Exporter March 2012 by Adrenalin Publishing Ltd

issue 22 MAR/APr 2012

CLEANING UP IN INDIA • SE ASIA: TELLING IT LIKE IT IS • GLOBALISATION: IS YOUR SUPPLY CHAIN READY?

THE MAGAZINE BEHIND NZ’S EXPORT DRIVE

Where West still meets East Exporting to, and through, Hong Kong

$8.20 Inc GST

> Easing > the pain of exchange rate fluctuations > Legal > advice for exporters: the devil’s in the detail > 2012 > NZ International Business Awards preview

> C ontents

> FEATURES

20 > COVER STORY 2 0 WHERE WEST STILL MEETS EAST July 1 this year marks the 15th anniversary of Hong Kong becoming a Special Administrative Region of the People’s Republic of China. So how is the ‘One Country, Two Systems’ concept playing out in the 21st century? Most importantly, what opportunities does the region offer for New Zealand’s exporters? Exporter editor Glenn Baker went to ‘Asia’s World City’ for some answers.

1 0 CELEBRATING OUR EXPORT HEROES Exporter previews the 2012 New Zealand International Business Awards.

2 8 HEALTHY HEDGING Hedging is a common way for export companies to iron out any fluctuations in the foreign currencies they trade in. Yoke Har Lee has some valuable lessons from the experts.

3 2 THE DEVIL IS IN THE DETAIL The road to export markets is fraught with potential legal potholes, from distribution contracts to IP protection, local rules and regulations to dispute resolution. Mary MacKinven gets some legal advice.

4 4 RIDING THE APP STORE SUCCESS WAVE

B ill Bennett looks at the ‘app’ marketplace and some of the Kiwi developers riding the world’s ‘app economy’ bandwagon.

4 6 GLOBALISATION: IS YOUR SUPPLY CHAIN GEARED FOR IT?

hy New Zealand companies must acknowledge W globalisation as an opportunity and optimise their supply chains to suit the new market expectations.

49 FAIRS & EVENTS 5 2 VIEWPOINT 5 5 MARKET WATCH

40 > EXPORTER PROFILES

> MARKET INTELLIGENCE 38 TELLING IT LIKE IT IS

12 IN THE BUSINESS OF THE LAND AND SEA

K eith Palmer, CEO of Wakatu, talks about his organisation’s rapid rise to become an international R&D marketing company.

4 0 THAILAND BOUNCES BACK

14 CLEANING UP IN INDIA

D unedin-based franchise CrestClean has quickly established a presence in the Indian market.

16 EXPORTING THE WORLD’S BEST SHORTBREAD David and Rita Bell have packed a lot into their business careers. Colin Bass has their story.

18 LESSONS FROM EUROPE ‘Nothing ventured, nothing gained’ is the attitude that took Elisabeth Siegmund to the other side of the world in search of sales.

1 EXPORTER

O n January 26, a group of leading food and beverage exporters gathered in Auckland for a workshop on export sales to Southeast Asia. Exporter was there.

he floods have gone, some distribution challenges T still remain, and Thailand holds much promise for New Zealand’s food and beverage exporters.

4 2 GETTING NOTICED IN CHINA

F rank Li, New Zealand Trade Centre’s Asian development manager, chats about his objectives for a trade mission to Hong Kong and China.

5 0 GLOBAL STAGE Innovative Kiwi products seeking a worldwide audience.

NEXT ISSUE: MAy 2012

> EDITOR’S LETTER EDITOR

Asia our future

Glenn Baker. editor@exportermagazine.co.nz ADVERTISING MANAGER Leanne Moss. Leanne@exportermagazine.co.nz

It has been around three months since my visit to Hong Kong, but the impressions of the city will stay with me for a lifetime. That’s because Hong Kong is one of those unique places

ADVERTISING ASSISTANT Rachel Witberg. Rachel@exportermagazine.co.nz DESIGN AND PRODUCTION Hartman Reid. hartman@adrenalin.co.nz

in the world that leaves an indelible mark; it’s a vital trading hub and a place of rich contrasts between East and West. If you’re

JOINT PUBLISHERS Cathy Parker. cathy@adrenalin.co.nz Yvonne Carter. yvonnec@xtra.co.nz

targeting China with your products or services, or perhaps just Hong Kong, I hope our lead story gives you a taste of what to expect and a better understanding of those

SUBSCRIPTIONS/ENQUIRIES Hilary Keen. subs@exportermagazine.co.nz CIRCULATION MANAGER

markets. It’s hard to fully grasp a market in just one short trip and as I was

Kim McIntosh. kim@adrenalin.co.nz

a guest of the Hong Kong Trade Development Council I couldn’t just swan

PROOF READING

off and talk to anyone. So my story is based on the experiences of three Kiwis whom I caught up with while there, each involved in the China/Hong Kong market in different capacities. My thanks to HKTDC and Cathay Pacific for the chance to visit that fascinating, bustling city and further educate Exporter readers on the potential market opportunities. Of course, Hong Kong’s fortunes are increasingly dependent on the economic development of China. The same can be said for New Zealand’s – and this fact’s not lost on David Green, ANZ New Zealand’s institutional managing director. Green says the recent launch of the New Zealand Government’s China strategy was a good plan to strengthen economic and political ties between the two countries. He also believes that New Zealanders must change their mindset on China if we are to ultimately succeed. He says New Zealanders need to see China the way that past generations saw the UK as the key driver of demand for international trade in our region. “It’s clear our economic future is linked to opportunities closer to home, in Asia and China in particular.” Green also says we must develop a deeper understanding and acceptance of China in our lives to really make the most of this opportunity – this will be challenging for some New Zealanders who demonstrate a lack of knowledge and respect. The new reality for future generations of Kiwis is that they will have to look to China to build their careers, to sell their products and, increasingly, for cultural identity, he says, and “businesspeople who have a deep understanding and acceptance of China and its people are the ones who do best”. I couldn’t agree more.

George Ward CONTRIBUTORS THIS ISSUE Cameron Bagrie, Colin Bass, Catherine Beard, Bill Bennett, Gary Cross, Cameron Gordon, Yoke Har Lee, Ikhlaq Kashkari, Mary MacKinven, John Walley. Adrenalin Publishing Ltd. 14C Vega Place, Mairangi Bay. PO Box 65 092 Mairangi Bay, Auckland 0754. Ph: 09 478 4771 Fax: 09 478 4779 SUBSCRIPTIONS Exporter is a 5 issue magazine. Subscription in New Zealand is $41 (incl GST). Please call us for overseas rates. Copyright: Exporter is copyright and may not be reproduced in whole or in part without the written permission of the publisher. Neither editorial opinions expressed nor facts stated in advertisements are necessarily agreed to by the editor or publisher of Exporter and, whilst all efforts are made to ensure accuracy, no responsibility will be taken by the publishers for inaccurate information, or for any consequences of reliance on this information. Printing: GEON Distribution: Gordon and Gotch ISSN 2230-6528 (Print) ISSN 2253-2730 (Online) ISSUE 22 www.exportermagazine.co.nz

Glenn H. Baker editor@exportermagazine.co.nz

2 EXPORTER

Ben Anderson

Partner Lonergan Partners Chair North America Beachheads ON: Route to market & in market talent management

Simon McDonald

CEO Triodent ENZ BOP Award Winner 2011 ON: Secrets to international success

Vijay Crishna

Executive Director Lawkim Motors Group & Chair India Beachhead Advisory Board INTERNATIONAL KEYNOTE: Doing business with India – how to be successful in an emerging market

We have an awesome line-up of international speakers for GO GLOBAL 2012, including NZTE’s CEO and Beachhead Advisors who are highly successful business people from various markets around the world, as well as real stories from New Zealand exporters who are making good all round the world. With 3 key themes this year of Route to market and distribution channels; Innovation, IP, & R&D; and Marketing & Market research you will leave informed and armed to take on the world. Don’t miss out on this opportunity to network with like minded exporters. If you are an exporter or thinking about taking your business to the world then this is the place to be and these are the people to meet.

Michael Stedman

CEO Natural History New Zealand

PRESENTED BY

KEYNOTE: How NZ Leads the world

REGISTRATION DETAILS Date:

Thursday, 22nd March 2012

Neil Cowie

Time:

8.30am - 5.10pm

ON: Lessons we have learnt

Venue: SkyCity Convention Centre 88 Federal Street Auckland

CEO Pumpkin Patch NZTE International Business Award Winner 2010

Cost:

MAJOR PARTNERS

EMA Members: $199 + GST Non Members: $249 + GST

EXPORTNZ NATIONAL SPONSORS

www.nzgoglobal.co.nz

> MAKING NEWS

Burgers for Qatar

urgerFuel Worldwide recently signed the master licence agreement to roll out BurgerFuel stores across Qatar, adding to the list of the New Zealand company’s MENA (Middle East, North Africa) territories. Existing agreements are already in place for the UAE, Saudi Arabia, Bahrain, Iraq, and Egypt. BurgerFuel has partnered with the Al Siddiqi Group (SIG), well known in Qatar for a wide range of business activities. BurgerFuel’s CEO of International Markets, Chris Mason, who is based in Dubai, says, “Qatar is

another significant market for BurgerFuel and further substantial expansion is under way over the next decade in preparation for the upcoming FIFA World Cup.” BurgerFuel Worldwide CEO Josef Roberts added that, “Our strategy of finding key entrepreneurial partners who are both financially strong and passionate about BurgerFuel in each country ensures that our future growth will be both rapid and sustainable.” BurgerFuel Worldwide is a finalist in the 2012 NZ International Business Awards.

BFW directors Josef Roberts (left) and Chris Mason with partner Sheik Mohamed Siddiqi.

Diploma opens export doors

auranga exporter Janine Cooney is the latest to complete professional exams with the New Zealand School of Export, passing with distinction. Janine and husband Matt own Trench It Industries, a company with more than 25 years experience in the trenching industry and a goal to be globally recognised. When the Cooneys purchased the business ten years ago they

4 EXPORTER

knew that the local market was too small for their trenching machinery business to grow to expectations – so they began looking at establishing export markets. They have also recently set up a new joint venture company to manufacture their trenching machinery so that they can spend more time on the export and marketing side of the business. Trench It currently sells into Australia,

Asia and the UK, with the US market also showing interest. “The Diploma of International Trade has helped us really focus on where we need to go with our exporting, how to get there and to have a plan to put all this into action,” says Janine. “As exporting was a new and unknown direction for us, it was important to understand everything involved, such as choosing which markets to enter, how to deal with the logistics of getting our machinery to the end-user and making sure we got paid on time and in full – the course covers all of this and much more.” The New Zealand School of Export is registered to accept NZTE Capability Development Vouchers. This means that eligible companies can receive 50 percent of their fees through the NZTE scheme.

> MAKING NEWS

Auckland Airport opens Emperor Lounge

uckland Airport’s new premium lounge facility caters for all international travellers regardless of which airline they are flying with. The Emperor Lounge provides choice for passengers who don’t have an airline lounge membership but would like to access a premium lounge facility. Jackie Neville, manager, passenger product for Auckland Airport, says the lounge has all the services and conveniences of a regular travel lounge and is conveniently located close to other airline lounges and the retail area. It features freshlymade light meals (including halal)

and snacks, complimentary drinks, shower and bathroom facilities, complimentary Wi-Fi access and secluded study areas. The lounge is also used by international airlines that don’t have a dedicated on-site lounge but want to offer this service to business class passengers. Malaysia Airlines, for example, currently use it for their premium customers. Entry can be pre-booked online at www.aucklandairport.co.nz from $49 per person. Opening hours are 6am to 11pm.

We congratulate the finalists of the New Zealand International Business Awards Successful businesses are known for their innovation and strong leadership. This is exactly what the finalists of the New Zealand Trade and Enterprise 2012 New Zealand International Business Awards have demonstrated. They’ve pushed the boundaries locally and internationally over a wide range of fields. They’ve thought differently, acted decisively and taken advantage of opportunities to grow

ANZ National Bank Limited 02/12

their business. New Zealand’s economy needs businesses who can identify growth markets, supply innovative products and services and adapt to changing markets. We’re proud to be the Strategic Partner of the Awards because when New Zealand businesses succeed, New Zealand succeeds. To see a list of this year’s finalists, visit nzte.govt.nz/awards.

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> MAKING NEWS

The quiet achiever

recent NZTE study has revealed that the New Zealand natural products industry has now exceeded $1 billion in revenue. Michelle Palmer, executive director of Natural Products New Zealand, says the industry has been the ‘quiet achiever’ of the New Zealand economy through the challenging global economic conditions. “Companies have continued to innovate and develop new markets through strong research and persistence, making the natural products industry now larger than the biotechnology and organics industries

combined,” says Palmer. Of the total revenue reported by the survey respondents, the industry derives 71 percent of revenue through exports. Health supplements lead the different types of bioactivities driven by exports (58 percent of respondents), followed by functional ingredients and functional foods. On average, businesses involved in functional ingredients generate the biggest export revenue. In the domestic market, businesses involved in supplements and cosmeceuticals – both finished product and ingredients – generate the biggest

revenue. New Zealand cosmeceuticals are also increasing in popularity with international markets. “There are many uniquely New Zealand ingredients with recognised health benefits that are highly prized by overseas markets due to our reputation for quality, efficacy and safety. With the imminent introduction of a regulatory system here, natural products companies will be able to more effectively market to countries with a high level of regulation,” says Palmer. Essentially New Zealand is a natural products company that falls outside the ‘normal, supplements companies. It produces Totarol, a powerful antibacterial and antioxidant agent found in dead totara trees, which is used in some of the world’s largest consumer brands including L’Oreal. Raw product is gathered from fallen Totara trees, old fence posts and wood from demolished buildings – and using a patented extraction process the 100 percent natural and organic product is created. Totarol is used in cosmetics, skin care and dental care. New Zealand brands using the agent include Living Nature, Red Seal and Oral Care. Over 80 percent of Essentially New Zealand’s business is exported to around 18 countries.

Database links science with business

he Kiwi Innovation Network (KiwiNet) has launched an online innovation database which enables businesses, entrepreneurs and investors worldwide to view a diverse range of technologies and expertise in New Zealand’s research organisations. The KiwiNet Innovation Database aims to facilitate collaborations between complementary technologies and increase investor and industry connections by showcasing the commercialisation capability and distinctive portfolio of innovations New Zealand has to offer. KiwiNet, a consortium of New

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Zealand research organisations dedicated to taking a collaborative approach to research commercialisation, designed the database to act as a shop window to view up-to-date research projects, inventions and patents from across New Zealand. “The KiwiNet Innovation Database is designed to jumpstart the transfer of research technology to the marketplace by bringing together science and business,” says KiwiNet director Andrew Turnbull. “We have a wealth of innovations in our universities and research institutes

and by opening up access and working together we can unlock great value.” Examples of projects seeking investors or industry involvement range from biopesticides and biologically based growth promotants, to artificial muscle materials which can allow users to power and wear devices, to unique electrochemical cells which allow cheap and effective removal of contaminants to provide clean drinking water for cattle. To access the KiwiNet Innovation Database visit www.kiwinet.org.nz/ fsearch.aspx

> MAKING NEWS

FTA puts Indonesia on radar

n January Indonesia became the final country to join the ASEAN-AustraliaNew Zealand Free Trade Agreement (FTA), presenting a significant opportunity for New Zealand exporters and importers to do business with this emerging economy. Indonesia’s GDP growth is forecast to be 6.1 percent in 2012 and 6.5 percent in 2013. Cath Henry, head of global payments and cash management at HSBC New Zealand, says Indonesia is set to be one of New Zealand’s top ten fastest growing trade corridors, with trade over the next five years set to grow at an annualised

rate in excess of seven percent and by 2025 grow at an annualised rate over five percent. The fact that Indonesia has now joined the FTA suggests that trade growth could increase even further, she says. “With economists predicting strong GDP growth for the year, Indonesia looks set to be one of the shining stars of Southeast Asia and lead growth for the region. Looking even further ahead, growth in Indonesia should hold up well, sustained by domestic demand, which is being fuelled by factors, such as demographics, rising incomes and urbanisation – which points to nothing

but opportunities for our food and agricultural producers. “However, like many of the emerging markets it’s essential that New Zealand businesses do their homework before they consider trading with Indonesia. For example, the Indonesia Rupiah (IDR) is still a restricted currency which can’t be remitted outside of the country so payments into and out of the country can require careful consideration. In addition, the documentation required to support payments can be viewed as being challenging, but the rewards of doing business with this emerging market far outweigh any difficulties.”

Entrepreneur’s global aspirations

iwi entrepreneur Don Saunders has a business model that he plans to take global. His manufacturing company CaterCart Limited (CCL) operates out of a small base in the Waikato, designing and hand-making state-of-the-art vending carts under the trademark Tuckerupper for use by sole operators and organisations. Saunders aims to make Tuckerupper the world’s most successful vending cart manufacturer in qualitative terms and has worked with engineers and catering professionals to design visually appealing and enduring food vending carts that accommodate a range of food service units and options. Saunders’s believes that joint venture agreements are the best way to develop export markets and while his sights are firmly set on partnerships overseas, in the short-term his primary aim is to work with New Zealand

business owners and give them a rare opportunity – the chance to become a sole trader without huge financial outlay. The entry level cost for a Tuckerupper base cart and canopy is less than $6,000 + GST, with inserts extra. Tuckerupper is branded on every cart, accessories and packaging, and operators wanting the franchise option will do so under the Tuckerupper brand. ‘Hot housing’ CCL’s business model in New Zealand first also means that Saunders can perfect it before exporting the model overseas. He believes street vending offers a city more vibrancy and enhances the visual experience, as evidenced in Auckland’s newest waterfront development, the Wynyard Quarter. CCL’s vending carts have been designed with mobility and a multiplicity of hot and cold catering options in mind – from ice cream to hot

dogs – utilising sophisticated heating and cooling technology. The freezer component of Tuckupper carts provides up to eight hours of freezing time when battery operated. “We may not crank out the highest volume of carts, but we will make the most sophisticated – both in appearance and technology,” says Saunders,

“and have the best build quality and technical backup service capability, coupled to committed customer support systems. These qualities will ensure CCL machines are the most coveted by operators where a premium is able to be charged that ensures good profitability for our joint venture partners and us.”

