issue 24 JUL/AUG 2012
BRAND NZ: WHY RISK DAMAGING IT? ★ A PACIFIC PERSPECTIVE ★ CHINA’S SOUTHERN GATEWAY
THE MAGAZINE BEHIND NZ’S EXPORT DRIVE
Waking Baby Tiger
Revealing Vietnam’s potential as an export market
$8.20
inc GST
RUNNING ON INSTINCT The Collective’s no-bull export story PAGE 10
FINANCE FOR EXPORTERS Funding trade, getting paid
THE WEIGHING GAME The true cost of air freight
PAGE 26
PAGE 32
FEATURES
16
Looking beyond kimchi
November’s Food Week Korea Expo is a chance for Kiwi exporters to connect with this fast-growing market.
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2 6 FUNDING TRADE, GETTING PAID
F unding trade deals and ensuring buyer payments are always a major concern for exporters. Yoke Har Lee reports on the latest trends in risk minimisation and other trade finance matters.
32 THE WEIGHING GAME Why fly, when the cost to airfreight is so high compared to sea freight? It’s all about time to market, risk minimisation, and much more. Mary MacKinven reports.
36 BRAND NZ: WHY RISK DAMAGING IT?
John Hackett highlights the risk to ‘Brand New Zealand’ posed by the export of bulk New Zealand wine to China.
50 GIFT OR GAFFE? Cathy Knight explains how to make sure your business travel gifts do not unwittingly cause offence.
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FAIRS & EVENTS
52 MARKET WATCH
COVER STORY
Waking baby tiger As the cost of entering the China market rises, many foreign companies are now turning to Vietnam for its cheaper manufacturing base and burgeoning consumer demand. In our special report on Vietnam, we highlight the potential export opportunities for Kiwi firms in this fastgrowing market.
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MARKET INTELLIGENCE
38 A PACIFIC PERSPECTIVE Trade with the Pacific Island nations currently totals NZ$1.5 billion, and new large scale projects, particularly in Papua New Guinea, represent even more opportunities for Kiwi companies. Glenn Baker reports.
42 Humming down south Pat English, New Zealand consul general in Guangzhou, describes the market opportunities that lie to the south of Shanghai.
44 MARCH TO A DIFFERENT DRUM Bangkok-based Greg Reynolds reports on the economic strategies being driven within the ASEAN region and the lessons for Kiwi exporters.
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FROM THE BEACHHEADS
In this issue in-market advisors answer questions on international advisory boards and doing business in Indonesia and Singapore.
EXPORTER PROFILES
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RUNNING ON INSTINCT
The Collective is an export phenomenon – combining great product with the classic Kiwi ‘can do’ attitude has seen the brand quickly rise in popularity. It’s a compelling export story, and that’s no bull, as Exporter discovered when it spoke to director Angus Allan.
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SERIOUSLY INTO EXPORT
Being based at the southern end of the South Island doesn’t deter Jane Stanton’s ambition of selling her quality chocolates to the world’s largest market.
14 Q&A Don Everitt, ex-GM global strategy at NZ King Salmon, talks to Exporter about the changing face of New Zealand aquaculture and what it takes for our seafood producers to compete in world markets.
NEXT ISSUE: Sept/OCT 2012
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EXPORTER 1
Editor’s Letter
Room in the bowl It has been more than six months since we featured the FoodBowl as our cover story in the magazine – and back then the facility had only been fully operational for a matter of weeks. As a reminder, the FoodBowl is a government-funded, purposebuilt, state-of-the-art facility near Auckland Airport, designed for short-run, pilot-scale processing of products for in-market testing. It is part of an initiative to grow New Zealand’s food and beverage exports by 270 percent by 2025 to $150 billion. An invitation to a recent ‘Food Innovation in New Zealand’ presentation at the Villa Maria Estate was a chance to catch up on how this pilot scale food and beverage processing plant has been faring, and remind myself of what a great opportunity it is for smaller food manufacturers to trial new products using its unique ‘plug ‘n play’ concept. It turns out that some parts of the facility have been experiencing steady bookings, such as the industrial kitchen, while others still have some spare capacity. This is to be expected as it takes some time for a facility of this kind to achieve maximum efficiency – and there may be a perception out there that the hireage rates are too expensive, particularly for smaller companies. When the question was put to Tony Nowell, chair of New Zealand Food Innovation Auckland, which runs FoodBowl, he assured the audience that pricing was very flexible, and there is good access to funding on a 50/50 basis. I’m sure everybody came away from the presentation convinced that the facility is a great tool that should be utilised by more food and beverage firms. What’s needed are more individuals and companies with innovative ideas and the enthusiasm to take on export markets. I thought Nowell did an excellent job selling the FoodBowl’s benefits, and its smaller sister – the FoodPilot in Palmerston North. Professor Richard Archer, head of food, nutrition and human health at Massey University, explained how the various technologies at the facility worked, such as the 55-litre high pressure pasteuriser, which can extend the shelf life of all manner of products without damaging flavours or nutrients. So far some 130 companies have engaged with the FoodBowl. Nowell describes it as a ‘snowball that’s starting to roll’. If you have an idea for a clever new commercial product, now’s the time to make use of this facility – before you have to get in a queue.
Glenn H. Baker editor@exportermagazine.co.nz
EDITOR Glenn Baker. editor@exportermagazine.co.nz ADVERTISING MANAGER Leanne Moss. Leanne@exportermagazine.co.nz ADVERTISING ASSISTANT Rachel Witberg. Rachel@exportermagazine.co.nz DESIGN AND PRODUCTION Hartman Reid. hartman@adrenalin.co.nz JOINT PUBLISHERS Cathy Parker. cathy@adrenalin.co.nz Yvonne Carter. yvonnec@xtra.co.nz SUBSCRIPTIONS/ENQUIRIES Sarah Holyoake. subs@exportermagazine.co.nz CIRCULATION MANAGER Kim McIntosh. kim@adrenalin.co.nz PROOF READING George Ward. CONTRIBUTORS THIS ISSUE Cameron Bagrie, Catherine Beard, Kirk Cheesman, Gary Denman, John Hackett, Greg James, Cathy Knight, Yoke Har Lee, Mary MacKinven, Peter Owens, Greg Reynolds, Rom Rudski, John Walley, Nada Young. 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.
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AN
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MAKING NEWS
Organic superfood succeeds in Oz OOB, the New Zealand organic blueberry and ice cream brand, has recently confirmed a significant break into the Australian market. The company, founded in a Matakana orchard in 2001, signed a deal with the Australian Woolworths chain, resulting in OOB products being stocked in 856 stores across the ditch. There’s also the potential to expand into Coles and the independent supermarkets. “This deal looks set to double our turnover,” says MD Robert Auton. “They’re currently stocking our frozen organic blueberries and our multi-pack organic ice creams in some of our best-selling flavours. “OOB is proving exceptionally popular with the Australian buyers and consumers because of our key points of difference: every product is certified organic, and the quality and taste are exceptional.
“Our aim has always been for OOB to own the premium organic market segment in Australasia,” says Robert. “In the next two years we intend to double ice cream sales into New Zealand supermarkets, and double berry and ice cream sales into Australia. We’ll also begin exporting our organic ice cream into Asia and we’ll continue expanding and developing our range.” www.oob.co.nz
Exporters divided on market prospects The latest DHL Export Barometer is out and, not surprisingly, New Zealand’s exporters have been finding it tough. However, despite fluctuating exchange rates and rising fuel costs, they are still cautiously optimistic about the year ahead. The annual survey of New Zealand exporters was a bit of a mixed bag – only 51 percent of exporters are confident about an increase in export orders in the next 12 months. This is significantly lower compared to 2011, when the figure was 70 percent. This means the 2012 result is the lowest in the history of the DHL Export Barometer, which has been running in New Zealand since 2004. “There’s no denying business conditions for exporters have been challenging. While the survey result is lower than previous years and
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indicates difficult trading conditions in the first part of the year, there’s still some optimism going forward,” says Tim Baxter, country manager, DHL Express New Zealand. “New Zealand businesses are nimble and innovative, and there are still many companies that are doing well. By re-thinking business models and adapting to the conditions these companies continue to make headway.” According to the survey, the top three negative factors impacting exporters’ business sales in the last 12 months were: exchange rates (58 percent), rising fuel costs (46 percent) and interestingly 31 percent cited economic/political conditions abroad, the cost of raw materials and international competition as third equal factors. As well as being top export
destinations, Australia and China are considered the greatest competitive threat to Kiwi exporters. Fifty-one percent of exporters perceive Australia and China as a threat, with China seen as highly competitive to those in manufacturing specifically. “It is understandable how China can be perceived as an opportunity and a threat. China represents a tremendous opportunity for New Zealand exporters, but it’s a big exporter itself, therefore competing with us in other export markets,” says Baxter. “The response towards Australia is more curious. Australia produces some similar commodities to New Zealand and is obviously a close neighbour. It may be because there is increased economic uncertainty, that potential competition is being felt more keenly.”
MAKING NEWS
Pruning system a world hit Marlborough-based KLIMA’s pruning system has been described by European media as a revolutionary step in mechanising viticulture that has the potential to change vineyard practices. The cane pruner cuts, strips and mulches grapevines – jobs that until now have always been carried out by hand. In addition to giving grape growers better control over vine quality, it reduces labour costs associated with pruning by around 50 percent. KLIMA managing director Marcus Wickham says the pruning system and machine have proven popular because they take the pain out of pruning, substantially reduce grape growers’
pruning costs and provide a rapid return on their investment. Since launching the cane pruner in 2010, KLIMA has made impressive inroads into the New Zealand, Australian, French, Italian, German and Austrian markets. Significant interest is being shown by many other large international markets, with new markets to be announced later this year. KLIMA’s offshore success has been assisted by a strategic partnership with German vineyard machinery manufacturer and distributor, ERO Weinbau. The companies have joined forces to jointly develop and commercialise the technology around
the globe. KLIMA provides innovative technology and viticultural knowledge, and ERO supplies the manufacturing excellence, distribution networks, brands (ERO and Binger) and industry credibility – which is particularly important in the European markets. “It’s a case of Kiwi No. 8 wire meets German manufacturing perfection to maximise the cane pruner’s value to customers,” says Wickham.
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MAKING NEWS
Infant food exporter gains China foothold
Packing the first shipment to China – Simon Page and Jane Li.
Small Kiwi firm Biopure Health has claimed a small, but potentially lucrative foothold in China’s multibillion dollar infant formula market. The company has opened two stores, in Chengdu and Panzhihua, to coincide with their first shipment of product – the culmination of two years of cutting through red tape. They already have more products planned and aim to have ten stores in China by the end of next year.
Biopure Health is New Zealand owned from milk to market, with every stage, including processing, canning and retailing performed by wholly-owned New Zealand companies. Founder Simon Page says that’s unique. “There are a heap of brands in China claiming to contain Kiwi milk products,” says Page. “But in the main they are owned by multinationals or Chinese investors and aren’t transparent in their supply chain.
“Many companies just source New Zealand milk products and package it in China. But our research shows Chinese consumers don’t trust that. They want to know that the product is authentic New Zealand, every step of the way.” The company’s creation came after a flood of enquiries from China soon after the Sanlu infant milk formula scandal. Page, who was an analyst at Gen-i at the time, saw the opportunity for Biopure when his partner Jane Li, an online fashion retailer commented on the dozens of requests she was getting from her suppliers across China for infant formula. “As soon as they heard we were doing business in New Zealand, people were begging us to source infant formula. Clearly there’s a massive demand for this country’s milk,” says Page. It took six months of market research before
Page and Li came to the conclusion that they needed to create their own brand of infant formula and another 18 months to raise the capital to market it directly in China through their own stores. They contracted Auckland company New Image to do the processing and packaging of the product and jointly developed a unique formula range. Biopure will sell online through its own official site, but will not utilise popular Chinese auction website Taobao – again, to protect supply chain integrity. Page says that the amount of red tape they’ve had to get through can’t be underestimated. “Getting the product certified for importation in China was a lengthy process. They’ve many thousands of applications awaiting approval. Being a Kiwi definitely helped get me to the top of the pile.”
Single global identity for Gallagher Gallagher Group’s decision to deliver a single global identity has resulted in a company name change for PEC Fuel Pumps. Gallagher is a global leader in the innovation and marketing of technology solutions for animal management, security and fuel systems. But increasing opportunities in the global security market with major technology developments are driving the repositioning of its future
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business strategy and brand identity. Now, the Hamilton based company has aligned all business units and market products under one name, Gallagher, including PEC Fuels Pumps – now known as Gallagher Fuel Systems. MD Richard Coxon says for market consistency Gallagher had to move away from the many brands in its stable. “We were divisionally structured with Security Management Systems,
Animal Management and PEC Fuel Pumps and each division marketed various product brands. It encouraged individuality between divisions and subcultures within our organisation. Most importantly our customers were confused about who we are and what we stand for.” “Gallagher is positioning itself as a global technology brand offering solutions in animal management,
integrated access and perimeter security and fuel systems. We’re also expanding our capabilities within manufacturing including electronics, plastics processing and tool and die making which is where we see opportunities for the local facility.” He says introducing a single brand enables each business unit to enhance the other’s message instead of diluting it.
MAKING NEWS
Fitting tribute to export champion Forty years after starting his business, self-made man Sir Ken Stevens has won the inaugural Exporters Champion for Exemplary Services to Export Award, and was honoured at the recent Air New Zealand Cargo ExportNZ Auckland Awards 2012. At the gala dinner a ‘this is your life’ presentation acknowledged Sir Ken’s achievements and ongoing service to New Zealand business. The award, presented on the night by PM John Key, comes from exporters themselves, who know how hard a life of business travel can be on families and how resilient and generous Sir Ken always is.
The Supreme Award and Westpac Exporter of the Year Award (sales over $35 million) went to Temperzone. The QBE Insurance Exporter of the Year, sales under $35 million, is Canary Enterprises, which manufactures value-add dairy and selected non-dairy products. Innovative umbrella manufacturer Madeblunt was named Emerging Exporter of the Year; Orion Health named Hi-Tech Exporter of the Year; while ENSID Technologies received the highest honour in the commercialisation of innovation and Compac Sorting Equipment took out Deal of the Year.
