Commitment needed for China trade

The Dominion Post (New Zealand) | 15 January 2010

Commitment needed for China trade

By PATRICK CREWDSON

We’re the only Western country to boast a free trade deal with China. But are New Zealand companies — and the Government — doing enough to exploit that?

It is 7pm and the busiest shopping intersection in the Shanghai district of Xujiahui — a gigantic mall on each of the four corners - is illuminated by neon and headlights. On a massive screen above the upmarket Orient Shopping Centre plays an incongruous advertisement — verdant landscapes, jagged mountains rising from pristine lakes, and the slogan "100% Pure New Zealand".

It’s a rare moment of visibility for New Zealand in this metropolis.

New Zealander Scott Brown’s Shanghai-based consultancy Redfern Associates went into supermarkets around the city to tally up the number of New Zealand dairy, wine, meat, seafood and snack products they could find. Compared with food and beverage rivals Australia, Chile and France, the results were dismal. Typical were the statistics from one high-end expat- oriented supermarket: just eight New Zealand products (five of them dairy) against 135 from Australia, 86 from Chile and 84 from France.

To be fair, many of Kiwi sales success stories take place behind the scenes. For instance, 80 per cent of pizzas sold in China are topped with Fonterra cheese. And we are probably disproportionately well represented on the menus and wine lists of high-end hotels and restaurants.

But are Kiwi companies doing enough to take advantage of the opportunities offered by our free trade agreement (FTA)?

"The answer to that’s got to be ’no’," Trade Minister Tim Groser says. "But I’m not criticising them. I’m just saying everyone’s got to lift their sights . . . We’ve got a lot of work to do over the next 20 years."

The Government also has to lift its game, the minister says, partly by expanding the number of trade posts. New Zealand Trade and Enterprise (NZTE) is established in Shanghai, Beijing and Guangzhou, and hopes to open offices in Shenzhen and Qingdao in 2010. New Zealand’s consul-general in Shanghai, Michael Swain, considers his top priority supporting New Zealand businesses.

* * *

When experts attempt to diagnose the problem with New Zealand trade efforts, they keep coming back to the c-word.

"It’s all about a commitment hurdle," Mr Brown says.

One of the invited speakers for the Government’s FTA roadshow around New Zealand, Mr Brown says New Zealand companies’ lack of commitment is shown up by the comparatively more successful Old World nations, such as France and the Netherlands, which tend to take more of a longer-term view of the market.

"You’ve got to pick the right staff, you’ve got to get your pricing right, you’ve got to do the right marketing. Yes, and all that’s a bit different because it’s China, of course . . . But the one major ingredient that we miss in being successful in China is commitment."

His views are echoed by NZTE trade commissioner Jeff Shepherd.

"It gets back to companies first of all understanding the commitment that’s required for China. And that’s resource and people and time. This is not a market where you’re going to necessarily make a return or profit in the short term. It requires a significant investment, and not just in money."

The FTA has opened doors for Kiwi companies, but it is not a "magic bullet", he says.

In sync with the signing of the FTA, NZTE expanded its Beachheads mentoring programme to China with a board chaired by Beijing-based expat and old China hand David Mahon. Mr Shepherd says there are half a dozen companies in the programme and another 20 in the pipeline to join in the next year to 18 months.

One company already involved is Actronic Technologies, whose leading product is Loadrite, an on-board measuring system for excavators, rubbish trucks, and other heavy loading equipment. Their Hong Kong-born Asia Regional Manager, Kevin Lai, works out of a tiny office on the 20th floor of a gleaming 45-storey tower also home to NZTE and the New Zealand consulate. Actronic’s products are designed and manufactured in New Zealand, so the Shanghai branch’s role is liaison with their sales and distribution partner, Swiss company Mettler Toledo.

Actronic was accepted into the programme having already established its Shanghai office. Mr Lai says having that presence in China was important for demonstrating to NZTE - and to customers - that Actronic was a serious player.

"A lot of New Zealand companies, they’re actually quite naive. They’re thinking about going to China and they just think, ’Go to China’ and they don’t think beyond that. So they [NZTE] want companies with some exposure and that have started doing business here so they’ve got some idea what to do and where to go."

Mr Lai says tariff reductions under the FTA will give Actronic a "huge advantage" against their Finnish and Italian competitors. His advice to companies looking at China is "do your homework".

"Don’t assume China’s a whole market. Spend some time here. More than one trip. Come here a few times. Really get your own perspective."

For New Zealand exporters part of the challenge is to develop a more nuanced understanding of the market. As former British prime minister Tony Blair wrote in the Wall Street Journal recently, China shouldn’t be viewed as a single mass of 1.3 billion people.

"Think of how we regard the United States — how different California is from Ohio, for example. Then quadruple it," Mr Lai says.

China’s cities are commonly divided into tiers. The first-tier cities are the giants: Shanghai, Beijing, Guangzhou, and Shenzhen. Occupying the next tiers are the provincial centres and satellite cities — such as Chengdu and Hangzhou — which though less populous still often have more people than the whole of New Zealand.

Kiwi companies tend to target the mega-markets of the first-tier cities first — a strategy China Market Research Group managing director Shaun Rein says is a mistake.