EXPORTER 7

> MAKING NEWS

Origin declaration update

f you export to Australia you should know that as of 1 January, 2012 Australian Customs no longer accepts the traditional P50 preference declaration for goods originating from New Zealand. The Australian Customs Notice 2011/33 refers to this change and samples of the new accepted wording are available at: www. customs.gov.au/webdata/ resources/files/ANZCERTA_ SampleManDecs.pdf . To help understand the change, Exporter put the following questions to Glenn Coldham, NZ customs manager for DHL Global Forwarding (NZ) Limited: Q1: What is the background to the P50 preference declaration and why is Australian Customs no longer accepting the wording listed? GC: The Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) came into force in 1983 and was designed to provide a comprehensive and wideranging agreement with liberal access to each other’s goods, services and investment markets. These latest amendments came into effect on 1 January 2007 and can be observed in the following link to the Instruction and Guidelines for this Agreement: www.customs.gov.au/webdata/ resources/files/PS200913-ig-Aus-NZCloser_Economic_Relations_Trade_ Agreement.pdf The 2007 rules reflected a major change from the earlier regime. For most tariff lines, there was a shift away from product specific rules of origin based solely on the factory costs regional value content method to determine whether goods were originating goods to product specific rules based on the ‘change in tariff classification’ method. (These rules are set out in Annex G to the Agreement.) The changes appear to be aimed at simplifying the process to claim

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preference under ANZCERTA with the removal of some of the complex exceptions to change of tariff classification under the original Agreement. The essential rules, however, have not changed in that the benefits of the Agreement only extend to the goods manufactured or produced by the countries party to this Agreement. The changes to the Agreement will reduce the administrative burden on business and facilitate the eligibility for dutyfree entry of goods into both markets. The changes will also provide greater consistency between the rules of origin in the Agreement and those in other FTAs entered into by Australia. Therefore, to accommodate the amendments, the manufacturer/ exporter must now ensure they fully understand the criteria in each category for making a New Zealand origin preference claim as opposed to previously, where the “one size fits all” solution of the one declaration wording being provided to meet all scenarios. Q2: What steps should exporters take to ensure that they experience no holdups? GC: New Zealand Customs have an excellent Fact Sheet 20, “ANZCERTA – Information about Rules of Origin” on the following web link: www.customs. govt.nz/news/resources/factsheets/ Documents/Fact%20Sheet%2020. pdf which also provides details of the Valuation and Origin Section that can provide advice on any Rules of Origin questions. We recommend all exporters take advantage of this option if any doubt or confusion remains after the due diligence process. Certificates of origin are no longer required, and the wording of the applicable origin qualifying category can be added to the commercial invoice document. However, the responsibility rests with the exporter to be able to support this claim at any time in the future should the Customs Administration

of either country make this subsequent request. This is a “self assessment” process with the exporter needing to understand the applicability of the category they have selected and, whilst they can consult in making that selection, cannot rely on their freight forwarder or customs broker to make that decision for them. Q3: Do you anticipate any other problems as a result of this policy change? GC: Any declaration claiming New Zealand Preference must be able to be substantiated at a later date. The penalties that may be imposed by Australian Customs for false preference claims can be significant and can be backdated. Providing exporters take care to exercise due diligence and seek assistance as required, then the policy change should have minimal effect other than to simplify the process of determining whether preference may be claimed.

Glenn Coldham

The book that backs our export drive

Newly updATed for 2012 The New Zealand Export and Trade Handbook continues to be a vital reference guide for Kiwi exporters and importers.

Available Now! As the world economy stumbles from one crisis to another, it has never been more important to ensure that you have the best information and help available when trading internationally. The 2012 Edition of the New Zealand Export & Trade Handbook has again

proved to be the best publication available to our exporters and includes a wealth of useful information as well as key contacts that can provide assistance. If you are going to buy one book on the practicalities of exporting, make it this one! Rom Rudzki, Founder New Zealand School of Export.

To order your copy call Hilary Keen (09) 478 4771 or email: Hilary@adrenalin.co.nz Purchase on-line at www.exportandtrade.co.nz EXPORTER 9

> AWA R D S P R E V I E W

r u o g n i t a r b e l Ce s e o r e h t r o p x e

f there’s one fact that pretty much all politicians and business leaders are agreed on, it’s the fact that if the New Zealand economy is to continue its recovery from the knock-down effects of the worldwide economic recession, that recovery has to be export led. The prestigious International Business Awards, to be announced at the Langham Hotel in Auckland on March 21st, recognise many of the companies and business leaders that are helping to spearhead that export drive. Organised by New Zealand Trade and Enterprise (NZTE) and strategic partner ANZ, the Awards this year showcase 27 companies covering a wide range of industries and regions. “This year’s finalists are using our country’s world-class technology, reputation and skills to develop highvalue brands and push out into new markets,” says NZTE chief executive Peter Chrisp. “These are ambitious, internationally-focused businesses that New Zealanders should be proud of.” David Green, MD, Institutional New Zealand at ANZ, says New Zealand companies were capitalising on the

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While 2011 was a time for this country’s sporting heroes to be centre stage, the night of Wednesday 21 March, 2012 is a time for the nation to pay tribute to our international business heroes who are working hard to contribute to the New Zealand economy by opening in new markets and building export sales. Exporter previews the 2012 New Zealand International Business Awards. growing global demand for diversity of products which New Zealand produces well. “While global economic confidence has declined, our export growth is evidence of a domestic economy which is favourably positioned for global trade flows. The 2012 finalists reflect New Zealand’s progressive move away from our traditional markets. “Historically, 80 percent of our exports went to Europe and the Americas, the majority to the UK. We now have a fast-growing market closer to our own shores, with around two-thirds of all exports going to Asia, Australia and the Pacific, opening up new opportunities for growth.” This year the Ministry of Science and Innovation (MSI) supports four Special Category Awards to recognise excellence in R&D, IP, design, and innovative ways of doing business. MSI chief executive Murray Bain says the Special Category finalists each had a unique story to share about particular

aspects of doing business globally. “However, one of the things they all have in common is that coming from New Zealand, getting noticed on the world stage is a major challenge. I’m proud to say the Special Category finalists have been innovative in getting themselves on the map, and I’m looking forward to watching them continue to develop.” In 2010 the supreme award went to Pumpkin Patch, while the leadership categories were won by Steve Wilson and John Brakenridge. This year the Leadership Awards are back, supported by KPMG as part of the broader awards programme. Contenders in the ‘Emerging Leader’ category are Tony Egan, who recently returned to run the family business (Greenlea Premier Meats); Sarah Gibbs, co-founder of natural skincare brand Trilogy; Keith Oliver of Compac Sorting Equipment; Bryn Thompson, the owner of Metalcraft Engineering; and Brian Russell, the

founder of bioharness pioneer Zephyr Technology. The ‘Outstanding Leader’ category is a three horse race: Sir Graeme Douglas of Douglas Pharmaceuticals; Neville Jordan, the driving force behind MAS Technology and its successors; and Tom Thomson, who heads plastic extrusion company Elastomer and innovative Christchurch recycling company Comspec. NZTE’s Peter Chrisp says it is important to recognise the role great leadership plays in the international success of New Zealand’s companies.

“From governance roles through to hands-on managers, these eight business people demonstrate how strong and visionary leadership helps build globallyambitious businesses. We can all learn something from the way they build teams, articulate their vision, motivate their people and achieve results,” he says. Ross Buckley, KPMG executive chairman, says it is fantastic to have eight business leaders from a broad range of industries as finalists in the leadership categories. “The contribution that these eight

visionary business leaders are making to the New Zealand economy must be applauded. “Succeeding internationally in the current economic environment requires decisive leadership, a global mindset and the ability to cut through complexity; something that these individuals share in common.” For full coverage of the 2012 New Zealand International Business Awards winners, check out the April edition of NZBusiness magazine, or go to www.nzte.govt.nz.

The finalists Eight business leaders and 27 companies made it through to the finals of the 2012 New Zealand International Business Awards: General category: Best Business Operating Internationally – Under $10m ASPEQ Wellington BioVittoria Hamilton Christchurch Energy Mad Escea Dunedin Auckland Fastmount Best Business Operating Internationally – $10m-$50m Altitude Aerospace Interiors Auckland Hamilton Canary Enterprises EasiYo Products Auckland Les Mills International Auckland Trilogy Advanced Natural Skincare Wellington Triodent Katikati Auckland Vista Entertainment Solutions Best Business Operating Internationally – Over $50m BCS Auckland Auckland Buckley Systems Christchurch Engine Centre Christchurch Downer NZ Tauranga Auckland Orion Health Rakon Auckland SKOPE Christchurch Tait Electronics Christchurch Westland Milk Products Hokitika

Special category: Supported by the Ministry of Science and Innovation Best Use of Research and Development in International Business Downer NZ Auckland Christchurch Energy Mad Sepere Dunedin Auckland Technopak Westland Milk Products Hokitika

Best Commercialisation of Intellectual Property in International Business Burger Fuel Auckland Everedge IP Auckland Westland Milk Products Hokitika Best Use of Design in International Business ASPEQ Wellington Canary Enterprises Hamilton Energy Mad Christchurch Sistema Plastics Auckland Katikati Triodent Most Innovative Business Model in International Business Burger Fuel Auckland Energy Mad Christchurch GMP Pharmaceuticals Auckland

Leadership category: Supported by KPMG Emerging Leader in International Business Tony Egan Auckland Sarah Gibbs Wellington Keith Oliver Auckland Bryn Thompson Christchurch Brian Russell Auckland Outstanding Leader in International Business Sir Graeme Douglas Auckland Neville Jordan Wellington Tom Thomson Christchurch

Follow the finalists on twitter@nzte_iba or online at www.nzte.govt.nz/awards

EXPORTER 11

> EXPORTER PROFILE

In the business of the land and sea Dissatisfied at the bottom of the food chain farming the land, Keith Palmer, CEO of Wakatu Incorporation, talks about his organisation’s rapid rise to become an international R&D marketing company. BY COL I N B ASS

akatu is founded on a wealth of history. Covering the top of the South Island, the organisation’s 3000 owners descend from the original Maori landowners of the Nelson, Tasman, and Golden Bay regions. To cut a long story short, the New Zealand Land Company purchased this piece of paradise in 1840 on the proviso that ten percent was retained in Maori hands. It didn’t take long before the land was placed into the stewardship of a Government-run Maori Trustee and with time it became unclear where the benefits of the trust were being directed. Fast forward 100 years to 1977 and the original owners regain control of their land. Wakatu was formed under the Maori Reserved Land Act, which restricted the organisation to only farm or collect rent on the land. Once the Act was amended in the1980s the organisation began managing its land more effectively, buying some of the orchards that leased the land and

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buying a cool store to add value to its produce. 1998 saw the arrival of Keith Palmer as CEO of Wakatu. At that time he was responsible for four full-time employees and three orchards. Today the company employs 400 people managing assets worth $250 million dollars. It exports fruit, seafood and wine to 25 markets under the Kono brand (Kono is Maori for ‘food basket’). “Our exporting success has been driven by the realisation that as farmers we were at the bottom of the food chain,” says Keith. “Apart from dairying, farmers often end up the peasants. We didn’t want that for our future generations.” The organisation’s purpose is firmly focused on providing for future generations of its numerous owners while retaining a strong connection to ancestral history. “Our scholarship programme offers any whanau member of the organisation’s owners the opportunity to study any area that relates in some

way to the organisation’s activities,” says Keith. “And it is the alumni of this programme that the organisation charges with setting Te Pae Tawhiti – the organisation’s vision and purpose for at least the next century. “Great governance is key to future success. So once these alumni have successfully bedded into the organisation we encourage them to take on our two-year Associate Director programme. Here they shadow directors on our boards before being inducted onto a board themselves. In this way our future generations play a key role in providing for the involvement of future generations.” In 1998, with the aid of research carried out on adding value to Maori land holdings, Wakatu embarked on the production of wine. “This was our first step into exporting,” recalls Keith. “It was possible to source plenty of grapes locally and the region was becoming better known for it. So we went for it.” Today Wakatu Inc is one of New

Zealand’s largest regional exporters with more than 100,000 cases leaving our shores annually. Surprisingly half goes to the traditionally challenging US market. As their experience grew with exporting wine Wakatu began to recognise the immense opportunity in the growing aquaculture industry. “With 90 percent of New Zealand’s aquaculture production going offshore it was a natural fit with our exporting vision,” Keith explains. They commenced aquaculture operations in 2000. Premium food for the world With the growing view that New Zealand’s future lay in providing fresh produce to the world, exporting Wakatu’s traditional horticultural crops naturally formed the triad of vertically-

integrated operations now marketed internationally under the Kono brand. Keith sees the organisation’s position with absolute clarity. “If you look at Australia, they are committed to minerals, which is understandable. For us in New Zealand it makes complete sense to continue building our international reputation for producing great premium food. With supply under pressure from growing global demand, we are committed to building our business on produce from the land and sea.” Looking back it hasn’t always been easy. “You have to understand how

distribution systems work in your destination markets. And that only really comes with trial and error,” says Keith. “In the US we initially hired a US natural to represent us. Then in the UK, a Kiwi expat. These options didn’t work. We then tried two joint ventures. They didn’t work either. We then engaged someone who was meant to sell our seafood – only for him to contract our most successful wine distributor. You never get it right first time.” When asked which markets excite him the most, Keith’s response is interesting. “With the shift in wealth moving from West to East, we are looking to Asia for future growth. It is hugely helpful that we share cultural similarities with Asia. At meetings in China we recognise our ancestors and elders before recognising each other. We give respect to the Gods

of the earth, sky and sea before getting into business. It’s an hour before we discuss product,” Keith explains. “In the US you have lawyers in every meeting and the focus is on contract. In Asia the focus is on relationships and trust. It may take two years to build that respect but we are looking for relationships that endure 20 years or more.” And with three different product lines, Wakatu’s experience in Asian markets shows that it is easier to sell all three to one client than in Western markets. “We have a great relationship with our best customer in the US, a significant

KEY TAKEAWAYS >> In New Zealand it makes complete sense to continue building our international reputation for producing great premium food. >> Understand how distribution systems work in your destination markets. It only comes with trial and error. >> In the US you have lawyers in every meeting and the focus is on contract. In Asia the focus is on relationships and trust.

supermarket chain, who takes the majority of our wine. So you’d think we would be able to get in with the seafood purchaser. Unfortunately our man can’t even get us in front of him. “The same wouldn’t happen in Asia and that makes our international marketing efforts that much more efficient,” explains Keith. And the bold suggestion that Wakatu is research and development focused? “We have recently entered a joint venture with the third-largest aquaculture company in China on the production of sea cucumber. It’s an exciting transfer of technology that could open up huge opportunities for us. We have also obtained a license to run trials on harvesting Undaria seaweed off our mussels for use in sushi. With people moving from red meat to fish, aquaculture is where we are investing our R&D dollars,” says Keith with great excitement. (Undaria seaweed is a popular food source in Japan, Korea and China.) So for the 3000 shareholders of Wakatu and their offspring, the future looks very rosy indeed. And New Zealand could well benefit from the cultural similarities and strong ties this organisation has with Asia. Colin Bass is a Nelson-based freelance writer. Email colin.bizlab@gmail.com

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Cleaning up in India Dunedin-based franchise CrestClean has quickly and rather quietly established a considerable presence in the Indian market. Exporter magazine spoke to managing director Grant McLauchlan about the journey so far.

One of the many new office buildings that require cleaning.

BY G lenn baker

or most New Zealand companies with global aspirations, Australia seems to be the logical first step. In 2006 Dunedin-based CrestClean, a commercial and domestic cleaning franchise, took a serious look at the Australian market for expansion. CrestClean’s managing director Grant McLauchlan recalls being market–ready, having commissioned Australian consultants. “But after further consideration over the Christmas break we pulled back, due to Australia being a largely mature marketplace and the onerous industrial relations compliances required.” Australia has since been put on the backburner for possible future consideration, he says. Then surprisingly, a little more than two years later, the company successfully launched its first franchise in India. So how did this remarkable refocus and Crest India come about? “We were fortunate that in 2002 Indian nationals Ajit and Shikha Jain

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joined CrestClean as franchisees in Hamilton,” says McLauchlan. “Within two weeks of joining they were so impressed with CrestClean that they wanted to purchase a master franchise. “After discussion it was agreed that they would run a cleaning franchise in Hamilton for 12 months, at which point they would be sold the new region of South Auckland to operate the CrestClean franchise system,” he says. Over six years the Jain’s established a large, successful business. Then in 2008 they advised CrestClean that they wished to return to India and inquired about purchasing a country license agreement of the CrestClean franchise system. “I travelled to India to meet their family and gauge the market for this overseas expansion,” says McLauchlan. “The Jain’s were from a prominent Delhi family well connected in both business and political circles, so the decision was made to grant them the country master license to India.” When Exporter spoke to McLauchlan

Our business model in India had to be ‘Indianised’, tailoring it to the local business, cultural and bureaucratic intricacies.

”

in January, he had just returned from a visit reviewing operations. Crest India has been trading for 30 months, establishing a solid foundation and forecasting further strong growth. With current revenue of $NZ1.5 million Crest India has proven an insightful pilot operation that’s adapted well to the local business environment. “Doing business in India is significantly different from here in New Zealand but we are now confident the CrestClean business model in India is right,” says McLauchlan. ‘Different’ is almost an understatement. Despite

New Zealand and India having a shared Commonwealth heritage, similar legal systems, democratic traditions and a mutual passion for the sport of cricket, setting up a franchise business in India has not been without its challenges. Apart from the obvious geographical distance between the two countries, McLauchlan lists the following frustrations: • Maintaining constant communications and enforcing business compliance operationally. • The levels of Indian bureaucracy involved in simply having an invoice signed off for payment. • Credit terms demanded – 60 days credit minimum. • The level of import tariffs (on a sustainable basis prohibitive). “But this may possibly be remedied with the impending FTA.” • Remittance of monies out of India is time-consuming and expensive. That fact that CrestClean is a New Zealand company has definitely worked in their favour, believes McLauchlan. “New Zealand and India have a long established and mutually respectful relationship dating back to Sir Edmund Hillary and further. Indians see New Zealand as non-threatening in both business and in sport,” he says tongue-in-cheek. “The fact that we are close to finalising a FTA also says a lot.” Other keys to success in breaking into the Indian market have been: • Having trusted local people on the ground. • Having New Zealand links – the new Indian middle class likes foreign brands. • Being in the market at the right time. • The internationally recognised training programs (NZQA/ITO) and professional approach to what is a largely unorganised industry in India. Understanding local cultural differences is critical to the successful launch of a franchise system in new markets, says McLauchlan. “Our business model in India had to be ‘Indianised’, tailoring it to the local business, cultural and bureaucratic intricacies.” He says CrestClean has a significant number of both India-born and Fijiborn Indians successfully operating franchises here in New Zealand. “They love it because they can make a lot

Crest India’s Shikha and Ajit Jain with Grant McLauchlan.

Crest India saves the day In 2010 CrestClean’s brand in India received bucketloads of positive media exposure when it was contracted by the Commonwealth Games organising committee to clean up the athlete’s accommodation facilities in time for the Games opening ceremony. From then CrestClean India has gone on to secure corporate accounts with government agencies, schools, medical facilities and, most recently, Tata Consultancy Services – one of India’s major corporate firms.

of money and create equity for their families, and there’s no reason to think that the Indians living in India see it any differently.” Growth predictions CrestClean India will grow by 100 percent in Delhi this calendar year and has further substantial growth opportunities ahead. “We are also planning expansion in Mumbai that will double our overall growth plans for India,” says McLauchlan. “Of course, any growth in India is tempered with the requirement to fund the ever-growing debtor ledger.” Having an established CrestClean operation trading in India has been very good for the brand in other South East Asia markets too. This interest prompted Crest New Zealand to start working with New Zealand Trade and Enterprise (NZTE) and Singapore franchise consultancy firms with the view to selling country licences in Singapore, Malaysia, Thailand, Vietnam and Indonesia. “While this program of expansion

is still in the early stages, we are looking to launch the sale of a Singapore country licence in April 2012 when Crest will be speaking at a International Franchise Executives Conference (IFEC) in Singapore at the request of the Franchise Singapore Association,” says McLauchlan. (Interestingly, Crest India is to be the first foreign member of the Indian Franchise Association – so clearly there is plenty of opportunity for franchise businesses on the subcontinent.) The Singapore operation will differ to India in that the business model will be almost identical to the New Zealand operation. “In India the cities are sold as a franchise and the service delivery is via an employee model,” says McLauchlan. “Whereas in New Zealand we sell commercial cleaning franchises.” Glenn Baker is editor of Exporter magazine.

