European Chamber Tianjin chairman Juan Silvestre talks about expansions in the northern port city and Spanish success stories

------ By Mark Godfrey

Juan Silvestre has plenty of war stories to share of his time as chief financial officer of Spanish firm Cola Cao's China operations. He remembers chasing across dirt roads in rural China on a Chinese lawyer's motorbike to close down small-town counterfeiters of Cola Cao dairy products popular among Chinese children.

Silvestre today brings his experiences of China's realities to Box Inves, the investment consultancy he established in 2004 to advise foreign businesses setting up in Tianjin. His CFO days are also useful in his role as chairman of the Tianjin local board of the European Union Chamber of Commerce in China, launched in December 2005. There are almost 1,000 European companies with more than US$4 billion (?3 billion) invested in Tianjin.

A busy port city on the Bohai Sea, the city sells itself as a logistics hub for northeast China as well as a manufacturing base. The city has beaten off Shenzhen and Xi'an as well as south-eastern cities like Wenzhou and Shanghai for investment by brands like Motorola, Samsung and Toyota. Tianjin did US$8 billion worth of trade in 2006, city Mayor Dai Xianglong said in an address to the European Chamber's Tianjin members. But the city's crowning glory came last year, when pan-European aircraft maker Airbus chose Tianjin over its envious competing cities as the base for its first aircraft assembly line outside Europe.

An advisor on that Airbus move, Silvestre chose the Chinese name of his 20-staff consultancy company to indicate trustworthiness to his clients. "Bo xin means good heart. And we wanted to suggest a box which can fit any kind of idea inside," says the Spaniard, 42, who before coming to China worked in the automotive industry in Spain and spent a spell in the Southeast Asia operations of Spanish hotel chain Solmedia.

EuroBiz: Why did you choose Tianjin?

Juan Silvestre: I've had a long experience working here, I know the districts and government offices. We analysed the regions of Asia and I saw China was the fastest developing. And I knew Tianjin was the right place in China because all the new government policies to develop faster would be focused on Bohai Rim.

EB: Why is the Chinese government focusing so much on Tianjin?

JS: Traditionally it was China's third-largest city, with a large population close to the capital. But it is really very undeveloped; there has been too much focus on industrial development while the social and human standards of living are very low compared to other east coast cities. There is less infrastructure, the environment is in poor condition, and a lot of local companies are in a poor financial condition or bankrupt.

EB: Tianjin has a lot of industry, but a lot of state-owned dinosaurs, then?

JS: Most are state-owned, but there are some good companies set up in the city's economic development area.

EB: Is being located so close to the capital, Beijing, a help for Tianjin?

JS: Being close to the capital is a strength and a weakness. It is one of the cities that's very controlled. The style of management of the Tianjin government is more 'don't stress, don't go so fast.' Hence guanxi, or relations, are more important because of the way that things are done - very slowly. ... On the east coast around Tianjin there is more competition between districts and you can get a good policy deal by negotiations with a direct contact in the government.

EB: How does Tianjin and the Bohai area compete with western China, which is also a current development priority of the central government?

JS: Chengdu and the west are more developed, and that's a shame for Tianjin. It's because of the policies that they apply and the style of people and their way of thinking. When you give them freedom they're fast on economic development. The policies in Tianjin are not as advantageous as in the West. The government's 'Go West' policy has more tax incentives.

EB: Why is Chengdu in particular is doing so well?

JS: The west of China is growing faster and they give you incentives and approve investment a lot faster. Also, Sichuan has a population of 120 million and many of them are emigrants and migrants and they return home eventually with new ideas.

EB: What are Tianjin's future competitive advantages?

JS: Tianjin is the biggest port in north China and it will be one of top five in the world. An expansion programme over the next three years means there really will be concentrated transportation facilities through this area. The airport is managed by Beijing [Capital International] Airport and will be focused on cargo. It will be one of largest in China. Beside the airport there is the new Airbus assembly line.

