Subscribe To China Now

strategy

Chinese Visitor Insight online tools available

Webinars and online modules are now available to help tourism operators meet the needs ...

read more
View all in strategy

finance

Understanding Legal Proceedings in China

For foreign investors running businesses in China, it is very likely that they would ...

read more
View all in finance

profile

New Zealand King Salmon joins forces with PCNZ to undertake supply...

Primary Collaboration New Zealand (Shanghai) Co Ltd (PCNZ) has signed a deal with Top ...

read more
View all in profile

commentary

"Chengdu Can Du ?" Innovation and start-up environment and...

As with other tier 1 and 1.5 cities, Chengdu is investing heavily into innovation and ...

read more
View all in commentary

general

Mandarin language assistants welcomed

Forty eight Mandarin Language Assistants were officially welcomed to New Zealand ...

read more
View all in general

MBA student teams investigate opportunities in southern China

Profile

By Paul Hoskin

Export opportunities for New Zealand companies are immense in southern China, but the risks of a poorly planned and executed market entry plan or growth strategy can be high. Thorough and objective investigation of the market and opportunity is necessary. Engaging with New Zealand businesses to perform market research and develop market-entry plans is the objective of the University of Auckland’s International Business course in the MBA program. In Q3 this year, fourteen New Zealand businesses exporting products and services ranging from baby milk formula to passenger aviation, worked with MBA student teams to investigate opportunities in Hong Kong, Shenzhen, and Guangzhou—markets comprising about 45 million people and where reducing barriers to export under the NZ–China FTA are improving opportunities for New Zealand exporters.

    John Brooks Limited is New Zealand’s leader in the supply of variable speed pump control systems for the dairy and wine industries. The company operates from branches at Auckland, Wellington, and Christchurch. The company engaged with an MBA student team that met with potential manufacturing and distribution partners at Guangzhou. Based on discussions with the Chinese companies and a thorough analysis of the market, the MBA team recommended to John Brooks Ltd that the opportunity in China was profitable and that a three-phase entry strategy be implemented to gain and grow market-share and to protect intellectual property. Responding to the work by the MBA team and the ‘green light’ recommendation to enter the Guangzhou market, the company stated:

 

“The planning and research the team undertook produced a measured strategy for our company over a ten year horizon. The professionalism and diversity [of the MBA team during in-market meetings] … encouraged the confidence for two potential customers to indicate acceptance for immediate negotiations of further business. We could not have wished for a more encouraging outcome for entry into the southern China market that will undoubtedly lead to substantial business.”

—Murray Brooks, September 19, 2011

 

    The International Business course at the Auckland Business School is a point of distinction in the education of New Zealand’s future business leaders. It is a ‘real world’ consultancy that delivers tangible value to client companies such as John Brooks Ltd whilst ensuring that students put rubber on the road and earn genuine in-market experience that they can apply and build on after graduation. This type of education is quantitatively different from other business schools that take students on guided tours of factories and foreign universities. The Auckland Business School program is successful in part because of the network of vital support it receives from organizations such as New Zealand Trade and Enterprise (NZTE), the New Zealand China Trade Association (NZCTA), and the Auckland Council.

    Delivering value to client companies is a nine-month long process. At the start of Q1, students formed into groups and collectively identified Hong Kong and Guangdong Province as the export markets of focus. Potential client companies were researched and contacted. In the months before Q3 in-market research was done, client companies are negotiated with, extensive desk-top research was done, and preliminary reports written. Students had full access to Business School resources including the best business library in Australasia and business academics and consultants. In preparation for the in-market portion of the engagement, the fourteen student teams had market orientation training provided by NZTE staff and members of the executive of NZCTA. Upon arrival at southern China, the teams engaged in a schedule of pre-arranged and impromptu meetings, and other methods of data collection. Final reports were prepared for assessment by the University and client companies at the end of Q3 2011.