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Exporting the world’s best shortbread From organic farming to exporting premium shortbread, David and Rita Bell have packed a lot into their business careers. BY COL I N B ASS

avid and Rita Bell are your stereotypical entrepreneurs. “Qualified in nothing but can do anything,” as described by Rita. David is a self-professed technician, a mad scientist type with an incredibly varied career. Having arrived in New Zealand from Ohio in 1972, he spent a number of years with Skellerup, then Dunlop as technical manager, before being drawn back to the land that had been his family’s domain for seven generations. Moving to idyllic Upper Moutere, the adventurous couple purchased 100 acres of paradise and established one of the region’s first organic farms. With their dairy herd, market garden, hens and breeding ewes, they fed themselves and sold the excess at the gate and the Nelson flea market. They were the first to gain MAF approval to sell unpasteurised milk, only to be ‘shut down’ by Tasman Milk, fearing its monopoly of Nelson’s town milk supply was under threat. One day a man walked up their driveway. “God has told me to buy your farm,” he professed. “Well he didn’t tell us that,” replied a somewhat shocked David. As it happened the conversation continued and the Bells sold the farm to pursue other interests: seven years co-ordinating projects for the Salvation Army in Zambia and Malawi. Having contributed a little to the

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Photo courtesy of the Nelson Mail.

alleviation of poverty in the third world, they returned ready for a new business challenge. David saw an opportunity in tourism. He saw another in mobility scooters. However he ended up purchasing a bakery in Wakefield with a small export market for fine shortbread biscuits and set about becoming an expert baker. It wasn’t long before David realised their pies were substandard. “Is this mince in our steak pies?” he asked a staff member. “Well, we need some sort of meat don’t we?” came the reply. With disbelief David canned the relationship with the local butcher supplying the fillings and went about developing the dream pie. Based on his philosophy of reaching for the very highest standards in everything he does, David sourced the best local ingredients, increased the pie size and produced the now iconic Wakefield Pie. At the 2011 Bakels NZ Supreme Pie Awards the Wakefield Steak and Cheese picked up a silver medal. This was the first time David and Rita had sought independent confirmation of their feats and it marked a milestone

for the couple. But this story is not about pies, it’s about shortbread. Because after some time, with the main bakery under control, David focused on his fledgling shortbread export business. Around the same time a key Japanese client was insisting all his suppliers be HACCP accredited, a costly international food safety standard. David could see it was never going to be achievable at his main bakery. So spinning off the shortbread business into a standalone operation, he set up a purpose-built facility down the road to meet the standard – thus creating the Glendenings of New Zealand fine shortbread operation. At a succession planning workshop last year David learnt a scary statistic – 65,000 business owners are now aged 60 to 65, himself included. But only around 13,000 people are willing and able to purchase those businesses once the owners are ready to retire. Not shy of making big calls, David consequently sold the main bakery business in July 2011. Now rid of the 19-hour days, seven days a week routine, he’s free to focus

on making the best shortbread in the world. Attracted by the proximity and potential of the Asian market, the business was hit hard by the Japanese tsunami. David is now looking to building on existing business in Korea, Taiwan and Singapore. He’s also learning how to do business in China, resulting in a change of packaging to eliminate the black and red branding, colours offensive to the Chinese culture. He plans to leverage MED’s recent Food and Beverage Information Project – rich with information about potential offshore markets. And he’ll look for other prestigious international awards to derive the immense value this will bring to his endeavours on the global stage. This export story is definitely to be continued. Colin Bass is a Nelson-based freelance writer. Email colin.bizlab@gmail.com

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Lessons from Europe ‘Nothing ventured, nothing gained’ is the attitude that took Elisabeth Siegmund to the other side of the world in her quest for export sales. There were many lessons to learn. BY G L EN n B A K E R

here would be very few people in this country prepared to do what Elisabeth Siegmund did to get her brand established in Europe. Using up to $30,000 of her own money she travelled to the Heimtextil 2012 home textile expo in Frankfurt, Germany, in January to exhibit her fleece products – the sole Kiwi amongst the 2,634 exhibitors. And despite the slight decline in visitor numbers from EU member countries hit by the debt crisis, around 70,000 visitors still attended the show. To understand why Elisabeth undertook this mammoth undertaking, you must first understand her passion and her ‘damn the torpedoes’ drive to succeed. The idea for her PolarCase fleece products (blankets and pillowcases) came after her marriage breakup in 2005 and a subsequent stay at a friend’s place. “I was constantly cold, so I slept in my fleece jumper, pulling the hood over my head. It was so warm and comfortable that I wondered why nobody ever made fleece pillowcases. So I started making them, initially on the kitchen table. My friends loved them, improvements were made and my Simple Creations business was born.” Sourcing funds, selling sufficient quantities, the lack of a large-scale local manufacturer, and the need to go offshore to grow sales, all proved to be the key challenges faced by Elisabeth. To achieve the latter she decided to take the ‘bull by the horns’ and make the trip to Heimtextil. Her goal was to have her products in EU stores by the end of the year – she’s also targeting the US, Canada and Russia. “One objective was definitely to sell – the other was to obtain product feedback,” she recalls. “People thought the product was very clever, but the New

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Zealand theme I attach to my products meant nothing to potential buyers. If I did it all again I’d drop the theme and make the product more universally appealing.” It was only after Elisabeth had booked her stall at Heimtextil that the enormity of the task sunk in. “I suddenly realised how much work and money was involved but that never deterred me from going. I really had no clue how much product would fit into a container. I went to NZTE for advice. There were so many other aspects to deal with too, like stall design and product presentation, product design, brochures, marketing, funding, travel, accommodation, staffing, etc – it kept me busy for three months working seven days a week. “The expo itself made me feel very small, and our stall looked so different to everybody else’s. Before leaving New Zealand, I thought I’d be happy if I found just one buyer. As it turned out, we collected about six serious contacts, each with major potential. “One visitor would have bought 1000 units on the spot except at that stage I didn’t know how to produce such a small order as I am bound by an MOQ for raw materials.” Elisabeth says her investment in Heimtextil will be worth it the day she sends a container-load out into the world. “At this stage, I cannot truly tell, but it looks as if I can make it work.” Small threads can lead to large sales at these expos, says Elisabeth. “You can’t underestimate the advantage of meeting EU business people who can provide information on economics, market trends and local knowhow, even if they are not interested in buying your product. I had a German CEO stop for a chat because he realised we were from New Zealand and he had already been here twice. After a product demo he said, ‘these are the people you should contact; they have the

potential to take large quantities and are an experienced importer’. “I’ve since contacted that importer and they’ve asked for a sample. So it’s not only potential buyers that are important but also the peripheral contacts who can provide that big break.” There have been many lessons from this experience – but the toughest lesson involved having her samples stolen on the last day while the show was packing up – a real blow, but still not enough to dampen her enthusiasm for the whole project. Austrian-born Elisabeth thinks we Kiwis can be a little too naïve at times. “You can’t be too trusting of anyone.” Meanwhile the jury’s still out on whether her European trip was a good investment. “Ask me for an update around September,” she says. “I should know by then.” Glenn Baker is editor of Exporter magazine.

In the future, there will be no markets left waiting to emerge. Even as soon as 2050, 19 of the top 30 economies by GDP are forecast to be countries that we currently describe as ‘emerging’.* HSBC was established to finance and facilitate the growing trade between China and Europe. That’s why we have Trade and Supply Chain teams on the ground in the major and emerging trading economies all around the globe, helping you make new business connections and navigate local regulations. So when you are thinking of emerging markets we can provide all the support you need. For details, contact our Corporate Banking team on corporatebanking@hsbc.co.nz or visit hsbc.co.nz/corporatebanking *Source: HSBC ‘The world in 2050’

Issued by The Hongkong and Shanghai Banking Corporation Limited, incorporated in the Hong Kong SAR with limited liability, acting through its New Zealand branch.

> COV E R STO RY

Where West still meets East July 1, 2012 marks the 15th anniversary of Hong Kong becoming a Special Administrative Region of the People’s Republic of China. So how is the ‘One Country, Two Systems’ concept playing out in the 21st century? Most importantly, what opportunities does the region offer for New Zealand’s exporters? Glenn Baker went to ‘Asia’s World City’ for some answers.

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othing quite prepares you for Hong Kong. Perched on the doorstep of the world’s second largest economy it has long been a fusion of Eastern and Western cultures, largely thanks to 150 years of British rule. Arriving late at night after being treated to Cathay Pacific’s superb Business Class service, the first thing I notice on the journey into the city are the spectacular high-rise buildings, lit-up like a theme-park Fantasyland. Viewed from an orbiting satellite, I’m sure Hong Kong outshines other Asian megacities at night. Throughout its history Hong Kong has been a strategically important trading centre. It’s importance has certainly not diminished under the “One Country, Two Systems” regime

One of the issues with China is that if you send a container of product this week and they like it, they’ll want two containers the following week, and four the week after – so Kiwi exporters must have the ability to be sustainable.

”

put in place when Hong Kong was handed over to mainland China by the British in 1997 – a symbiotic regime that allows Hong Kong to control all aspects of its governance, with the exception of foreign affairs and defence. But clearly, and this became increasingly obvious during my five day stay, Hong Kong’s economy has remained remarkably resilient during mainland China’s incredible growth spurt of the past decade. And again much of this is due to its strategic location. Take a look on a map - Hong Kong is part of the Pearl River Delta (PRD), an area that encompasses the nine municipalities of Guangdong Province and Macau and is home to the mainland’s wealthiest consumers and highest spenders. You can see them spending up large and tax-free

on Gucci handbags and other luxury goods in Hong Kong’s shopping malls every weekend (along with other basics such as infant formula, wine, honey and health supplements). The PRD also happens to be one of China’s most dynamic manufacturing and production centres and, not surprisingly, Hong Kong is the largest investor – accounting for 62 percent of Guangdong’s total utilised foreign direct investment (FDI), most of which is directed to the PRD. The construction of the Hong KongZhuhai-Macao Bridge, which will link Hong Kong to the west bank of the

Pearl River, has finally been given the green light and is expected to open up significantly more economic benefits for the whole region. Hong Kong, despite its small population (seven million) and land area, has become an economic overachiever and is a significant market in its own right. It is a city in a constant state of reinvention – a region that has transformed itself from a manufacturing centre to a service-based economy. It is the world’s tenth-largest trading economy with more than 90 percent of GDP coming from the services sector. It is also an international financial centre, and in 2011 for the first time, topped the World Economic Forum’s Financial Development Index – overtaking the US and the UK. For many Chinese companies, Hong Kong is the ideal place to set up an office in order to access international markets. It’s administrators work hard to make the region attractive for business – this is why Hong Kong was recently rated the world’s freest economy for a 17th straight year in a ranking by the US-based Heritage Foundation. Hong Kong is literally in the right place at the right time, and for New Zealand exporters there are numerous compelling reasons why they should

consider not just the Hong Kong market, but accessing the wider mainland China market through this regional hub. Some have tried and failed – others have experienced outstanding success. I was fortunate enough to catch up with Peter Francis, regional manager-security for Gallagher Group during my visit (story later) to learn of their inspiring export journey on the mainland over the past decade. Here’s the situation Included in my itinerary for the week was a visit to the three-day Hong Kong Trade Development Council World SME Expo which was primarily a showcase of business opportunities within the wider Asian region. I had wondered if any Kiwi businesses had gone to the trouble of exhibiting at the impressive Hong Kong Convention and Exhibition Centre, but I quickly discovered, sadly, that none had. I learnt this from David Whitwam, chairman of the New Zealand Chamber of Commerce in Hong Kong, who was in charge of a small stand at the expo to promote the Chamber’s annual Connectionz publication – a glossy magazine that shares the stories of Kiwi exporters active in the Hong Kong and China region. He also co-heads Mace Consulting, an advisory firm that facilitates capital raising for New Zealand companies out of the Hong Kong-China market. “Normally, on a corporate to corporate basis, we approach businesses that are already in a similar market and have a strategic need for an investment,” he explains. Whitwam says they work for up to five Kiwi clients a year. Some don’t fly because “they’re not suitable to be invested in. They may not be ready, the product may be wrong or they may not have the ability to scale up fast enough. “One of the issues with China is that if you send a container of product this week and they like it, they’ll want two containers the following week, and four the week after – so Kiwi exporters must have the ability to be sustainable.” Whitwam was gracious enough with his time to brief me on the situation in Hong Kong as he sees it first-hand. He is one of an estimated 3000 expat Kiwis in Hong Kong, having first moved there 18 years ago. He believes Hong Kong does a great job selling its services and benefits to influential business people around the world, and extracting best practice from those

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You can’t just dip in and out and expect to win a big project, it just doesn’t work like that.

”

who visit the region. So what insight can Whitwam offer New Zealand exporters on, first, doing business in the Hong Kong market? “Hong Kong is similar to New Zealand in terms of commercial infrastructure. You still have an English common law system, international reporting standards, legislated IP protection, and establishing a company here is very easy. “It’s important to take and heed advice from people who’ve already ‘been here and done it’. I’ve seen so many retail companies for example, even New Zealanders, who’ve opened shops in the wrong mall or on the wrong floor of a mall because they haven’t done their homework.” Hong Kong retail is all about clusters of products he says, adding that there is one street that sells only goldfish! When focusing on Hong Kong as a market it’s wise to “consider what it can do for you,” says Whitwam, “rather than what can you do for Hong Kong.” The low corporate (profits) and personal tax rates, and non-existence of certain taxes such as GST, FBT, tax on interest or dividends, provide further incentive for people to base themselves in Hong Kong, he adds. His advice for wannabe exporters? “Start with an air ticket! Don’t come

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for a day or two, like the politicians. Get a hotel room for a week or a fortnight. Sniff the air and wear out some shoe leather. Have someone local to show you around – someone who understands the New Zealand psyche, can be objective and will point you in the right direction.” Whitwam has facilitated and escorted visiting Waikato MBA students to factories in Zhuhai, near Macau, one of which is chaired by an ex-pat Kiwi and makes 12 billion plastic bottles a year for Coca Cola. They visited three factories based on three different business models, were briefed by the relevant CEOs and received a first-hand grounding on how to do business in China. “This is just one example of how it can be done,” says Whitwam, adding that even if after spending some time in Hong Kong a New Zealand company decides that it doesn’t want to be in this market, it’s still money well spent. “Better than not doing your groundwork, and ending up wasting a fortune.” Feasibility trips to Hong Kong and China should come out of staff training or market development budgets, he says. “It’s wrong to spend your marketing budget first before you’ve spent money allocated for upskilling your people and your research.” Whitwam uses Comvita as an example of a smart approach to the Hong Kong-China market – first establishing a local agency and training local people, then buying that agency and allowing staff to have local shareholding. “Now they have around 250 stores in China, mostly store-instore.”

He reminds me that in 2012 under the China-New Zealand FTA many tariffs on imported products to China will drop to zero, including most food products. “This gives New Zealand a real advantage, albeit a short one, over virtually every other country.” And in a market where Kiwi exporters are competing directly against imports from the world’s other major trading nations, that’s worth having. But there is a sense of frustration that emerges through Whitwam’s time with me. He’d like to see a lot more effort made by New Zealand’s business support agencies in developing further trade in the Hong Kong region across the board, and not just to assist the so-called ‘winners’. We finish our chat with his hot sector tip for 2012 and beyond. “In 2012 there will be a shortfall of some 90,000 tertiary seats for students in Hong Kong. If I was a New Zealand university, I would be camping up here right now. There’s real opportunity here.” Securing China The first thing I notice about Peter Francis as I shake his hand in the lobby of my hotel in Wan Chai is his height. He’s tall for a Westerner, which makes him particularly noticeable in Hong Kong and, in fact, most of Asia. Francis is also well versed on China – his earliest memory is cycling around Beijing some 25 years ago arranging visas for the Trans-Siberian railway. Now Asia-Middle East regional manager-security for Hamilton-based Gallagher Group, today he’s helping oversee the company’s impressive growth in China’s premium, high-level security system market from the

Peter Francis

company’s new regional office in Hong Kong. Gallagher is an iconic New Zealand company founded in 1938, now specialising in total security system solutions, from standalone perimeter security through to state-of-theart software controlled, businessconnected security solutions. Its China customer base includes governmentcontrolled sites, utility companies, airports, universities, military installations and major infrastructure. Gallagher Security is not exactly a newcomer to the market, having had a presence in China for more than ten years. “Our original business model involved a China-based distributor, but we changed that model five years ago after listening to NZTE and other successful companies in China and seeing how the country was changing,” says Francis. “We kept that one original distributor, split the region into three and brought on new channel partners or system integrators with multiple branches. Now it’s an extensive network, and of course, being China, everything is very much relationship-based.

“Today it’s about how we can compliment and win business with each other. It’s about business advantage and it’s straight to the point.” Francis says Gallagher Security focused on the main centres of Beijing, Shanghai, Guangzhou and Shenzhen to maximise potential growth, with “local people working locally – people that had immediate networks, many of whom had been associated with the initial distributor. “We required a progressive system integrator that could properly manage installations, training and support and look at recurring revenue streams – an important part of our business. “We spend up to 15 percent on R&D, and need to maximise the return on this investment. We have regular software releases to take our customers forward, and our software and hardware features backwards compatibility so that we don’t leave our customers behind” The service side of the business tends to be different in China, adds Francis. It’s less proactive than some countries and, more often than not, customers only make contact if there’s a problem. He also believes that being a New

Zealand company, rather than a big US corporate, is a definite advantage in the Chinese market. There is also the matter of tariffs being reduced under the FTA regime which will increasingly favour New Zealand companies in years to come. “Gallagher’s advantage in this highly competitive sector is its ability to specialise in strategic markets,” says Francis. “We’ve got good case studies and a lot of reference sites. And we’ve created our core software to meet the specific needs of market segments – for example, the mining and resources sector where health and safety regulation and response is increasingly important. “Risk management and security management can be quite emotional. It’s important you get it right, so people can be confident in the system. Having a track record when you go into emerging markets, as we still are, is very important,” says Francis. He adds that, in a market sector where, in China particularly, the focus can often be on the short-term, Gallagher Security stands out as a supplier that considers the long-term.

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There’re niches here for very highend quality products. Consumers, particularly the high-income earners, are relatively sophisticated, Western in their outlook and prepared to pay for quality.

”

“Many of our Asian customers have been with us for more than 12 years.” With around ten percent compounding growth over the past three to four years and a significantly enlarged customer base, Francis tells me Gallagher Security is in a strong expansion phase, which requires recruiting more local people. “This is a relationship-based business and we have business and technical managers who work very closely together.” Setting up a regional base in Hong Kong was a smart strategic decision fully supported by the company, says Francis. It’s a place that lends

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itself to free and open business; it’s a major pathway into the mainland; communication, translation and interpretation services in both Cantonese and Mandarin are easily accessible; and there’s the close proximity to southern China. Prior to our meeting, Francis had just stepped off a train from Guangzhou. The journey took just 90 minutes. “Hong Kong has political and economic advantages. It’s a hub for China and wider Asia and I can see it becoming even more strategic for mainland China in terms of currency and transaction.