EB: Why did Airbus pick Tianjin?

JS: They decided because they want a strategic partnership with China, they had three or four locations and they know Tianjin will have strong government support in the next 10 years. The decision was supported by the government here. They said 'come to Tianjin and we will help you, we will compromise to develop our aviation industry with Airbus.' бн The EU would like to build a global partnership agreement with China and some of the landmark companies would like to get some agreements out of this policy.

EB: How has the European Chamber developed here since opening its Tianjin office in 2005?

JS: It has grown a lot since the end of 2005. It helps foreign companies feel more comfortable and coordinates with government all the needs of foreign companies to improve communication between the two. The mayor has given his support. We don't have any national European chamber in Tianjin and for the government it is easier to talk with one single body.

EB: What is unique about the Chamber activities in Tianjin?

JS: We are more focused on activities that companies need. Manufacturing companies make up 90 percent of our membership, so we organise in working groups and deal with problems in manufacturing and regulatory issues. We organise conferences and breakfast seminars with government officials and CEOs and global leaders considering investment in Tianjin. Recently the Airbus president for China was with us, [as well as] the global vice-president.

EB: Which working groups are most active in Tianjin?

JS: The HR Working Group is the biggest. We think it's a top priority now in Tianjin. We have difficulty getting good talent and keeping it. The city has a slow way of management that is less ambitious and the condition of the city is not as good as other cities. There are fewer opportunities for people to grow in living conditions and salary. So they leave Tianjin.

EB: How do you grapple with this problem as a working group?

JS: In 2006 we focused on one topic of how to retain staff. We wanted to identify the key points to retain staff in Tianjin because we are good companies with international standards. We pay staff the market price. We like that they are satisfied, but even that isn't enough sometimes. They choose cities which are more developed and companies that are more famous. The capacity of people here is high, but the salary in Shanghai may be double that of Tianjin and in Shenzhen, maybe it's two and a half times higher.

EB: Where is the skills shortage most acute?

JS: Middle management. Lower levels are not so much trouble, because they have the capacity to develop.

EB: How close is your office's relationship with Beijing?

JS: We communicate with the operations division of the European Chamber in Beijing. They report our needs through the Secretary General to the executive committee. In Tianjin we have quite independent management and development. We think that in local boards the Chamber should create a principle that we should follow the policies we have as a main basis in terms of cooperation and activities. We should focus on lobbying, seminars and business, and not so much on social activities. The Executive Committee has our report and if they have ideas they inform us and we update them of any new activities.

EB: What are the specific needs in Tianjin that you communicate to Beijing?

JS: We have limited tools or resources because we are small compared to Beijing and Shanghai. We need their assistance in government support, when we need to meet someone who's coming to Tianjin. And in marketing, they have better relations with the media.

EB: Do you think establishing more offices like yours is the way the Chamber should expand in China?

JS: The EU Chamber should grow, because China is not [a small] country. We have to pave the road well, because the members have their own unique needs. I know Beijing, I have been involved in different issues. But I also know the local chapters well. The environment and government relations are different in each. Chengdu is surrounded by a market of 120 million. Guangzhou has Hong Kong's influence. We should pave the road well and the new executive committee will solve this to ensure the expansion. And with that road map, I hope they can set up offices in the main cities of China and create a very independent way of working. We need a framework with a very clear reporting mechanism and clear management. Then I think we can have good development and give a good image of European Union companies: that we are cooperating to create the most harmonious society possible in China with all the challenges you have here.

EB: Is the Chamber tougher in its membership requirements in regional branches like Tianjin?

JS: I think it should be more strict in general to select very good companies as members; companies with good projects and good management style, and companies who have strong relations with European business. We have set a high bar in Tianjin by excluding many small companies, trading firms and consultancies, which are actually local companies. The intention is to use the European Chamber, but not to give to the European Chamber.

EB: In what way?

JS: They want to use the relations of the Chamber to participate in meetings in order to get connections to large multinationals.