Food Innovation Waikato open for business Economic Development and Science and Innovation Minister, Steven Joyce, recently officially opened the Waikato Innovation Park’s new spray dryer facility, known as New Zealand Food Innovation Waikato. The $11 million product development spray dryer facility is the only one of its type in New Zealand and is the Waikato component of the
Government-sponsored New Zealand Food Innovation Network. Its capacity is one-half tonne/hour, making it one of the world’s smallest commercial spray dryers. Hamilton-based Dairy Goat Co-operative has committed to utilising the plant for part of the dairy season. NZ Food Innovation Waikato is looking for commitments from
additional companies that want to R&D new spray dried food products. CEO Derek Fairweather says his team is talking with specialty milk producers as well as companies looking to spray dry fruit and vegetable extracts. “This unique facility offers potential for specialty milk producers, in particular, to innovate.”
Choose the ultimate business location and enjoy more cost-effective exporting www.thetaurangabusinesscase.co.nz
EXPORTER 7
MAKING NEWS
Major progress for Safe-Eyes
With entries to the 2012 ANZ Flying Start Business Plan competition closing at the end of June, Exporter considered it timely to catch up with the Supreme Award winner from last year’s competition to see what progress the business has made since, and how the $60,000 prize package was utilised. Phil Hall, founder of Masterton-based Kiwi Ideas Company, is the original brains behind the company’s scratch and fog resistant ‘Safe-Eyes’ safety eye goggles – which have passed both European and US safety standards. At the time of winning the competition Hall was already in discussions with global distribution partners with a view to taking the safety goggles worldwide. As any exporter will tell you, things never happen overnight. But there has been some impressive progress made on
the manufacturing and export front in recent times. The prize money from the ANZ business.govt competition enabled Phil to fly to Hong Kong to meet two potential global distributors and a manufacturer. “One of these companies had a potential connection with a manufacturing partner in China who runs a very professional operation responsible for producing millions of products for the global market,” says Hall. “For Safe-Eyes to be competitive in the global market we need an overseas manufacturer. Until now we’ve had to bring part of our product in from the US, then do our molding and packaging prior to export – which impacts on the cost of product and volume capabilities. “The China manufacturer will be able
to reduce manufacturing costs by at least 40 percent and is capable or enormous quantities to suit the distributor’s sales projections,” he says. Safe-Eyes has now secured a joint venture agreement with a Hong Kongbased global distributor. This company will manage the manufacturing out of China and global distribution via Hong Kong and includes Wal-Mart in its current list of large global retail clients. “I also travelled to India to meet a potential distributor for that market and while I was there I met up with the New Zealand trade commissioner in New Delhi, Cliff Fuller. He has offered NZTE assistance in India. The prize money definitely enabled these trips, says Hall – and allowed work on new product designs to go ahead, along with a rebranding and complete new packaging. There has also been $10,000 worth of web and social media work donated by Munted Digital. “This is an exciting phase,” says Hall, “developing many aspects of social networking and search engine optimisation (SEO) improvements. It’s all planned to be online with the new packaging and marketing drive. “All packaging is complete and we are currently running a New Zealand marketing campaign, targeting new resellers to enable our product to be available throughout the country.”
Jewellery designers win China contract Wellington jewellery designers The Inspired Collection have signed a contract with major Chinese jewellery company, Hiersun to create an exclusive collection for the Chinese market. The collection will feature in more than 200 of Hiersun’s ‘I Do’ branded stores. Hiersun approached The Inspired Collection at the Hong Kong Jewellery Fair in September 2011. “They liked our fresh and innovative designs and
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were keen to work with a company that pushed traditional boundaries, a philosophy we share with them,” says The Inspired Collection’s creative director, Ian Douglas. “We will be creating a series of bridal jewellery designs for I Do. The Western wedding concept has grown exponentially in China in the past ten years. The agreement further cements the internationally award-winning company
as a global jewellery design hub. The Inspired Collection is currently in negotiations with leading jewellery companies in the UK, US and Canada. “The opportunities for us are absolutely massive but we have to prove that our designs can work outside New Zealand. The success of our range in China is very much a ‘wait and see’ game. We’re taking one step at a time,” says Douglas.
MAKING NEWS
All risk policy for refrigerated goods It’s just three years since QBE launched its leading-edge Cargo Plus insurance policy onto the local market. The Cargo Plus policy was hailed as the only ‘plain English’ marine policy in the market, and one with an unusual width of coverage. Marine cargo insurance policies are some of the oldest policies around and the language can be correspondingly archaic in most cases – so Cargo Plus was regarded as a surprisingly refreshing product within the overseas trade sector. It is also the only policy on the market to offer automatic ‘loss of profits’ cover as standard. Now QBE has launched a sister policy called Cold Cargo which is similar in what it offers, but, as the name suggests, specifically designed
for cold and refrigerated goods. Again, it features simple, easy-toread policy wording which can be understood by the average exporter – not a stream of confusing industry jargon. The Cold Cargo policy is designed for all frozen, chilled and refrigerated goods, other than fresh horticultural products (fruit and veges), live or fresh shellfish and seafood, bulk liquids/goods, single transit risks, and goods otherwise best insured under Cargo Plus. For a simple explanation of the benefits of both Cargo Plus and Cold Cargo policies go to the product briefing pages on the QBE website: www.qbe.co.nz
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EXPORTER 9
> EXPORTER PROFILE
Running on instinct The Collective is an export phenomenon – combining great product with the classic Kiwi ‘can do’ attitude has seen the brand quickly rise in popularity overseas. It’s a compelling export story, and that’s no bull, as Exporter discovered. By Glenn Baker As a branding and export success story, The Collective is not bad for a couple of ex-chefs. But then, it had one major factor in its favour right from the get-go – both Angus Allan and Ofer Shenhav had already gone through a similar process with their previous businesses – Angus with Naked Organics and Ofer with Pitango Organic Cuisine. That gave them more of an appetite for risk this time round. But this time it was dairy and the stakes were much higher. Angus recalls always having a “cooperative relationship” with Ofer even though they were in the same
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industry. The exception was when Pitango started producing dips. “So we decided to do soups, which severed the relationship for a while. But we always watched what the other was doing,” he says. In November 2009 the two former competitors purchased the boutique Canaan Cheese business and founded the Epicurean Dairy Co. “I had sold my company around 2006, saw out a three-year contract with the buyer, all the while looking for another opportunity,” says Angus. “Ofer had sold his business and came to me with the Canaan opportunity
just as I was finishing my contract. We both had a yoghurt product in mind which we’d seen overseas and immediately decided this was the way to go. That’s how we came back together. We’re both good at spotting food trends. Probably our greatest ability is tasting a particular product and knowing if it’s suitable for the mass market,” he says, adding that a lot of inspiration comes from their overseas travels. “The cultured cheese product was the first product we went with, due to timing. We spent six months developing products and launched
the new brand in February 2010.” The gourmet yoghurts appeared in New Zealand supermarkets three months later, and things ramped up rather fast from then on (so fast that in November 2011 the company was number 28 on the Deloitte Fast 50 Index with 250 percent growth). Today the two directors work closely together on new products. Even though Ofer has since relocated his family back to Israel, they regularly meet up (in person and via Skype) and he is still heavily involved in the business’s development – not to mention closer to world markets. Company milestones include June 2010 – launching into Australia; July 2010 – major factory upgrade; February 2011 – becomes New Zealand’s leading gourmet yoghurt brand; May 2011 – thanks to a joint venture with one of the UK’s largest yoghurt manufacturers and many months of groundwork, their specialist dairy and yoghurt products appear in 300 Waitrose and Sainsbury stores.
he challenge when “ Tbuilding a company here is that certain people may not believe that you have a product that is special and unique. You’ve got to stick to your guns.
”
Product success is all about getting the perfect balance between sweetness and tart. Taste always comes first, says Angus. To demonstrate how important this is he uses the example of one particular Sainsbury store, where the store manager was so impressed by the yoghurts that he went about convincing customers to try the product and the shelves were quickly cleared. Angus tells me that their US joint venture plans are “under development” and there are other bigger markets on the radar. “One piece of the pie at a time,” he says. “The UK alone is a massive market.” Meanwhile, in New Zealand the total retail yoghurt category is growing at around eight percent, and with just a five percent share, there is still plenty
of room for growth for The Collective’s brand in what is a highly competitive market. “Retailers like it because it’s a premium product for the category and it doesn’t gut their margins,” explains Angus. Successful model Partnering up with dairy manufacturers in-market is proving to be an extremely successful business structure. Angus admits each deal is different – some are licensed agreements, some are joint ventures with distribution partners, there’s no one set formula – but they’re certainly not interested in setting up their own factories. “You’re better off dealing with people who have local knowledge.” Angus says approaching a new market involves a lot of research – he calls it “scratching around”. And everything they’ve accomplished so far has been the result of their own funding and networking, he says. “One lead tends to lead to the next.” He admits it hasn’t been easy though. “Imagine trying to convince a company that’s 300 times bigger than you that you’ve got something special and they need to partner up.” Nevertheless, although it hasn’t exactly been a walk in the park, UK sales have definitely exceeded expectations. “If I’d said that nine months after launch we’d be in 1200 stores, would you be happy with that? Absolutely!” Success is all about having a recognisable brand says Angus – and there’re now up to 30 product lines all
with that distinctive ‘Cow’ logo and ‘No Bull’ taglines (design company pHd3 won a number of awards for the branding and packaging) Marketing in the UK mirrors what they do here. “It’s all underground,” explains Angus. Social media, low-spend, tastings, samplings – he says it’s all about having a fun, accessible, high-quality product and getting that product into peoples’ mouths. Trusting instincts Angus says they received a lot of wellmeaning advice from people regarding their branding and product, but he has learnt to trust his instincts when it comes to making decisions. “The challenge when building a company here is that certain people may not believe that you have a special and unique product. You’ve got to stick to your guns.” That instinct came into play when choosing the original branding. They’d searched for four months and saw around 20 ideas before instantly opting for the cow’s head branding. Instinct also had a part to play when it came to trusting strangers in a market that initially you’re totally ignorant on. This was especially applicable in the UK. But entering
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STOP PRESS! The Collective makes Social Brands Top 100 The Collective is the first and only New Zealand business to feature in the Social Brands 100 – the authoritative ranking of brands taking the lead in the social age. Awards are not just judged on the numbers of followers, but on how brands listen and interact with their community. Ranked 57, ahead of big brands Dell, Virgin Atlantic, Google, Samsung, Sony Ericsson and Estee Lauder, The Collective also ranked as the number 2 business to interact directly with their fans.
new markets is all about making use of good contacts – networking is important says Angus (although he admits he’s not very accomplished at it).
e love what we’re “ W doing – it’s great fun, we’re proud of our achievements and we can see the brand being everywhere.
”
And yes, there is always a measure of luck involved. There’re many challenges around managing a global brand too, says Angus – the need for consistency, for tailoring different messages to different markets. And then there’s the difficulty of upscaling product to suit a much larger offshore factory, without
compromising quality. “We spent a lot of time at the UK factory, but thankfully they picked it up quite quickly,” says Angus. He has also been impressed by the efficiency of the distribution network in the UK. One of the biggest challenges for the team at The Collective is dealing with time zones. “We often work across four or five different time zones when we’re holding meetings, and that’s a challenge,” says Angus, along with the ‘middle-of-the-night’ phone calls and jet-lag. The big vision Does The Collective have visions of global domination? It seems they do. “We want to be a global brand,” says Angus. “We love what we’re doing – it’s great fun, we’re proud of our achievements and we can see the brand being everywhere. We’re
already well ahead of expectations.” This year they’ll enter Europe, he says. And they’ve done all this with very little external help. For local funding agencies, getting their heads around The Collective’s business model is not easy, and that’s understandable, says Angus. Overall sales have already exceeded the $20 million mark, and the goal is to crack $200 million in the next five years. Angus openly admits he feeds off a challenge and never rests on his laurels. He’s always looking ahead to the “next big thing”. I get the feeling we won’t have to wait very long to hear about it and, more importantly, taste it. Glenn Baker is editor of Exporter.
Coming up in the Sept/Oct issue of Exporter: • Intellectual Property:
• Insurance:
A special feature that examines exporter-specific IP issues. Exporter will present the viewpoint of New Zealand’s leading IP experts on the rules, regulations and laws governing intellectual property – including the issue of brand protection in target markets. A must-read for exporters keen to protect, exploit and enforce the full portfolio of IP rights.
Insurance for export consignments during transit is vital and often a condition in a sale agreement or letter of credit. This special feature explains the insurance categories and options for cargo and transportation insurance. It shows how exporters can get the best value for their insurance dollar and minimise the risk of goods being damaged in transit.