“Hong Kong welcomes new businesses. InvestHK, for example has been very supportive. They set up an early network that enabled me to accelerate the process of establishing a business entity here and grow a team.” Generally business happens much faster in Hong Kong, explains Francis. “That means you have to be more alert and responsive and you consequently become more reactive.” The days are long, he says, negotiations are often conducted over meals, and business is not without its challenges. Forecasting sales is hard, confidentiality is paramount, and deals can swing at the last minute, necessitating further bargaining. Looking ahead, Francis can see nothing but opportunity and growth for Gallagher Security. “With our new partner companies, we’re particularly expecting considerable growth in China’s new cities. There are two cities the size of Chicago being built every year in China, and massive new infrastructure.” He says New Zealand exporters coming to this market need to look at every possible support network and assistance they can, including collaboration opportunities with other exporters. And sales will only come if they’re prepared to make a long term commitment. “You can’t just dip in and out and expect to win a big project, it just doesn’t work like that.” As for advice to other Kiwi business people coming to Hong Kong to access China, he says it’s a matter of having the right attitude. “You’ve got to want to be here. Be willing to change. Yes it is crowded, noisy, demanding and certainly tests your patience and reserve. But there’s a lot more business here than you first realise – and that’s one of the advantages of having an in-market team. They’re much more aware of opportunities.” Making connections My busy HKTDC schedule meant that I wasn’t able to catch up with SharonMay McCrostie, New Zealand trade commissioner for Hong Kong and Macau, until Saturday, the day I was due to fly back. McCrostie’s four-year posting expired in February 2012, so I was keen to get her perspective on the market opportunities in both Hong Kong and China. We meet at the Hong Kong Airport Express Station. I’m grateful for her

Sharon-May McCrostie: “Generally it’s a lot easier to gain access to this market than a lot of others. It’s a good entry point for smaller companies that are looking to export to this part of the world.”

valuable weekend time, and surprised to learn that the Fuel Espresso café where we sit down to chat is New Zealand-owned. Downstairs there is one of the busiest Comvita stores in all of Asia. I didn’t write down the foottraffic numbers – it’s mind-boggling. McCrostie tells me Fuel Espresso has been extremely successful with its two outlets, but is a little publicity-shy for fear of giving away too many secrets. I’m beginning to realise just how competitive certain market niches can be in this city. Success is all about finding niches away from the mainstream brands, explains McCrostie. “There’re niches here for very highend quality products. Consumers, particularly the high-income earners, are relatively sophisticated, Western in their outlook and prepared to pay for quality.” Success is about the right location too, especially with retailing, she says, echoing Whitwarm’s comments. F&P Appliances has a store in Causeway Bay, for example, which has one of the highest foot-traffic counts in the world. That’s important when you consider how expensive rental space is in Hong Kong. The Kiwi company with arguably the highest level of brand equity is Comvita, says McCrostie, which has nine standalone stores in Hong Kong alone with around 70 point-of-sale promotional specialists. “You need large numbers of sales professionals because you’re competing with so many brands here.” (Comvita also has some 380

stores in Mainland China, both branded and concession counter.) Of course the barriers to market entry are minimal, thanks to the Closer Economic Partnership Agreement in place between Hong Kong and New Zealand. That means zero tariffs on pretty much everything except spirits. “Generally it’s a lot easier to gain access to this market than a lot of others. It’s a good entry point for smaller companies that are looking to export to this part of the world,” says McCrostie. “The lesson therein though is that it’s one thing to get your products in, but you must also invest in supporting the product to drive sales.” Kiwi companies underestimate both the opportunities in Hong Kong and the amount of preparation required, she adds. “Whilst it’s a relatively easy market to get into, it’s still a very competitive one. You need to understand where your product fits and what the best channel to market is.” McCrostie says there is an innate trust behind “the New Zealand

brand” in Hong Kong when it comes to products such as food, health supplements and skincare, and there are a lot of opportunities to get New Zealand-packaged products into supermarkets. Pitango (organic soups) is one great example. “In supermarkets here you’ll probably find more New Zealand products than anywhere else in Asia, apart from Singapore. And that’s largely due to consolidation models in place with the two main supermarket chains in Hong Kong. “At a consumer level, New Zealand food and beverage and wine has a good presence here. New Zealand is the second-largest supplier of white wine, behind France, and tenth overall in the wine category. Hong Kong is a mature market compared to China, but the growth has been steady.” That growth is expected to continue, now that the levies have come off. “Hong Kong as an export destination is dropping in the rankings,” McCrostie informs me. “But that’s a ‘good news’ story – it’s evidence that the New

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Did you know? • Hong Kong has estimated reserves of HK$630 billion and last year paid its citizens a one-off HK$6000 cash payout. • There were 40 million visitor arrivals in 2011 – most come to shop. • In just five hours flying time from Hong Kong you can access half the world’s population; four hours gets you to all the key Asian markets. • There are 300,000 SMEs in Hong Kong, which represent 90 percent of businesses. • Mainland China has 100 million investors and there are an estimated 600 billion Renminbi (RMB) worth of deposits in Hong Kong. • 45 percent of Mainland China’s Foreign Direct Investment comes through Hong Kong. • In 2010 Hong Kong became the world’s busiest air cargo hub (11,000plus tonnes per day). It is also one of the world’s busiest container ports

Zealand-China FTA is succeeding. Product that would have traditionally made its way to China through Hong Kong is now finding a direct route. This gives New Zealand companies more control of the value chain to their customers and helps them better position their products with their distributors.” Describing Hong Kong as “still the Centre of Asia” and “a connector”, McCrostie believes future export opportunities will be around high-value food and beverage products, dairy products, and both red and white wine. Exporters should be aware of the prestige factor in the market – the perception being that if the price is higher, the product must be better. So pricing is important, and companies should not undervalue their premium products. Utilising the many international trade shows to connect with buyers can be a successful strategy for Kiwi exporters too. McCrostie says the HKTDC stages more than 30 shows per year and it’s important to pick the right one. NZTE supports a number of shows that can potentially open doors for Kiwi exporters. Cosmoprof (cosmetics), Natural Products Expo Asia and Asia Fruit Logistica are past examples.

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(64,000-plus TEUs daily). • Cyberport is a 6.5 million square foot office, hotel, retail, conference and residential complex owned by the Hong Kong government, billed as a “creative digital community”. It is a ‘Centre for Entrepreneurship’ that has two New Zealand companies as SmartSpace residents: 3D weather modelling solution company Metra, and data intelligence specialist Pingar. • The Hong Kong Science & Technology Parks Corporation oversees three industrial estates that create ‘clustering synergy’ around ICT, electronics, precision engineering, green technology and biotechnology – “a tech savvy environment to foster innovation”. Dunedin-based company Seperex Nutritionals utilises the state-ofthe-art research facilities at the Science Park to aid its launch into the China market.

“We will put our resources around those shows that have the most potential and where there’s a critical mass of export companies we can get behind,” says McCrostie. Progress report On the eve of her departure back to New Zealand, McCrostie is pleased with the progress made in Hong Kong during her tenure. Working with the five offices in mainland China, NZTE in Hong Kong has an active portfolio of some 30 New Zealand exporters and works with a number of partners such as large distributor company Dah Chong Hong Holdings to leverage pathways into China. Thanks to some vital introductions and promotional work there’ve been some tangible outcomes for the NZTE team, such as the relationship developed with supermarket chain Park ‘n Shop which has resulted in some major New Zealand brands making it onto the shelves. “It can be some years before you get tangible outcomes,” says McCrostie. “A lot of our work is around foundation building. It’s about watching the market, setting strategies, organising introductions. The work is ongoing, the results don’t happen overnight.”

And once products have made it on the shelves, the work doesn’t stop, she says. A lot of thought has to go on marketing to ensure that sales keep happening. Social media marketing is one area in particular that they’ve been helping clients with. I check my watch–an hour has flown by. To finish our chat, I ask McCrostie if she has any final advice for exporters looking to enter the market here. “Be professional and be prepared to move fast,” she replies. “The criticism we hear time and time again about New Zealanders is that we’re not responsive enough. We love our lifestyle and can be hard to get hold of out of normal business hours. “Persevere, because there are a lot of people looking to do business in this market. Front up, do your homework, know what your offering, your solution, is. These are business fundamentals I know, but still vitally important.” Glenn Baker is editor of Exporter magazine. His trip to Hong Kong was generously sponsored by the Hong Kong Trade Development Council (www.hktdc.com). He travelled with the assistance of Cathay Pacific Airways, which flies non-stop from Auckland to Hong Kong at least once a day. With sister airline, Dragonair, Cathay Pacific flies to 15 destinations in China.

Kiwi exporters focus on Hong Kong no customs duties on imported goods, with a few limited exceptions. • Immigration policies are designed to attract professionals, talented individuals and investors to ensure the city’s continued competitiveness and enrich the quality of Hong Kong‘s workforce. • It also plays a vital bridging role for Renminbi (RMB) flows between China and the rest of the world.

Considering more than a quarter of all visitors to Hong Kong are specifically there for the shopping, it is one of the freest economies in the world to do business and has strong GDP growth, it’s little wonder New Zealand exporters are increasingly turning their focus to the opportunities that trading with Hong Kong presents. This is the view of Gary Cross, head of global trade and receivables finance at HSBC New Zealand. “When you add in its similarities in terms of culture, social customs and language to Mainland China, and its international business environment, it is an ideal base for New Zealand businesses to enter the Chinese market,” he adds. For New Zealand companies Hong Kong offers a number of competitive advantages as a hub for investors to conduct their business, says Cross, such as: he Government endorses a ‘minimal •T government interference’ policy. Foreign investment is welcome and there is no policy to protect the local industry against foreign competitors. •H ong Kong’s proximity to, and close relationship with Mainland China, has made it the gateway to mainland China for business. •E nglish, Cantonese and Mandarin are widely spoken. •T he corporate and income tax rate are capped at 16.5 percent and 15 percent respectively, with no turnover tax and no tax on capital gains or dividends. • I t is a free port and generally imposes

Hong Kong’s role in the Redback’s financial revolution “One of the biggest financial revolutions we are likely to see this century is China’s focus on developing its financial markets and the internationalisation of the RMB,” says Cross. “If the 20th Century was about the rise of the Greenback, the 21st Century is likely to be about the rise of the Redback. The RMB internationalisation process is divided into three distinct stages: Hong Kong has had a key role to play in the internationalisation process so far and will continue to do so in the future, says Cross. “In 2004 Hong Kong became the first country outside China to conduct personal RMB business. Since then, the Hong Kong Government has actively explored with Mainland authorities the introduction of new types of RMB business with the aim of further enhancing the capability of its financial system to handle RMB-denominated transactions. “One of Hong Kong’s pivotal roles in the internationalisation process is to function as the final stop for where all RMB funds will be parked.” Some of the key milestones since 2004 have included: 1) The creation of the offshore (CNH) RMB bond market in 2007 after the People’s Bank of China had announced that qualified Mainland financial institutions were allowed to issue RMB bonds in Hong Kong. 2) From July 2010, the scope of corporate RMB accounts was expanded to include all purposes - i.e. no longer restricted to cross-border trade settlements. 3) Since 2010, the transfer of RMB funds has been allowed without restriction in Hong Kong when solely

involving offshore parties. They can be transacted in the same manner as funds denominated in HKD or USD. 4) RMB proceeds obtained from all non-trade financing-related facilities including loans and bonds can be remitted back for use in China when the offshore entities have obtaianed approval from PRC regulators, including but not limited to, PBoC and SAFE. “With RMB now the third-largest currency in use in Hong Kong after the HKD and USD and predictions that the RMB could be fully convertible as early as 2015-2017, there are no signs that the growth of RMB products and services, and its usability, will slow in the coming years,” says Cross. “As Hong Kong and other emerging markets in Asia continue on their growth trajectory, the rest of the world, including New Zealand, will become ever more dependent on developments in Asia than at any time in the past. “As Asia continues to grow, income levels are also rising and so too does the demand for protein. This is supporting milk and meat prices, and will boost incomes and investment in New Zealand – all of which only paints a positive story for New Zealand’s outlook,” says Cross. “This is where it gets serious for New Zealand. Kiwi exporters need to ensure they stay close to Asia and other emerging markets as they continue to grow and prosper.”

Gary Cross, head of global trade and receivables finance at HSBC New Zealand: “If the 20th Century was about the rise of the Greenback, the 21st Century is likely to be about the rise of the Redback.”

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> F E AT U R E

Healthy hedging Hedging is a common way for export companies to iron out any fluctuations in the foreign currencies they trade in. Yoke Har Lee has more.

xporters thinking about beating the foreign exchange market with their hedging stunts can forget about this risky pursuit. Small and mediumsized enterprises stand little chance of beating a market that is both complex and whimsical. Even with the best minds in currency portfolio management, bigger companies often get stuck with foreign currency losses when they repatriate their earnings into New Zealand dollars. The New Zealand market is filled with nightmarish stories of exporters seeing their profit margins turn into losses after accounting for fluctuations in the foreign currencies they have traded in, the major ones being the US dollar, Aussie dollar, Euro, Japanese yen, and increasingly, the Chinese renmenbi. Companies that manage their hedging well are able to close out positions to profit from the currency gains. Fisher and Paykel Healthcare was able to report to shareholders the company’s currency hedging programme contributed $38 million to operating profit for its 2011 financial year. In 1992 George Soros, the Hungarianborn hedge fund trader, sold US$10 billion worth of British pounds to make a lot of profit for his Quantum Fund, in a move that nearly crippled the Bank of England. Hedge funds exist for the purpose of making money by taking a position either against or for a particular investment tool, currencies included, for profits.

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For exporters, these hedging success dreams are far from attainable. Cliff Brown, client advisor at Bancorp Treasury Services Ltd, says exporters’ focus should not be on making money off currency hedging but to keep a close watch on the health of their core business. Not beating markets Currency hedging is never about beating the market, Brown says. Hedging is all about deferring the impact of a currency’s fluctuation on the cost of running your business. “This is one of the problems plaguing exporters – and the process is the same for everyone. The thing is not to start with hedging decisions but looking at your currency flows over the next six to 12 months and managing that against expectations for your cashflow.” For most exporters in New Zealand, the most commonly used hedging

tools against volatile foreign exchange markets is to enter into forward currency contracts or options contracts with a bank or financial institution trading currencies. The forward contract allows the company to settle a currency at a specific point in time in the future, at a specific price. An options contract allows the company to either buy or sell a currency at a future time. The company pays a “premium” to take a position on these options contracts. Brown says the usual downfall for exporters is that too many of them become too optimistic with their business performances. An exporter, he says, may provide full hedging for their expected receipts but often the

TAKEAWAYS >> Begin with a projection of the business’ likely performance. Have a clear handle on how to offset your business’ incoming receipts against payments you have to make. If you havea natural hedges, these relationships need to be clearly understood and built into the equation. >> Exporters may not be equipped to manage currencies but what is within their capacity is to know how to make a margin for every sale they clinch in their business. >> Experts recommend that small exporters use their banks’ knowledge to help them, while bigger companies should have a more structured treasury management policy.

business falls short of expectations. “This leaves too much in the hedging with bad rates which are in turn costly to unwind.” Best practice A good approach to adopt is to begin with a projection of the busines’s likely performance. Have a clear handle on how to offset your busines’s incoming receipts against payments you have to make. If you have natural hedges, these relationships need to be clearly understood and built into the equation. History has consistently proven that forecasts of currency movements can never be foolproof. What exporters should do instead is to work through how the movement in the currency would affect the cost of running the business. “Go through the process, highlight the danger spots; that is, at which point does the trade cease to be profitable, or how will it affect the dynamics for the company? For example, should the dollar fall to 75 cents (per US dollar) or rise to 90 cents, ask yourself if the currency goes to a certain level, how much business will you still be doing at that level!” Brown says. Whether you are trading $1 million or $50 million, the currency markets’

whimsical movement will still produce damaging impact if your business is no longer enjoying margins it used to enjoy because of the foreign exchange movements. The plight of the SMEs Marine system company Vesper Marine typifies what many small businesses in New Zealand go through. The company cannot ignore currency movements but cannot spend too much time worrying about hedging against its receipts as this could divert time and resources away from growing the business. Founder Jeff Robins says the company tries to hedge when it makes sense by using advice given by financial institutions on the timing and movements of currencies. He admits, though, that he has no yardsticks to measure how effective that has been. The fluctuations in the New Zealand dollar against major currencies also pose additional headaches for the company as it tries to set price points in various markets around the world. “About 90 percent of our business is from exports. As we continue to grow,

Whether you are trading $1 million or $50 million, the currency markets’ whimsical movement will still produce damaging impact if your business is no longer enjoying margins it used to enjoy because of the foreign exchange movements.

”

currency management is something we are going to have to focus on,” Robins says. For airport system solutions company BCS, the key is trying to source local components as much as possible to build in natural hedges in the foreign markets it has projects in. Patrick Teo, chief executive of BCS Group, says, “We do try to have a natural hedge by maximising local content as much as possible. We are quite lucky in that our business and operational model allows us to do this.

Westpac’s Barry Squires: “A good strategy to adopt would be to understand how much risk your company can tolerate and take proportional hedges against the currency risks.”

“Apart from a natural hedge, we have a company policy that aims to hedge approximately 60 percent of our foreign revenue,” he says, adding the company relies on external expert advice on hedging. Know your margins Barry Squires, head of international business, New Zealand, at Westpac, agrees that exporters may not be equipped to manage currencies but what is within their capacity is to know how to make a margin for every sale they clinch in their business. It makes sense, he says, to start by figuring out at what price points would a transaction no longer be making a profit for the company. A company with a large profit margin, he says, would most probably be able to tolerate a bigger percentage swing in a currency. The problem is most exporters do not have that kind of margin. One hedging strategy used by some companies is to price their products only in New Zealand dollars. This means the companies have essentially transferred the risks of managing the currency to their buyers in foreign markets. The downside to this is the exporter would lose control over the product in those markets which in the longer term could present hidden risks to the company, Squires says. A good strategy to adopt would be to understand how much risk your company can tolerate and take proportional hedges against the currency risks. An exporter may, for instance, decide to take cover by getting a forward hedge contract for a maximum of

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Richard Eaddy, founder of Hedgebook: “A company cannot hedge well without accurate financial information.”

30 percent of his projected sales (based on historical sale patterns and projections) and over the next few months, add progressive cover for the rest of the projected sales, Squire advises. “Depending on the cycle between the hedging and the cash conversion, an exporter might commit 100 percent of the order. What percentage they decide to cover depends on their view of the currency and the commodity being traded. “One can over-hedge, especially in the volatile commodity markets. If you expect to sell at $3.50 per kg and the price falls to $2.50, you have more cover than you can use. You are going to introduce more risk than you need,” Squire says.

Tool to monitor hedges Big companies have structured treasury departments monitoring currency movements and managing foreign exchange exposures. For those companies without this luxury, a new system being launched about half a year ago can give exporters an additional tool to help them build more complete profiles of their foreign currency and interest rate exposures. Hedgebook is a web-based software programme. Exporters can use this tool to help them accurately provide transaction information which then helps them identify their exposures in a particular foreign currency. Richard Eaddy, founder of Hedgebook says a company cannot hedge well without accurate financial information.

When taking a position A good place to start when trying to hedge your currencies is to gain complete mastery over what drives the markets and find out where to get the best rates. Here are some pointers from Velocity Trade Ltd on how to survive currency hedging without getting mired in the market’s chaos:

DO’S

DONT’S

Don’t leave it to the market to decide your currencies’ fate. Stay informed on the factors driving the market and use historical patterns before taking a position on your hedge.

When taking a position in the market, don’t take on more than you can afford to lose.

Use forward contracts to help you achieve price stability and protect your margins. You can lock in a rate today for a transaction in the future, from a few months up to a couple years, giving you certainty when pricing your costs overseas. Even if the exact payment date is uncertain you can book a forward and adjust the delivery date later for a very small interest charge.

