Thursday, 5th May, 2016

Be in no doubt – A growing middle-class in China's 1.6 billion-strong population is a huge opportunity for New Zealand businesses.

But there are some guidelines for achieving success that Kiwis still need to take on board – from the top echelons of government through to the small business enterprise trading a product or service that China is keen to purchase.

First, the role of our Government is critical for setting a good platform for businesses to be successful and government agencies working with New Zealand exporters is equally important.

A concern I have is that government and government agencies need to step up their engagement with New Zealand’s business community, especially small-medium enterprises.

Second, the importance of cultural differences and trading experience needs to be acknowledged and taken into account.

New Zealand businesses tend to be trusting and biddable. By that I mean that New Zealanders tend to bend over backwards to be accommodating to their Chinese counterparts which sometimes may not – in hindsight – be the best business-practice thing to do.

We are a young trading nation. China is a nation with many thousands of years of trading experience.

Of course, neither the botulism scare nor the 1080 event helped the New Zealand brand or reputation.

But Prime Minister John Key did the right thing. He went into the China market to help secure the New Zealand trading reputation and commitment to the 2008 Free Trade Agreement (FTA). And he has followed up recently with a further successful visit that was supported by 40 New Zealand businesses.

It is my belief that New Zealand businesses serious about trading with China have started to understand that the success of their brands and products depends less on the responses of our local media and much more on the ‘word of mouth’ messaging carried through China’s social media.

Messaging in China from the Prime Minister’s visits has been a critical element for setting a strong reputational platform for Kiwi traders to build on.

But having said that, it remains my strong belief that our government agencies need to step up and be more forceful in setting the rules and standards for New Zealand businesses wanting to operate in China.

For example, before the recent dairy scares New Zealand owned packing houses controlled the supply chain of which businesses had met the standards required for exporting to China. But over the past two years, the Ministry of Primary Industry (MPI) has allowed China to pick which packing houses to accredit for importing from New Zealand.

Instead of allowing China to control which firms export to their market, MPI should set clear rules and standards and be issuing the accreditation.

Our meat trade faces a similar situation.

The result is that some exporters are being outmanoeuvered by others with a privileged position set by China, when it should be our own MPI which sets the standards and accreditation rules for all potential exporters.

I suggest that we don’t want to see the same thing happen for other promising products like honey and water.

Small exporters are the most vulnerable. They are being advised to take on Chinese partners, usually after a lot of market exploration and spending substantial money and time. But what can happen is that the New Zealand business gets into litigation over alleged shortfalls, and New Zealand owners have no choice but to walk away.

New Zealand is not alone in seeing its supply chain ownership shifting into Chinese hands. In 2010 the Brazilian mining giant Vale planned to build about 60 vessels for the iron ore trade but only 18 were delivered. Vale suffered a blow when Beijing banned the ships from docking at Chinese ports, saying they were unsafe.

Last July the ban was lifted but by then Vale had sold or leased the vessels to Chinese owners, including the Chinese shipping giant Cosco Group.

The point: New Zealand businesses and government agencies need to be strongly aligned to our shared ‘national’ interest. That may seem contrary to the tradition of Kiwi businesses and agencies not seeing themselves as part of the same team.

Don’t take me the wrong way either. I am not saying that we should not do business with China because of these events. I am saying, take note of the market and do your homework with your eyes wide open.

There has been a huge growth in trade with China and more stunning success is likely. But the recent bad experience of some reinforces the importance of new exporters, especially SMEs, firstly, taking professional advice from business organisations like the Chamber of Commerce and others with recognized services for exporters.

Secondly, it is critical that an agreement is established with a Chinese counterpart that clearly sets out a letter of credit and payment terms.

Finally, doing business in China – as elsewhere – should not be based simply on trust and or a handshake. Do your homework, use internationally recognized partnerships and distributor agreements and have a business plan that sits alongside and guides your passion.

For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett, Chief Executive, Auckland Chamber of Commerce.