To discuss advertising opportunities call Leanne Moss on 09 477 0368 E leanne@exportermagazine.co.nz
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> EXPORTER PROFILE
Seriously into export Being based at the southern end of the South Island doesn’t deter Jane Stanton’s ambition of selling her quality chocolates to the world’s largest market. By Peter Owens
It pays to observe protocols and procedures. Jane Stanton of The Seriously Good Chocolate Company in Invercargill recently returned from an importer trade show in Kunshan, near Shanghai. At that show she was the only chocolate trader and, apart from the Auckland Chamber of Commerce, the only New Zealander present. Other chocolate traders had their samples confiscated before it began. Fortunately Jane knew something of the Chinese Government’s procedures and had taken the precaution of engaging Xing Dong Yan of local chartered accountants Judith Cambridge Limited – a specialist in Chinese customs, protocols and other procedures. He did his work well; following the correct procedures ensured that the samples from The Seriously Good Chocolate Company arrived intact at the Kunshan Trade Show – a show attended by more than 30,000 representatives of Chinese businesses. Jane says her chocolate products – particularly the chocolate wine products – received considerable attention, both from visitors to the show and the local media. Since her return she has received a number of contacts from Chinese businesses and is currently engaged in negotiations. This can be a tortuous business but she believes she will receive substantial export orders for her products when all the arrangements are completed. Jane says there has been a dramatic
change in the chocolate market since the late 1980s. Consumers no longer just buy a box of chocolates for a special occasion. Quality chocolates have become part of the lifestyle of people who want to live well. But chocolate was not alone in this. Wine is no longer just an accompaniment for food but is also an important factor in the lifestyles of the upwardly mobile Kiwi. Of course, like many trends or fashions, this twinning of quality chocolate and fine wines has come from overseas; inevitably from California and surprisingly from Germany. A star product is born Once Jane became aware of this move towards chocolate and wine, she saw a window of opportunity – a chance to highlight top quality New Zealand wines and chocolate through a key export destination; promote New Zealand-style chocolates at the top end of the market as “something different; something no one had counted on.” To this end, she approached several Central Otago wineries and offered to make sample batches of chocolates made with their own wines. This approach was enthusiastically accepted. The winemakers were well aware of the synergies of chocolate and wine and saw the production of wine-flavoured chocolate not just as a marketing tool in export markets but here in New Zealand. Accordingly, The Seriously Good Chocolate Company designed and
crafted batches of chocolates for a few Central Otago winegrowers under their respective brand names. This proved very successful. The winegrowers sold the chocolates at their retail outlets to visitors from all over the world. It was very effective as penetrating advertising. This side of the company’s business rapidly expanded. Pernod Ricard New Zealand was one of the winemakers that ran with the concept. Its management saw wine chocolates as a novel and attractive way of promoting its wines in New Zealand and in its European and North American markets. Other companies were not slow to follow. Pernod Ricard not only invited Jane Stanton to attend a wine course in Christchurch, but also arranged for her to meet winemakers from throughout New Zealand. This has resulted in The Seriously Good Chocolate Company making chocolates for eight wineries from Gisborne to Central Otago. Jane has not been thrown by the recent success of her company’s products with the wine industry. She believes it has happened because she held fast to her dream of developing a quality chocolate product in New Zealand; promoting our chocolate and our wine within this country; and promoting New Zealand overseas. Peter Owens / writeR
Peter Owens is a South Island-based freelance writer. Email eastmedia@woosh.co.nz
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> Q&A
Don Everitt
Ex-GM global strategy, NZ King Salmon Today salmon farming is a high-flying export category. Much of its success, both in New Zealand and in competitive world markets, can be attributed to the savvy of NZ King Salmon marketing stalwart Don Everitt. He recently left his position at the company, seeking new challenges, but Don’s legacy lives on in the form of a highly sophisticated local market and international marketing successes his predecessors would have thought nigh-on unachievable 20-odd years ago. Don talks to Exporter about the changing face of New Zealand aquaculture and what it takes for our seafood producers to compete in world markets. 14 EXPORTER
EXP: You talk about the difference between being an exporter and an international marketing business. Can you explain this? Why was it so important for NZ King Salmon to understand this and immerse itself in its export markets? DE: In my experience, most New Zealand products are bulk commodities or ‘intermediate products’ sold by exporters who traditionally have sold to importers and wholesalers from overseas markets. They do a very efficient job of exporting and our economy has been built on their efforts. NZ King Salmon faces cost competition in global markets where the traditional approach does not work by itself. To compete, NZ King Salmon needed to set marketing strategies, backed up with excellent execution of those strategies.
I would advise any “seafood producer, new or established, to become more than a producer by understanding the market.
”
NZ King Salmon differentiated itself through branding and product development strategies; gained insights to consumers and its distribution network and designed new consumer products. From Nelson our reliable logistics system serviced customers who needed quick deliveries into international destinations – that system which became a real comparative advantage. To produce new products we had to better understand what consumers want and we developed a system to handle multiple new product projects. To position ourselves in the premium markets of the world we needed to tell our story well and give consumers a reason to believe and buy. To do all these things we needed to immerse ourselves in the markets, understanding the needs of customers and consumers. EXP: What were the major highlights of your time at NZ King Salmon? And what were some of the biggest lessons you learnt about exporting during those years? DE: Highlights for me were the decisions in 1996 and 2008 by shareholders committing the company
to growth and development. Strategies resulting from those decisions enabled us to invest in brands and market them professionally. Those decisions provided funds to develop and grow the supply from our salmon farms and we were able to build lean processing facilities and invest in the business systems to support the management team. We gained the confidence from our shareholders to develop a strong domestic market and used that experience to take our products to the world. We learned it helps to have a domestic market, however small it may be. In my view, one of the challenges for New Zealand companies who wish to expand internationally is that New Zealand hasn’t had a large domestic consumer market. Our country has been a strong producer, but comparatively, not a large consumer and we have few companies with scale in the domestic market. We gain a lot by adding consumer marketing skills to our great productive sector and taking our products to consumers globally. The world is rapidly becoming short of food which is good for NZ Inc, but consumers have choice and will not choose us until they trust us. EXP: How much further can the NZ King Salmon export story be taken? And why did you decide not to stay on with the company? DE: The internationalisation of NZ King Salmon’s marketing can be taken a lot further. Its salmon are extremely scarce at about 0.5 percent of the world’s supply of farmed salmon and there are many places where they cannot be found. The challenge is to ensure that the cost of expansion is balanced by the benefit of going the extra distance. As long as value grows volume then the company will be successful and will grow. Why did I leave? I am keen to help other New Zealand companies to expand their business. After 18 years with NZ King Salmon we had succeeded in “getting over the hump” to sustainable scale. I was thrilled to be part of that growth and see myself doing it with other Kiwi businesses. EXP: Where do you see the biggest opportunities in New Zealand’s aquaculture industry right now? And what are the greatest impediments to growth?
DE: The New Zealand aquaculture industry is full of opportunities. For a while I suspect the industry will need to focus on obtaining better value from existing species and that’s wise because there is much more value to be had. But at the same time the industry and its science providers should be working furiously hard to find new species to make use of our vast ocean resource – the fourth-largest in the world. The real opportunity lies with matching aquaculture to consumers’ needs by operating in our markets. Impediments to growth come from a lack of development in New Zealand’s marketing and corporate capabilities. Of course, you learn by doing, so capabilities will improve over time. EXP: If a seafood producer was just starting out today, what advice would you give the owners to help ensure success in overseas markets? DE: I would advise any seafood producer, new or established, to become more than a producer by understanding the market. Producers tend to get beaten up in commodity markets because they descend to the lowest possible price point. That’s fine if you have the lowest cost structure in the world but we rarely do. Even when we have the lowest cost there is too much value left in the supply chain when we don’t understand what consumers are prepared to pay or how the market works. EXP: With all your marketing experience over the years – what has been your mantra that’s got you through all the challenges? DE: Life is good, but short, so get on with it. EXP: What’s next for Don Everitt? Any unfinished business on the marketing front? DE: There are plenty of things left to do and I am still part of the wider King Salmon family. I have had a long interest in food and nutrition and I’m a member of a board looking at how we can commercialise personalised nutrition. I am working with local companies to give strategic advice and practical help with growth.
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> FEATURE
Looking beyond kimchi South Korea is New Zealand’s sixth-largest export destination for food and beverage products. November’s Food Week Korea Expo in Seoul is an opportunity for Kiwi exporters to connect with this fast-growing market. By Glenn Baker
South Korea has a GDP of more than US$1 trillion and imports around 70 percent of its food and agricultural needs. The country’s food retail market alone is valued at more than US$50 billion and it was New Zealand’s sixth largest export destination for food and beverage products in 2011, with exports totalling US$553.53 million (NZTE Export Guide, April 2012). With a population of 49 million and rising disposable incomes, South Korea is without doubt a significant market for foreign foods and beverages. Apart from the indispensable ‘kimchi’, a traditional Korean dish of fermented vegetables with seasonings found in every home kitchen, young, trendy and well-travelled Koreans now enjoy Western-style options such as crepes, pizzas, pastas and fried chicken, readily available in the many franchise outlets that have sprouted up across the major cities in recent years. Like all shoppers, the Koreans also consider price, brand, quality and, in terms of food safety standards, the country of origin. They are just as discerning and willing to spend more when it comes to healthy foods, organic foods and beverages – all strong categories for New Zealand exporters. While supermarkets and 16 EXPORTER
‘hypermarkets’ have dominated the grocery retail sector in South Korea, sales generated through convenience stores and gas stations are expected to be the most lucrative for the food retail industry, with total revenues of US$29.9 billion in 2011, equivalent to 46.4 percent of the industry’s overall value (source: Market Research). The Internet-based retail platform has also found favour with web-savvy and busy professionals – although the online sale of wines has yet to be approved by government. Food Week Korea Scheduled for November 6 to 9, Food Week Korea 2012 is aimed at facilitating connections between local and overseas businesses in the food and beverage sector. At last year’s Food Week 674 one-onone business meetings were arranged by the expo organisers, resulting in US$150 million worth of sales transactions. Exhibitors, especially foreign companies, will want to take advantage of this free service to meet Korean importers, wholesale and retail distributors, buyers from purchasing departments of hotels, restaurants and more. The annual Food Week Korea is
organised by COEX, a subsidiary of the Korea International Trade Association (KITA). The expo attracted 292 companies and 457 booths at its first show in 2006 and has been reaching new milestones with each event. Food Week 2011 hosted 700 companies from 34 countries, including the biggest co-ordinated European Union and ASEAN pavilions in the history of Korea’s food exhibitions. The 1st Asia Food Forum, held in conjunction with the exhibition also attracted 12 CEOs and 150 other key players from the region’s food industry. One thousand companies from 34 nations are expected to showcase from 2000 booths at the November 2012 show, with 33,000 trade buyers in attendance. Food Week is held at the COEX venue in downtown Seoul. The host venue of the G20 World Summit in 2010, it features excellent hotels and retail outlets within its complex. For more information on participating in Food Week Korea contact Linda Gurney, New Zealand representative at foodnwine@wineinternationalltd.com.
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> COVER STORY
Waking baby tiger As the cost of entering the China market rises, many foreign companies are adopting a ‘China plus One’ strategy and turning to Vietnam for its cheaper manufacturing base and burgeoning consumer demand. Glenn Baker gets a feel for the country and reports on the potential opportunities for Kiwi exporters. By Glenn Baker
V
ietnam, population 88.26 million (2010), GDP US$102 billion, China’s southern neighbour, ravaged by war in the 60s and 70s, now in 2012 poised for major economic expansion, riding on the back of the explosive growth of China and other ASEAN markets. For many New Zealand companies Vietnam has never been on their export radar – traditionally because of the country’s socialist history and political instability; more recently, due to a lack of awareness of the market’s emerging potential. What’s needed are some fresh, firsthand accounts of this market; and where better to start than Tim Baxter, who recently took up the reins of country manager, DHL Express New Zealand and Pacific Islands, after spending five years heading up DHL Express in Vietnam, based in Ho Chi Minh City (formerly Saigon). Baxter ushers me into his office at Auckland Airport – I notice the memorabilia from his time in Vietnam. He clearly enjoyed his posting there and immersed himself in the local community, informing me that he was directly involved in helping the Vietnamese government build business infrastructure. He advised local business councils, worked with customs, helped with trade regulations and the laws of importation (what’s known as the
tax-free threshold). He was a director of the European Chamber of Commerce, head of Vietnam’s logistics industry committee and of CAPEC (Convention of Asia Pacific Express Carriers) – advising government on behalf of the Big Four express carriers. “It was all out of necessity because Vietnam is growing so fast and you need to completely rethink processes all the time,” says Baxter. “DHL, for example,
Vietnam is transitioning “from a manufacturing base for low-skilled workers producing low-cost product, into one that’s starting to value-add into high end product.
”
was growing so quickly that in just four years business doubled and we had to reinvent ourselves again.” A similar pressure is being applied to Vietnam’s customs authorities to cope with increased trade demand he says. Baxter paints a picture of a dynamic Vietnam. “Your first impression? Busy! Step off the plane and it’ll seem like you have 5000 motorbikes buzzing before you. The cities were never built for cars. The bikes surround cars like swarming bees.” The country has a massive labour
Stats & facts: • Currency: Dong (VND) • Exchange Rate: 1NZ$ = 16,248 VND (as at June 2012) 1US$ = 20,897 VND (as at June 2012). • Corporate tax rate: 25 percent. • Sales tax (VAT): Zero percent, five percent, ten percent. • A visa is required to enter Vietnam. • There are no direct flights from New Zealand. Connecting flights depart from Sydney, Bangkok, Singapore and Hong Kong. • NZTE has an excellent overview of doing business in Vietnam. Go to www.nzte.govt.nz/explore-exportmarkets/South-and-Southeast-Asia • Further information can be found at: www.hsbc.com.vn/1/2/commercial_ en/international-business
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Downtown Ho Chi Minh City.
force. Around 65 percent of the population are under 30 years old. “So you have this young, vibrant, capable workforce – kids with real aspirations who see what other young people in Western countries have. “At the same time you have a China that’s comparatively more expensive – to the extent that Vietnam’s labour rates are now on average 21 percent lower.” The situation now, says Baxter, is that many manufacturers in Vietnam are shifting to the likes of electronics and value-added goods, and an increasing number of contract manufacturers are setting up in Vietnam. “Vietnam is transitioning from a manufacturing base for low-skilled workers producing low-cost product, into one that’s starting to value-add into high end product.” His prediction is that Cambodia and Myanmar will
20 EXPORTER
Opening up the economy “means that various sectors are now allowing direct ownership, and that’s very attractive to foreign investors looking for certainty.
”
eventually become the next low-cost manufacturing centres. Meanwhile all this economic growth is requiring serious upgrades to infrastructure and Vietnam’s internal systems. A wealthier, more sophisticated population, which includes many returning, highly-skilled expat Vietnamese attracted by Government incentives, is now demanding all the necessities and luxuries that Westerners take for granted. “The GDP per capita figure has
increased substantially, so in the big urban centres such as Hanoi and Ho Chi Minh City the wealth distribution is far more pronounced than in the countryside,” says Baxter. He’s also witnessed an amazing rate of staff turnover in Vietnamese companies as young, impatient employees take advantage of the huge number of opportunities. “At DHL it was both a good and bad problem. With our certified international specialist programme we became a feeding ground for the market.” Doing business How easy is it to do business in Vietnam? For a start, it’s much easier to get to the country on commercial airlines and to fly around the country. Getting from Ho Chi Minh City to Hanoi involves travelling 2,200 kilometres, but the route is well served by airlines.