Don’t think size matters. When it comes to hedging, every exporting business needs to hedge to protect itself against the volatile currency markets. Once locked in, forward contracts remove the worry about the rate changing and eating away your profit. Once locked in, if the rate further improves in your favour, unfortunately you won’t benefit, but you will avoid the risk and the headache of the rate moving against your favour.

Learn how to average out your payments by hedging proportionally over different timelines rather than putting all your eggs in a single basket with a single payment. Large companies save millions on their foreign exchange this way and these facilities are now available to small businesses.

All forward contracts require a deposit (usually around five percent) to be made at the time the transaction is booked. Watch out for a provider who does not require a deposit or you may end up having the additional charge as a credit rate that is embedded in the exchange rate.

Always compare exchange rates with different providers, not just the banks. Specialist foreign exchange providers are a great alternative and have less overhead than banks and thus can usually provide better rates.

Don’t just pop into your bank thinking they will give you the best rate. Most banks charge very wide spreads and transfer fees even to good, regular customers and even to businesses. Shop around to get the best rates and use online rate comparison calculators to see what you can get, as the difference in savings can be thousands of dollars.

Velocity Trade Limited is a New Zealand company based in Auckland, regulated by NZFMA (NZ Financial Markets Authority) and ASIC (The Australian Securities and Investment Commission). The company, founded in 2007, is part of the Velocity Trade Group, with offices in Toronto, Montreal, London, Sydney, Auckland and Cape Town.

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The tool provides companies with “sensible parameters” on which to base their treasury management on. He says the web-based system helps provide analysis of what has been covered and how much of a company’s foreign currency needs covering, with additional scenario-building tools for managing exposures. Hedgebook is a joint venture between ETOS Limited, New Zealand’s leading provider of treasury outsourcing services, and Resolution Financial Software, a provider of derivative pricing advice in Australasia. According to Squires from Westpac, not having a hedge could wipe out a small company. Experts recommend that small exporters use their banks’ knowledge to help them, while bigger companies should have a more structured treasury management policy.

Types of hedging tool

What it does

Forward contract

Allows an exporter to buy or sell a foreign currency at a fixed rate at a specific time in the future. Typically, forward contracts are set for a 30- or 90-day delivery.

Currency option

Allows an exporter the option of buying or selling a currency at a predetermined future date. An exporter has the “option” not to buy or sell a currency at the time the option date expires. The cost to the exporter is the “premium” to be paid for having this additional insurance. If a currency moves against your position, you can allow the option to lapse. Flipside: This can be an added cost to your business.

Currency arbitrage

Taking advantage of the differential in currency rates in different markets to gain a better price.

Foreign currency accounts

Companies can open foreign currency accounts if they have sufficiently large trades in different currencies. The costs associated with managing foreign currency accounts may not be ideal for small exporters.

Yoke Har Lee / WRITER

Yoke Har Lee is an Auckland-based business writer. Email yokeharlee@yahoo.co.nz

Paying too much for foreign exchange? Velocity Trade helps exporters: Manage risk Access the best exchange rates Save money Avoid bank fees Call us for a comparison & let us help you save money +64 9 918 8312 l transfers@velocitytrade.co.nz

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Velocity Trade saves importers & exporters money on foreign exchange transfers by oﬀering better exchange rates and charging absolutely no fees. We oﬀer spot transactions, forward contracts and orders and back it up with exceptional service from our team of FX specialists. Velocity Trade Limited is registered with the New Zealand Financial Markets Authority, is a registered Financial Service Provider (FSP20003) and is regulated by the Australian Securities and Investment Commission (AFSL 329813).

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> F E AT U R E

The devil is in the detail The road to export markets is fraught with potential legal potholes, from distribution contracts to IP protection, local rules and regulations to dispute resolution. Mary MacKinven went in search of some legal advice.

n business there’s no such thing as risk elimination – just risk management, points out senior associate at James and Wells lawyers, Gus Hazel. Contract law is fundamental to managing risk. He describes three broad levels of contract protection: • The gold standard contract costing about $5,000 to $10,000 where the parties’ lawyers refine

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the content over weeks – for big export deals; • The ‘letter contract’ costing maybe $500 to $1000 where the lawyer encapsulates the exporter’s agreement to supply in a letter style that is sent to the other party for countersigning; and, • Emails between the exporter and buyer confirming arrangements, which can be better than having

nothing in writing. The ‘email contract’ can be useful evidence in disputes and even litigation, depending on the presiding country’s law. Contract law crops up at many points including for the transportation of goods. Hazel says, “You might want a lawyer to review the contract a freighting company gives you to ensure you understand whose

insurance covers losses, and where risk passes from you to the freighter or buyer.” Hazel’s legal rule of thumb is: if an exporter engages in sound and fair trade practices in New Zealand and follows the same approach in other countries he/she is unlikely to go wrong. New Zealand is well governed and regulated, largely free from corruption, and with commercial laws broadly aligned with other Western industrialised countries. Commercial contracts look similar worldwide, defining who is selling what to whom and how, and when they will get paid, says Kent France, partner and head of commercial practice at Wynn Williams Lawyers and president of Export New Zealand Canterbury. His basic advice is: “write a checklist of the key elements of the deal and make sure you cover them in the commercial contract. “Sit down and discuss (with your buyer) what you can deliver them and what they expect from you – for example, technical specifications,

Learn when to use a confidentiality agreement and be realistic about whether you will be able to enforce it.

”

your realistic delivery timeframes, after sales service and so on. “Have the discussion – preferably face-to-face but it can be done by phone or email.” France says sometimes exporters are so desperate to get the order they might avoid discussing problems. That approach leaves them in a weak position if things don’t go smoothly. And exporters can choose not to have a written contract as long as they know the key parts of their deal. Homework is required on each market’s regulatory standards, and useful sources can be a freightforwarder or New Zealand Trade and Enterprise staff that have practical experience. “Get on the ground and talk to relevant agencies and retailers and people dealing with these products,” says France. “A good agent or

distributor should be all over this. And if you have a good relationship with your purchaser they can be a useful source of information; but verify it.” He says confidentiality agreements aren’t always necessary. “In the first discussion with someone you have never met, the commercial reality is (not) ‘I want to talk to you about a product but you need to sign this agreement first…’. You can have some discussions without disclosing too much. “Learn when to use a confidentiality agreement and be realistic about whether you will be able to enforce it.” And be prepared for regulations to change. Kent France cites the example of a New Zealand company producing food in China to sell to America but the US Food and Drug Administration kept changing the rules on chemical levels allowed. Business structures Minter Ellison Rudd Watts partner Richard Wells describes optional business structures for a country market. Options include an agent who sells on behalf; a distributor who re-sells (subtly different from an agent); a joint venture with someone who has a 50/50 stake; a licensing arrangement; or a franchise. He then helps with contracts. “If there is no distribution agreement in place, it’s not unknown for a distributor to try to take off with your brand,” Wells says. Terms of trade vary from country to country. For example, a distributor might insist on using their standard distribution agreement but it’s wise to get in-country legal advice on variables such as terminating the arrangement, liability limits, intellectual property ownership and restriction on selling in the market. Intellectual property protection An important part of researching a market involves checking for registered IP rights in that market to avoid infringing them, says Wells. Exporters with IP registrations in place often have stronger bargaining positions against competitors who claim breach; and some distributors will only back a product with registered IP rights sitting behind it. Exporters need an address for service in the country where they are

KEY TAKEAWAYS >> A commercial contract must match freight, insurance and financing terms. >> Your New Zealand lawyer can refer you to an in-country lawyer when necessary. >> Product liability depends on how you design, make and label for use, and your level of insurance cover. >> Be savvy, do your homework on laws and regulations. >> Bribery is illegal in most countries including China.

filing – advisedly a lawyer’s office. Hazel says many new exporters think registering a business name in another country will protect their trademark or trading name but that might not be the case. Kylie van Heerden, a commercial partner at Sharp Tudhope lawyers, adds that the distribution contract must specify IP rights and that the exporter is not giving them away. Using a lawyer France reminds exporters that they require a lawyer who knows about international trade and has contacts overseas to provide in-country legal advice about tax, warranties and consumer rights, for example. All the lawyers quoted in this article belong to legal networks they can refer clients to overseas. A client of Kent France’s visiting Canada to check up on the machine they were having made there phoned him to say it wasn’t being built correctly or to schedule, and they needed a lawyer on the ground. France got them into a nearby Canadian lawyer’s office the same day. When it comes to an exporter engaging a worker in the market, as an employee, consulant or agent, rules vary. For example, the EU has different rules from many jurisdictions about terminating contracts with commercial agents. “This can be a nasty surprise.” To avoid more surprises, freight terms need to align with insurance, financing and general terms of trade agreements.

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– always taking in-country legal advice. The risk of personal injury from using a product is stringently regulated worldwide – and New Zealand is the only country where consumers cannot take a civil claim for injury caused by a third party. Kent France says Australia is at least as tough as America and Europe (at enforcing safety). Bribery is illegal in most countries including China but commercial and social realities can differ from the law. “In some cultures that’s the way deals are done,” says France. “But know if you are being bluffed by ‘this is the way we do it here’. Ask someone you trust there if it’s normal business practice, and who will enforce the law if it is illegal.”

“A lawyer has the skill set to ensure they all match,” says France. Businesses planning to export should consult a lawyer early on to avoid problems. Steve Rutherford, a partner at Rogers and Rutherford lawyers, says the time to consult is not the minute the business idea occurs but once negotiations with others look like they are going to happen. He’s seen businesses spend six-figure sums on litigation over contractual defects that were avoidable. “Clients are often unaware of the issues that can arise down the track.” He says large distributors may hold the bargaining power and will generally want contracts to be prepared by their lawyers and for their country’s law to govern. A New Zealand lawyer can give overseasgenerated contracts the once-over and address some issues, but often it’s not just what’s in a contract, but what’s not in it. “People in the US, for example, can be brutal in business,” Rutherford cautions. “Be professional, friendly and obey the law, but cover your own back at every point.” Operating by remote control increases the risk of others stealing your IP, or abusing their position in other ways. “Bigger markets are more hostile and competitive, so set things

34 EXPORTER

up correctly from the start.” Consider relocating to the market, he suggests. And while some businesses alter their own template documents for different country markets to try to save on legal fees, Rutherford warns: “you can’t just cross out China and write Korea instead.” For example, within Australia and the US there is federal law and variation between state laws. “You can spend $1000 on some basic legal advice or $10,000 for detailed advice, depending on the money you have and the problems that are likely to arise,” says Hazel. “It’s horses for courses.” Competition rules and fair play Competition law normally provides traders with a level playing field. Hazel says there are often regulators overseeing such law, but businesses must still ensure competitors don’t cut corners on safety or production standards, or market their products in a misleading way. Sometimes an exporter must inform a competitor “if you don’t comply with the regulations, we will have to report you to the regulator or take you to court”. Kent France says labelling is critical: know the local rules about use instructions and warnings, and disclosing what the product contains

Resolving overseas disputes Legal enforcement costs overseas are often more expensive than in New Zealand, especially in the EU and America where markets and busines’s budgets for legal spending can be huge. In fact it can be eye-watering, France says. A large multi-national buyer will expect the law of their country to be applied. Van Heerden aims to draft a contract to be governed by New Zealand law that prefers arbitration or mediation over court, but this needs to be agreed upfront and a court can override jurisdiction clauses. If parties in different jurisdictions cannot agree on the governing law, an international mediation service is available. Rutherford adds that in US courts the loser does not have to contribute to the winner’s legal costs, unlike New Zealand. “So in the US people may be more likely to bring and defend proceedings because they are not exposed to the other party’s costs if they lose.” But Wells sums up, “It’s more than what’s strictly legal that determines whether an exporter succeeds (in business)!” Mary MacKinven / writer

Mary MacKinven is an Auckland-based business writer. Email marymackinven@orcon.net.nz

> T R A D E M A R K P R OT E C T I O N

Tipping the Apple cart in China Emma McBride uses the iPad trade mark dispute in China as a timely reminder to all brand owners to get their trade mark protection in order in their target markets.

he supply of Apple iPad computers in China could be in jeopardy as the trade mark dispute rages between Apple and Proview, the Chinese owners of the IPAD trade mark. It’s a timely reminder to all brand owners to have your trade mark protection in order in your key markets before you start selling and

manufacturing your product. So how did the dispute arise? Ten years ago, before Apple even decided to use the iPad brand, a Taiwanese manufacturer of liquid crystal displays and other computer products, Proview (Taiwan), registered the IPAD trade mark in various countries. In 2006, Apple purchased the IPAD

iP is about ideas pervading Ideas shape our world. And for New Zealand it is the growing of these ideas into assets, which fuels our economic growth. If you have an idea, invention or business and you need sound advice on your intellectual property – then you’ll have a better shot at success if you know how to protect, enforce and profit from your intellectual property. We help kiwi innovators and entrepreneurs like you to protect and commercialise the IP in your business. We’ll give you clear, concise and jargon-free advice on all aspects of IP from patents and trade marks to e-commerce and offshore contracts. AJ Park is the clear leader in intellectual property in New Zealand. It is worth calling us.

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New Zealand

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Ball of Wire, No.8 Wire: Artist Philipp Meier

EXPORTER 35

trade marks from Proview (Taiwan). But, as Apple later discovered, the contract apparently didn’t cover China. In fact, a different Chinese company owned the IPAD trade mark in China. The plot thickened as the Chinese owner of the IPAD trade mark happened to be a subsidiary of the seller, called Proview (Shenzhen). Even though ownership of the trade mark in China was in dispute, Apple nevertheless started manufacturing and selling iPad computers in China. Apple lodged claims in the Chinese courts arguing the trade mark purchase included the Chinese IPAD registration. However, the courts ruled that Proview (Shenzhen) is the owner of the IPAD trade mark in China. Proview now trying to interrupt Apple’s iPad business With the judgment in hand, reports and rumours suggest that Proview (Shenzhen) is considering the following legal action: • Asking the Chinese authorities to confiscate iPad computers from store shelves as they infringe its IPAD trade mark and also fine Apple for infringing its trade mark rights. • Suing Apple for trade mark infringement. Reports suggest Proview (Shenzhen) will seek between US$38 million and US$1.6 billion in damages. • Using Chinese Customs to stop the import and export of iPad computers. The Customs system is commonly used by brand owners to prevent the export of counterfeits. So, Proview could claim that any iPad computers made in China are counterfeit and should not leave the country. While Apple may be able to find a legal defence to such action (for example, They are exporting iPad computers to the US where Apple owns the IPAD trade mark), fighting the issue would be disruptive to supply and costly. How will Apple protect its iPad business? Apple must choose to either continue fighting in the courts or settle by buying the Chinese trade mark. Neither option is likely to be cheap. Reports suggest Apple has already spent more than US$600,000 in legal fees and rumours have predicted

36 EXPORTER

Proview (Shenzhen) will want up to US$2 billion to sell the Chinese registration. Lessons you can learn While this dispute may be a combination of bad luck and timing for Apple, it clearly demonstrates that trade mark disputes are drawn out and costly. The best way to minimise this type of supply interruption is to ensure you have firm legal rights to your trade mark before launching or manufacturing in any country. If you want to launch a new brand, either here or overseas, remember to: •C heck you won’t get sued: Search to check your new trade mark will not infringe anyone else’s prior rights. Your trade mark lawyer will be able to conduct knockout checks in many international registries, to discover if someone else has already registered the same trade mark. Once the shortlist has been whittled down, you should do more detailed checks for the top few brands on your list. e aware of local laws in your •B export countries: Some countries only recognise the rights of the company that is first to register a trade mark; prior users sometimes have no legal rights like they might do in common law jurisdictions such as New Zealand, Australia and the UK. egister your rights as soon as •R possible: Once you confirm a trade mark is free to use, register it in your key markets, especially any Asian and Middle Eastern markets, where rights in a trade mark usually arise through registration. Delays can be costly. Recent reports suggest Cookie Time has opposed a Chinese application for a copy of its logo. Unfortunately, Cookie Time is not alone; many Kiwi companies have been stung by opportunistic filings like this. If you register your brands in China as soon as possible, then later applications should be blocked from registration and costly oppositions can be avoided. •U se experts: If you need to buy a trade mark from someone else, like Apple did, have a trade mark expert draft the agreement.

Emma McBride: “Ensure you have firm legal rights to your trade mark before launching or manufacturing in any country.”

Many countries, like China, have significant ‘red tape’ and will not recognise your rights until specific documents and forms, from both the seller and purchaser, are submitted to the Trade Marks Office. Often signing an agreement is only the first step. • Enforce your rights: Once your trade mark is registered, enforce it. Sue companies that copy your trade mark and oppose others that want to get too close to your brands. • Take advantage of local enforcement options: Australian and New Zealand Customs will actively prevent the import of counterfeits. Some countries, like China, go one step further, and actively prevent the export of counterfeits made in their country. Your trade mark lawyer will be able to help you work with Customs offices, here and overseas, to stem the flow of counterfeits. Emma McBride is a senior associate and trade mark specialist at intellectual property firm, A J Park. Visit www.ajpark.com

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> MARKET INTELLIGENCE

Southeast Asia: telling it like it is On January 26, a group of leading food and beverage exporters gathered at the Westpac Institutional Bank in Manukau for a workshop on how to further develop export sales to Southeast Asia. Exporter was there. BY G lenn baker

“L

et’s strip out the preconceptions of South East Asia as an export market and focus on what potential buyers are saying.” Those were the opening words of Incite’s Cameron Gordon as he got the Southeast Asia Food and Beverage Roundtable event underway in late January. The boardroom in the Westpac Institutional Bank on Great South Road was filled with existing and potential exporters to that part of the world, there to gain a better understanding of the markets. Gordon’s overview proved to be thorough – understandably so because he is based full-time in Asia and visits Indonesia, Malaysia, Philippines, Singapore, Vietnam and Thailand on a quarterly basis, analysing those markets, meeting with buyers and distributors and partnering them with Kiwi exporters. He’s familiar with the current consumer and buyer trends in each market, such as the growing demand for product from the HORECA sector (hotels, restaurants and cafés). The key for exporters, he says, is to maintain focus on quality, price competitiveness and controlling the

