China is a huge but challenging market for companies that solve environmental problems. Pirita Mikkanen, who has a long history of working in that country, sheds light on how SMEs can get a foothold.
China realised a few years ago that the environmental problems caused by rapid industrialisation and urbanisation are threatening the health of its people and its economic growth.
Air and water purification and industrial energy efficiency alone will require investments of hundreds of millions of euros in the upcoming years.
Finnish cleantech companies have solutions that would work in China, but many SMEs are hesitant to venture into the country known for its challenging markets.
As someone who has sold environmental sector products and services to China for many years and has headed an export network, Pirita Mikkanen says that Finnish companies have good opportunities to access these growth markets – if they have the right ways of operating and the right attitude.
“Simply having a good product or service is not enough. You also have to carefully consider a business model that would work for China, and that might be something totally different than one that would work in Europe,” Mikkanen notes.
Mikkanen is Chairman of the Board of Lifa Air, a developer of indoor air cleaning solutions, and she is in the operative management of TM Systems, which provides services to industry.
Last year, Lifa Air established a joint venture in Dongguan, in South China. The Chinese partner is the consumer electronics manufacturer Edifier.
Be actively present
Mikkanen says that in China it is essential to have an active presence. The company must actively communicate with local authorities and business and industry leaders.
“This takes a lot of time if you do it all on your own. Having good networks is helpful.”
A cleantech company launching in China would be smart to tap into the connections of Finpro, Tekes and the Finnish Embassy. Mikkanen has praise for the Team Finland network’s operations in China.
“It is extremely important for companies to have the support of state actors in a centrally controlled country. The Finnish Embassy in Beijing and the FinChi innovation centre in Shanghai are well versed in these matters. Likewise, the official negotiating bodies between the countries are good channels for information on political decisions.”
According to Mikkanen, companies operating in China are also sources of useful information. Finnish trade associations, among others, are good places for networking.
Prepare for quick changes
Political decisions play a crucial role in the direction the cleantech markets take in China. Various emissions limits, standards and the targeting of investment funding received by industry have a fundamental impact on the demand for company products and services.
One decision can open – or close – huge markets.
“The changes can happen quickly. Ten years ago, air purifying solutions didn’t interest anyone in China. Once the central government acknowledged the serious problems, we had an instant line of people at our exhibition stand.”
Mikkanen estimates that air pollution and water purification will be China’s focus areas in the years ahead too. Investments to improve industry’s energy efficiency will also continue.
China’s new five-year plan will reflect the focus of the upcoming years. Mikkanen says it is significant for foreign companies that China will emphasise the transfer of technology.
In essence, this means that a foreign company will gain a clear competitive edge if at least some of the solutions offered to the local markets are manufactured in China.
“China’s slowing economic growth further underscores the fact that foreign companies’ solutions must bring jobs to China.”
Lifa Air aims for consumer markets
In China, Lifa Air targets the consumer markets, whereas in other countries the company delivers solutions primarily for maintenance of ventilation systems for public buildings and industrial real estate.
“China differs from other countries in that households are responsible for the indoor air quality of their own apartment.”
According to Mikkanen, local manufacturing of the products strengthens Lifa Air’s position in China. But accessing the huge consumer markets requires relationships with Chinese partners and distribution networks. Lifa Air’s collaboration with the Chinese electronics manufacturer Edifier provides a solid boost for growth in the giant-sized markets.
In the 2000s, Mikkanen did business in China around solutions related to improving air quality, environmental monitoring, and improving energy efficiency. Among other things, she has headed an export network for Finnish SMEs.
“Doing business in China is exhilarating. It is multi-faceted and always surprising. Success requires hard work – there are no shortcuts.”
- Established in 1988, the company develops and manufactures technology that improves indoor air quality.
- Established a joint venture in China in autumn 2015; Lifa Air has a 30-percent stake and its Chinese partner Edifier Technology 70 percent. Electronics manufacturer Edifier invested EUR 21 million in the joint venture.
- The air purification solutions manufactured in China target the consumer markets. They are based on Lifa Air patents and product development.
TM System Finland
- Established in 1974, the company supplies air and heat recovery solutions for industry.
- The main market is in Asia, but the most demanding engineering work is still done in Finland. Operated in China since 1998.