.”

Halfheartedly is a let down, according to Swinnen. “China gives you two choices: come or stay away. Anything in between – a pilot project that lasts a year – won’t work. You have to be confident. If you don’t know for sure, it will show, and you won’t be able to find the best staff.”

This total engagement is for most SMEs the biggest hurdle. Alexandre Bustamante, operational director of Keemotion, is also a little hesitant due to incredible opportunities China offers. His company is a UCL spin-off that makes equipment for automated video recording of sport matches, without the need of a cameraman or director.

Up to now, his team of twenty odd people could serve about ten countries spread out over different continents. “Three installations here, five there, it was all kind of doable, says Bustamante. “But in China they are requesting about thirty installations from the get-go. I cannot add this to the workload of my current team. It seems I have to rebuild the company over again in that country. Will I do that?”

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