38 EXPORTER

supply chain. There is also a need to tell the New Zealand story in these markets. “The Australians are very good at telling theirs, and showing their point of difference,” says Gordon. Walk into many of the supermarkets up there and it’s like walking into a supermarket in say Brisbane or Sydney. They’ve grown their brand very well.” Gordon explained the direct to retail model chosen by a number of Kiwi food and beverage exporters. Eliminating the middle man means there is more profit margin to be shared with the retailer than if you’re dealing through an importer or distributor. “If there’s a real demand for a product, retailers are more likely to reduce the listing fees and advertising and promotion costs and offer positive, eye-level shelf-space, rather than have your products tucked away in a corner,” he says. “A number of retail outlets we’ve been working with don’t place a great emphasis on brand building,” he adds. “It’s a case of getting the product on the shelves, and seeing if it sells. If it doesn’t, you’ll be moved on pretty quickly, without any refund of listing

fees or promotional money. So directto-retail works for some exporters – but not for others.” Major retail outlets, such as the Cold Storages or Fair Prices in Singapore, for example, are open to listing new brands in their stores, however if the product doesn’t perform in a timeframe of between three and six months then you’re out, and it’s much harder to get back in a second time, says Gordon. “If you’re focused on building your brand in these markets over time, it’s not about short-term gain; it’s about getting your product in and growing sales.” Gordon sounded a caution over product handling too – which he says can be somewhat unskilled at times. “In markets like the Philippines, even very large firms can have problems appointing a local partner who can manage the supply chain efficiently. A lot of supermarkets, for example, turn their chillers off at night, which is not good for products sensitive to temperature shifts, such as wine.” There was advice on building relationships with importers and distributors – avoiding ones with large portfolios, for example, especially

category-heavy portfolios. “You won’t get that same level of dedication that a partner of say ten years, in your same category, is given,” says Gordon. “Remember, there is a shared risk if you’re in a true partnership where both parties are contributing to the brand growth. They have a vested interest in growing your brand. They’re not going to invest in marketing and promotion if they’re not getting a good return.” Experience in regulations is another major consideration for Kiwi food and beverage exporters when selecting an in-market partner – particularly in Indonesia and Vietnam. “It can take a long time to get a product registered and to ‘haggle’ with customs to get your product released,” says Gordon. “Committed relationships and expertise in regulations, and in retailer expectations, are really important.” Market and buyer expectations Gordon covered off on buyer expectations in these highlycompetitive Asian markets (Indonesia, Malaysia, The Philippines, Thailand, Vietnam and Singapore) – reminding us that the rest of the world is also very keen to gain sales in the region. Products that have both retail and food service application can achieve higher market penetration, he says. Most of these markets are also somewhat indifferent towards words such as ‘eco-friendly’, ‘organics’ or ‘fair trade’ – these aspects of marketing are all very new to people, as is the concept of boutique brands. “Again it’s about telling your story, showing your point of difference and how it can relate to the consumer,” says Gordon. Don’t get hung up about making your product look like a local either, he says. “Asian consumers pay top dollar for an international brand, so they want it to look like one. Generally we’re not seeing requests for brand modification into local markets.” Educating consumers on the merits of buying premium health products from New Zealand with quality ingredients is a must, he adds, and distributors require support in this regard. And don’t underestimate the pulling power of awards and credibility indicators, says Gordon, particularly when it comes to wine – “it’s all about prompting consumers to buy your product”. On the subject of buyer payment

Incite’s Cameron Gordon and Nada Young

Protect yourself At the workshop, Sam Bryden, financial market specialist from Westpac Institutional Bank, explained that there are some practical steps exporters can take to protect profits using trade finance options and foreign exchange management. Trevor Farrell, senior international business manager at Westpac highlighted the importance of mitigating your exposure to risk by incorporating the use of a Letter of Credit in a trade transaction. “An LC provides you with the assurance that you will be paid for your goods. It’s a bank-to-bank guarantee that payment will be made if the terms on the LC are met.” Trevor points out that exporters can also make use of clever banking tools to fund production and ease the strain on cashflow while waiting for payment. “Most importers and distributors ask for 60 or 90 days payment terms and exporters who are using their overdraft facility to fund this delay could make a significant saving if they switched to using trade finance with lower interest rates.”

expectations, Gordon made the following comments: •P ayment upfront for the first order is common and key to establishing goodwill. •S ixty to 90 days trade credit is usually asked for (bear in mind that in Indonesia, for example, it can in some instances take up to three months from the time goods leave New Zealand to when they are available for sale in the market). •F avourable credit terms – in some sectors, six months is not uncommon. •T here’s a reluctance to use Letters of Credit for smaller volumes. NZ’s value proposition Gordon assured attendees that New Zealand’s value proposition is holding up well in Southeast Asia markets. There is minimal promotion of New Zealand in these markets he says;

New Zealand products are still seen as unique and special. The ‘100% Pure’ brand translates well too, because food safety and quality has become a big issue in Asia. And Kiwis are both trusted and respected. He says the buyers want to do business, but New Zealand suppliers are not knocking on enough doors. There’s also a lack of knowledge on how to take advantage of the current FTAs. “Make sure your partner knows how to get the tariff benefits,” says Gordon. And while the regulatory environment is intense and at times laborious, Gordon says the upside of that is less competition. “If you’re prepared to jump through the hoops, the rewards are definitely there.” Glenn Baker is editor of Exporter magazine.

EXPORTER 39

> MARKET INTELLIGENCE

Thailand bounces back The floods have gone, some distribution challenges still remain, and Thailand holds a great deal of promise for New Zealand’s food and beverage exporters. BY CAMERON GORDON

n recent months, Thailand’s plight in coping with the serious flooding that submerged much of Bangkok, forcing businesses to evacuate the city and blocking off major access routes, was followed with anxiety across the globe. For exporters, the closure of most of the major retail outlets and the impossibility of moving goods around the sodden nation meant that business with Thailand ground to a halt. Now, with the floods subsiding and consumers returning to Thailand’s central marketplace, the country is bouncing back rapidly and businesses are hungry for growth. Thailand represents a thriving ASEAN consumer market with a thirst for imported goods. For the 12 months ended December 2011, Thailand was New Zealand’s 15th-largest export market with exports to the country increasing 7.8 percent from NZ$679 million to NZ$732 million. Out of the five ASEAN countries that feature in New Zealand’s top 20 export destinations by value (Malaysia, Indonesia, Singapore, Philippines and Thailand), Thailand experienced the secondgreatest percentage increase in the value of New Zealand exports in the period. The highest growth was seen in exports to Malaysia, which grew by 12.8 percent over the same period. In recognition of this increasing

40 EXPORTER

trend towards greater consumption of imported goods, major high-end supermarkets are readjusting to meet their customers’ needs. According to one trade source, “all supermarket chains are reviewing their categories in order to appeal to a new type of customer. They are desperate to get new products to offer their customers so they are very open to new suppliers – whereas before, they were almost impossible to work with. Two years ago you couldn’t even get a product listed without paying lots of money.” This is obviously good news for New Zealand suppliers.

Distribution challenges The size of the Thailand market and the scale of the opportunity provide more good news for New Zealand exporters. There are some three million middle-to-upper class households in Bangkok alone. However, challenges with distribution and a lack of skilled product handling still affect consistency and quality of supply in Thailand. During conversations with buyers in Thailand I’ve heard of one instance where a major food and beverage importer and distributor unwisely chose to freeze a tonne of full cream in an attempt to lengthen

Challenges with distribution and a lack of skilled product handling still affect consistency and quality of supply in Thailand.

”

the life of the product. It curdled, of course, and they set about trying to hide the spoiled product by mixing it with another batch, which they then sold to their key accounts. Unsurprisingly, they lost many of their customers after this fiasco. This reiterates the point that finding a skilled partner to handle your precious goods is paramount to success. The restaurant industry in Thailand is dominated by luxury hotels and with so many different global chains vying for the same customers, competition is stiff. In an effort to gain an edge on their competitors, hotel restaurants try to offer their customers a unique dining experience and to this end many are open to running promotional events featuring premium food and beverage products from New Zealand. This offers New Zealand exporters a good way to test the market and develop new sales channels. Wine sales As with many other South East Asian countries, the large majority of wine sales in Thailand go through the same luxury hotel channel. Profit margins are tightly controlled in this environment and in an effort to increase profits, hotels have begun to add a 400 to 500 percent mark-up on wines sold in their restaurants. This has understandably resulted in a slowdown in wine sales in their restaurants, but, because they purchase on consignment, a slump in sales does not leave them financially exposed and they seem happy to keep their prices high. The imported wine trade has also been recently affected by government changes designed to combat importers falsely declaring the value of wine to decrease the amount of duties and taxes payable at the border. A wine’s value is now determined by a system based on the

New Zealand FTAs with Thailand

New Zealand - Thailand Closer Economic Partnership Agreement Entered into force: 1 July 2005 Tariff schedule (Annex 1.1) and Rules of Origin (Chapter 4): http://www.mfat.govt. nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/ Thailand/Closer-Economic-Partnership-Agreement-text/index.php ASEAN-Australia-New Zealand Free Trade Agreement Entered into force: 1 January 2010 Rules of Origin (Chapter 3): http://asean.fta.govt.nz/chapter-3-rules-of-origin/ Product Specific Rules of Origin (Annex 2): http://asean.fta.govt.nz/annex-2product-specific-rules/ASEAN-Australia-New Zealand FTA Tariff Finder: http:// asean.fta.govt.nz/tariff-finder/

region that the wine comes from. Essentially what this means is that wine that originates from well-known wine regions such as Marlborough, New Zealand, will automatically be assigned a premium value irrespective of the pedigree of the wine. The net result of this policy is that wine buyers are reluctant to begin importing new wines from regions that are classified as premium by this new system. Trends and FTAs Unique experiences are not only being provided by hoteliers in Thailand. An interesting trend developing in homes is the Western notion of dinner parties where the host shows off his or her culinary skills by treating friends to a European-style meal paired with imported wine. While most home chefs are not quite at ‘Masterchef’ level, the novelty of cooking something as simple as, say, a carbonara for guests in your own home is growing in popularity. Healthy living is also gaining traction, particularly in Bangkok where consumers are widely exposed to global lifestyles and where there is a good demand for mid-range grocery products catering to this sector. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) and the New Zealand Thailand Closer Economic Partnership are being utilised by some Thai importers who are importing goods with reduced tariffs from New Zealand. Australia has wasted no time in reaping the benefits of increased trade flow through their FTAs with

Thailand either. While trade volumes from New Zealand are unlikely to match Australia’s anytime soon, we can work towards closing the dollar gap by doing what we do best – that is, competing on quality products offering premium, value-added goods to eager consumers. Timing is crucial. KFC tried to introduce its drive-through concept ten years ago in Thailand and it flopped. Today, McDonald’s is offering the same service and it’s going gangbusters. Cameron Gordon / WRITER

Cameron Gordon is Asia Market Manager at Incite, an international trade services firm that connects New Zealand food and beverage suppliers with partners in South East Asia and Taiwan. Email camerongordon@exportincite.com or visit www.exportincite.com

EXPORTER 41

> MARKET INTELLIGENCE

Getting noticed in China Frank Li, the New Zealand Trade Centre’s Asian development manager, departed on a trade mission to Hong Kong and China on March 1st to raise awareness of New Zealand wine products and connect Kiwi exporters with Chinese distributors. Before he left, Exporter chatted with Frank about his objectives for the journey.

E F

: What do you hope to achieve from your trip to China and Hong Kong? rank: The Year of the Dragon marks the 40th anniversary of New Zealand’s diplomatic relations with China. On the 3rd of February this year, Prime Minister John Key announced this country’s China Strategy: “NZ’s 2015 Vision – Opening Doors to China”. The government promises to help Kiwi companies with products that are popular in the Chinese market – to find viable business

42 EXPORTER

opportunities, including food and beverage (especially seafood and wine), agriculture, food processing, packaging, natural and health products, and more. Our trip will be based on the initiation of this crucial national strategy – along with the expansion of the Asia market, particularly China, and the strong demand they have for safe, quality food. We believe this could bring great business opportunities to New Zealand exporters. We hope to use the strengthened bonds with

Chinese local government, Chambers of Commerce and corresponding industries to increase the recognition of New Zealand products and therefore achieve the goal of helping New Zealand companies be more successful at exporting.

: What are some of the biggest hurdles you face when it comes to connecting New Zealand wine producers with distributors in China? rank: Firstly, lack of knowledge of New Zealand. There are still many Chinese people who aren’t sure

The wine market in China is just like the New Zealand wine market was 30 years ago, but it is growing fast.

”

if Auckland is in Australia or New Zealand, or if New Zealand is part of Australia. We need to constantly educate them. So I think we must promote New Zealand from a country level. Of course, government support is essential for this to be successful. Secondly, price leading in the current China market. The wine market in China is just like the New Zealand wine market was 30 years ago, but it is growing fast. The Chinese palate has been in training with French ‘Old World’ style wine over the past ten years. Australian wine is currently the leader of the ‘New World’ wine invasion into China. If we are to promote New Zealand wine, consumers need to be educated, just like they have been on French and Australian wine. They still believe French wine is the best, and Aussie wine is the new star. Chilean wine is the cheapest. We have to start from the beginning; people need time to improve their understanding of our wine. Thirdly, marketing budgets are another big hurdle. Normally the distributors ask for upfront payment to cover marketing fees and a supportive marketing plan. But that doesn’t suit small New Zealand producers who’ve spent all their money in developing their products.

: Where do you see New Zealand wine producers going wrong when approaching China as a market? What mistakes are common? rank: New Zealand producers understand China is a huge market. There are many big orders once they step into the market. However, everything takes time – especially because New Zealand isn’t traditionally known for producing wine. We are seen as a tiny country away from the mainland, and need to build our reputation for producing great wine. We need to understand that when dealing with Chinese companies, friendship always comes

first. Then, over time, business will come naturally. It’s all about RELATIONSHIPS and PATIENCE. Many exporters are too quick to sign sole agencies for the whole of China. China is too big and most first-level cities have populations of more than 20 million. Start with one city or one province. Finding the right partner is the key but take the time to get to know each other. Don’t get married too early!

: How has the NZ-China FTA changed the playing field for New Zealand wine producers looking to sell their wine in China? rank: Yes, the FTA brings opportunities for New Zealand’s wine producers. A zero percent tariff means New Zealand is in a more powerful position and can now be more competitive on price. But we still need to promote New Zealand and New Zealand wine harder. We are selling the country’s total image, not just the industry sector. It will have more chance of success with government support.

: How do you approach the Hong-Kong market specifically – how is it different to mainland China? rank: Traditionally, Hong Kong is the window for the Chinese to look at new trends from around the world. Today mainland Chinese people can visit Hong Kong more easily and more often. That means Hong Kong is playing the role of a hub for overseas exporters. It’s a very useful centre to promote into the mainland. On the other hand, Hong Kong is a much more mature market than mainland China. Most Hong Kong citizens understand wine on a deep level. They prefer high-quality wine, but of course, they also want value for money. Sauvignon blanc and pinot noir are the most popular New Zealand wine varieties in Hong Kong. However, the competition in Hong Kong is extremely strong when it comes to price, packaging, quality and services.

(80 percent) of the market is still red wine. People in the bigger cities, such as Hong Kong, Guangzhou, Shanghai, Beijing and Hangzhou, are starting to drink more white wine. Sauvignon blanc would be the star, but we need to also raise the profile of other grape varieties. Cork is trusted by most Chinese red wine drinkers over the new cap alternatives, largely because of their historical association with French wine. New Zealand wine producers must group together and take a stronger approach to marketing in China. We need to promote the whole industry, not just individual wineries or vineyards. Remember, the New Zealand Trade Centre is here to help small and medium-sized producers succeed in the Asian market.

E F

: What general advice to do have for Kiwi wine producers looking to export to China? rank: China is a new growth market for wine, the majority

EXPORTER 43

> T E C H S PA C E

Riding the app store success wave Bill Bennett looks at the ‘app’ marketplace and some of the Kiwi software developers riding the ‘app economy’ bandwagon.

ew Zealand developers have joined those around the world plunging into what some call the ‘app economy’ ; a booming market for small, single-function programs running on smartphones or tablet computers instead of personal computers. Smartphone apps are mainly sold in online stores. These are sometimes run by telecommunications carriers and independents, but more notably by household names like Apple and Google, with the ability to quickly and efficiently reach millions of consumers. The app market seems insatiable. Gartner, a research firm, says almost 18 billion apps have been downloaded since Apple opened the first store in 2008. Global sales are estimated at more than US$15 billion and growing

44 EXPORTER

fast. Gartner says the total number of apps sold will leap to 49 billion by 2013. Gabriel Engel, partner in Aucklandbased MacFarlane Engel and Associates which builds its own apps and invests in other app creators, says the wider mobile industry now represents two percent of global GDP. While the numbers look enticing, the experience of an earlier generation of New Zealand-based software developers found breaking into the global market daunting. This time it’s different. That’s because of what Paul Cameron, the CEO of Auckland-based Booktrack describes as the ‘app store ecosystem’. He means the web of services and connections flowing

around the online store. In the case of the Apple iTunes app store which Cameron uses to sell his software this also means direct links to the store built into every iPhone, iPad and Apple Macintosh computer sold. He says the Apple app store ecosystem dramatically lowers the cost of selling software overseas while also giving access to undreamed of markets. Like other developers, Booktrack decides how much customers pay for an app purchased through, say, Apple’s online iTunes store. The money is then spit 70:30 between the developer and Apple. While this may sound high, Cameron says he doesn’t begrudge Apple. He says Apple brings a lot to the

> T E C H S PA C E

party. “It handles all the e-commerce in the transaction, that’s a huge benefit in itself, but Apple is also a trusted brand. People don’t think twice about paying Apple for an app that they might not buy direct.” Engel says the iTunes store also provides “marketing infrastructure”. And there are other benefits. Apple’s reach is global, Engel says. “Imagine what it would cost to do exchange and currency hedges while dealing with 20 different markets.” Likewise, Cameron’s Booktrack app, which syncs music and sound effects to an e-book, giving readers a richer experience, features on the iTunes store in dozens of countries around the world. MacFarlane Engel and Associates has a portfolio of 60 apps as well as investments in other developers’ software. The company’s iGlo LED set was used at Christmas by Wired magazine to control lights outside a pop-up store in Times Square, New York. Apple isn’t the only game in town. Google runs an app store for people using its Android software on their smartphones. Microsoft has an app store for its Windows Phone operating system which is still in its infancy. Although Google takes a smaller ten percent slice from each app store sale and Microsoft offers generous deals to woo parters, both local developers find Apple a more lucrative source of revenue. This is partly to do with Apple’s tightly-held quality control – Engel describes it as a “friendly dictatorship”, which helps weed out poor quality apps. iTunes customers are more confident buyers than people navigating the free-for-all Android app market. Salon Finder Selling software is only one way of making money from smartphone apps. Browns Bay-based Chris D’AguiarSanders developed Salon Finder, an application that uses GPS (global position system) data to put customers in touch with nearby hair and beauty salons. Salon Finder is distributed through Apple’s iTunes store, but

App stores do much to level the playing field for small scale developers in New Zealand aiming to reach global markets.

”

there’s no charge. There’s also no charge for salons to have a basic listing in the application’s directory. “It’s all about loyalty,” says D’AguiarSanders. He says the trend towards daily deal sites has caused problems for salons, but his application hands control for marketing initiatives back to salon owners who pay a subscription to offer their own promotions to customers. He says the business model is already succeeding in New Zealand. At the time of writing he is preparing an Australian release, shortly to be followed by a worldwide launch. You don’t need to be a boffin to ride the smartphone app wave. D’Aguiar-Sanders contracted the app development work on Salon Finder to a software specialist. He said the app was expensive to build, but is already paying off. There’s also an element of promoting his other business which helps salon owners with marketing and staff training. App stores do much to level the playing field for small-scale developers in New Zealand aiming to reach global markets. Engel said it drastically reduces the cost of reaching customers. Nevertheless he says it pays to conduct marketing campaigns as well as listing in the store. In his case he says the most effective way of promoting an app is to “create a narrative video of the app in use”. He says humour helps enormously, if a video is fun it can go viral and reach hundreds of thousands in a matter of hours. Cameron echoes the advice: “You have to get out there and promote,” he says. It worked when Booktrack launched – the story was picked up by the New York Times – that was in turn

Chris D’Aguiar-Sanders: his application hands control for marketing initiatives back to salon owners.

followed up by more than 300 other media outlets. Engel and Cameron both say the development is all done in New Zealand, but both maintain overseas offices to help reach international markets. Global reach does more than just connect developers to customers. Cameron recently launched a Booktrack for a Salman Rushdie book that included a soundtrack by the New Zealand Symphony Orchestra produced by Park Road Post. “If we didn’t have a global reach, we wouldn’t be able to work with such people,” he says. Cameron says Booktrack now features as one of the top 10 book apps in 20 different countries. In many it is one of the top three. “That’s something we never could have done on our own.”

