It’s time to get (more) serious about exporting to China, super power in the making. Joe Parkes looks at what, when, where, how, and who can help you
China’s 1.3 billion people have been invited by their government to a national debate on how it should use its foreign exchange reserves—the world’s largest at more than $1.3 trillion. Australian exporters would like to make a helpful suggestion: buy more of our products and services.
Not that Australians aren’t already doing well. China is Australia’s second biggest trading partner and a massive buyer of commodities, such as iron ore, coal, and copper. But dig-it-up and ship-it-out exports tell only part of the story. A lot of our product and service exporters are also cutting themselves a healthy slice of the China trade pie.
Austrade’s manager for the China market, Beijing-based Senior Trade Commissioner Peter Osborne, says around 3,800 Australian companies are doing business with China, and if you include Hong Kong the figure grows to about 5,000. "Opportunities opening up for Australia’s SMEs in China are extremely diverse," Osborne says. "Currently, the three big winners are mining and resources, food and beverage, and services such as finance, education and training, accounting and taxation.
"The boom in consumer and retail is pulling in an amazing range of Australian products and services, everything from Australian wool quilts to education and architecture, mining equipment and technologies, scientific apparatus, wines, paint, confectionery and biscuits, skin care products, especially organic ones, and the performing arts."
Disney’s huge Lion King production, a major hit in Shanghai, was from Australia. "Australia is supplying China with street performers, rock bands, string quartets, ballet companies, symphony orchestras, and visual arts," he says. "There’s strong interest in Australia right round China, and our suppliers are just as interested in the market."
Australia China Business Council chairman, Kevin Hobgood-Brown, enthusiastically agrees. "The real challenge for Australians is to analyse the market, become familiar with what’s going on in China in their industry, and discover the right niche for their product or service," he says.
As a partner in international law firm Deacons in Sydney, Hobgood-Brown has spent 20 years helping multinationals do business in the Pacific Rim and China. Now he wants our SMEs to succeed using the same strategies. "All the successful corporations use the ‘analyse-and-familiarise’ technique to win Chinese business. China is so vast and complex that even companies with huge capital resources choose their niches carefully—and then concentrate on developing their profiles. And it works for smaller firms too.
"Pick the right opportunities and focus on them over a long period of time. You can make a profit from a passing fad there, but really successful companies take the long view and work hard laying their groundwork."
Leigh Jasper, chief executive officer for Melbourne’s Aconex online document management system, has a slightly different perspective: most of his China clients are international construction firms like America’s Sands Group, which is building a major casino in Macau. "China has the world’s third biggest construction industry—worth US$300 billion a year in building alone," he says. "It is also the world’s second fastest-growing market and will probably become the biggest in the next 10 years."
Peter Osborne says the China market is growing at round 10 percent a year and the demand for variety is becoming wider and deeper all the time.
"China’s booming private sector and its increasingly wealthy middle class are always looking for new products and services," Osborne adds. "Australia has a strong reputation right round China as a supplier of quality services and products, so our exporters are likely to find niche opportunities right across the market, from major urban centres like Guangzhou, Shanghai, and Beijing, to the ‘second tier’ cities like Dalian, Xian, and Kunming.
"These are growing rapidly and are generally less competitive, so SMEs could be better off looking for opportunities in regional centres rather than the hyper-competitive major cities."
Take a city like Xian—famed as the home of the Terra Cotta Warriors. It’s a big city in its own right with a large mining industry where Australian companies are doing very well. It also has a big retail market for Australian products and services in areas such as wine, bed-quilts, cosmetics, and training programs for hotel staff.
At Kunming City, in China’s south near the Vietnam border, there are huge agribusiness, forestry, and cut flower opportunities. Australia is already selling cut flowers and seedlings to Kunming, as well as training for the forestry industry.
Hobgood-Brown applauds Australian firms pursuing niche opportunities in China and urges them to learn from companies with experience there. He advises them to "ramp up their relationships with organisations and people in China and enter the market on a deliberate and gradual basis.
"SMEs don’t have the luxury of a large capital base and a large staff, so they must approach it in a thoughtful manner," he counsels. "Some companies spend months or years preparing for the China market. It’s clear that companies with an established strategy are now well-placed to ride the China surge of economic expansion and influence on the rest of world economy.
"Australian companies know they have to go overseas if they want to build their businesses and, in that context, China is a very significant market."
That’s exactly what happened with Linda Tacey, managing director of Melbourne-based LTD Promotions, which manufactures Charmed beauty products. "Australia is such a small market with so many companies doing the same type of thing, I decided to expand into export," she says. "When I took part in a ‘Celebrate Australia’ event in Shanghai our stand stocked with soaps, bath bombs, and body butters, was swamped."
