China General Interest
Now that New Zealand has signed a Free Trade Agreement with
China, we talk to Scott Brown, Managing Director of RedFern Associates, about
why every New Zealand business should have a 'China Strategy'.
Scott, very simply, should every New Zealand business have a 'China Strategy' and why?
Yes, NZ and NZ companies need to understand and believe they are part of Asia, our historical attitudes and ties to the UK have resulted in us being a bit slow to recognize that fact or take up the challenge and opportunities. Resistance will not help our country or companies, it is enviable but up to the individual decision makers as to what extent they want to engage in this. Whether this requires direct investment in China or a trade relationship is case by case.
There are great economic and market opportunities for companies which both want to be globally competitive or even more successful in their existing markets. Over 25% of the world population is within our geographical region. Unfortunately much of the press in the last decade has been a bit irresponsible in presenting this and has scared many companies from coming here with all types of disaster stories, painting China's growth as threat to our manufacturing base etc etc but there are real win-win strategies in all industries which need to be explored responsibly rather than be dismissed due to a lack of information.
An NZ manufacturing company could
relocate or outsource the more labour intensive parts of their operations,
making their products globally competitive and opening new markets and growth.
The remaining operations which are more hi-tech, design or IP related can
remain in NZ and grow - this strategy can create NZ jobs not layoffs. If we do
nothing, many of these firms over time may inevitably struggle to compete and
close, so we need to be proactive and positive to control that destiny rather
than succumb to it.
With great opportunity, comes great risk and potentially great reward. New Zealand businesses have known for some time about the business opportunities in China, but what about the risks?
There is no denying there are risks but I don't believe they need to be necessarily any more relative than other markets, certainly not to the extent commonly portrayed. What is required is a clear well thought out strategy, an awareness of the surrounding issues and a commitment to a chosen path. Apparently over 90% of foreign MNC's in China are now profitable so there are plenty of examples of how and why it can work.
The main risks have revolved around the pace of the change in the regulatory environment, many businesses who were relying on specific pieces of legislation or incentives rudely found in time that these changed or disappeared but that landscape has matured greatly and is relatively stable. China has had to try and achieve in decades what it took western or developed countries a century or more and in that sense they have done an incredible job.
now strong frameworks in place in company law, M&A, labour law, IP, taxation
transfer pricing and WTO deregulation of industries which are quite clear.
The difficult part can be in interpreting all the often vague and contradictory information and how it applies to your business, industry or circumstances. New laws are one thing but strong and uniformed enforcement of these across foreign or local businesses and a huge geographical area is where the notorious 'grey' area's exist, but if you are sensible, compliant, demonstrate commitment and show respect you can minimize the risks.
There are always external factors, politics and events which have an impact from time to time though companies need to focus on what they can control, the internal aspects, getting that right is a great step in the right direction.
Apr 20, 2007