Bill Bennett / WRITER

Bill Bennett is an Auckland -based technology writer. Email bill@billbennett.co.nz

EXPORTER 45

> F E AT U R E

Globalisation: Is your supply chain geared for it? Supply chain consultant Ikhlaq Kashkari explains why New Zealand companies must acknowledge globalisation as an opportunity and optimise their supply chains to suit the new market expectations.

he rise of globalisation presents one of the biggest opportunities seen for New Zealand companies in the past 25 years. Globalisation has dramatically expanded the range of international opportunities for companies, and provided access to millions of consumers for their goods and services. This is particularly true for New Zealand companies, whose success is often dependent on gaining access to larger, global markets. A number of factors have accelerated globalisation in recent years, including the efforts of the World Trade Organisation to liberalise global trade, the proliferation of Free Trade Agreements (FTAs), technological advancements and the success of the Internet. In New Zealand, successive governments have signed a number of FTAs to help local companies tap into the global economy. From the initial FTA with Australia in 1983, New Zealand now has FTAs with countries around the world, including Singapore, Thailand, Brunei, Chile, China, Malaysia and ASEAN nations. A number of other FTAs are

46 EXPORTER

currently under negotiation, which would provide even greater market access. “New Zealand businesses need to prepare themselves to take advantage of expanding trade markets across the globe,” says Ikhlaq Kashkari, director at supply chain consultancy, Xelocity. “Emerging markets and especially Asia-Pacific markets provide the biggest opportunity. China has become New Zealand’s second-largest trading partner after Australia, and in 2010, exports totalled $4.83 billion (up 33 percent on 2009), while imports from China totalled $6.76 billion (up 11 percent on 2009). China’s share of NZ exports and imports Experts believe that New Zealand’s trade is set to grow by 6.33 percent and, over the next five years, at an annualised rate of 3.76 percent – well ahead of world annualised growth of just two percent over the same period (Source: Gary Cross, head of trade and supply chain, HSBC New Zealand). However, the huge potential for revenue gains offered by globalisation is tempered by increasing business complexity. “When customers, suppliers,

production or distribution operations are located around the world, the supply chain never rests,” explains Kashkari. “Business operations and related problems occur around the clock, and solutions are required at every hour.” With globalisation comes an increased need for more collaborative planning, improved order management and improved supply chain visibility. To achieve these, organisations are looking for improved processes and richer systems functionality for sales and operations planning and order management, as well as improved supply-chain visibility. And as organisations continue to expand and collaborate globally, supply chain standardisation will also become a key to success. Achieving the gold standard in global supply chain management Achieving the gold standard involves creating uniform and optimised business processes and performance measurements across supply chain functions, locations and stakeholders. It helps improve performance and gives management more control, leading

The Supply Chain Council is an independent, global corporation focused on advancing supply chain systems and practices. Their Supply Chain Operations Reference (SCOR) model provides a global “best practice” model for organisations looking to improve and standardise their supply chain processes and measurements.

To be successful and grow in a global market, New Zealand companies must acknowledge globalisation as an opportunity and adjust their business strategies to suit the new market expectations.

”

to processes becoming more reliable; less expenses and increased agility when implementing innovative new practices; the ability to compare performance internally within business units and externally with other organisations; and the standardisation of IT systems. The Supply Chain Council is an independent, global corporation focused on advancing supply chain systems and practices. Their Supply Chain Operations Reference (SCOR) model provides a global ‘best practice’ model for organisations looking to improve and

standardise their supply chain processes and measurements. Xelocity has worked with a number of successful New Zealand organisations such as Fonterra, Zespri, Douglas Pharmaceuticals and Ballance Agrinutrients, helping to introduce the SCOR model to their businesses and implement processes and practices to enhance their global competitiveness. By improving their global supply chains, these organisations have been able to reap a number of measurable benefits including better customer and supplier relationships, improved

cashflow, more accurate management reporting and quicker order fulfilment times. “To be successful and grow in a global market, New Zealand companies must acknowledge globalisation as an opportunity and adjust their business strategies to suit the new market expectations. Those companies that do not deal with globalisation are more than likely to weaken or disappear over time,” says Kashkari.

knowledge

experience

Looking to community

export

or already exporting? Business Mentors New Zealand has a team of specialised Export Mentors who can help get you off to a great start and guide you along the way. Exchange rates, trading terms, licencing... the list goes on. Our highly experienced Export Mentors are available to help you through the whole process so you can manage the risks and reap the rewards.

Visit www.businessmentors.org.nz or call 0800 209 209 Bus_mentors_EXPORT_180x130_ART.indd 1

A fully funded service of Business In The Community

21/02/12 9:02 AM

EXPORTER 47

SUPPLY CHAIN CASE STUDIES Douglas Pharmaceuticals: creating a healthier supply chain for global growth

Hallensteins Glassons: designing a global future

Douglas Pharmaceuticals is one of the fastest growing pharmaceutical companies in Australasia, and has enjoyed significant growth in expanding its worldwide export revenues. The company is focused on developing a range of generic pharmaceuticals and exports them to over 40 countries in the EU, Asia Pacific and the Americas. “There are big rewards for generic companies that can be the first in getting their product to market, can meet local market demands and have a competitive cost of goods,” says Rod De Spong, CFO at Douglas Pharmaceuticals. “In this regard we have had some great success. However, rapid growth can prove to be a double-edged sword as it also creates significant challenges for managing the complexities of a global supply chain.” Xelocity took Douglas Pharmaceuticals through the SCOR model, and this resulted in more than 50 improvement projects being identified across its domestic and export business operations. The majority of these projects were implemented over a 24-month period. Initiatives included the establishment of improved customer demand and material supply planning systems; increasing supplier performance and rationalising of the supplier base; improved supply chain performance reporting; enhanced management of master data within the company’s ERP systems and better alignment of product development activities. In return, the company has both increased and sustained Perfect Order Fulfilment performance above 96 percent. It has also reduced its Cash to Cash Cycle Time by 20 percent, which has significantly enhanced the level of free cash available for reinvestment into growing the business further. Now that the internal supply chain processes have been optimised, the team at Douglas are dedicating more time to market growth initiatives and new product development opportunities.

that is increasingly dependent on global supply chains.

Hallensteins Glassons is a well-known New Zealand business Although its clothing is designed in New Zealand, most of its fabric and manufacturing services are sourced offshore. To ensure that product offerings are current, Glassons manages a very tight design-to-market schedule, and speed and agility are key to the company’s success. Rapid changes in product demand must meet unforgiving product deadlines in order to have the right ‘on trend’ products in store to meet seasonal demand. Variations in size, colour and style also require constant attention. Tight timescales require good processes, people and management tools, with a focus on managing by exception. If a deadline isn’t met by as little as a day, a product introduction could be costly. Glassons’ tight turnaround and short product life demands a highly-tuned supply chain. Slick coordination and clear communication are vital. Glassons engaged Xelocity for an Accelerated Improvement Programme (AIP) – a focused supply chain review process. AIP helps customers rapidly uncover opportunities for supply chain improvement through benchmarking, analysis of key supply chain processes and application of best practice knowledge. AIP focuses on specific supply chain ‘pain points’ to maximise return. At Glassons, AIP was applied to the planning, procurement and distribution supply chain processes. Benchmarking information revealed significant supply chain savings opportunities, and overall, the AIP process identified six key improvement opportunities, including quick wins. One of the key initiatives was to improve the collaboration between Glassons and its overseas suppliers, in order to shorten the production design time and improve communication. This has helped Glassons place products onto the shelf quicker, therefore reducing the risks of a market change.

Coming up in the May/June issue of Exporter: • Training/Education:

• Shipping/Sea Freight:

Exporting requires more than just entrepreneurial flair and the courage to take on very different markets – there is a lot of knowledge that’s required too in regard to international trade management. This special feature looks at the options in New Zealand for acquiring this knowledge and the outcomes that can be expected.

A timely feature to get exporters up to speed on recent developments in New Zealand’s shipping and sea freight industry. Exporter looks at the factors impacting on schedule integrity and initiatives by the shipping lines to increase reliability and efficiency – as well as add value to services for exporters and importers.

To discuss advertising opportunities call Leanne Moss on 09 477 0368 E leanne@exportermagazine.co.nz

48 EXPORTER

HEADER: FAIRS & EVENTS

> FA I R S & E V E N T S

Local: 20 March 2012 Driving Sales and Boosting Profits A workshop with Jack Daly – the world’s foremost leader on sales strategies. Ellerslie Convention Centre, Greenlane, Auckland. 27-30 March 2012 18-23 Sept 2012 Register at SalesStar.com or call 09 524 0999. Anuga FoodTec – International trade fair for Photokina – World of Imaging – Cologne. 21 March 2012 food and drink technology – www.photokina-cologne.com 21 March 2012 2012 NZ International Business Awards Cologne, Germany. www.anugafoodtec.com 2012 NZThe International Awards Celebrating the successes of New Zealand’s most inspirational export companies and 6.30pm LanghamBusiness Hotel, Auckland. 3-7 Oct 2012 6.30pm The Langham Hotel, business people. Click on Auckland. ‘Event Information/Where To Buy Tickets’ at www.nzte.govt.nz. Alternatively contact Amy: amy@ Intermot – International Motor, Scooter and 15-20 April 2012 Celebrating the of499 New6909. Zealand’s verve.co.nz orsuccesses phone 04 Light + Building – Trade fair for architecture Bicycle Fair – Cologne. inspirational export companies and 22most March 2012 and technology – Frankfurt, Germany. www.intermot-cologne.com business Go Globalpeople. Click on ‘Event Information/ www.light-building.messefrankfurt.com Where Buy Tickets’Centre. at www.nzte.govt. Sky CityTo Convention A one day national exporter conference presented by Export NZ, EMA and Industrial Research Ltd. 10-13 Oct 2012 nz. Alternativelyspeakers contact Amy: amy@verve. International include highly successful business people from various markets around the world, and NZTE Beachhead 17-20 April 2012 RehaCare – Rehabilitation, Care, Prevention, co.nz or phone 499 6909. advisors. For 04 more information or to register go to www.nzgoglobal.co.nz PaintExpo – Trade Fair for Industrial Coating Integration – Düsseldorf. www.rehacare.com 1-4 April 2012 Technology – Karlsruhe, Germany. 22 March 2012 Conference LESI 2012 Annual www.paintexpo.com 10-14 Oct 2012 Go Global Aotea Centre, Auckland. ‘Commercialising innovation to save the world’. To register online visit www.lesi2012.org.nz Buchmesse – Frankfurt Book Fair – Frankfurt. Sky City Convention Centre. A one day 23-27 April 2012 www.buchmesse.de national exporteryour conference Let us promote exportpresented business by event. Hannover Messe – The whole world of Export NZ, EMA and Industrial Research Email the details to editor@exportermagazine.co.nz technology at one place – Hannove, Germany. 23-26 Oct 2012 Ltd. International speakers include highly www.hannovermesse.de Glasstec – International trade fair for glass successful business people from various production, processing – Düsseldorf markets around the world, and NZTE International: 3-16 May 2012 |www.glasstec-online.com Beachhead advisors. drupa – World market print media, publishing For more information or to register go to 15-17 March 2012 and converting – Düsseldorf, Germany. 23-27 Oct 2012 www.nzgoglobal.co.nz Construction & Mining Equipment Expo – Sandalford Estate, Swan Valley, Perth. www.cmeexpo.com.au www.drupa.com Orgatec – Modern Office & Facility 23-25 March 2012 – Cologne. www.orgatec.com 1-4 April 2012 Franchising & Business Opportunities Expo – Sydney Convention and Exhibition Centre. www.franchisingexpo.com.au 7-9 May 2012 LESI 2012 Annual Conference 26-30 March 2012 Hong Kong International Medical Devices 13-16 Nov 2012 Aotea Centre, Auckland. ‘Commercialising Wire – International Wire and Cable Trade Fair – Düsseldorf. www.wire.de and Supplies Fair. Visit www.hktdc.com or Electronica – Components, Systems, innovation to2012 save the world’. To register 27-30 March www.hongkong.org.nz Applications – Munich. www.electronica.de online FoodTec visit – International trade fair for food and drink technology – Cologne. www.anugafoodtec.com Anuga www.lesi2012.org.nz 15-20 April 2012 7-11 May 2012 13-16 Nov 2012 Light + Building – Trade fair for architecture and technology – Frankfurt. IFAT Entsorga – World’s leading trade fair EuroTier – The world’s top event for animal 22 June 2012 www.light-building.messefrankfurt.com for water, sewage, waste and raw materials production – Hannover. www.eurotier.com EXPORT 17-20 AprilAWARDS 2012 Auckland management – Munich, Germany. Langham Hotel, Auckland. PaintExpo – Trade Fair for Industrial Coating Technology – Karlsruhe, Germany. www.paintexpo.com www.ifat.de 14-17 Nov 2012 A night of celebration, 23-27 April 2012 recognition Medica – World Forum for Medicine and inspiration. Hannover Messe – The whole world of technology at one place – Hannover. www.hannovermesse.de 31 August-5 Sept – Düsseldorf. www.medica.de www.hookedonexport.co.nz 3-16 May 2012 IFA – Consumer Electronics – Berlin, Germany. drupa – World market print media, publishing and converting – Düsseldorf www.ifa-berlin.de For more information on trade www.drupa.com shows, check out these websites: 7-9 May 2012 2-4 Sept 2012 Hong Kong International Medical Devices and Supplies Fair. Visit www.hktdc.com or www.hongkong.org.nz spoga/gafa – The garden trade fair – • www.tradex.co.nz 7-11 May 2012 Cologne. www.spogagafa.com 15-17 March 2012 • www.messereps.co.nz IFAT Entsorga – World’s leading trade fair for water, sewage, waste and raw materials management – Munich. www.ifat.de Construction & Mining Equipment Expo 31 August-5 Sept • www.eurofair.co.nz 11-16 Sept 2012 Sandalford Estate, Swan Valley, Perth. IFA – Consumer Electronics – Berlin. www.ifa-berlin.de Automechanika – World’s Leading Trade Fair www.cmeexpo.com.au • www.nzte.govt.nz 2-4 Sept 2012 for the Automotive Industry – Frankfurt. spoga/gafa – The garden trade fair – Cologne. www.spogagafa.com • www.austrade.gov.au www.automechanika.messefrankfurt.com 23-25 March 2012 11-16 Sept 2012 Franchising & Business Opportunities Expo Automechanika – World’s Leading Trade Fair for the Automotive Industry – Frankfurt. • www.germantrade.co.nz 13-16 Sept 2012 – Sydney Convention and Exhibition Centre. www.automechanika.messefrankfurt.com Kind + Jugend – The trade show for kids’ first • www.biztradeshows.com www.franchisingexpo.com.au 13-16 Sept 2012 years – Cologne. www.kindundjugend.com Kind + Jugend – The trade show for kids’ first years – Cologne. www.kindundjugend.com Let us promote your 26-30 March 2012 16-21 Sept 2012 16-21 Sept 2012 export business event. Wire – International Wire and Cable Trade iba – World Market for Baking – Munich. www.iba.de iba – World Market for Baking – Munich. Email the details to Fair – Düsseldorf, Germany. www.wire.de 18-23 Sept 2012 www.iba.de editor@exportermagazine.co.nz Photokina – World of Imaging – Cologne. www.photokina-cologne.com

Local:

International:

EXPORTER 49

global stage

EXPORTER looks at innovative NZ products currently on display at the New Zealand trade centre

New Zealand Trade Centre has evolved from apassive export leads based business to a trading company actively finding buyers for our members’ products. Our recently refurbished premises offer New Zealand exporters a world-class facility to showcase their products and services.

New Zealand Trade Centre is all about creating export success for New Zealand companies through its dynamic global networks. As well as raising your profile in the international market, we believe it is just as important to promote yourself locally within different cultural networks. This year the Lantern Festival marked the 40th anniversary of New Zealand’s diplomatic ties with China. We were there promoting our members’ products and enjoying the festival-like atmosphere.

“Our recently refurbished premises offer New Zealand exporters a world-class facility

”

50 EXPORTER

UNZ water was a hit with festival-goers! Naturally high in silica, it is soft and silky in taste, which makes it very popular in Asian export markets.

NEW ZEALAND W H I S K Y

C O L L E C T I O N

T HE The New Zealand Whiskey company has recently released the oldest whisky ever matured in New Zealand. Pause W H I S K Y The C 25 O year L L Eold C ‘1987 T I OTouch N Engage’ Cask Strength Single Malt was designed T HE New Zealand Whiskey company has recently toThe commemorate New Zealand’s greatest released the oldest whisky ever matured in sporting T WH HE I S K triumph. Y C O L L E C T I O N New Zealand. The 25 year old ‘1987 Touch Pause The NewZealand Zealand Whisky company has recently The New Whiskey company has recently Engage’ Cask Strength Single Malttowas designed Distilling Zealand goes W H I Sthe Kinoldest YNew Cwhisky O L Lever E Cmatured T Imatured Oback released inN released the oldest whisky ever in the earliest to commemorate New Zealand’s greatest New Zealand. The 25 year old ‘1987 Touch Pause Scottish settlers in 1838, when the distilling New Zealand. The 25-year-old ‘1987 Touch Pause The NewCask Zealand Whiskey company has recently Engage’ Strength Single Malt was designed sporting triumph. industry thrived around New Zealand particularly Engage’ Cask Strength Single Malt was designed to commemorate New Zealand’s greatest released the oldest whisky ever matured in into Dunedin and the surrounding Otago region. commemorate Zealand’s greatest sporting triumph. TheNew New Zealand. 25 year old ‘1987 Touch Pause Distilling in Strength New goes back to the earliest This continued untilZealand the 1870s, when government sporting triumph. Engage’ Cask Single Malt was designed Distilling in New Zealand goes back to the earliest Scottish settlers inZealand’s 1838,down. when the distilling influence saw many close to commemorate New greatest Scottish settlers in 1838, when the distilling Distilling in thrived New Zealand goes back to the earliest sporting triumph. industry around New Zealand particularly industry thrived around New Zealand particularly Scottish settlers in 1838, when theregion. distilling inin Dunedin andpurchased the surrounding Otago Seagrams the distillery in the region. 1980’s Dunedin and the surrounding Otago This continued untilZealand the 1870s, when government Distilling in New goes back to Seagrams the earliest industry thrived around New Zealand, particularly but production ceased in 1997 as This continued until the 1870s, when government influence saw manyinclose down. Scottish settlers when the distilling in Dunedin and the1838, surrounding Otago region. rationalised their worldwide influence saw many close business. down. industry thrived around New Zealand particularly

NEW ZEALAND

This continued untilthe the 1870s,inwhen government Seagrams purchased distillery the 1980’s in and the surrounding Otago region. butDunedin production ceased inclose 1997 down. as Seagrams influence saw many The New Zealand Whisky company were fortunate Seagrams the distillery in the 1980’s This continued until the 1870s, when government rationalised their purchased worldwide business. enough tosaw purchase 600down. barrels ofasaged Malt influence manyceased close but production in 1997 Seagrams Seagrams purchased the distillery in the 1980’s The New Zealand Whisky company were fortunateto Whiskey. This their whiskey has continued rationalised worldwide business. but production ceased in 1997 as Seagrams enough to purchase 600 barrels of aged Malt Seagrams purchased the distillery in the 1980’s improve and over time created Whiskey. This whiskey has continued to an astonishing rationalised their worldwide business. but production ceased in 1997 as Seagrams

New Whiskey. improve and over time created an astonishing TheZealand New Zealand Whisky company were fortunate rationalised their worldwide business. New Zealand Whiskey. The New Zealand Whisky600 company were enough to purchase barrels of fortunate aged Malt enough purchase 600 company barrels of were agedfortunate malt The Newto Zealand Whisky Whiskey. This whiskey has continued to enough to purchase 600 barrels of aged Malt whisky. This whisky has continued to improve and improve and over time created an astonishing Whiskey. This whiskey has continued toZealand whisky. over time created an astonishing New New Zealand Whiskey. improve and over time created an astonishing New Zealand Whiskey.