As for the population, Baxter describes Vietnam as a melting pot of Indo-Chinese influences (in the south) and Chinese influences (in the north). Generally the Vietnamese are “spiritual, gentle people” – thanks to the influence of Buddhism. He shares his thoughts on the business culture and the process of dealing with Vietnamese business people. “Managing to specific timelines is not so important in Vietnam, everything is more flexible and fluid,” he says. “Generally, though, the system works well. People still have a priority for getting things done. “It’s a case of buyer beware, and with a weak legal system it’s important you choose trustworthy partners. Joint ventures can become complicated,” he adds. “And in Vietnam, cash is king.” [The country still ranks highly on the Transparency International Corruption Perceptions Index – coming in 112th in the latest index (which New Zealand topped).] “Although it’s an open economy, there are still sensitivities around what can or can’t be said.” Ensuring tact as well as building the relationship is very important, he says. Baxter also warns that if firms are
Tim kicking off the RWC in Vietnam.
dealing with manufacturing bases exporting out of developing areas, things can be a little complex because of the remoteness of a lot of the factories. “They tend to build factories in low-cost areas.” So what are his picks for export opportunities? “From what I’ve seen, there are opportunities in building supplies, specialist electrics and lighting, specialist paints, foodstuffs, milk and dairy products, baby formulas,
Securing payments No matter what market you’re entering, securing payment is always a concern. Exporter asked Cath Henry, head of payments and cash management at HSBC New Zealand, whether there are any surprises for Kiwi exporters when they first begin trading with Vietnamese companies. “Sending funds to and from Vietnam does require specific paperwork and to make this happen as smoothly as possible make sure you engage the appropriate banking parties to provide advice – especially around managing the documentation required for foreign currency transactions.” Henry advises Kiwi firms to take the time to get to know their counter-parties in Vietnam. “A visit to Vietnam to familiarise yourself first-hand, for example, would be worthwhile, and can support time spent on the phone, email or Internet from New Zealand. “However, HSBC’s global connectivity
with its branches and my payments and cash management colleagues on the ground in Vietnam can assist greatly as well.” The amount of preparation and homework required before beginning any trade negotiations with a counter-party in Vietnam is no different to any other country, says Henry. “You need build a relationship, especially trust, so you know who you are dealing with. It is also recommended that you seek independent advice from advisors such as your bank, NZTE, etc. “With the advantage of greater global connectivity and the ability to have a seamless country-to-country service through established banking providers, such as HSBC, trading with countries like Vietnam is not as hard as exporters might think. Although Vietnam has a controlled currency, they export twice the value that New Zealand does and are open to trade opportunities with businesses from countries like New Zealand.”
beauty products, ice cream, wine, beer, as well as the health and education sectors – the education sector in particular is currently undergoing major development.” This is a wide open market where the opportunities are still visible on the ground. New Zealand winemakers are starting to get established in the market he says. “There’s also a lot of Kiwi representation in service companies, especially in the engineering field, and the New Zealand Chamber of Commerce in Vietnam is very active in supporting companies and an excellent source of information.” As for getting goods distributed in Vietnam, he warns that customs clearance regulations on importation are a minefield and must be thoroughly understood by New Zealand exporters prior to shipping. “Customs delays can be lengthy and expensive; paperwork and rubber stamps are very important to the Vietnamese government bodies. “Once past the border there are numerous transportation solutions available, however, security can be an issue.” His advice is to use reputable carriers such as DHL, which has extensive coverage of the country, high security standards and links to agents who can assist with distribution. Myths and advice Baxter admits that many people’s perceptions of Vietnam are possibly based on images of ten to 15 years ago, and believes there is a need for the country to market itself better internationally. “Vietnam is transitioning fast into a modern economy – it looks
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It’s all in the approach According to Graham Sims, New Zealand’s trade commissioner for Vietnam, the education, cleantech, infrastructure and construction sectors are where the biggest opportunities lie for New Zealand’s exporters. “A good proportion of the population lives two feet above polluted water, so they are looking for ways to deal with waste water, water clarity issues, and converting solids to energy,” he says. Energy solutions involving wind, solar and hydro technology is high on the Vietnamese shopping list, he adds, and education is another sector where Kiwi firms can provide expertise. New Zealand’s exports to Vietnam have risen significantly in recent years – by September 2010 it was already this country’s 20th largest export market. Much of that growth, says Sims, can be attributed to the two staples of dairy and timber. He cites a $47 million sale of livestock to help establish a new dairy plant and a joint venture to build an inaugural wood treatment plant as examples of the successes New Zealand companies are having in these sectors. In the case of the wood treatment plant, the customers and the path-to-market were sorted before the project was started. The New Zealand firm had all the IP; the local partner had the land, building and finances – a good example of a low cost entry to market. There are great gains to be made in Vietnam’s construction industry too – with Windsor Engineering and Fletchers both heavily involved in projects. “There are issues – the global slowdown has affected Vietnam’s banks, but the Vietnamese also bank differently. Only 18 percent of the population hold a bank account. And while technology adoption is increasing, this does have implications for doing business – specifically, New Zealand exports must have a guaranteed payment up front. The banks might not have funds to cover costs,” says Sims. It does take longer to do business in Vietnam, so exporters need to be in the market for the long term. Take a strategic view, urges Sims, as the market will continue to develop. “Those who rushed into China are now moving to Vietnam, as costs [in China] have increased.” This trend will only gather momentum, he says, as the Chinese demand for luxury goods increases.
22 EXPORTER
“The Japanese, for example, are the biggest investors in Vietnam as they see major opportunities in the manufacturing sector over next 15 years. When you see a country like Japan shifting its entire cost models, you know there will be opportunities not just for manufacturing, but other industries too.”
Graham’s top tips: • When looking to establish an office in Vietnam, it’s essential to get good legal and accounting advice before setting anything up. “Often Kiwis don’t want to spend the money on this, but they have to.” • If firms are trading their products/ brand/IP value they must register it in Vietnam. “Vietnam works on the principle of first person to register owns the brand/IP. So register before taking a product to Vietnam as someone else could do it, effectively blocking you from the market. There is not much you can do about it. People can show up to a trade fair, show their product and then lose the brand when someone else likes the look of it and registers it.” • You must have a presence in market – “absentee business owners and landlords will fail”. • “ Most people believe that Vietnam is a complicated market to enter, but that doesn’t mean they shouldn’t try. It does take longer, but once a business has the right partner it’s a good market [to trade with]. If you go about it the right way, it is very rewarding.”
very different to what it did even five years ago. The pace of change is explosive.” Yes, there are potential traps for new players, but follow good business process and the returns are there, he says. “The risk of doing business can be mitigated through good business process and through the right partnering.” Baxter says the government, and all the organisations he had dealings with while there, including their joint venture partner Vietnam Post, are very supportive and keen to get things done – keen to make Vietnam one of the easiest countries to deal with. “Certainly one of my goals while there, was to assist in any way I could to make Vietnam the most nimble Asian economy with the least barriers to trade, with a view to attracting more foreign direct investment and trade.” The country is well on the way to achieving that vision, he says. “It’s now much easier to set up your own company in Vietnam. Opening up the economy means that various sectors are now allowing direct ownership, and that’s very attractive to foreign investors looking for certainty.” On the advice front, he says it’s important that exporters conduct their research in-market with other similar sector companies, to ensure they get the distribution they require, and learn from other people’s mistakes. Research the market dynamics, supplier relationships and payment terms. “When I think of doing business in Vietnam I think about the Chambers of Commerce – EuroCham, the New Zealand Chamber and AusCham – good places to start. And if you can speak to someone who’s already doing business in Vietnam, you’ll get much more detailed information.” In karate terms, Baxter likens a market like Singapore as one for ‘green belts’, whereas Vietnam is very much for ‘brown or black belts’. “You wouldn’t want to go in with your eyes closed.” Glenn Baker is editor of Exporter. This article can be accessed online
www.exportermagazine.co.nz
> COVER STORY
Chilean wine on sale in a Ho Chi Minh City supermarket.
Vietnam uncorked Nada Young reports from Ho Chi Minh City on the local market opportunities for New Zealand’s premium wine producers.
Wine appreciation is on the increase in Vietnam, especially amongst the affluent cosmopolitan Vietnamese. Over the long term, as incomes continue to grow, the market looks good for the New Zealand wine industry. It’s not without it’s hurdles though and you need to be very patient if you want to get a foot in the door. There are only half a dozen significant companies procuring international wines for distribution in Vietnam and they are run by
locals and expats with excellent wine knowledge and appreciation of both ‘Old World’ and ‘New World’ wines. All of them are familiar with Marlborough Sauvignon Blanc and Central Otago Pinot, and unlike in other Southeast Asian markets where New Zealand wine knowledge stops there, many are also well versed about Martinborough and Hawkes Bay regional specialties. The difficulty in Vietnam is that every man and his dog is trying to get their wine listed by one of these companies and the market simply
cannot absorb the vast variety of wine that is on offer. From a New Zealand perspective, most of the distributors are quite content with the New Zealand wines currently on their portfolio, and because the demand for New Zealand wine is comparatively small, it often means you simply have to wait for an opening in their portfolio before your wines will be considered. This is where patience comes in. Once you have established where your niche is and who your target distributor is, your
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best option is to build a relationship with them so that you’re the first wine brand they think of when that gap opens up. It’s no surprise that the wine market in Vietnam favours red wine. The trend is the same across Southeast Asia. Predictably it’s the French who rule the roost thanks to their historical links with Vietnam, as well as the excellent job they have done in positioning their food and beverage products as the epitome of luxury and quality in the hearts of consumers. We have heard on countless occasions that wine consumers in Vietnam believe that ‘French wine equals quality wine’. But the French are not the only nation to produce full-bodied red wines and there is a new trend emerging as novice wine drinkers join the fray – which is for a slightly sweeter drop which has less of a hit on the wallet. And it’s the Chileans who are fulfilling this demand. Wine importers comment to us that Chilean wines have changed the landscape of the wine market in Vietnam over the past five years, even challenging the French for the top spot in the market. Based on comments from the industry it’s clear that not only are they offering the lowest cost wine in the market at a landed cost of around US$3 to US$4 a bottle, the Chilean wine industry is also producing wines that are perfectly suited to the Vietnamese palate. Obviously New Zealand’s wine industry will never play in this game. We compete on quality not price. Happily there is definitely a market for premium quality wines in Vietnam, particularly in the major five star hotel accounts in cities like Ho Chi Minh, which are the ones most highly prized for volume sales for wine in the city. As you can imagine the competition is fierce in winning these accounts. Suppliers must offer wines that are going to achieve volume sales; they must also commit to hosting initiatives, such as wine dinners, at their cost. If you are serious about getting your brand into Vietnam, it is imperative that you consider how you are going to support your partner there to grow your brand over time. Some wine producers (from other countries) have
24 EXPORTER
been known to literally give their wine away – sending pallets or, in one case, a full container of wine to their partner in Vietnam to develop the market. This is an extreme example, but a promotional budget that includes sample allowances and trips to the market to participate in wine dinners are all elements that will assist in not only successful market entry, but more importantly, the growth of your brand in Vietnam. New Zealand F&B Festival If you’re interested in the food and beverage industry in Vietnam there’s one event series on the annual calendar that should get your attention. The New Zealand Food and Beverage Festival is a gathering for leaders from the food and beverage sector in Vietnam and many of the major industry stakeholders, from importers to restaurateurs, participate. It is considered New Zealand’s annual flagship event. The Festival has an excellent reputation both domestically and throughout the Southeast Asian region for being one of the key platforms for raising awareness of New Zealand’s food and beverage industry amongst decisionmakers. The Festival is hosted every year by New Zealand Trade and Enterprise
with the support of local partners. It’s always well attended, which is not surprising given the rave reviews we receive from local ‘foodies’. This year’s Festival took place from 19 to 21 April in Ho Chi Minh City. It involved New Zealand suppliers currently selling into Vietnam and gave those exporters wanting to enter the market a valuable opportunity to get their products tasted by decision-makers. There is huge value in this approach as the major unique selling points of New Zealand food and beverage products can only truly be communicated through experience – i.e. tasting. There are also obvious benefits in combining wine and food promotions; Prime New Zealand Lamb tastes great on its own, but few would argue that it tastes even better when paired with a glass of Central Otago Pinot Noir. This integrated approach provides the full gourmet food and beverage experience and does wonders for New Zealand’s image in a market.
Nada Young / MARKET DIRECTOR
Nada Young is Asia market director at Incite – an international trade services firm that connects New Zealand food and beverage suppliers with partners in high growth markets of South East Asia and Taiwan. For more information visit www.exportincite.com
Investing in Vietnam Greg James sums up the investment potential of a Vietnam committed to bringing down the barriers to growth. In recent years New Zealand has woken up to the trading opportunities that Vietnam presents and it’s easy to see why. For many multinational corporations Vietnam presents the opportunity to diversify operations away from China and apply a ‘China plus One’ manufacturing strategy. Factors that make Vietnam an attractive country for investors include: the growing consumer market; a gradual move from a centralised to a market oriented economy; and the introduction and amendment of legislation by the Government to make foreign direct investment more attractive. In addition to the country’s manufacturing capabilities, the Vietnam government has shown a commitment to invest in infrastructure projects, which in turn has increased demand for imported professional services. Limitations on foreign investment in certain sectors have expired or are due to expire under Vietnam’s WTO commitments, agreed to in 2007. Despite the positive changes, there are still a number of barriers to foreign investment in Vietnam, but these are gradually diminishing. Investment entities As is the case with most countries in Asia, a foreign corporation can incorporate a company (either a limited
liability company or a joint venture company). Partnerships and branches can be established, however they are not common. A representative office can also be established and this is a common entity to start operations in Vietnam. Foreign investors may also enter into Build-operate-transfer, Build-transfer and Build-transfer-operate contracts with a State body to implement infrastructure construction projects in Vietnam. Tax considerations Below is a summary of the tax environment in Vietnam: •C orporate income tax is 25 percent. However, in certain cases a tax holiday can be granted. •N o withholding tax on paying dividends from Vietnam. •A foreign enterprise with a tax presence in Vietnam must pay tax on all income arising in Vietnam and on foreign income that relates to the tax presence in Vietnam. •F oreign contractor withholding tax generally applies to payments to foreign contactors where a Vietnamese contracting party (including foreignowned enterprises) contracts with a foreign party that does not have a licensed presence in Vietnam. • There are three VAT rates (zero
percent, five percent and ten percent depending on the goods or services provided). • VAT is levied on imported goods and is calculated on the import dutiable price, plus import duty, plus special sales tax (if applicable). • Services rendered to foreign companies (including companies in non-tariff areas) will be subject to zero percent VAT, provided the foreign company has no tax presence in, and is not a VAT registrant or payer in, Vietnam. Import and export duties Because of the preferential trade agreement between New Zealand and Vietnam, reduced import duty rates apply. However, import and export duty rates are subject to frequent changes and it is therefore prudent to check the latest position. In summary, to quote Cervantes, ‘to be prepared is half the victory’. This certainly applies to investing in Vietnam. There are opportunities, but like anything in life, research and good preparation will hold you in good stead.
Greg James / writeR
Greg James is principal – tax consulting at WHK and has spent over five years working in Asia on mergers and acquisitions and helping multinationals invest in Asia. Email greg.james@whk.co.nz
Investing in Asian Markets? Talk to us first! The WHK Asia Business team has over 20 years combined experience helping NZ businesses invest in Asia. www.whk.co.nz 09 303 4586 Andrew Sayers Andrew Sayers
Phoebe GregSou James
Exporter Asia Business team blue.indd 1
Phoebe Sou
auckland@whk.co.nz
12/06/2012 10:22:24 a.m.