    The lessons learned by the MBA teams will be of interest for New Zealand businesses in general. For one reason or another, an assumption that may be valid in New Zealand, may be wrong in southern China and knowledge of this can only be gained by spending time in-market. For example, one company providing IT and GPS solutions for the deployment of emergency vehicles, came to learn from their MBA team that GPS-based deployment in Hong Kong is nearly impossible because of satellite-signal blocking by tall buildings and the highly fragmented services sector in the city. Another company, recently started to export value-added dairy-based products to China, but was advised by their MBA team that product rebranding was necessary to be competitive in the market because the main value promise to the Chinese customer was not getting through with packaging developed for the New Zealand marketplace.

Mixed prospects 

    The teams learned that prospects for exporting to China are mixed for New Zealand companies. Five out of the fourteen teams recommended to their client companies that they do not export to Hong Kong or Guangzhou because of an insurmountable technical issue or the inability to compete effectively on price with a commodity product. Five of the teams, pointing to real differences in the Hong Kong and Guangzhou markets, recommended that their client companies export to Hong Kong but not into southern China. These companies are predominantly producing low-volume niche products for the high-end of the consumer market and move product via local distributors or sell B2B. The remaining four teams recommended that their client companies enter into both the Hong Kong and southern China markets; intriguingly three of these are service-based companies that offer product-service solutions, suggesting that other New Zealand companies with offerings of this kind may find similarly attractive opportunities in these markets.

Play the long game in China

    Several issues facing New Zealand businesses that wish to export to this market were identified by the teams. Firstly, New Zealand businesses need to be prepared to play the long game in China and invest into the market over periods longer than a few Quarters or a few years. Doing business in China is about building relationships and trust with individual people and that takes time. It also takes time to learn the culture: teams felt that whilst the language barrier is an issue, cultural differences are a greater issue. Secondly, companies may have to change their business models to be competitive in these markets; doing things there as they are done at home is not likely to work. One of the MBA teams recommended that their client open a retail store selling an expanded product line in Hong Kong, where in New Zealand, the business is wholesale and with a niche product. Another team recommended that their client target a different customer segment than the one served domestically. Pricing is another issue facing exporters; there is a tendency amongst New Zealand exporters to expect a price premium although this may not be justified by product quality or brand promise. New Zealand firms must work hard to reduce their cost base, but may also need to accept lower margins in order to compete better on price.

Low awareness of ‘brand New Zealand’

    The biggest issue identified by the sixty MBA students was the alarmingly low awareness of ‘brand New Zealand’. The clean, green, nuclear-free, and 100% pure value proposition for the nation’s products does not seem to be penetrating the market. New Zealand companies wishing to enter the Hong Kong and southern China market cannot count on leveraging market knowledge of ‘brand New Zealand’. The reality is that New Zealand companies are typically too under-capitalized to afford big marketing campaigns in large markets like southern China. Alone, they are unable to exert influence in the market and a ‘NZ Inc.’ collaborative approach is needed to promote the nation’s brand, the nation’s products, and to build market power. The role of NZTE, NZ Tourism, Export NZ, and other agencies is key in this regard and ongoing and increased resourcing from the highest levels of government are vital.

    China is increasingly important to New Zealand’s future. In the twelve months ending May 2010, exports to China were worth NZ$4.04 billion to the economy, an increase over 12 months of 24%. For the period ending July 2011, that percentage increase was 35%. The NZ–China FTA will see that rate remain high and China’s relative importance to New Zealand’s future grow. The opportunities are immense and not just for larger companies—John Brooks Ltd is a family-owned SME with only 26 employees—but for those enterprises who have investigated the market and opportunity and have the courage to proceed.

    The Auckland Business School and MBA program is committed to working with New Zealand businesses and is returning to Guangzhou again in 2012. If your company is interested in potentially working with an MBA student team to investigate entry into an export market, please contact Paul Hoskin at p.hoskin@auckland.ac.nz

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

On behalf of the University of Auckland Business School and the Graduate School of Enterprise, Paul Hoskin acknowledges NZTE and NZCTA for their generous in-kind support of the International Business program.