Chinese companies 'can adopt better business approaches' in Germany

Hermann Simon, chairman of Simon-Kucher & Partners speaks at the China-Germany Small and Medium Enterprises Conference in Jieyang, Guangdong province in June. [Photo/Provided to China Daily]

German analysts believe Chinese companies can adopt a better way of doing business with foreign investors from Germany, as directly working through a German government agency is not a very effective way to attract business.

Hermann Simon, chairman of Simon-Kucher & Partners, a global consultancy firm based in Bonn, says Chinese companies apply their own perception of the Chinese way of doing business, whereas in Germany the government plays a very different role to that played by the authorities in the Chinese economy.

"German government agencies have little to no influence regarding the investment decisions of private companies," according to Simon.

In Germany, the government sets the framework within which the businesses operate but neither the federal government nor the state government has actual influence on business decisions, he says, adding "so I think from the Chinese side, going through the government agencies is not very effective and they should contact companies directly and talk to them."

Simon recently visited China where he was invited to give a keynote speech at the second China-Germany Small and Medium Enterprises Conference in Jieyang, Guangdong province.

The trip confirmed Simon's perception that the Chinese government is very like management, different from politicians in Germany who are more politicians than managers of industrial structures. His impression is that the authorities pay a lot of attention to efficiency and cost consciousness in China.

The concept of cost-consciousness is well exhibited in the Chinese system. For instance, Simon noticed that most officials have no more government cars, and now with a very few exceptions the very top people have to use their own car for travel. "That cost consciousness, and the frugality are in the mind of the people and I think that is really meaningful," he adds.

He says in Germany, government involvement is very limited, except for occasions when the companies need permission to build something, but as far as core business strategy and decision-making, companies do not need the government and the government doesn't really play a role.

Simon believes that if the economy is in a state where a lot of infrastructure is needed, such as roads, highways, and railroads, then it is an advantage to have a strong government like in China.

As far as business strategy, finding customers and dealing with suppliers is concerned, he says the western governments don't play an important role. But for certain industries such as infrastructure and defence technology, where the government is the buyer or has to determine what to build, it is of course different.

Matthias Bauer, Senior Economist at European Centre for International Political Economy headquartered in Brussels holds similar opinion, saying government involvement in private sector business is low in Germany when compared to China.

"With the exception of agricultural markets, private sector engagement in Germany is usually regulated in a business-friendly and, most important, competition-friendly way," Bauer adds.

However, Christopher Bovis, professor of business law at the Business School of the University of Hull, is not convinced, saying what happens in Germany is not necessarily true in other part of Europe, such as the UK, Italy or France.

The reason that German businesses do not need an agency or a government to attract investment is simply because Germany policy is to channel inward investments through the recipient of the investment itself, so the investee company would be the conduit to attract investment, Bovis argues.

"The German economy is very conservative, not comparable with other European economies in relation to what we often refer as to openness inward investment. Germany is very conservative in allowing infrastructure investment to come to Germany, very nervous about investment into strategic sectors such as the automatic sector," he says.

Whilst in the UK, Bovis says, it is more proactive as "agencies and dedicated government organisations go out to the world and have one objective, to sell the country's investment opportunities to strategic investors who can directly invest into the territory and the country."

Compared with government involvement approach, the downside for direct talks between two companies is that there will be challenges to see the entire economic environment in the specific region or country, he adds.

Bovis says that for example, currently there is a huge appetite in Europe for specific technology to extract gas from onshore fields. Without a clear picture about governmental medium to long term environmental planning and energy frameworks, it will be difficult for two companies or two sectors to come together to see if there is value or an enhancement of margins by having a more strategic provision of investments.

His suggestion for Chinese companies that are eager to attract investors is to combine both approaches, raising their interests directly but also involving with government agencies that can provide extra assistance.

To contact the reporter: wangmingjie@mail.chinadailyuk.com