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> Finance for exporters
Funding trade, getting paid Funding trade deals and ensuring buyer payments are always a major concern for Kiwi exporters. Exporter reports on the latest trends in risk minimisation and other trade finance matters. By Yoke Har Lee
The possibility of the European banking system’s crash landing has cast a pall over the prospects of exporters generating major growth. However, within this grim landscape of prevailing risk is a golden opportunity to secure better rates for trade finance. Banks, finance companies, trade credit insurers, and the Export Credit Office are all ready to do more business due to the relative flat growth seen in the market. For an exporter who has not traditionally gone down the route of getting trade credit insurance cover because of the cost to business, now is a good time to shop around for good rates. For those exporting to China who have never thought of offering settlement in China’s renminbi (RMB) for buyers, now is also a good time to start looking at offering RMB prices to gain a point of difference. Petfood company K9 Natural Food’s chief executive officer Calvin Smith is of the view that private trade credit insurers are more eager to do business at the moment. It wasn’t the case at the height of the global financial crisis about two years ago. Still he is very glad the company started using short-term trade credit insurance provided by the NZ Export Credit Office (NZECO) about two years ago. “The facility was instrumental in introducing our products into the US market,” Smith says. The company, which has seen dramatic growth after its US breakthrough, currently exports to the US, Japan, Hong Kong
and Canada. K9 Natural Food had a big order for the US market but the buyer wanted 60-day credit terms which K9 could not afford to offer without stifling the company’s cashflow. Its bank, Bank of New Zealand, introduced the concept of using the NZECO to the company. The NZECO was able to provide a short-term trade credit cover that covered 80 percent of the credit offered to the US buyer. Private insurers declined to provide cover because K9’s total insurable turnover was insufficient. The NZECO stepped in to provide short-term trade credit insurance on the US buyer, and K9 accessed trade finance from their bank. Over the following two years, NZECO has insured additional buyers in Canada, the UK and the US. In 2011, as a result of 800 percent growth, K9 became the fifth-fastest growing business in the Deloitte New Zealand’s Fast 50 and the fastest growing manufacturer in the country. The NZECO was able to help with the underwriting of significant parts of this export growth. Carmen Moana, manager at NZECO, says a private insurer has since stepped in to pick up the NZECO portfolio of buyers, given the increase of K9’s insurable sales. “We consider this to be an excellent demonstration of NZECO’s short-term trade credit product – enabling an SME exporter to rapidly grow to a scale that makes it attractive for the private insurers.” Smith, meanwhile, says the company would not have been able to offer the credit terms to the US buyer without
the NZECO’s cover. Recently, he says, trade credit insurers have come back into the market and are more willing to provider cover. “Once you have access to the NZECO’s [cover], the cost of your financing will be at least 20 percent cheaper. The government is a good credit risk. Banks are fine with offering trade finance credit once you have insurance cover,” Smith says. During periods of volatility in
has never been “a There better time to be considering a trade credit insurance policy. Prices are cheaper compared to 18 or 24 months ago.
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financial markets, especially during the financial crisis of 2009, trade credit insurance cover dried up in the New Zealand market as traditional insurers were unable to take on any more new risk exposures. Some withdrew completely from some sectors of the economy and the cost of premiums ballooned. Michael Kayes, trade credit manager at QBE Insurance, notes that premiums for trade credit insurance are now very competitive. “There has never been a better time to be considering a trade credit insurance policy. Prices are cheaper compared to 18 or 24 months ago. Insurers have capacity to provide cover for certain sectors and are willing to underwrite new business,” he says.
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KEY TAKEAWAYS If exporting to China now is a good time to start looking at offering RMB prices to gain a point of difference. Consider taking out a trade credit insurance policy. Prices are cheaper compared to 18 or 24 months ago. Understand your exposure to the buyer’s ability to pay, the country risks and your buyer’s exposure to the industry risks. Ensure you’ve sufficiently covered your working capital needs to allow for cost of funds and any potential shortfall.
What are your risks? Exporters continuing to seek new markets or new customers also have to remember that managing risk should be a top priority. Gary Cross, head of global trade and receivables finance for HSBC New Zealand, says one of the main takeaways for exporters trading under current economic conditions is to “remain focused on your risk situation”. “This is because if you are not aware of the implications of the risk on your business –what’s happening in Greece and Europe will be touching so many parts of New Zealand business. “Understand your exposure to the buyer’s ability to pay, the country risks, your buyer’s exposure to the industry risks,” he says, adding that the exporter should also ask, “what will happen when this transaction goes wrong?” One of the risks exporters can ‘protect’ themselves against is getting their banks to provide underwriting for an institution’s credit risks, Cross says. This is especially important if the buyer’s bank is a bank with a low rating by international rating agencies. While this underwriting is another cost to doing business, Cross says the value-add for this is peace of mind for the exporter. “The cost depends on the banks involved, and the countries (where these banks are located). It can be surprisingly cheap, talk to
28 EXPORTER
your banks; they should be able to give you an indicative cost. This is good for a situation when you have a global market which is declining. It is another added tool to de-risk your transactions.” Early conversations, the unknowns Always have conversations early, Cross adds. Keep your bank aware of your order books. Let the banks know where and when your demand is down; or if you have had to cut prices. All these facts are critical information to help mitigate your business’ risks. One big unknown for exporters, not only in New Zealand but around the world, is how Greece’s debt crisis will be resolved and how a collapse of the Greek banking system will reverberate across Europe and subsequently around the world. There are already signs of demand tapering. Commodities prices – tracked by the ANZ Commodity Price Index – fell to their 18-month low in April this year. Commodity prices fell 4.5 percent from March, the largest single fall in the index since February 2009. Barry Squires, head of international business for Westpac NZ, says against a backdrop of falling commodity prices as well as falling foreign exchange rates, the first thing exporters should be doing is looking
NZECO is well “ The capitalised, Moana says, and ready with sufficient capacity to meet any increased demand from exporters.
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to ensure they have sufficiently covered their working capital needs to allow for cost of funds and any potential shortfall. While trade credit insurers are willing to do business, the finance industry is still cautious and the cost of credit may go up. Squires is of the view that with all the nervousness in the market, the cost of credit is going to be more expensive. “Talk to your advisers, your bank, your customers. Understand
what your risks are, find out what’s happening to your customers’ business,” Squire advises. Simon Thompson, chief executive officer at Lock Finance, is also of the view that New Zealand businesses should stay highly tuned to their cashflow health. Small and mediumsized enterprises (SMEs) need robust cashflow and there is opportunity for those with good ‘orders’ to gain finance for their payment needs. For those with healthy receivables, leveraging on these receivables can be a good way to keep cashflow healthy, he says. To convince finance companies to provide funding based on accounts receivables, it is vital for SMEs to focus on maintaining good systems – particularly in paperwork and documentation, Thompson adds. The attraction of dual pricing While demand is flat in Europe, there is hope that China – the world’s second largest economy after the US – will help to absorb some of the slack. New Zealand exporters can provide a point of difference by offering to settle trades in RMB. A Chinese trading partner who has limited access to foreign currency and wants to limit exposures to currency fluctuations may be attracted to Kiwi exporters with dual pricing, Gary Cross says. Another advantage is the ability for exporters to use RMB pricing as a natural hedge for foreign exchange fluctuations. Since China began the gradual internationalisation of its RMB in 2009, New Zealand exporters haven’t been fully active in the uptake of settling trades in RMB. According to a HSBC survey, between 2013 and 2015, over US$2 trillion, or about half of China’s total trade flows with emerging markets, is expected to be settled in RMB. “Transactions that are happening in RMB (in New Zealand) are very gradual,” Cross says, adding that part of this is dependent on the nature of the transaction and the type of products dealt with. RMB settlement makes perfect sense if the buyer is also the end-user of the product and sells in RMB. However, if the buyer is selling in US dollars, there is less benefit for the party to use RMB pricing, Cross adds.
Performance guarantees, vendor financing cover Besides trade credit guarantees, the NZECO also sells a range of ‘facilities’ to help exporters cover for the eventual risk of non-payment or non-performance. Carmen Moana says the NZECO has been seeing a steady increase in the provision of performance bonds. “We see the potential opportunity out there (for increased demand) with the possibility of European banks withdrawing from Asia.” A recent example of how the NZECO can help provide longer-term cover is seen in the Robotic Technologies Ltd (RTL) case. RTL is a joint venture between Scott Technology and Silver Fern Farms. RTL designs and manufacturers automated meat processing equipment and had a prospective Australian buyer in the meat processing industry that wanted to utilise equipment finance to purchase RTL’s robotic processing system. To advance the sale, RTL offered the
Australian buyer a five-year vendor financing deal. Under this arrangement, the Australian buyer paid an advance deposit and then waited for receipt and acceptance of RTL’s equipment before making the first of its repayments, the rest to be repaid over five years. According to Moana, this arrangement was funded by RTL’s New Zealand bank, and underwritten by the NZECO. The benefit to the Australian buyer was that it received a line of credit for equipment finance, while preserving its own banking funding lines, with repayments beginning once the equipment was operational and generating revenue. A key benefit to RTL was that it advanced a sale that may otherwise have continued to be postponed. The NZECO is well capitalised, Moana says, and ready with sufficient capacity to meet any increased demand from exporters should there be a surge in the near future. Since its launch in 2007, the
NZECO has provided cover valued at $1.41 billion through export credit guarantees, general bond guarantees, US contract bond guarantees, shortterm trade credit guarantees and working capital guarantees. The first quarter of 2012 has, however, seen a slowdown in demand for guarantees from the NZECO. It’s running at only about 60 percent of the level of exports supported for the same period last year, according to Moana, and the majority of the support was for underwriting shorterterm payments to overseas buyers. Moana says the government has improved upon the original mandate for NZECO to support exporters domiciled overseas as well as to support trade with China. NZECO can now issue its guarantees in RMB. Another review of the NZECO’s mandate is not due until 2013/2014.
Yoke Har Lee / writeR
Yoke Har Lee is an Auckland-based business writer. Email yokeharlee@yahoo.co.nz
Declined trade credit insurance? NZECO can assist exporters and banks to: + MITIGATE REPAYMENT RISK + SECURE EXPORT SALES + ACCESS TRADE FINANCE Contact us for a discussion on how we can support your export trade:
www.nzeco.govt.nz | 04-917-6060 The New Zealand Export Credit Office (NZECO) provides financial guarantee products for New Zealand exporters that compliment the private sector. Our products help these exporters manage risk and capitalise on trade opportunities around the globe. NZECO is currently located in the Treasury and obligations to third parties are guaranteed by the New Zealand Government.
www.nzeco.govt.nz +64 4 917 6060 eco@treasury.govt.nz
> FINANCE FOR EXPORTERS
Preserve your export profits Kirk Cheesman explains how credit insurance can help exporters grow their business and gain a competitive market advantage. are still many exporters who are not aware of the ability to insure export credit risks against factors like: • I nsolvency of the debtor. rotracted default, where the •P buyer just doesn’t pay. •C ontract frustration due to war/ riots etc. • Inconvertibility of currency. •C ancellation of import/export licences. •D efault by government-owned buyer. •C ontract cancellation by the buyer’s government.
Businesses spend so much time securing a sale. Typically when the prospect signs that first order, the office cheers and ‘high fives’ are given all round. So why is so little effort placed into collecting the money after the sale? Is it a case of ‘she’ll be right, mate’? Or in tough times, do we simply need to take more risks in securing the next sale? If your business works on a net profit margin of five percent, a bad debt of $150,000 means you will need to make another $3 million in sales to cover that loss! Credit insurance, however, transfers credit risk to an insurer; it’s a straightforward concept that businesses around the world use to grow their business safely. Given the current global economic uncertainty it is a very timely topic. While commonly used as a tool to grow businesses overseas, there
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A tool to grow Despite offering protection from a bad debt, credit insurance is not necessarily just ‘the safety net’. Credit insurance is a tool that many exporters have used to grow their business and take a competitive advantage in the marketplace. One recent example that demonstrates this is a business that was struggling to compete on the global stage. Their product was great yet their terms were not competitive internationally. But with credit insurance the client extended credit terms and grew their business, knowing they were protected. For less than 0.5 percent of insurable turnover, the business was able to offer better credit terms to their customers and secure lucrative contracts. Another example is a client who with their debtors ledger insured, was able to reduce the banks security over personal assets while advancing further funds into the business for working capital. Banks generally provide higher facilities against debtors if they have an assignment over a credit insurance policy. Credit insurance is not a ‘one
size fits all’ policy. It is tailor-made to achieve each businesses goals. National Credit Insurance Brokers (NCI) is a specialist credit insurance broker who has assisted companies protect their export profits for over 25 years. Are you managing “credit” risk? A recent survey of CFOs conducted in New Zealand highlighted ‘protecting business financial risks’ as the second most important issue they will need to deal with over the next 12 months. Credit risks and managing debtor payments forms part of ‘financial risks’. NCI still finds businesses making basic errors when deciding to trade with customers overseas, which leads them to incurring bad debts. These include: 1. N ot confirming who they are actually dealing with – i.e. the correct legal entity. 2. Failing to establish the appropriate terms and conditions of sale with the buyer. 3. Not ensuring the buyer is aware of the payment terms, prior to delivery. 4. Not taking immediate action when the client hasn’t paid on time. 5. Continuing to monitor the financial performance of a debtor, despite ongoing trade. Any business exporting should be obtaining quotes on credit insurance and making an informed financial decision to either pass the credit risk onto an insurer, or accept the risk themselves. We see a daily flow of insolvency information, affecting New Zealand businesses either too
We see a daily flow of “insolvency information,
complacent of the risks or unaware of the benefits of credit insurance. Credit insurance is a planned tax deductable cost that can free up bad debt reserves for other uses. Clients can either take a dividend or reinject that money back into the business. Peace of mind Credit insurance enhances credit management and clearly defines processes. Transferring credit risk to an S+P-rated insurance company effectively adds their resources to a business’s credit department. The insurer actively monitors the credit risk they are exposed to, providing advice and, in some cases, assistance with collections and legal costs. We can provide numerous examples of an insurer protecting clients from insolvency due to their visibility of adverse information. Despite best practice, however, debtor insolvency is a fact of life and we’ve had the pleasure of delivering claims cheques to business owners who would have otherwise been
affecting New Zealand businesses either too complacent of the risks or unaware of the benefits of credit insurance.
