Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

View more articles from Michael Bleby

Designs on China: Local architects say takeovers are not the only way

Published 04 April 2013 10:16, Updated 05 April 2013 07:55

+font -font print
Designs on China: Local architects say takeovers are not the only way

Architect and author Anne Warr says that some firms go to China and discover their own way of doing business. Photo: Dom Lorrimer

John Bilmon first approached CDDI three years ago. The head of Sydney-based architectural firm PTW knew the Chinese design institute well, having first worked with it about 10 years earlier, when his firm had just five staff – including its two owners. The two practices worked together again in a joint venture to design the Water Cube venue for the 2008 Beijing Olympics. Now he needed some help.

“We’d reached a point where we really needed to do something about our future strategy,” Bilmon says. “I felt it was appropriate that I commence discussions with CDDI to see if we possible could join forces with them in some sort of strategic alliance.”

It was indeed possible. On the stroke of midnight on January 1, CDDI bought PTW for an undisclosed sum. Bilmon declines to comment on the reported $15 million price tag, but says having a big owner makes it possible for the firm with 230 staff to meet its cash flow requirements at a time when work is tight. The main benefit however, he says, is the scope it gives his firm to expand.

“The real reason was professional – to expand into the Australasian region and within China in particular,” he says. “By joining the CDDI machine, we’ll be able to have our credentials put forward to a vastly enhanced number of client groups and sectors.”

The takeover of an Australian professional services firm by a foreign one is hardly unusual. In the wake of the global financial crisis, there has been consolidation among firms worldwide. It’s not even rare for a merger with a Chinese firm – think King & Wood’s tie-up with law firm Mallesons Stephen Jaques last year. But the PTW deal does announce to the world that in architecture, as in so many other industries, China is taking a larger, more significant, role.

Bilmon expects other Australian firms to follow suit. Certainly, whether the discussion is about China or not, architecture is a fluid industry.

“Conversations about us buying other firms or other firms having an interest in us do occur on a regular basis,” says Rob Puksand, a co-founder of Gray Puksand, a Melbourne-based firm with 10 partners and 100 staff.

Australian Institute of Architects CEO David Parken says Australian firms are flexible enough to be able to cope with the difficulties that can pop up when doing business in China. Photo: Arsineh Houspian

More than one way to jump Chinese walls

But acquisition by a Chinese firm is not the only answer for firms doing work there. Architect and author Anne Warr lived in Shanghai between 2003 and 2010 and leads Australian Institute of Architecture tours to the country.

“China’s a big place and there’s lots of space for doing work in different ways,” Warr says. “People go up there and discover ways of doing business.”

China’s a big place and there’s lots of space for doing work in different ways.

China is not an easy place. In 2005, the Royal Australian Institute of Architects – as the industry body was then called – made a submission to the Department of Foreign Affairs and Trade about Australia’s planned free-trade agreement with China, highlighting some of the hurdles foreign firms face when doing business there.

These included poor governance and transparency, a currency that was held artificially low, the lack of intellectual property protection and inconsistent application of central government industry policies at sub-national level.

“These things are still relevant,” Australian Institute of Architects chief executive David Parken says. “They don’t move that quickly.”

Still, he says, Australian firms are quite flexible and adaptable and able to work their way around the constraints and potential pitfalls.

PTW’s marriage to a Chinese firm goes a long way towards protecting it against those. Others, such as commercial firm Woodhead, which entered China in the early 1990s, have not had the same level of protection.

Former Woodhead director David Gilbert says the company found out the pitfalls of doing business in China the hard way when it first ventured in the Chinese market in the early 1990s.Photo: Fairfax Media

“We were one of the first to decide we were going to engage ourselves and explore that market,” former director David Gilbert says.

“But we found that what we thought were the accepted morals around IP and the consistency of name use and attribution of faithful crediting of the authorship of work were much looser in China than in Australia or generally in the West.”

There was a common problem of people who did not work for the firm, or who had previously, passing themselves off as Woodhead employees, in a bid to win work. There were times when the firm’s designs were copied and reproduced by others. And then there was an existential challenge.

Which Woodhead are you?

“The extreme case was the setting up of another Woodhead company in Beijing that advertised extensively in the architectural press and became extremely well known,” Gilbert says.

“Often our clients, or client groups, would ask us, ‘Are you the real Woodhead or the Beijing Woodhead?’ ”

In 2006, the firm started a legal case against the imposter firm that was resolved only in 2010 – with a favourable settlement for his firm, Gilbert says. Woodhead has since moved its Asian office to Singapore.

Gilbert says that if his firm did have a Chinese partner, it would have been sheltered from the abuse it suffered.

“We wouldn’t have been seen to be such fair game,” he says. “We would have had trusted local partners who would have given us good honest advice within the company and so there would have been an interest on the Chinese side to advise very truthfully and with all that acumen that they have.”

Nonetheless Gilbert, who believes the regulatory environment is improving, says a takeover brings risks of its own.

“The outcomes that one finds after a year or two are not always those that were anticipated when the deal was being negotiated,” he says. [Unexpected outcomes] apply to any merger situation, but are compounded when the scope for cultural misunderstanding is increased on both sides.

“To understand simple things like design, to have a shared understanding of the project deliverables at any point in time, or at each stage of the work is extremely difficult,” he says. “Even with the best intentions on both sides of the contract, there can still be genuine misunderstandings. And that’s apart from the non-genuine ones.”

Even with the best intentions on both sides of the contract, there can still be genuine misunderstandings. And that’s apart from the non-genuine ones.

Many firms will continue to do work in China and remain independent.

LAB Architecture Studio co-founder and Federation Square designer Donald Bates says his firm, which does more work in China than it does in Australia, isn’t interested in a corporate tie-up with a Chinese firm.

China, like the Middle East, imposes restrictions on foreign firms. Australia, it must be noted, imposes conditions on foreigners wanting to work in this country – but none of these require a marriage certificate with another firm.

“There are a number of places where there are restrictions,” Bates says.

“But that doesn’t mean Australian firms aren’t there and practising and making money and sending that money home.”

Topics:

Comments