EB: What is the value that your company, Box Inves, adds to its clients?

JS: A lot of companies, when they consider investing here, are confused because they've been interfacing directly with organisations directed by Chinese government officials. They become confused and don't understand [the difference between national] and regional policies. We thought we should focus on companies in that initial stage, after they have decided China is the right market to invest in. We help them with location, planning and finding the right people. That period of stage investment is most critical, because if you make a mistake in that strategic investment, the direction of the company may be very far away from your initial view. You then have to dedicate a lot of effort to correction.

EB: Where is your clientele largely from?

JS: Most of them are European. Language is a bridge, so most are from Spain. Spanish companies like word-of-mouth referrals.



EB: In general, how do Spanish businesses differ from their counterparts from other countries in Europe?

JS: They are more conservative. They take a longer time to make decisions. Germans, and maybe French, follow the stages strictly and go ahead when the plan is clear on paper. The Spanish always go to the first stage and then reconsider. They are more careful. Also, some of the biggest projects were not so successful.

EB: Such as?

JS: They were not as successful as expected. China is developing so fast you have to make plans dynamic, but not so that you stop. When you do a plan, you have to do a dynamic plan. It happens that some plans suit more of a fast-development procedure, and maybe this [is lacking] in Spanish companies. In the 1980s when China was first opening up, one of the most famous Spanish companies was already investing here. But development was not so fast as expected. Maybe they should have chosen another strategy, been more aggressive. Now we have different businesses here: food, automotive and renewable energy.

EB: Are most Spanish firms here SMEs?

JS: Yes. But in renewable energy, Gamesa is the second-largest company in the world. It now has the most installed wind turbine generators of any such company in China.

EB: Who is the biggest Spanish investor in Tianjin?

JS: Gamesa. They have set up a factory selling the box behind the blades in wind turbines. They will soon open a factory producing the blades and then soon a new company producing the gearbox. So they will have three manufacturing bases in Tianjin. It's number one in China and number two worldwide. They hope to build five companies, so the investment is strong and will want to do R&D here.

EB: Spanish banks or construction firms are expanding aggressively in Europe and Latin America. Why not in China?

JS: Banks are very conservative in Spain. They are very aggressive in Europe and Latin America. The financial sector follows other companies. They were focusing on Latin American and regulations for foreign banks here were too closed. But last year the first branch of BBVA opened in Shanghai. The biggest Spanish banks all have [representative] offices in China.

EB: Is there any resentment in Spain towards cheap Chinese imports which have been hurting Spain's significant shoemaking industry?

JS: Spain was one of biggest exporters of shoes in world. Then China became number one and made a big conflict in general with the EU. In Spain a lot of companies closed, or moved manufacturing to China. Most closed, because many of manufacturing companies were SMEs. The biggest ones changed to artisan, handmade shoes in which the Chinese can't compete.

EB: But China is also a market for these companies?

JS: Exactly. Lotusa and Janco are famous luxury brands made in Spain and now selling in China.

EB: The Spanish bus company ALSA was a pioneer in entering the Chinese transport market, in Tianjin. How has it done?

JS: ALSA is growing very smoothly and fast. Right now the Spaniards are focusing on sectors and are leaders in China. They started with the Beijing-Tianjin line and now have 50 or 70. They have their own buses and make agreements with government to rent the line between two cities. They have the sole right to manage bus stations. In Tianjin they have the right for 30 or 50 years. It was the first bus company in China to establish a regular schedule for buses. The bus doesn't leave until full of passengers, but ALSA was the first to a establish policy that buses leave at eight or nine o'clock on the dot. At the beginning it was hard, because the people didn't understand why the bus left half-full or waited when it was full of passengers!

EB: Is Box Inves profitable?

JS: Profitability is not my first target and shouldn't be the target of any company in the short term. I tell companies that you have to think in the medium and long term. Any resources that you get you have to dedicate it to the expansion and right growth strategy. If they are thinking they want to make money in the first or second year in China, we don't accept that.