The 88 Initiative: Putting guanxi into Great Britain

Two of the City's most prominent 'knights' have joined forces with an entrepreneurial network to create greater ties between UK businesses and Chinese investors.

by Gabriella Griffith

Millionaire and City veteran Sir Paul Judge is having a party round at his on 20 December and it promises to be a Christmas party with a mission. High up in east London’s ‘The Panoramic’ building, Chinese entrepreneurs, high net worth individuals, representatives from Chinese family businesses, Chinese students, local entrepreneurs and private equity professionals will all be chatting over a few glasses of eggnog, as they look out over the Thames. It’s the second event by the 88 Initiative and building ties between UK and Chinese businesses is the aim of the game.
The 88 Initiative, a venture designed to improve relations between Chinese businesses and investors and their UK peers, is not the brainchild of Judge though; his long-time friend Sir Richard Heygate (former partner at McKinsey and inventor of the online ATM, no-less) came up with the idea. Sir Richard has joined forces with E2Exchange, an organisation for entrepreneurs, for which another Sir Richard (Branson of course) is the honorary president – in order to launch the 88 Initiative.
With its inaugural event in September in the bag and the second one speeding towards it, the 88 Initiative is close to clinching investment deals for a number of UK-based companies. Why now?
‘There are many ultra-high-net worth Chinese investors who want to invest into British businesses but don’t have the relationships in the UK to do this,’ explains Shalini Khemka, chief executive of E2Exchange.
‘Central to Chinese business culture is trust, so we are helping Chinese investors build relationships in the UK to gain that trust to facilitate investment flows into SMEs and help accelerate their growth.’
After leaving McKinsey, Sir Richard worked on a number of startups and became ‘extraordinarily’ disenchanted with the UK investment community.
‘I realised there was no institutional funding for UK entrepreneurs,’ he says. ‘I came across fantastic British inventions which had simply run out of money and died off or been sold for a fraction of their value.
‘I was talking with a friend, one of the biggest immigration lawyers in the UK, and he pointed out China has the largest pool of venture capital in the world. And while the UK is keen to attract Chinese wealth, China needs UK innovation.’
Sir Richard, like many a British businessperson and politician before him, realised China could hold the answer to many of our investment problems. But the classic problem when it comes to doing business with the Chinese is their emphasis on trust and building strong relationships before signing any deals. It’s not as easy as rocking up and swinging your startups around.
‘The generation in power in China is not easy to deal with,’ explains Sir Richard.
‘Mostly, they don’t speak English and rely on something called guanxi – business trust. There’s no point in heading over to China, organising meetings and going to cocktail parties unless you have a high level of guanxi.’
While lecturing at the Said Business School, Sir Richard came up with what he thought might be a solution. He was lecturing at the college and met a swathe of Chinese students – he was vastly impressed with their entrepreneurialism and saw this generation as holding the key to doing business with the older generation.
‘I was so impressed with what an inspiring bunch the Chinese students were,’ he says.
‘Many have three or four degrees each, they’re very hard working and open minded. I realised maybe these people were the bridge and so I decided to work with the younger generation. I’ve become friendly with six or seven groups of young entrepreneurs, building guanxi, and through them gained access to high net worth individuals and venture capital firms in China.’
Together the E2Exchange and Sir Richard are hoping to use the 88 Initiative to do a number of things; identify, mentor and fund new ventures in both the UK and China; seek out suitable UK brands who can branch into the Chinese market and build long term partnerships with Chinese family businesses; encourage UK venture capitalists to open their portfolios to Chinese investment banks and corporations.
Phew. That’s no mean feat. The initiative is currently on the verge of three deals involving UK businesses; a wine brand, a healthcare company and a hotel deal and ‘there are lots more in the hopper’. It is formalising the 88 incubator for joint China/UK entrepreneurs, setting up two agencies in China (one west coast, one inland) and launching a new venture capital firm with Rob Wylie of Wheb Partners as chairman. All stations are go.
The timing of the 88 Initiative couldn’t be better. Thanks in no small part to some tussling on George Osborne’s part, London is due to become the designated trading outpost for the Chinese currency – the renminbi - at the end of 2014, early 2015. According to commentators, this will open the floodgates for Chinese investment in the UK. The odd Lloyds building here, Manganese Bronze there, will pale in significance.
Organisations such as the 88 Initiative will hopefully smoothen this change of gear and help entrepreneurs as they try to do business with the Chinese.
‘For UK SMEs looking to expand overseas, China is a huge market and there are significant benefits for Chinese investors who want to invest into UK businesses,’ explains Khemka
‘Chinese investors are keen to invest in UK businesses if they can see that the companies have high quality brands, with real potential in their home market.’
Khamka’s experience of dealing with UK-based entrepreneurs has taught her that although the opportunities are out there – our homegrown startups and small businesses aren’t taking them.
‘Many UK entrepreneurs still do not realise the huge potential that the Chinese market offers their businesses,’ says Khemka.
‘With those entrepreneurs who are aware, there is some inertia because of the language and cultural barriers and also the lack of understanding regarding how Chinese investment and business operates. We can support companies by giving them more confidence, through introducing them to the right people and helping them build relationships with the most influential networks and investors.’
Eighty-eight is the luckiest number in Chinese culture but it looks like the success of the 88 Initiative will have little to do with luck and a lot to do with guanxi – something we bet we’ll all be hearing a lot more of…

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