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debtors. Normally 90 percent of your outstanding debt will be covered by credit insurance. It is a good way of ‘preserving your profits’ and avoiding sleepless nights. Kirk Cheesman / Managing Director
staring at an uncertain future. As this article goes to print, our team is collecting and processing claims for exporters with buyers around the world. Imagine what impact there would be on your business if one of your ‘top 10’ customers could not pay you. To ensure your profits, insure your
Kirk Cheesman is Managing Director of leading trade credit insurance broker National Credit Insurance Brokers (NZ) Ltd. Visit www.ncinz.co.nz
This article can be accessed online
www.exportermagazine.co.nz
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EXPORTER 31
> FEATURE
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The weighing game Why fly, when the cost to airfreight is so high compared to sea freight? It’s all about time to market, risk minimisation, and much more. By Mary Mackinven
Air cargo from New Zealand can arrive in Sydney overnight compared to the ten days it takes by sea. But only 0.4 percent of New Zealand’s total international movements are carried by air according to the Government’s National Freight Demand Study (September 2008). The cost is easily four to five times greater by air than by sea, say freight forwarders. And passenger baggage, mail, and then perishables take precedence in the cargo holds. So why fly? It’s a weighing game. Weight is more expensive than volume in airfreight (the opposite for sea freight) and is critical to securing space in a plane, explains Warren Pengelly, director of Pengelly’s Group of Companies. The rule of thumb in comparing air versus sea carriage is that, by air, 167kg of product fills a cubic metre, compared to one tonne per cubic metre for sea freight. But airfreight pricing is based more on weight than volume. So six cubic metres of feathers could be charged at the 167kg rate by air, but at six cubic metres space by sea. And airfreight could possibly be cheaper – depending on the distance to destination, Pengelly says. And while some consignments might seem too heavy to be economical, they generally arrive in better condition than by ship due to less handling. On planes most goods are packed on aluminium pallets or into airline containers (‘cans’ up to about three metres long) and rolled on ball bearings, making loading easy and less likely to damage goods than on ships, Pengelly says. Loose cargo shares the bulk hold with mail.
Destination also affects an exporter’s ability to airfreight: more airlines fly to the bigger markets and more often than to smaller markets, which affects the size of planes and, in turn, the cargo dimensions and types they carry. Most aircraft flying in and out of New Zealand are passenger planes but Qantas and Singapore Airlines fly freighters, which carry heavier and more odd-shaped cargo. Pengelly says “We have our favourite airlines – it comes down to our best deal. Most customers choose by price.” An example of pricing is 20 tonnes of steel being airfreighted to Sydney. It would cost about $16,000, compared with $1500 if it travelled
the ‘face value’ “ofAlthough airfreight can appear very expensive, when a business looks at the total cost of ownership, the ‘Just in Time’ airfreight model can often be extremely cost effective…
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in a ship’s container. Potato chips are lightweight – therefore cheaper to send by air, despite being bulky. In a recent large air shipment Pengelly’s sent 40 tonnes for a product launch to the US because the exporter’s production had run behind schedule. The freight charge totalled about $200,000, whereas two container loads by sea would have cost less than $10,000. However, for small parcels sent door-to-door to China, the US or anywhere, a courier company will do
KEY TAKEAWAYS After timing, weight is key in choosing between air and sea freight. Passenger baggage and mail get preference over cargo. Communicate with your freight forwarder to avoid documentation mistakes and gain early airline bookings and best deals. ‘Priority/express’ airline services provide guaranteed delivery and later drop-off times than cheaper services. A mix of sea freight and airfreight works for some products.
it fine and possibly cheaper than a freight forwarder, Pengelly says. Charges A quote is important so exporters can weigh up their shipping options. Airfreight charges are quoted in New Zealand dollars but shipping is usually in US dollars. Airlines charge a basic TACT (The Air Cargo Tariff) rate determined by the International Air Transport Association to which each adds surcharges such as for fuel, security and currency adjustment. These charges change infrequently compared to shipping charges, freight forwarders say. Airfreight manager/director at GVI Logistics Ltd, Graham Bruce, says destination charges at overseas airports can be less than at seaports, particularly on smaller shipments. Pricing levels may also depend on the degree of competition into a particular market, the type of
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CASE STUDY 1:
Instant gratification for online shoppers New Zealand design-driven children’s wear brand Pumpkin Patch will export close to 400,000 parcels for online sales this year, mostly to Australia, but also to the UK, US and Ireland. “There is just no way we could compete with other online operators in those markets if we used sea freight,” says Pumpkin Patch chief executive Neil Cowie. “Speedy and accurate delivery to customers is critical.” Most of Pumpkin Patch’s orders are picked and packed within 24 hours of placing the order and on the DHL plane to Australia that night. The delivery is completed within 24 to 48 hours to most destinations, from point of arrival in Australia. “The majority of product sold via the Australian [Pumpkin Patch] stores is sea freighted direct from the country of supply. This is particularly the case at the start of each season when switching over from, say, winter to summer clothes.” During the season Pumpkin Patch replenishes its stores from its Auckland-based distribution centre using airfreight direct to the main centres of Australia. “Obviously economics comes into it but airfreight still gives us the best overall solution for our business. The actual freight cost is
commodity being flown and its value. And airlines usually review their rates around their schedule changes, often in March and October, Bruce says. Other important, interlinked airline factors are the reliability of its service, whether the cargo moves point-to-point or indirectly with stopovers, the airline’s groundhandling capabilities and where the cargo is stored in transit, he says. Freight forwarders Freight forwarders arrange airfreighting, not the airlines themselves, says Ivo D’Silva, cargo sales manager for New Zealand at MCH Cargo Australia Pty Ltd. The company represents seven airlines: Malaysia Airlines, Delta Airlines (America’s biggest in New Zealand), Turkish Airlines, Air Mauritius, Air New Guinea, Vietnam Airlines and Air Astana based in Kazakhstan. “Freight forwarders ask what we can give them regarding quantities, commodities, frequencies,” he says. “We discuss the best offer we can make; they shop around. We try to make our airlines the first choice carrier!”
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ress loads Pumpkin Tuanoa Liz Afoa from DHL Exp online customers. to atch desp for els parc h Patc
only one component of the total supply chain cost,” says Cowie. “While airfreight is more expensive than sea freight, having our main distribution centre holding replenishment stock in Auckland is more cost effective than having it in Australia. The cost of not having the right product in the right store at the right time can be very significant,” he adds.
Planes can carry the main types of cargo that ships do: general cargo, perishables and dangerous goods such as inflammables, as well as live animals. “Use airfreight to save time, for value for money (the exporter’s customer will get the goods faster and probably pay faster), and for consistency (planes leave frequently and predictably),” advises D’Silva. Air New Zealand Cargo carries freight on all the international and domestic airlines that operate on the Air New Zealand network. “Although the ‘face value’ of airfreight can appear very expensive, when a business looks at the ‘total cost of ownership’, the ‘Just in Time’ airfreight model can often be extremely cost effective, as it releases cashflow, can create production efficiencies, reduce loss and damage, and save storage and inventory holding costs, etcetera,” says Air New Zealand Cargo general manager Rick Nelson. “This is particularly the case where exporters are using LCL [Less than a Container Load] rather than FCL [Full Container Load] sea freight services.”
The speed of travel (and price) can also vary. For example, the airline’s ‘Go Priority’ service delivers a faster and more guaranteed airport-toairport service than ‘Go Express’ and in turn ‘Go General’. Pallets provide a little more flexibility than cans in loading and stacking but the choice of ‘unit loading device’ largely depends on the quantity and nature of goods. Mix ‘n match DHL Express New Zealand offers a full range of [freight] services including flying a dedicated plane to Australia – which provides five rotations a week. It leaves Auckland at 8pm, arrives in Sydney at 9pm local time, connecting to domestic transport, and is back in Auckland at 4am. National operations manager Alan Barnett says the benefits of airfreight include that it’s affordable, reliable and fast, and provides a high level of security. In the past there has been a misconception that a package has to be small to be sent by airfreight. Multiple transport options include guaranteed delivery times for pre-9am or pre-12pm, a committed
delivery standard by end of day, or day-definite for varied timeframes. A mixture of air and sea freight can work for exporters, even for perishables, says the general manager of International Cargo Express Ltd, Peter Furlong. For example, an apple exporter might airfreight the first pickings to market while shipping the bulk of consignments by sea more affordably. At the end of the day some types of goods (for example, that need a static chill temperature) or small volumes cannot share space in a 20-foot shipping container to the desired destination. So air is the only choice. Airfreight bookings can be made up to around four hours before a plane departs – although clearly the more notice the less risk. Final dropoff times at the airport for loading are generally three hours before departure for a known exporter (or 1.5 hours for express service), and six for a casual shipper. “It’s much more expensive, but it comes down to access to the kilograms and cubic metres [space] in the timeframe you want,” Furlong says. Mary MacKinven / WRITER
Mary MacKinven is an Auckland-based freelance writer. Email marymackinven@orcon.net.nz
This article can be accessed online
www.exportermagazine.co.nz
CASE STUDY 2
The now, now industry The limited vase life of cut flowers makes airfreighting an imperative for Flying Fresh International Ltd that ‘buys fresh and flies fresh’ on behalf of growers. Even by air, peony roses that last about a week are sent on ice, arriving in New York 48 hours after departure, says general manager Stephen Arnet. Customers tend to be other wholesalers in about 20 markets, mainly the US, Japan and Europe. “With a wedding or a show you might get an order on Monday and they want them on Friday. We don’t have big leadtimes. The pressure can be extreme at times.” Located in the Southern Hemisphere means, for example, when the Dutch season winds down, New Zealand’s season is coming on. The company’s office is in the same building as its exclusive freight agent, so Arnet can inspect the blooms for biosecurity requirements and quality before loading. He has his favourite airlines: the ones with the right number of flights to his markets and whose people look after his company with good freight rates. It’s essential to book ahead, but even so there can be problems. Sometimes a plane is so full transit is necessary in the general cargo hold rather than containers or pellets,
increasing risk to the flowers’ condition. About twice a year the cargo gets bumped off altogether or partially, requiring new paperwork. Strong winds affect flight times; planes are taken out of action for mechanical work. In fact, every week a flight would be delayed and every few months, one would be cancelled, Arnet says. “Airlines worldwide have tight clauses, meaning their liability (per kilogram) is very limited in such circumstances.” But in summary he says, “Yes it’s expensive to airfreight but most New Zealand flowers are high value and relatively high-priced, more exclusive varieties.”
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EXPORTER 35
Brand NZ: why risk damaging it?
> FEATURE
John Hackett highlights the risk to brand ‘New Zealand’ posed by the export of bulk New Zealand wine to China. By John Hackett
‘New Zealand’ must be seen as a brand which distinguishes its quality export products from those of its overseas competitors. A brand must not be compromised by poor quality controls – the owner of the brand must ensure proper quality control over the production and manufacture of its products. In the case of brand ‘New Zealand’ the brand owners are collectively the producers, the producer bodies and the government. To allow a situation where that control is lost, and for the end-product to claim on its packaging or labels that it is a “New Zealand product” can give rise to dangerous consequences to the reputation and goodwill in brand ‘New Zealand’. A situation with potentially
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serious implications to New Zealand’s wine industry exports has arisen in terms of exporting bulk New Zealand wine to China. It is a situation that New Zealand Winegrowers Association (NZWA) is well aware of, but as it is an industry representative body, as opposed to a regulatory body, they can at best only advocate positions to the government on behalf of the industry. The NZWA certifies New Zealand wines by issuing Wine Export Certificates for both bottled and bulk wine exports. NZWA has facilitated the export to China of bulk wine (in 24,000 litre containers). The wine is then bottled in China by Chinese companies and sold on the domestic market.
However, blind tastings in New Zealand of a particular brand of sauvignon blanc dry white New Zealand wine bottled in China have shown that the wine is heavily oxidised, and has a number of other peripheral faults as well. The wine, which is labelled as 2009 vintage, claims to have won a gold medal in 2008 in a Chinese wine competition. The same company advertises a Hawke’s Bay Chardonnay, bottled in China, when in fact there have never been any Chardonnay exports as bulk wine to China. Certifying bulk wine and shipping it for offshore bottling increases the opportunity for mishandling or adulteration of wine before bottling. Without the proper systems put in place in China to ensure quality control, the reputation of New Zealand wines is incredibly vulnerable. NZWA is well aware of the risks in the Chinese market of a melamine-type scandal which would be catastrophic to the wine industry. However, as all NZWA can do is to represent the New Zealand wine industry, it cannot tell the government what it should do. It contends that banning bulk wine exports to China
is complex and difficult as it has the possibility of evoking a negative reaction from the Chinese market (not just limited to wine). There are also World Trade Organisation and Free Trade Agreement considerations. No other wine exporting country has implemented such measures as banning bulk exports. Nor have any other New Zealand
coming “ Souttories of China report the Chinese-bottled New Zealand Sauvignon Blanc to be undrinkable.
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products exported to China in unpackaged form been subject to bans. So, what does the New Zealand wine industry do to protect its position? Stories coming out of China report the Chinese-bottled “New Zealand Sauvignon Blanc” to be “undrinkable”. Other information from Australia contends that 61 percent of Australian wine bottled in China has been adulterated. Alwyn Corban, of
Ngatarawa Wines, says it would be more credible and less confusing for the New Zealand wine industry to ensure that New Zealand wine is bottled in New Zealand and then mandatorily certified by the Wine Export Certification Service. This practice would mean that any wine in China that was not certified by the Wine Export Certification Service but claiming to have New Zealand as its origin, could only be counterfeit. The public would be protected, and the reputation and goodwill of the New Zealand wine industry would be confirmed as being of the usual high quality expected of such wines. The New Zealand Ministry of Foreign Affairs and Trade has confirmed that the Free Trade Agreement in China
would not in itself prevent New Zealand from prohibiting bulk wine export to China. Bans on food for safety or other health protection grounds exist. However, for such a ban to be made there would need to be demonstrated unanimous industry support for it. New Zealand Trade and Enterprise confirms that the current practice of exporting New Zealand bulk wines to China has significant potential to downgrade the value of New Zealand wine in China as a result of poor blending, presentation, storage, price-cutting, and on occasion, misrepresentation. A workable solution There is no doubt that a workable solution needs to be found by all stakeholders in brand ‘New Zealand’. Banning bulk wine exports to
a single country will not solve the problem, as bulk wine can be easily trans-shipped from one destination to another. The eventual solution may involve setting up New Zealand-operated bottling plants in China with New Zealand wine industry people overseeing the quality assurance and quality control aspects of the bottling. Unless a satisfactory working solution is found, damage to the ‘New Zealand’ brand will take place. We have an image worth protecting, and these are still early days for the wine market in China. If we get it right by putting proper quality provisions in place from the start, we stand to protect the reputation that our wines, and other products, have obtained over years of hard work
Vital for boosting production and containing costs.
and endeavour. It is in the interest of all owners of brand ‘New Zealand’ to adopt regulations that support the wine industry’s premium position. In time, maturing markets such as China will understand New Zealand’s insistence for high quality standards.
