French companies hit risk learning curve as Chinese trade grows–AMRAE

AMRAE members shared their experiences in the world's second largest economy to help prepare themselves for the challenges ahead. And it appears they are learning that it is necessary to do business differently to succeed in areas like filing insurance claims and making suppliers accountable for eventual faulty products. AMRAE has set up a China committee this year to promote knowledge about the stakes French risk managers face when their companies embark upon Chinese adventures. The committee has organised two sessions of debate for members on how to deal with the rising Asian economic powerhouse, the second of which took place in Paris in May. Organisers told Commercial Risk Europe that members of the association have shown a strong interest in the subject, and up to 100 people took part in the events.hideThe Chinese seminars were part of a recent initiative from AMRAE to promote a series of workshops to discuss key subjects of interest to French risk managers, including fast growing markets such as China. Brazil or Japan could follow next year, according to AMRAE. “Culturally, China is very far away from France, and ever more companies are working there,” said Anne-Marie Fournier, Vice-President and Risk Manager at PPR, the luxury group, who is a Vice-President of AMRAE, in an interview with Commercial Risk Europe after the event. “We decided that it was a good idea to have feedback from companies that operate in China, who could talk about their activities there and share their experience with other members,” said Ms. Fournier. The first meeting, in January, was organised in partnership with Comité France Chine, an association linked to Mouvement des Entreprises de France, Medef, France's business organisation. The France-China committee has a membership of around 100 companies. Ms. Fournier said that the workshops showed that French companies face plenty of challenges in the Chinese market, not the least because of cultural and legal differences between the two countries. “For French companies, it is very different to operate in China than in the domestic market,” she pointed out. “We are used to the Roman law system and therefore we put much value on contractual relationships and contractual negotiations. We stick to what is written. In the Chinese culture, from what we've seen, it is very different. Everything can vary, and things can change according to the moment when a decision is made, if conditions have changed too.” Ms. Fournier stressed that for French companies it is a tough task to adapt to these kind of attitudes, certainly more so than for Anglo-Saxon firms, that tend to be used to custom-based rules. “Typically, in the insurance side we have a contractual relationship, and it really leads us to adapt to the ways that different countries work,” she remarked. “If we take enough time to discuss things and if we respect the counterparties, trying to understand them, then we can find a common solution. The relationship with the Chinese can be very fruitful and very valuable in the end,” said Ms. Fournier. “It is certainly possible to have a successful negotiation in China if you know the approach. It is absolutely key to respect the people you deal with,” pointed out Laurent Barbagli, Administrator of AMRAE, Director of Risks and Insurance at LAFARGE, the cement group, who was also one of the speakers at the conference. One of the things that Western risk managers have to adjust to when they do business with Chinese clients or insurance companies is that negotiations should not be seen as a win-lose situation, he said. “It is important that every party to a deal gains something, both the insurer and the insured,” he explained. In addition to cultural differences, technical aspects of a complicated sector like the insurance business can also be a source of misunderstanding and Western risk managers must make adjustments, he stressed. “Many technical aspects of large insurance claims are new for them, so that is an important difference to the way things are done in other markets,” Mr. Barbagli remarked. “For instance, when you are a member of a group of insurers, in the case of a major physical loss, you have to pay an interim payment to support rebuilding operations and reduce business interruption impact. The fact that this interim payment helps to reduce business interruption is not naturally linked. Chinese insurers don't understand that at the beginning,” he said. “The wording and handling of insurance policies can be different too,” Mr. Barbagli continued. “We have seen things that are not common in France, but are very often used in China. And some insurance subjects that in France or in the United States people understand straight away, we have to explain to business partners in China,” he continued. Mr. Barbagli had direct experience of dealing with insurance claims in China when Lafarge suffered losses in plants located in the province of Sichuan, which was affected by an earthquake that killed at least 68,000 people and caused wide physical destruction in 2008. According to the risk manager, in such situations there is little use in trying to speed things up. “Sometimes the best negotiation tactic is to be patient and explain and re-explain things,” he said. Ms. Fournier told delegates about PPR's experience in dealing with suppliers located in China. One lesson learned by the group is that it is vital to carefully manage the risk of possible liabilities created by faulty products made by Chinese-based suppliers. PPR learned it the hard way, after an episode where the firm faced complaints from clients because of products manufactured by a Chinese provider that were of an inferior quality than was expected. “When we tried to sue the supplier in China, it did not exist any more, and we found out that it was not insured anyway,” she recalled. The best policy to avoid risks like these is to investigate thoroughly the companies that produce the products, she said. “We should have checked it on a more regular basis and asked for financial data and insurance figures too,” said Ms. Fournier. To reduce supply chain risk, PPR has set up an insurance scheme to which providers must adhere if they want to work with the French group. The scheme is managed by brokers and insurers, to which premiums are paid directly, and PPR requires the participation of providers as one among several financial requisites that Chinese providers need to meet. The experience has brought results and has been expanded, she said. “The interesting thing is that now we have extended this scheme for suppliers in other Asian countries, like Vietnam, South Korea and Thailand, and in Byelorussia and Turkey too,” said Ms. Fournier.

French companies hit risk learning curve as Chinese trade grows–AMRAE

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