Companies could benefit from strategic actions
The UK’s tourism, education and luxury brand sectors also offer abundant opportunities for Chinese companies regardless of Brexit
Navigating uncertainties over Brexit is not easy, especially for Chinese companies relatively new to the UK market and still building up an understanding of the local policy environment.
While a wait-and-see approach seems the safest option, a more proactive attitude to finding new opportunities and taking risk control measures may achieve better rewards.
Companies that are in the UK to seek technological upgrades or to connect British brands with China’s booming consumer markets are in a good position to proceed with their investment plans, as their focus does not depend on the UK’s access to the European Union or the country’s economic growth rate.
Telecommunications company Huawei, automotive manufacturer FAW and locomotive maker CRRC Corp have all increasingly invested in their research and development projects at UK universities. As the results of these projects will be implemented across their operations in China and globally, Brexit matters little to them.
The UK’s tourism, education and luxury brand sectors also offer abundant opportunities for Chinese companies regardless of Brexit.
E-commerce platforms Tmall Global and JD have both stepped up efforts to buy British brands, and Chinese logistics companies such as STO Express and Dolphin Supply Chain are expanding rapidly.
On the other hand, Chinese companies who are serving EU clients from the UK, or vice versa, need to draw up contingency plans in case new restrictions are introduced postBrexit.
For example, in the financial sector, Chinese banks have made plans to serve
EU clients from jurisdictions within the trading bloc.
China Everbright Bank launched a branch in Luxembourg in 2017, and is using this as its European headquarters to serve clients from other EU jurisdictions, while Bank of China launched a branch in Dublin, the Irish capital, to cater to its growing client base in the country.
After making plans to either go ahead with expansion or create EU teams, Chinese companies still need to consider how currency risks and local market employment prospects affect their ambitions.
Many have already taken measures to ensure their loan and supplier contracts are all denominated in sterling, to mitigate currency risks. Those companies hit by the more than 15 percent drop in the value of the UK currency since the 2016 Brexit referendum bear witness to just how critical this precaution is.
Chinese companies with ambitious expansion plans in the UK should consider how realistic their strategies are if EU nations can no longer supply Britain with enough talent post-Brexit.
Restricting immigration is one factor, but the “unwelcoming” feeling Brexit has created for EU talent is another important factor reducing the UK’s pool of professionals.
In particular, companies that rely heavily on EU workers, such as those in the construction and manufacturing sectors, need to consider this factor to draw up more realistic plans. Even if they do not employ these workers directly, the fact that their local suppliers may face this challenge means they should be aware of potential cost hikes.
Having said this, smart Chinese companies with clear expansion plans can navigate the employment challenge by hiring talent laid off by competitors who are scaling down their operations or shifting work to the EU due to Brexit uncertainties.
There are plenty of opportunities for Sino-UK collaboration, especially as the two economies are enjoying increasing complementarities as China makes a structural shift to become a knowledge-based economy.
Chinese companies that decide to push ahead with investments while their competitors take a wait-and-see attitude can enjoy “first-mover” advantages in some instances, provided they have a focused strategy and take precautions to address risks.