John Hackett is a partner at AJ Park.
www.demm.co.nz EXPORTER 37
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A Pacific perspective Trade with the Pacific Island nations currently totals NZ$1.5 billion, but new large-scale projects represent even more opportunities for Kiwi companies. Prior to the ANZ Pacific Infrastructure Forum, Glenn Baker caught up with Pacific trade commissioner Michael Greenslade. After I’ve admired the spectacular view of the Waitemata Harbour from the sixth floor of NZTE and MFAT’s new waterfront office, the first thing Michael Greenslade does as we sit down to chat is update me on the actual size of the Pacific market. Forget tiny little island economies – in terms of a regional market, this is huge. 38 EXPORTER
“If you look at the Pacific in terms of a region, its New Zealand’s sixthbiggest market,” Greenslade informs me, “behind the likes of Australia, China, Japan, the US and the UK.” It’s also our second-biggest market in terms of numbers of exporters (behind Australia), and a huge amount of goodwill has been built up over the years, despite any political upheavals.
He likes to refer to the region as ‘the United States of the Pacific’ – 22 island economies which all have various levels of business with New Zealand. “Too often we make the assumption that because a market is small individually, that collectively the region is small too. That’s a misnomer for laying the foundation for the
importance of this market,” he says. And while he’s keen to raise the profile of the region as one market, he tells me it’s important that exporters understand the complexities of each individual market – each is very different. So where are the biggest opportunities for New Zealand companies? Greenslade says the Melanesian countries are where it’s at right now – commonly referred to as the ‘ring of fire’ because of their traditional political and geographical instability. New Caledonia, Vanuatu, Solomon Islands, Papua New Guinea, Fiji and East Timor are all on the radar for major projects in oil, gas and mining. “It’s all in the same belt of opportunity as Western Australia and North Queensland. We’re seeing the natural resources in these Melanesian
countries driving major economic development.” Greenslade says the opportunities currently on offer in Papua New Guinea (PNG) in particular are so big that there’s ‘room for everyone in the sandpit’. New Zealand is in the box seat, he suggests, because Australian companies have enough on their plates dealing with projects within their own borders. To give you an idea of the scale of the PNG projects, the $15 billion Exxon-Mobil LNG project in the highlands alone is expected to double PNG’s GDP by 2020. “These are very big projects right on our doorstep. There are a significant number of Kiwi companies already working in this space,” says Greenslade, adding that representatives from another large LNG project in PNG were set to present at the ANZ Pacific Infrastructure Forum on June 7th. Calculating how many New Zealand companies are actively doing business in Papua New Guinea, and how valuable the market is, hasn’t been an easy process due to the fact that there is no dual tax agreement (DTA) with PNG. Greenslade says a lot of trade therefore had to be done through Australia, although with the DTA due to be formalised in the next few months, measuring trade between the two countries will become much easier. Most Melanesian countries can be described as ‘third world’, especially in terms of infrastructure. Papua New Guinea, for example, has no road network linking major towns and cities. For New Zealand companies there are opportunities around roading, power and water projects right around the Pacific, and many of these are centred on the various energy projects. Don’t expect the governments to provide the necessary infrastructure and services, says Greenslade, you’ve got to provide those yourself. Alternative energy projects, in particular geothermal projects, represent significant opportunities in the ‘ring of fire’ nations too; as these countries seek to reduce their dependence on diesel (see separate story on Powersmart Solar in this issue). “The Pacific Islands are crying out for our expertise and support,” says Greenslade. “For instance, PNG Power was keen to have ongoing
consultancies with New Zealand companies around things like efficiency. Have they got the right systems in place? Are they getting as much from their existing system as they should? What are their next steps in terms of their strategic growth? These are all areas New Zealand companies can advise on. It comes back to the export of services – which don’t show up on export stats.” He says large Kiwi consultancy firms such as Beca, Hawkins, Tenix and Fletchers are already across these markets, but there are many more opportunities to be taken up. Export assistance – just ask Whether its services or products you’re targeting a Pacific market with, have a chat to Greenslade in the first instance, and he can direct you one of the six Business Councils with an office in Auckland that cover the Pacific “and have a lot of experienced people”. “Typically they’re made up of retired high commissioners, current executives of companies that are actively involved in the specific country, as well as members of the respective Pacific Island governments.” Many of these organisations have sister bodies in the countries involved, he adds. “Most of these Business Councils coordinate market research and trade missions into Pacific Island countries. Budding exporters would be well served by joining those councils and taking part in their programmes.” While there is not the financial support available, such as existed five years ago, NZTE will nevertheless work with SMEs in terms of building export capability internally, says Greenslade, and it does so with a number of partner organisations including Business Mentors New Zealand (which, incidentally, is also assisting Pacific Island-based businesses in-market). While we don’t have a mortgage on these markets, New Zealand is naturally favoured because of close family or relational links, says Greenslade. “And we’re cheaper – thanks to the exchange rate.” That’s not to say there isn’t competition. “There is a geopolitical push into the Pacific by China and others, but that can work to our advantage too.” He cites joint partnerships like the wharf project EXPORTER 39
More perspective
in Tonga which was funded by the Chinese government but designed and built by Beca and Fletchers. “Hopefully that model will be applied across the wider Pacific.” Big is good I ask Greenslade where all the focus on big industry projects in the Pacific leaves smaller exporters of goods. His answer is that big industry, in fact, lays the foundation for everything else. “For example, the tourism industry requires bigger hotels. They’re being built right throughout the Pacific by a number of New Zealand players. All sorts of products and finishing items go into these buildings, many of which come from New Zealand. Tourism is a great driver for trade. “It’s the same with food and beverage – for example, significant volumes of food are going directly into the PNG mining camps. Without doubt, these big core projects drive many other export sectors.” Greenslade says Pacific Island economies had 11 percent growth across the board last year and the region has long since moved on from its reputation as a dumping ground for product. They pay the going price just like any other export market.
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“The Pacific is fast becoming a very close and important premium market for New Zealand’s products,” he says, while acknowledging that some parts of the Pacific are still very depressed economically and therefore require New Zealand’s ongoing aid support. Prepare yourself When looking to do business with any Pacific Island nation, it’s important to treat local business people with the same respect as you would in any other market. Greenslade recalls sitting in his Suva office and seeing Kiwi business people turn up at his door wearing T-shirt, shorts and jandals, looking to do business. He was always telling people to dress for the climate, but also dress for business. “It’s far from a backward market. Many of the big firms based in the Pacific are global companies and I think many are amused when Kiwi exporters turn up dressed for a beach party rather than a professional environment.” People may be a little more laid back in the islands, he says, but that’s no excuse not to be totally professional in your approach. Also, understand the culture, build relationships through regular visits, and remember to pack your sense
If you need further convincing about the size of the opportunity in the Pacific, consider Michael Greenslade’s comparison of the New Caledonia and Tahiti markets with France (Noumea, the capital of New Caledonia, is our closest export market with just 2.5 hours flight time). Exports to these two territories from New Zealand total $385 million – a total that’s closing fast with the $425 million worth we export to France itself. Fiji, which takes $300 million of our goods and services, is still a bigger market than India or Vietnam.
of humour. Turning up in person is critical. Greenslade recalls taking 27 Kiwi companies up to PNG in early 2011. It wasn’t exactly a sales call, but they came away with $2 million in orders. That wouldn’t have happened if they’d relied on technology (such as email) to communicate (as many existing Australian suppliers now do). “There is a real desire to build face-to-face relationships,” says Greenslade, adding that you don’t have to drop the price, just be competitive and, more importantly, service the market. Overall, the Pacific region is a great place for Kiwi exporters to ‘cut their teeth’, adds Greenslade. “Because it’s a market that understands us.” Glenn Baker is editor of Exporter.
> MARKET INTELLIGENCE
View from Port Moresby Positioned close to our doorstep, Papua New Guinea and the surrounding region holds significant export potential for New Zealand firms. Nobody knows the size and scale of opportunity better than ANZ’s Mark Dawson.
‘An island of gold floating on a sea of oil, held up by a bubble of gas’ – that’s how Papua New Guinea has been described. There is no doubt that the country’s large mineral, gas and oil assets are driving its economic progress – and at a pace that outstrips most other countries on the planet. GDP growth is running at around eight percent. The emergence of middle-market consumers is creating all manner of export opportunities, as landowners benefit from new money flows and trade volumes balloon. Trade flows are currently split with around 45 percent going to Australia and New Zealand and 55 percent going to Asia. Massive infrastructure projects are underway – and not just around the mining and gas developments. The major expansion of the port of Lae, through which the majority of goods into PNG are shipped, is one such example. One person who has witnessed the rapid advancement of Papua New Guinea (PNG), as well as other Pacific countries such as the Solomon Islands and Timor, is Mark Dawson, ANZ’s head of institutional Pacific, based in PNG. He remembers Port Moresby
30 years ago when it was almost a frontier town. Today, you wouldn’t recognise it, he says, the place is booming. “GDP for Papua New Guinea in 2009 was around US$9 billion – by 2014 it’s expected to double to US$18 billion” – thanks largely to exports of oil, gold, copper, palm oil, coffee and – when it comes onstream in 2014 – liquefied natural gas (mostly destined for Japan and Korea). Dawson was a key speaker at the ANZ Pacific Infrastructure Forum, and his message for New Zealand export companies and consultancies who may think they’ve left their run too late? No they haven’t – it’s still early days, says Dawson. “There are still enormous infrastructure-related opportunities across all the Pacific Island countries.” Dawson says the ANZ, which has been operating in PNG for 101 years, and Fiji for 130 years, knows the ‘lay of the land’ and can provide a raft of services for Kiwi companies looking to do business in the Pacific. “When you’re stepping into new markets, you need that insider view. That’s one thing banks are good at providing.”
He describes ANZ as the ‘borderless bank’, connecting businesses with businesses, facilitating introductions on the ground and providing a seamless service to the contractor from one country to the other. ANZ’s client base in PNG ranges from individual consultants to firms with payrolls in the thousands. The country’s business rules and regulations operate on an Australiabased framework, says Dawson – “although the application of the law can be variable, which reflects a lack of capability more than anything”. “You’ll find, for example, that it’s more difficult to get an operating business licence than other markets – but it’s usually just because the process is slower.” But while the links with Australia remain strong, Dawson says Papua New Guineans are increasingly turning to China and Asia, and in particular Indonesia, for its political and broader economic links. So if you’re a Kiwi firm looking for a slice of the infrastructure action in the region, don’t waste any time in making your move.
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Guangzhou
Humming down south China Southern’s new direct air link between Auckland and Guangzhou is one of a number of initiatives helping strengthen trade and tourism ties between New Zealand and the southern regions of China. Exporter spoke to Pat English, New Zealand consul general in Guangzhou, about the export opportunities that lie to the south of Shanghai. By Glenn Baker
Getting your head around the sheer scale of the Southern China markets can be a struggle. Pat English has the numbers. He’s New Zealand’s consul general in the region, responsible for the provinces of Fujian, Hainan, Hunan, Guangxi and Guangdong – the latter containing the megacities of Guangzhou (where his office is located) and Shenzhen.
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Most of the business activity, he says, is happening in Guangdong and Fujian (which includes the city of Xiamen). Guangdong province alone is the 12th-largest “country” in the world by population, home to more than 104.3 million. It’s the world’s 14th-largest economy and Australia’s 7th-largest trading partner (little wonder Australia has more than 120 staff based at
the consulate there!). Bilateral trade merchandise between New Zealand and the southern China provinces totals more than $1 billion, with education and tourism on top of this figure. Guangdong is the largest source of Chinese students in New Zealand, at 12 percent. For companies making their very first approach to the China market, things
can understandably seem daunting. English recommends visiting as many places as possible – to get a feel for the market and find where your product or service can fit in best. “Take your time,” he says. “The first person you meet may make you feel incredibly welcome, but then you’ll find the next person just as hospitable, and the next, and the next. “You’ve got to see past the warm glow of that first relationship; get over that ‘honeymoon period’ before making any final commitment,” he advises. English confirms that there is a transformation taking place across all parts of China – an increasingly larger percentage of manufacturing output is being switched from the export sector to the domestic market, to meet demand. China is no longer a country of cheap labour – cheap labour is now in short supply. “HR is now the single biggest issue for foreign entities to deal with in this country. If you’re setting up here, have a system of managing your people, hire the right people and remunerate them appropriately.” He says Kiwi business people getting off the plane at Guangzhou will be amazed at the rapid pace of change in the city. He’s seen dramatic changes in the three and a half years he’s been based there, with incredible change from his first visit in 1988. “I’ve heard there are 72 tunnelling machines operating on the city’s transport infrastructure. When they reach the end of some of the subway lines, they keep them going because it’s more cost effective to leave them in the ground than to remove them in a built-up area. He says until now the southern provinces were largely undiscovered by New Zealand exporters, and it wasn’t until 2007 that New Zealand established a consulate general in Guangzhou. “We were the 27th country to open an office. Today there are 44 and five more are due to open in 2012,” he says. The day Exporter spoke to English, he was about to meet up with the Minister of Maori Affairs, Dr Pita Sharples, who was leading a delegation of 24 top Maori businesses on a mission to China to meet senior officials and big-name Chinese companies. English was to accompany them to a “village down the road” called Jiangmen, which happens to have a population of 4.2 million and a GDP of
RMB155 billion. English says there is a close similarity between the two cultures – both are based on paying tribute to ancestors – and the delegation members, who represent the NZ$38 billion Maori economy, were great ambassadors for New Zealand. Opportunities English knows of a number of Kiwi companies that are doing significant business in Southern China – companies such as Rakon, Atrax and Huhu Studios. In the consumer market there are big opportunities in the seafood, health and infant formula markets – the latter category currently ‘off the charts’ in terms of growth. “Although Kiwi companies wanting to open an office must first have a proven, reliable product with a track record in New Zealand of at least two years.” He says the Chinese are smart, discerning buyers, happy to pay more for a quality product with a known brand name. Another point in our favour is that New Zealand’s reputation for quality in China is unrivalled. Our food and beverage is held in high regard, along with our expertise in the agritech and specialised marine industries, as well as the creative, film and animation sector – thanks largely to the efforts of people like Sir Peter Jackson and Sir Richard Taylor. But while there are sales for the taking, English warns that there is no low hanging fruit. “The market is extremely competitive from both internal and international firms.” His advice for New Zealand businesses? “There is sometimes too much emphasis placed on relationships – they’re important, but not the only foundation on which business is done here. It’s imperative that you present a
viable business opportunity.” While in China it’s not all about receiving hospitality either – it’s important that Kiwis reciprocate in a meaningful way. “Always take appropriate gifts with you – New Zealand honey or wine, health foods or traditional arts,” suggests English. Practical gifts with ferns or other iconic New Zealand imagery are sought-after he adds – such as iPhone covers or umbrellas. Although avoid black items – while black works for us as a culture it doesn’t translate well in China. “Seek guidance on what’s appropriate and make the effort – it won’t go unnoticed.” Of course the question on many people’s lips is, has the New ZealandChina Free Trade Agreement (FTA) made a difference? English, who worked on the negotiation team, believes it has. There’s no denying the fact that 74 percent of goods into China are no longer subject to tariffs – that’s the competitive advantage Kiwi exporters have. There’s also no denying that our exports to China have increased by a massive 170 percent in exports in the three years since the FTA was signed. Despite the FTA, however, the regulatory environment in China remains a challenge. The advice is to do your prep; get the paperwork right; have partners on the ground who know what they’re doing; build capability and a skillset around the local environment. Meanwhile, down South, English reports that things are humming. “It’s the busiest it has ever been.” No doubt the new strategic partnership with China Southern airlines has had something to do with it. Glenn Baker is editor of Exporter.