Business has continued to boom with sales soaring 70 percent per annum for the past six years. "I run a self-funding business and our cash flow is tight, so it’s important that we keep our product range really contained," she adds. "When I start getting sales volumes for one line, I try marketing another. But holding back is important because I don’t want cash flow problems. It’s frustrating, but you have to control yourself."
Pro v Con
Hobgood-Brown’s list of ‘pro’ factors for doing business with China includes its status as an economic powerhouse that will grow in the century ahead. But his list of ‘cons’ includes the fact that China is simply very hard work. "Anyone who has earned a profit there will tell you it demands perseverance," he says.
"It also severely tests your problem-solving skills. Language and China’s different legal system need to be accommodated, and risks to intellectual property will remain a problem for 20 years."
Peter Osborne’s list of pros includes the size and diverse nature of the market and its niche opportunities—geographic and economic. But size is also among his cons because China may be just too large—and a developing economy to boot—for some companies.
"Chinese bus
iness practices are complex, very different to Australia and sometimes not transparent enough," he adds. "And they may not always comply with international business standards, though China is working to change this. Intellectual property rights remain an issue, but Beijing is also trying to do the right thing with IP. Always make sure your IP protection is a priority if your product design could be stolen or copied. China presents a complex landscape to navigate—but obviously it’s possible to succeed because so many Australian firms are doing it."
Fortunately, Australians are not on their own exploring China. Austrade has opened a new office in Xian, bringing its network to 13 offices throughout China plus an office each in Hong Kong and Macau.
"It is the largest network of foreign government offices in China," says Osborne. "No other country has the spread of offices that we do. There’s additional support through the Export Market Development Grants (EMDG) program, managed by Austrade.
"Companies need quite a bit of money to market in China and the EMDG puts back half these costs. Most Australian state governments support China programs or offer support to exporters—some with offices there, others operate through trade missions."
Talks on the proposed Free Trade Agreement (FTA) between China and Australia continue to move forward with the latest round being held in Beijing at the end of March.
"Over time, the FTA should be especially beneficial for our services sector—but that could still be some way off," says Osborne. "My advice is: don’t sit round waiting for the FTA before you move into the market."
Hobgood-Brown believes the chances of an FTA agreement being reached are excellent, and Leigh Jasper thinks the FTA will be of value "as long as they don’t exclude technology from its provisions".
Bonkers for Honkers?
When smaller Australian exporters gear up to approach the mammoth China market, should they tackle it head-on or create a secure launching pad in Hong Kong?
Given that Hong Kong is already a favoured destination for Australian business, the answer might seem to be a foregone conclusion. But is it?
Australia China Business Council chairman, Kevin Hobgood-Brown, says Hong Kong doesn’t work for all companies wanting to export to the Chinese market. "Hong Kong is a very attractive place to do business but it doesn’t work for everyone targeting China."
Leigh Jasper, whose online services firm Aconex services Asia, says Hong Kong and Macau are very different to China. "Both are good markets but if you want to learn about doing business in China itself, you need to go direct," he says. "Hong Kong doesn’t really prepare you for doing business in Shanghai or Beijing."
Linda Tacey, managing director of another China market export success, Charmed beauty products, agrees. "I would also go direct to China," Tacey says. "Our products have to get into China as cheaply as possible, and using a Hong Kong agent only adds to the cost."
Austrade’s manager for China, Peter Osborne, views Hong Kong in a very positive light. "A Hong Kong partner with you in China reduces your risk and helps you get an understanding of the market. They understand China much better than you do and they’re familiar with standard western business practices."
One of Australia’s successes in Hong Kong, PacSafe secure travel packs and accessories, reverses the Australian export process by manufacturing in China and exporting through Hong Kong.
CEO, Rob Schlipper, who hails from Perth, says it is easier from an Australian exporter perspective to set up in Hong Kong because of considerable compliance issues on the mainland. There are tax advantages in choosing China but these may be offset by China’s 17 percent tariff on most goods. Another benefit could be avoiding transhipping charges through Hong Kong, and the inconvenience of border controls. But on the mainland you will need a China partner—or at least get the right advice on how to be structure your operation.
"Personally, I would start in Hong Kong and learn about China by probing the market," he says. "But having said that, I understand Shanghai is much easier for westerners now, and if you’re serious about the market you should immerse yourself in it."
For more information on accessing trade opportunities in Hong Kong, contact the Hong Kong Trade Development Council (http://www.tdctrade.com) or its affiliate, the Hong Kong–Australia Business Association (http://www.hkaba.com.au).
