Exporter

Exporter May 2014

The magazine behind NZ's Export drive

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EXPORTER 35 If perception is off you will always be on the back-foot. At the heart is understanding that there are significant culture differences in doing business in China. Relationships (Guanxi) are everything. China needs to be approached with a long-term view. Key to this is persistence, patience, flexibility of mind, and the ability to evaluate your assumptions. "The Chinese don't necessarily want everything Western consumers want, so it is essential that you invest in on-the-ground research," says Zhou. "So talk to someone reputable that's locally based in China; they will be able to provide insights that you may not have access to thousands of kilometres away." Greg Hoffman, director of global freight forwarder Burnard International, echoes this sentiment and notes that freight forwarders are part of the knowledge mix. "Exporters are having success to varying degrees, and a handful of companies have done well for themselves with their distributors, but many are caught up by the complex regulatory environment, supply chain management, and comprehending the size of the market. The Free Trade Agreement doesn't take away the impediments to doing business in China. New Zealand has an open economy and it is simple to do business here, but China is altogether a different kettle of fish. Exporting to China requires thorough research and solid investment." Homework and commitment Market entry entails financial commitment. You will not get very far unless you are willing to spend money. Jacky Leung of Chinese compliance and consultancy firm Union Alpha CPA explains: "To establish your footprint in China you need to do your homework. New Zealand businesses are cost and risk conscious. To mitigate the risk companies need to leverage off third party consultants like market research and brand experts, tax and legal support, and business and customs consultants. A monthly payout in the range of NZD1,500 to NZD5,000 for a period of two years can help a New Zealand company build a solid foundation in China. "With a thorough strategy and disciplined execution, it is possible for a company to start recouping its investment in the first year," says Leung. There are some basic tenets to be followed once you have determined that you want to test the China opportunity. Firstly you need to consider what your company's objectives are in China, and then begin to examine the market, from the potential geographical location of target consumers to the size and nature of the opportunity. Whilst desk research and consultation with home market advisors and Sinophiles will provide some insights, nothing will beat independent up-to-date in-market analysis. Good market entry studies provide practical and actionable findings, and identify any potential roadblocks and weaknesses in your company's product or service offering. Discovery should include: Which markets (at provincial or city level) are suitable for your products? Who are the players in the market? Who are your competitors? How competitive is the market for your products? Through what channels are similar products sold? What are the price differentials? What opportunities, trends, threats or barriers are present in the market, specifically for your brand, product or service? Do your products stand a fighting chance in the new market? Then, and only then, will you be ready to start to build an appropriate strategy for China. If you take the distributor route then you need to be aware of the potential snags in opting for this path. "Exporters have to be involved in promoting their products in China, regardless of how well connected their distributors are," says Tim Zhou. "In the food and beverage sector well- established distributors have access to many channels, from supermarkets to bars and restaurants and so on. The other side of the coin is that they have a portfolio of hundreds of different products from all over the world. They may happily agree to stock your product, but they rarely volunteer for all the marketing work. "Just ask yourself, what's in it for them to promote your product over others? Distributors are realistic. They will not invest in building a brand that they do not own. Your product may very well help them to expand their portfolio, while sitting on their display shelf gathering dust. They're more interested in products with high profit margin that sell well." The key to stepping into a culture you don't know is taking small steps. Do not underestimate the value of market research and due diligence. Find the support you need to make it happen. And, take the time to understand about product fit and consumer behavior, before determining whether your brand is a runner. Jan Bierman is a director of Rare HQ Ltd. Rare HQ recently launched its China market entry Kickstarter packages at http://rarehq.com/china- kickstarter/

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