This post is by guest writer and China-based blogger Thomas Meriaux, who has worked and lived in China for several years.
The world knows it: China has been the “El Dorado” for many foreign companies. They’ve all ‘flown over’ to Shanghai, Shenzhen or Beijing. Now, let’s turn the tables for a minute and take a look at “Outbound Chinese investment”. Chinese companies have been actively moving out of their home country for quite a few years, starting way back in the early 2000s’. Let’s take a look at the stories of a couple of Chinese high-tech companies active in France.
ZTE is a Network Company and a Smartphone manufacturer created in 1985. The Chinese high-tech company has always been trying to expand its business outside of Chinese borders. In 2006, it finally chose the Poitou-Charente region to establish a footprint in Europe. Very favorable conditions were offered to ZTE in order to have it commit to a very appealing and ambitious project in France.
During countless meetings between ZTE and the French government there were discussions about:
- The creation of between 200 and 1000 engineer level jobs
- The development of a European R&D centre
In exchange for their planned investment, as a first step ZTE was first invited to set-up a temporary residence in May 2006 at Poitiers University near the Futuroscope. The General Council of Poitou Charentes covered most of the expenses and operation cost at that time, amounting to a grand total of 400000 euros. As a second step, a large plot of land was to be sold to the Shenzhen-based company where it would build a 10000m² building.
Between 2006 and 2010, not much happened beyond a lot of time spent in meetings and in negotiations, even though Jean Pierre Raffaring, president of the General Council at that time, supported the project in any way he could.The General Council ultimately green lighted the project in 2011 with the land sold at a very low cost to ZTE and near zero local tax liability for ZTE for the first couple of years.
Beyond that, the project didn’t advance few far. In truth, the lack of advancement came down to two main factors:
A) Mismatch between required skill and pay levels
In essence, ZTE was looking to fill roles with people with Masters degree-level qualifications at Bachelors degree-level salaries. When you know that Engineers in France find jobs quite easily at decent pay levels, it’s quite easy to understand why almost nobody chose to respond to ZTE’s job postings. In addition, compared to the size of the Chinese company, there have actually only been a few vacancies available, contrary to what was initially planned. In the end, only interns were willing to accept the few positions offered.
B) Fear of spying
There was a lack of trust from the French government, which resulted in the blocking of ZTE’s network communications outside France in order to stop what the French government feared were “real or potential spying activities”. 8 years after the beginning of the ZTE project, this problem of trust has yet to be resolved.
In 2013, the building was finally inaugurated after 7 years of negotiation, countless meetings and hopes of grandeur gone from both sides. All that is left now is a near empty building with most of its space for rent.
Photo credit : Le Monde.fr
A Chinese group is once again courted by the French government. This time it is Hangzhou-based Alibaba, the biggest e-commerce group in China. With a turnover of CNY54 Billion (EUR 7.6 billion), it is indeed a Behemoth that seeks to expand its reach well beyond its domestic market. In October last year, French Foreign Affairs Minister, Laurent Fabius went to discuss a potential partnership with Alibaba’s Jack Ma.
Why would Alibaba have interest in investing in France?
Firstly, France is associated with romance and luxury, two things that the e-commerce giant would like to convey on its Tmall B2C platform in order to improve its image though a more upscale positioning. This would be a big change as, up until now, Tmall has always been centered on low prices. France is one of (if not the) country of luxury brands, romanticism, and high quality products. A nice label to add when you want to up your game and show how much you care about quality.
France is also considered as a hub in Europe, namely that its geographic location would give Alibaba very easy access to the rest of Europe in term of logistics and shipping.
What is the interest of the French government here, beyond simple investment?
The partnership between Alibaba and the French government, which is still in discussion, would include lowered entrance fees for French companies on Tmall. This would allow many French small and medium companies to launch on the famous Tmall and access the Chinese market.
Tmall, Alibaba’s e-commerce platform has alone a turnover of CNY 176 billion (EUR 24.8 billion). That’s definitely a big opportunity many small and medium French companies want a piece of. However, this is not a done deal. Not only is the e-commerce giant courted by pretty much every single European country, but its partnership with France (or any other country) will also largely depend on how its overall business develops in Europe. Given that Alibaba has just started its operations in Europe, things are uncertain at best. Besides, just as described with the ZTE case mentioned above, this is something that may take years before eventually coming to fruition.
Why is this likely to take a while?
Even though Jack Ma has gone global, habits and cultural upbringing die hard. The Chinese are well-known to take their time before finalizing any deal, only to pick up the pace once the contract is finally signed.
An interesting difference between the two examples discussed here is that in the ZTE case, the Chinese translator spoke perfect French, but the French side didn’t speak Chinese at all. As a result, the cultural rift remained. The words may be the same, but the meanings behind them may not be. It is one of the main causes of the less than optimal results from the project.
On the other hand, nowadays the fact that China is a premium super power is well-advertised and, as a result, officials have someone speaking Chinese at hand to make sure that business relations go more smoothly and that everybody understands better each other’s culture. As a result, the Alibaba-French Government discussions may go much more smoothly.
Still, Chinese companies coming to France, need to demonstrate that they have moved beyond the counterfeiter cliché, have produced significant innovation which speaks for itself. Fortunately, China has already started its worldwide courtship, showing itself to be an innovative country with its own cutting edge technology to offer the world.