"Every brand in the world is here," says the Shanghai-based American, who has a decade’s experience in China. "It’s hard to make yourself known above the din." He says too many companies focus just on Beijing and Shanghai, especially in the luxury sector where New Zealand businesses often operate. "The real battleground is going to be the third and fourth-tier cities."

Likewise Scott Brown, whose customers include Goldman Sachs, Universal McCann, and New Zealand’s Glidepath and Absolute Foods, says Kiwi firms too often swarm on already overserviced channels in the big cities. He suggests a one-firm approach - such as targeting one of the phenomenally popular local hot-pot chains and offering to be their exclusive supplier — or a one city, saturating a single winnable location.

"Why don’t you just pick a small city, the size of New Zealand, and focus all your resources on that one city and sell them what they want? They will be able to take all your production and more. But we’re not thinking like that."

* * *

And then there are the companies and agencies that are involved in selling New Zealand itself - like Tourism New Zealand and Air New Zealand.

Tourism NZ’s consumer campaign - street corner billboards like the one over the Xujiahui shopping district, TV commercials, and advertisements on subway screens — currently only plays in Shanghai but the agency has been funded to extend it to Beijing.

Regional Manager for North Asia Mark Frood believes New Zealand is one of the highest-spending national tourism organisations in Shanghai. "That was a conscious decision to get the brand established," he explains, predicting that other countries will be boosting their advertising presence in the city ahead of the Shanghai 2010 World Expo, which is forecast to attract around 65 million domestic tourists.

The 100% Pure campaign has been operating for two years in Shanghai, running twice a year for bursts of six to eight weeks.

But it’s been a rough year. The number of visitors from mainland China to New Zealand in the year ending September 2009 was down 11.7 per cent on the previous year. Mr Frood says the biggest factor was the swine flu outbreak — "It just gutted our numbers" — but he’s optimistic the market is starting to rebound.

Air NZ operates three direct flights between Shanghai and Auckland each week - down from five in March 2008 - as well as two to Beijing and seven to Hong Kong. Most of the cabin crew are now locally- recruited; eight of the ten crew on each 777 will be Chinese.

North Asia regional general manager Charles Phelps-Penry says as a consumer market China is becoming increasingly like Western nations.

He is looking to the FTA to boost trade volumes, and therefore the amount of cargo shipped on Air NZ, and to lead to an increase in the number of business travellers in each direction.

The FTA is "a fantastic basis on which to build a business opportunity", he says.

"There is an apprehension about China as a market. There is a feeling that it’s a tough one to crack.

"I don’t want to underplay the challenges of the market so don’t take from this that it’s just a breeze, don’t worry, pitch up and life will be fine. But if you just sit where you are and kind of gaze up at it, it’ll never be anything other than a mystery."

NZ CENTRAL ’OUTSTANDING’

It’s not the New Zealand embassy — that’s 1400 kilometres away in Beijing.

It’s not even the consulate — that’s a five-minute taxi ride away on the 16th floor of an office block.

This is something new: a multimillion-dollar national lounge emblazoned with the silver fern and named New Zealand Central.

Owned and run by New Zealand Trade and Enterprise, NZ Central occupies the 950-square- metre second floor of a building across from Shanghai’s most upmarket and Western area, entertainment district Xintiandi.

It cost $2.16 million to set up, and operating costs for the year to 30 June 2009 were $1.2m. Rent alone in the enviably central location is 318,000 yuan (around NZ$65,000) a month.

The point is to be a business lounge, function centre, and ersatz office for Kiwi companies trying to get a foothold in the competitive Shanghai market. When The Dominion Post visits, expat network Kea is hosting a business breakfast at which Dunedin’s operatic mayor Peter Chin stands to sing the national anthem.

Members can invite clients for meetings, use the wireless internet or the computers, host barbecues on the deck, or hire the boardroom, kitchen or event space. Kiwi touches abound, from the birdsong in the lift to the pounamu at reception to the timber on the deck, the Cavalier Bremworth carpet, Formway furniture, to the Goldenhorse and Muttonbirds playing in the lounge. Most staff speak fluent Mandarin and English, and — a rarity in Shanghai — make good coffee.

The companies that designed it — architects Warren and Mahoney, managers Coffey Projects, and Wellington’s Story Inc — are also behind New Zealand’s pavilion for the 2010 Shanghai World Expo.

After a soft opening on February 2 last year, NZ Central was officially opened in April by Prime Minister John Key.

In its first 10 months, it hosted more than 4500 guests at 132 events. Membership packages for companies wanting to use the facilities range from $35 for a day pass to $2300 as an annual rate for five employees.

For Scott Brown of Redfern Associates, NZ Central is an example of the Government stepping up to the plate. "No other country in the world has that in Shanghai. That is outstanding."

Even Australians approve. Craig Aldous of Elders, which imports Australian meat, wine and seafood - as well as a few New Zealand products — describes NZ Central as "world class". "I think that’s a smart thing that the New Zealand Government has done there because a lot of promotion is needed to push the exports."

Patrick Crewdson’s travel to China was supported by the Asia New Zealand Foundation.

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source: Stuff