Design and innovation may not be the first things that come to mind when people consider New Zealand’s food and beverage industry. But these two factors Design and innovation may not be the first things that bookend quality ingredients as key to the success come to mind when people consider New Zealand’s of Wellington manufacturer SHOTT Beverages.

food and beverage industry. But these two factors The bridgehead product that has propelled SHOTT, bookend quality ingredients as key to the success in under five years, to market leader in the Design and innovation be the first things that of Wellington manufacturer SHOTT Beverages. New Zealand café market, may is its not Design and innovation may not benot the be first things Design and innovation may the firstthat things that come to mind people consider New Zealand’s Lemon Ginger & when Honey. come to mind when people consider New Zealand’s come mind when people consider New Zealand’s food andtobeverage industry. But these two factors The bridgehead product that has propelled food and industry. But SHOTT these two factorsSHOTT, Through thebeverage use of smart packaging, has food and beverage industry. But these two factors bookend quality ingredients as key to the success bookend quality ingredients as key to the success positioned Lemon Ginger & Honey as an alternative in under five years, to market leader in the of Wellington manufacturer SHOTT Beverages. bookend quality ingredients as key to the success to tea and coffee. This effectively created a whole of Wellington manufacturer SHOTT New Zealand café market, is itsBeverages. new category. of Wellington manufacturer SHOTT Beverages. Lemon Ginger & Honey. The bridgehead The bridgehead product product that that has has propelled propelled SHOTT, SHOTT, Having strongly secured its position in the domestic under five years, to market leader in the inThe years, to market leader in the product thatoffshore, has propelled SHOTT, market,bridgehead SHOTT is now turning its focus Through the café use of smart packaging, SHOTT has New Zealand café market, itsstrategy. isisits Lemon ItGinger Honey. aiming to replicate itsmarket, New Zealand has in&the in under five years, to market leader positioned Lemon Ginger as an alternative Lemon &and Honey. selectedGinger Canada South Korea&asHoney initial targets.

New Zealand café market, is itscreated a whole to tea and This effectively Through thecoffee. use of smart packaging, SHOTT has Lemon Ginger &smart Honey. Through the use ofGinger packaging, SHOTT has new category. positioned Lemon & Honey as an alternative

positioned Lemon Ginger & Honey as an alternative to tea and coffee. This effectively created a whole toThrough tea and coffee. This created a whole the use ofeffectively smart SHOTT has www.newzealandtradecentre.com new category. Having strongly secured its packaging, position in the domestic new category.

positioned Lemon Ginger & Honey asoffshore, an alternative market, SHOTT is now turning its focus to teastrongly and coffee. This effectively created a whole Having secured its in domestic aiming to replicate its New Zealand strategy. Having strongly secured its position position in the the domesticIt has market, SHOTT is turning focus new category. market, SHOTT is now now turning itsKorea focus offshore, offshore, selected Canada and Southits as initial targets.

aiming to replicate its aiming to replicate its New New Zealand Zealand strategy. strategy.ItIthas has selected and South as selected Canada and SouthKorea Korea asinitial initialtargets. targets. HavingCanada strongly secured its position in the domestic

market, SHOTT is now turning its focus offshore, aiming to replicate its New Zealand strategy. It has New Zealand Trade Centre. 38 Albert Street, selected Canada and South Korea as initial targets. www.newzealandtradecentre.com Auckland CBD. (Corner of Albert and Swanson Streets) info@newzealandtradecentre.com Ph: +64 9 929 1180 www.newzealandtradecentre.com www.newzealandtradecentre.com

www.newzealandtradecentre.com EXPORTER 51

> v I E wpoint

From the Beachheads

New Zealand Trade and Enterprise’s Beachheads programme is a global public-private partnership designed for high-growth New Zealand businesses looking to succeed internationally. The programme connects participants with expert advisors who have the knowledge and networks to help them achieve international growth. Beachheads advisors are successful private sector executives who are committed to sharing their knowledge and experience by offering pragmatic advice and insights into the realities of doing business internationally. Here, advisors answer questions about doing business in India, the Middle East and the UK:

: I can sit down with a potential overseas customer and lay out the advantages of my company’s product. Is this what people mean when they talk about good storytelling?

52 EXPORTER

: From Joanne Rogers, Europe Beachhead specialist advisor and managing director of UK-based PR company Prowse & Co Ltd: New Zealand companies are often taken by surprise by the scale and competitive nature of the UK. SMEs face disadvantages when seeking visibility in such a complex marketplace. Unlike the larger players, they don’t have large advertising budgets or huge marketing departments. If you are seeking to secure a sale or build customer loyalty, effective direct communication with potential customers is critical. Customer relationship management systems and social media will, at best, mimic a real relationship, but they won’t replace the shared experience of increasing trust

and knowledge over a period of time. They are also less likely to change and influence the behaviour of potential and existing customers. Building and maintaining customer loyalty are top priorities. But it’s almost impossible to build strong customer loyalty if staff communicate with prospects in a one-dimensional style and fail to listen, demonstrate empathy and change course where necessary. For example, a potential client with a strong dominant style may be open to persuasive propositions. The approach most likely to succeed with this person is one which combines empathic listening with succinct, flexible and tailored responses, rather than an attempt to stubbornly push through with a resisted idea. Conversely, clients with a listening style will

expect carefully-prepared persuasive propositions. Because clients build relationships with those they trust, they want to buy from people with whom they have rapport and whom they know will respect and understand their needs. Small companies need to take advantage of every communication tactic available, or be left behind. Enlightened company directors know that their company’s reputation is its most valuable asset. Spending time and money on cultivating good relationships is the best investment they can make.

: How important is a physical presence in the Middle East for a New Zealand company to grow in the region?

Markets in the Middle East do not resemble other mature markets, where relationships and trust play a lesser role than in the Middle East. Physical presence conveys a strong willingness by the company to go for the longterm – to take the trouble to set up shop, listen to its customers and adapt to market conditions. By and large, New Zealand is perceived positively. A New Zealand company is seen as ranking among the best of foreign companies. For a New Zealand company to come from so far to establish a physical presence would be highly-regarded. To appoint a Kiwi, with experience in the region, as the agent is another good option. Relationships move with people as they move about. It’s easy to move from one market to another in the Middle East building on past relationships, good stories and consolidating the image of the company. Trust is emotional, but emotions do carry a commercial value. If you care for your customers, turn up and set up shop, it shows respect, confidence and demonstrates a long-term relationship.

: Mahmoud Haidar, Middle East Beachhead chair: In order to grow, a company needs a good understanding of the particularities of the market. The Middle East is not one but many markets. This assessment is of utmost importance for efficient planning. The task of then tailoring the engagement through physical presence has more bearing in the Middle East than in other regions because New Zealand is perceived as a very remote country. A customer in the Middle East will have more concerns about after-sales service with a New Zealand company than they will have with a European company. One option is for a New Zealand company to engage a local agent, after taking all necessary measures to ensure they will be a good representative. We have had some good success stories with agents chosen by companies in the Beachheads programme.

: Can you offer some pragmatic advice with regard to doing business in India? For example, how do you deal with corruption, find a trusted business partner and successfully sell New Zealand products in such a culturally diverse market?

: Vijay Crishna, chair India Beachhead: It is true that ‘India Inc’ and the government are coping with governance issues pertaining to corruption, at high and low levels. If only I could say with a straight face

A customer in the Middle East will have more concerns about after-sales service with a New Zealand company than they will have with a European company.

”

that ours is the only nation so afflicted but, alas, I can’t! The impact of this for New Zealand companies coming in is that yes, a company in India can operate without paying bribes but the pathway may be a little longer. Finding the right business partner therefore becomes paramount, and it is here that the India Beachhead can be of help, either ‘sussing out’ alternative partners or commenting on partners in mind. That India is a culturally complex nation and marketplace goes without saying but business practices are not different in the north from say, the south. What is different is the nature of the demand for particular products in different markets and their drivers. Also, the distributional players vary in different areas. That India is a price-sensitive market is also true, but there are products that people will pay premium prices for. It all depends on the product and the brand strength behind the product. If one has neither, then obviously the going will be a lot longer and tougher! Hence our applauding the notion that a ‘Made in New Zealand’ branding needs to be created and driven for India with more ‘heft’ than has been the case to date. With all this, it is very important that some physical presence be established to kick-off efforts in a market such as India, rather than leave the entire thing to a third party or an Indian representative to do the job. Once the efforts get off the mark, then of course the latter can be used more effectively. For more information visit www.nzte.govt.nz/beachheads

EXPORTER 53

> v I E wpoint

Outside-the-box exporting Catherine Beard meets an exporter not afraid to transfer skills to other industries and markets.

ou might expect a company with the word ‘marine’ in its name to have a remit that’s purely maritime-related. But Hakes Marine of Wellington is proving that you can bust out of the confines of a label when you demonstrate some out-of-the-box thinking.

Paul Hakes of Hakes Marine started building high-tech grand prix racing yachts in the capital ten years ago. Working with top designers from around the world and never compromising on quality, word soon got around, and Paul and his team were soon being called upon to produce innovative creations beyond yachts. Examples include double bass cases, stretchers for ambulance planes, earthquake-strengthening products for buildings, and collaborating with others to create a jet car to break the world

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land speed record. These all entail taking the skills, technology and innovative thinking used for designing and building yachts, and applying them to other industries. When you look at the diversity of projects the team has already been involved with, the boundaries seem limitless. Hakes Marine is now achieving substantial success with a diverse range of clients and industries, so great is the firm’s reputation for innovation and quality. It’s a great example of what can be achieved if your skills are superior, sought-after and transferrable. “We’ve diversified a few times to use our composite skills outside of the yacht arena as a contract manufacturer for other industries,” says Paul. “The New Zealand Symphony Orchestra came to us to solve their problem of having 100kg double bass cases to lug around the world when touring. They have nine of them, and it was a major logistical handling exercise for the roadies. “We developed a case that protects their instruments and weighs just 30kg. We used the latest, highest- quality carbon fibres, and got the sailmaking industry involved to create a sling inside the case to support the instruments so they don’t even touch the sides. “We then had a call from a guy who sells flying ambulances; he takes aeroplanes and helicopters and fits them out as ambulances. He needed a carbon fibre stretcher to go in the aircraft that would ‘talk to’ the hospitals’ gurneys. The stretchers they were using were not transferrable from one gurney to another – from the ambulance to the helicopter to the hospital – so the patient had to be manually lifted from stretcher to stretcher. “We developed a carbon fibre

stretcher with a hydraulic back rest that would talk to all three gurneys, and used concept technology to make it pass the CAA fire rating for use in an aircraft.” While exploring potential applications in other industries, Paul still concentrates on the market he knows and allows clients to market the IP he has created if they wish. For example, the NZSO is now marketing the double bass cases on commission. The client with the carbon fibre stretchers has, to date, sold 25. It’s a smart use of time, skills and knowledge placement. Taking what you do exceptionally well and leveraging it to gain maximum value out of your own market and others. It’s worth thinking outside of your own box. Don’t be afraid to use some creative thinking to explore where you could gain even greater value by exporting your skills and knowledge to meet the needs of other industries and markets. Catherine Beard is executive director of Export NZ. www.exportnz.org.nz

> M A R K E T WAT C H W ith ANZ’ s C ameron B agrie

Seven potential speed bumps Consider the economic themes for 2012 and it’s looking like it’ll be another bumpy year.

s we ponder the Christmas and New Year economic developments, the quick conclusion is that not much has changed. We’ve seen the normal ups and downs across markets (including the NZD) as sentiment oscillates between additional ‘sugar’ via the provision of more liquidity from central banks versus poor fundamentals. So what themes should we be eyeing for 2012 and beyond? Consider the following seven: • Deleveraging (still). We came to the end of a multi-decade leveraging super-cycle across Western society in 2008. The consequences and necessary ‘healing’ include: bank deleveraging in Europe, fiscal austerity, negative feedback effects on the real economy, more regulation without invoking unintended consequences, and social fallout. All will make for an interesting year. • Transitioning. Transitioning signifies change on the growth front, from the ‘old normal’ or borrow-and-spend style to the so-called ‘new normal’ where growth is more balanced. This will involve a capped rate of growth, a different mix of growth, the remobilisation of resources and economic wobbles for years to come. We refer to the transition stage of an economy as one of ‘grumpy growth’. Nations with areas of excellence, or clear comparative advantages (think natural endowments), sound political frameworks, that show evidence that society is ‘getting it’, have flexible economic frameworks (think labour market and floating currencies) and instigate microeconomic reform, will transition in a more orderly fashion. Those that don’t face a Greece-style outcome. • Sovereign risk. 2008 was a credit crisis across the financial system, and unsustainable levels of debt to GDP

were at the heart of the problem. Between 2008 and 2011 the private sector began to improve balance sheets. However, the ratio of debt to GDP in most Western societies is now higher than in 2008. Private sector deleveraging has simply been replaced by sovereign and government leveraging. The average level of net government debt across OECD countries rose from 43.9 to 62.5 percent of GDP between 2008 and 2011 and is expected to continue rising. In the US, the OECD projects that net government debt will have almost doubled from 43 to 81 percent of GDP between 2007 and 2012. A host of nations are approaching the 100 percent mark, while others such as Italy are beyond that point. Sugar pill solutions (printing money) buys you time but doesn’t fix weak fundamentals. Someone eventually pays for fiscal largesse: the taxpayer. • Five shocks not one. New Zealand is in a deleveraging environment. There is a wobbly global scene. We need to rebalance the economy. We’re experiencing a record income shock in the form of high commodity prices. We have seismic events and challenges to contend with. These shocks are pushing and pulling the economy in opposing directions and will for some time. • Asia: opportunity and vulnerability. We’re big believers in the emerging Asia story, with demand for protein, a rising secular trend for commodities, and stronger connectivity (FTAs) key elements. Total New Zealand trade to the Asia-Pacific region has nearly doubled over the past ten years to $26 billion per year. There is also a flipside. We can’t divorce China et al from European developments, and our largest trading partner, Australia, is also Asia-dependent. Asia must progress towards more economic growth coming from private consumption instead of being reliant on the traditional export

and investment model. With growth in a cyclical downturn, inflation still persistent in some economies, and deterioration in Europe’s economic prospects, walking the tightrope of keeping inflation under control but not choking off economic growth will be tricky. • The grand finale. 2008 signified the end of an unsustainable growth model. Moving forward requires leadership to prevail over populism. Will politicians make the hard decisions? Greece is a test case. The fear is that a) the later you leave it the more exponentially difficult the decisions become, and b) individual interest will dominate group interest, and the combination will lead to an accident of sorts before mandates are given to make the hard choices. • Desynchronisation. Prospects for US growth look fairly solid. By contrast, Europe is staring down the possibility (inevitability?) of recession. Growth in China is slowing, albeit from a gallop to a canter. Divergent growth prospects around the globe are reflective of differing challenges, policy responses and price signals such as movements in currencies. Diverging prospects means more uncertainty. Beware of countries where prospects for nominal GDP are below the borrowing costs – a debt spiral may beckon. So what do all these themes in aggregate mean for our economy? A bumpy year, with global forces holding sway, and low interest rates for longer. New Zealand will still perform better than most across the OECD, although a by-product will be an elevated NZD for years to come, though not across the board. One of the clearest trends of 2012 is likely to be the lack of one. Cameron Bagrie is the chief economist at ANZ New Zealand.

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> v I E wpoint

Constraints to export growth The KIMS sector has been identified as the key to New Zealand’s export growth. However, John Walley believes the government lacks the policy framework to make it fly.

he Ministry of Economic Development (MED) has released its briefing to the incoming Minister, targeting growth in exports to 40 percent of GDP. This would require an extra $20 billion of exports. They first discussed the factors constraining export growth before getting into the Government’s role. The briefing identifies the Knowledge Intensive Manufacturing and Services (KIMS) sector (the orange circle in the graph) as the area with the most growth potential Primary production and tourism have limits to their expansion through land availability so the KIMS group identified should be viewed as the key to economic growth. However, the problem is we do not have a policy framework that supports this kind of industrial activity. The MED laid out the following issues: “Few New Zealand firms export... 19. Most firms in New Zealand do not export on a regular basis. Just 200 firms account for over 75 percent of exports. What is it about the New Zealand business environment that deters firms from becoming exporters and has resulted in New Zealand not being able to increase and diversify its non-agricultural exports at the same pace as other small countries? “…with unbalanced growth one factor constraining exports… 20. Unbalanced growth has been unhelpful. The housing boom and associated elevated exchange rate has put pressure on exporters. This was an intensification of a situation that had existed for many years, as evidenced by persistent balance of payments deficits. 21. Although the boom in commodity

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prices has protected commodity producers, it has also supported the exchange rate, resulting in continuing pressure on non-commodity exporters. These exporters cite the persistently high exchange rate as the most significant obstacle to their growth (excluding food and beverage exporters). Growth of knowledge intensive manufacturing and services exports has flatlined since 2005, coinciding with a 30-year peak in the New Zealand real effective exchange rate.” The MED correctly identifies the exchange rate as the key issue where exports are concerned. Exchange rates are constantly explained on a

relative basis as weakness elsewhere and strength at home, however, this analysis ignores the contribution that policy contrasts contribute to that relative position. Monetary and fiscal policy differences all influence relative competitiveness. Further, in countries with strong and growing value-add manufacturing and service sectors we see a commitment to limit the competitiveness impact of volatile exchange rates (decisive actions on monetary policy have been taken in the UK, US, Turkey, Brazil, Switzerland and others). Generally other jurisdictions

have better-balanced tax systems that capture capital gains and provide real economy support from fiscal policy; for example rapid depreciation on productive equipment, R&D incentives and the like that far outstrip our own. Scale is another feature of successful manufacturing countries; defending the base capability against erosion by transient global conditions. Strong supply chains provide additional competitive advantage. Failure to protect activity hollows out capability and the innovative base on which to build competitive industries, and each closure makes the next all the more likely. Criterion Group has been undermined by the persistent differences between monetary and fiscal policies between here and the US. If policy makers here continue to ignore this issue, expect continued decline in the high value sector. In a debate in The Economist last year (www.economist. com/debate/days/ view/714), 75 percent of those involved determined that an advanced economy cannot be sustained without a functioning high-added-value sector – we should be very, very worried about this and our collective future. For 30 years policy in New Zealand has been indifferent towards export success. The outcome of that indifference is clear: a declining productive sector. Expecting this to change without major change in fiscal and monetary policy is a delusion. John Walley is chief executive of the NZ Manufacturers and Exporters Association.