China General Interest
In Part 2 of his exclusive article for China Now, Scott Brown, Managing Director of RedFern Associates, continues his discussion about
why every New Zealand business should have a 'China Strategy'. To read Part 1 please click here.
The media has been telling us for some time now that the China is changing from being the world's factory to becoming the world's largest consumer market. Have New Zealand businesses embraced this paradigm shift?
That is true. Unless you are very Hi-tech, green or in particularly encouraged industries or locations, little is available these days in the sense of incentives on the manufacturing front, the free-lunches are over. That coupled with the systematic reduction in VAT (GST) rebates which is a clear indication that the Chinese government feel that they have had enough of the lower end manufacturing capacity.
China has matured from being a majority export driven economy but what all the foreign investment and knowledge transfer which occurred in making that happen has done has created a middle class, higher disposable income and more a developed consumer market.
Of course the sheer size of the population, especially as the market expands to the second and even third tier cities across the country is a reason for huge excitement for FMCG businesses though simply on-selling your products via an agent or distributors is hardly a serious strategy.
Those who really want to share in that future need to make a commitment to having a legal infrastructure to control their channels, pricing, placement, counterfeits, marketing and to grow a brand which is right for the China market. NZ companies have tended to have an understandable, low risk, low investment approach and consequently have had limited penetration or sustained success.
Many have to make a clear decision and commitment to either be involved or not, testing this market by playing around with it will not last or bring the rewards, there are plenty of case studies about which approaches have worked best and those which have not, the ones who've taken a controlled, incremental approach are those who will and are already seeing the long-term rewards.
Scott, you deal with clients from around world wanting to explore opportunities in the Middle Kingdom. What unique strengths and abilities do Kiwi entrepreneurs and their products/services have that put them ahead of the pack when doing business in China?
We have real advantages. The products, services and levels of innovation displayed by NZ companies and individuals are truly world class. For instance Fonterra and 42below. Our branding, marketing, design, and technology can be licensed and leveraged with proper low cost manufacturing capacity. What that needs to be combined with though is a global perspective of best practice.
The statistics on the number of small NZ companies with a real future that actually convert into larger more sustained businesses is very poor. Why? I know the NZ government and programmes such as Auckland University's ICEHOUSE are looking hard into the reasons why and developing solutions.
NZ and China are potentially two sides of a coin and can be very complimentary. Some of our inherent strengths will take generations for them to master but we've got to engage more.
One major and very underestimated advantage of New Zealand companies is our basic attitudes, proactive, can-do, results and problem solving orientated approach. The Chinese respond very well to people and managers who will invest in them, respect them, work alongside them and know they would not ask anyone to do anything they would not do themselves. In my experience Chinese employees or business partners can be amongst the smartest, most hardworking and loyal people. Its about basic human nature and how you treat them.
Unfortunately many foreigners and New Zealanders seem to get too caught up in the hype or mystique, the real or perceived cultural complications and end up leaving their instincts at home, they're the very reasons, with good common and business sense, that got them to where they are. In my experience NZ companies often suffer from being "world famous in NZ" and are not able or prepared to make a clear commitment.
There are many very experienced, senior and successful long-term Kiwis in China, a network that is very willing to help more NZ companies be successful here. Tap into them! The other advantage is the name that NZ and New Zealanders have in the Chinese eyes. The average Chinese has a much better understanding of New Zealand, its history and relationship with China than the great majority of New Zealanders. I've spoken with taxi drivers who know we were the first country to give women the vote, first to recognize China as a market economy, first to support China's application into WTO, then had a New Zealander at the head of WTO when they finally got accepted.
It’s no co-incidence that NZ has been chosen as the first country to sign a fully bi-lateral FTA with China. It’s a historic first and a way of saying thank you. We don't seem to understand that and that will be our loss.
Business in China is very dynamic. Being flexible and responsive to change is surely important, but how important is it to remain true to yourself and to what your brand stands for, when entering China?
New Zealanders are generally very confident, gregarious individuals who know who they are and what they are about. Don't go losing that advantage when you'll have enough new challenges on your hands. The single best piece of advice I was ever given when I left for China from a Kiwi experienced in Asia was to stay who you are and not to try and become the environment I was entering. In 11 years its served me well.
With your brand or business model the same principle would apply but it will need refinement or adjustment to local ways or preferences. What does the Chinese consumer want? I remember a well known NZ beer company doing a great deal of research many years ago about the need for heavy German type traditional branding, a sweet light beer etc etc and then they realized they already had a perfect one sitting on their shelf, which was much more successful than their more 'famous' brands.
The devil is always in the detail, subtle translations in names, hidden meanings etc have resulted in some hilarious but disastrous mistakes, but there are plenty of people up here to help with that. DO NOT get advice about China from New Zealand or Hong Kong or elsewhere, get it in China!
Thanks for taking the time to talk to us Scott, we look forward hearing more from you in future editions of China Now.
Jun 23, 2008