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> MARKET INTELLIGENCE
March to a different drum Bangkok-based Greg Reynolds reports on the economic strategies being driven within the ASEAN region and the lessons for Kiwi exporters.
The ‘China, China, China’ drum continues to beat loudly in exporters’ ears and appears to be the so called ‘obvious’ first choice for many companies looking to Asia to expand their returns. However, the dynamic of the unfolding ASEAN region and the AEC (Asian Economic Community) slated for a 2015 launch should really underpin any decision on where to go first. Many companies continue to look at Asia from their own perspective and seem oblivious to the economic strategies being driven within the region. As Western economies have slowed in recent years there is a clear impetus for Asian companies to do more business within their own region. Indeed, many have identified their reliance on Western business to be a liability and have been developing more of a regional focus to take advantage of the formation of the AEC. With a vision of a Free Trade area comprising 600 million plus people, the ASEAN market arguably has more actual growth potential than China. So what is happening within the region? One of the most significant developments is with Indian companies. India is not a part of the ASEAN region so many are setting up business in Thailand and Singapore to strengthen business relationships. The India-ASEAN FTA which has been in place since January 2010 helps them gain direct exposure to the wider ASEAN region right on their doorstep. In addition, they continue to sign individual FTAs with various countries
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in the region to underpin trade. Few would be aware of India’s “Look East” strategy that was launched in 1991. Twenty-one years on, it remains as relevant as at its inception. The easiest way to grow is to trade close to home and ASEAN is right next door. As one leading Indian conglomerate told us, “We prefer to find companies ourselves and then take them home to India with us – if they come alone to India my fellow countrymen have already taken their money and they have gone home broke before they found me!” The lesson for exporters is that the ASEAN region could be an ideal base for their Indian aspirations. Meanwhile China’s activity in outsourcing surprises many. There are hundreds of Chinese companies that have set up associated companies in Vietnam alone. Vietnamese labour rates are one of the lowest in the region but infrastructure problems continue to compromise returns. However, as across Asia, companies take a very long-term view and do not demand one and two year returns as is often the case in the West. As whole countries beat a path to China’s front door, they are headed out the back. But is this activity merely a low cost strategy or are these Chinese businesses actually more about deepening their sales in the region? Japanese activity in the ASEAN region offers some insight. Brewer Sapporo exited Japan in 2004 having found the complexities of business and returns did not offer them a sustainable position. However, they
are well advanced in Vietnam and it is interesting to read recent Bloomberg commentary on this activity. The first is to consider a unique population demographic – the average age of this 90 million population is just 27 years of age. The second is to look at the beer market in Asia-Pacific where China accounted for 71 percent of consumption but just 15 percent of returns. The average price of beer in China is around 25 Euros per 100 litres compared to 60 Euros in Vietnam and 51 Euros in India. Two huge lessons for exporters here – demographic and margin management are an intrinsic part of any international expansion. There are many other such inmarket indicators that remain hidden from those considering their Asia strategy from afar. Companies need to get a lot smarter with their in-market research. Only then can they truly understand their options. The rewards are simple: great sales or mediocre, high margin or profitless volume, and ultimately, their success or failure. Greg Reynolds / WRITER
Greg Reynolds is a director of YourBUSINESSinASIA.com, an Asian market entry and business development consultancy based in Bangkok covering the wider ASEAN region.
Selling machines to the Chinese Howick Engineering is a manufacturer bucking the trends by successfully selling its ‘Made in NZ’ steel framing machines into China. Just shows what can be achieved with a quality product. Welcome to the wonderful world of ‘frequent flyer’ Mike Seager.
Howick Engineering has been in business more than 30 years. It started out as a general engineering firm, but for the past 15 years designing and manufacturing ‘the world’s best’ roll forming machines has been its core business. Mike Seager, business manager – Asia for the company reports they now have 15 distributors worldwide. There’s a Howick machine in 55 countries, and China is just one of half a dozen emerging markets in their sights. Initially employed on a contract basis, Seager’s been on board for almost 12 months, chosen for his international marketing skills; his considerable experience in Asian markets (particularly China); and his active networks, formed during his four year tenure as sales director with galvanised wire process technology specialist PWT Limited. His first assignment at Howick Engineering was to formulate a detailed strategic marketing plan for the Asia region, which he considered a vital first step to providing a focused approach. In an export sense, this could all be considered the ‘perfect storm’. Buyers in many countries, including
China, now perceive steel framed construction as a less expensive alternative to other building systems, such as timber. As Seager points out – steel framing is incredibly accurate, carries no waste, is reliable, consistent, highly earthquake resistant, can be used for buildings up to 11 stories high, is corrosion resistant, recyclable, and both fast and easy to erect. This is especially good for the rapidly-growing China housing market where the three days required to manufacture and assemble an entire home framework in steel is a definite selling point. Here in New Zealand, home of renewable timber, Golden Homes has been using steel framing for some five years with great success, and is Howick’s largest New Zealand-based customer. In China’s timber-starved environment, not surprisingly, the Chinese are taking to it like ducks to water – and not just for housing, but mining, military use, storage, exhibitions, transportables and much more. Interest in Howick Engineering’s machines, which are priced well into six figures, has been high – the Chinese especially like the fact that the roll formers are compatible with most of the world’s leading design software packages. They also like the six-month money-back (if not satisfied) guarantee. At first Seager regarded this as a brave but somewhat risky offer – until he learnt that out of the 200-plus machines sold worldwide, not one has ever been returned. Needless to say, with his vast
experience in dealing with Chinese businessmen, many of whom he now regards as personal friends, Seager is winning over buyers. He knows that the Chinese value the openness and honesty of Kiwi firms. “They know we bring an element of consistency, trust and innovation to the table,” he says. The five ‘P’s Seager has spent a lot of time on the road in China. His advice to newcomers is apply the five ‘P’s – presentation, persistence, patience, pro-activeness and keeping it on a ‘personal’ level. “It’s not like driving to Hamilton to negotiate a deal; you might have several meetings with the same company in China, and each time it’s with a different department.” He recalls one company that was so big it had its own TV network and wanted to record the meeting! (He politely but firmly refused to begin talks until the camera crew left.) “Focus on what you want to achieve in China,” he says. “Get involved, get out there, but make it personal. Be aware that for the first few meetings they are sussing you out. They want to work out if they can trust this person, and will this person understand the local business culture.” Seager has learnt Mandarin to aid this process – ‘xie xie’ (thank you) being his most used expression – with a smile of course. Even the Chinese, who show little emotion at the best of times, can’t resist smiling back. “It breaks the ice,” he says. Working through an interpreter is Continued next page
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also highly recommended – as Seager points out, it’s not just about the language, interpreters understand where you’re coming from and they can fill in a lot of the gaps about the customer – vital information which can influence your decisions. Company presentation is also important. Have a website and any promotional material written in both English and Mandarin, he says. “Young students may be comfortable reading in English, but older Chinese business people are not. Make it easy for them to understand what it is you’re doing and trying to sell.” Upgrading Howick Engineering’s website is another job Seager has been asked to contribute to. The new site will make it much easier for potential clients to understand the technical and commercial elements of their offering and thereby to hopefully place an order, he says. And then there are the ‘mustattend’ trade shows – something Seager has always been hot on. “Go and promote yourself, and not just a picture of what you’re selling, but the actual product itself. Unless you’ve got a piece of kit that visitors can crawl over, it’s going to be difficult to get off the ground!” Is brand important to the Chinese? To a lesser degree for light gauge steel framing, says Seager – they want value and they’re happy to pay a premium if they have to. He’s upbeat about the future of the market in China and, with two distributors already appointed there, predicts steady growth in sales for Howick Engineering. “China needs to build homes by the millions – the scale is vast.” He also has his eye on Japan, Korea and Southeast Asia, as he has strong business relationships and established contacts in those markets too. Mike Seager is what I’d call a ‘streetwise’ campaigner in China. He knows his way around; he has actively built well-connected and reliable networks there and he knows how to negotiate. And in China, that’s absolutely mandatory.
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> MARKET INTELLIGENCE
From the Beachheads NZTE’s Beachheads programme is a global public-private partnership for highgrowth businesses looking to succeed internationally. It connects participants with expert advisors who’ve the knowledge and networks to help them achieve international growth. Beachheads advisors are successful private sector executives committed to sharing their knowledge and experience by offering pragmatic advice and insights into the realities of doing business internationally. In this issue advisors answer questions about international advisory boards and doing business in Indonesia and Singapore.
Q
: I think we’re ready to appoint an international advisory board but I’m not sure how to take the first step. How much should I pay the board members? Where do I find them? How can I be certain we’re large enough to take this step and how should they work alongside my New Zealand board of directors?
A
: Wayne Norrie, New Zealand Beachheads Chair You need an international advisory board just like you need local advice when you go fishing – when you go to a strange location you sidle up to the locals and ask them where the good spots are and the best bait to use. But when we go overseas, often the last thing New Zealanders do is to seek local advice. And that is a really expensive mistake. The smaller you are, the more critical it is to get expert advice and, really, no company in New Zealand is large enough in global terms
not to need it. One of the first steps when you set up any board is to define precisely your need. If you don’t do this, you’ll be tempted to be influenced by someone who has a public profile. But their drive may not be suitable for what you need: the skills of an advisor or a coach. You need to identify the secondary skills that will allow you to take a 360-degree view of a problem. When companies go under, it’s when something has come unexpectedly from left field. The New Zealand board focuses on the company’s global strategy; the international advisory board focuses on the local country strategy and how to execute it – both should work as closely together as is practical. A good board is like a set of floodlights on a racing car. Running a company is like racing through the night expecting at anytime to be overtaken by a competitor and knowing that there are potholes ahead. A good board illuminates the future so you can see those potholes and avoid them. You don’t want someone grabbing the driving wheel. You might need additional experience in handling growth, new technology or indirect marketing. Think carefully about your strategy, and your weaknesses, and then think laterally about who might be the best fit. You can find suitable people through NZTE’s Beachheads, local institutes of
directors and agencies that specialise in this area. Another approach is to research one of your largest competitors and find out who has recently retired. Google and LinkedIn are helpful tools. As you do this research, you’ll get a sense of the local rates. The type of person you’ll be engaging is at a stage of their career where they are looking to give something back – it’s unlikely they’re going to rip you off. A good yardstick in Australia is A$2000 to $3000 per day, depending on seniority and experience. You may use them two or three days a year – that’s still way less than your cheapest admin staff is going to cost you and is ten times the value, particularly when you consider how expensive mistakes can be. Life’s too short to make the same mistakes as others.
Q
: What are New Zealand’s competitive strengths in Southeast Asia? Could Singapore in particular become a bigger investor in New Zealand?
beverage products. There are also opportunities in Malaysia and Singapore for education and health care services. Singapore particularly has a rapidly ageing population. You not only need to define your own competitive advantages but also identify what to outsource. To compete on a sustainable basis, a New Zealand company may have to grow in size and develop a stronger balance sheet. It needs to find the right partner. There is a lot of capital in Singapore – there are many private equity funds. I don’t think New Zealand has seriously promoted the opportunities for overseas investments in New Zealand. Dollars go where the opportunities and attractive returns are. Where New Zealand companies have knowledge and technology that are in demand overseas, they need to determine what is scalable for those markets and have the expertise to evaluate how to build those markets. Over the years various New Zealand companies have gone overseas to find funding to expand their operations and while these are not the norm, some degree of overseas ownership can yield sustainable returns. It’s difficult to expand on your own if you have limited resources.
Q
: What are some of the main market opportunities for New Zealand companies in Indonesia?
A
: John Lim Kok Min, Singapore Beachheads Advisor New Zealand companies have a tradition of doing everything in their own country, and mostly in-house. They have a common practice of being self-sufficient, instead of outsourcing some low-tech tasks while retaining the high-tech components. Take the example of fashion – New Zealand design is a competitive strength but not the manufacture of the garment. What you need in place of local manufacturing is a very detailed protocol for quality control so you can outsource some of the operations overseas. New Zealand has well-acknowledged traditional strengths in food and
A
: Noke Kiroyan, Indonesia Beachheads Advisor With a population of 240 million people, there are huge opportunities for New Zealand companies in Indonesia for all kinds of services and industries, besides traditional New Zealand exports of food and dairy products. The population of Indonesia
grows by the size of New Zealand every year. Even more important than total number of population is the fact that the middle class – the people with buying power – is huge and growing. Depending on the yardstick used the number is estimated between 20 and 50 million. Air transport and related services are a major area of opportunity – the market is growing at a rate of 20 percent a year. Fifty-two million people went through Jakarta Airport alone in 2011. Indonesia is the largest
approaching “ When overseas markets often the last thing New Zealanders do is to seek local advice. And that is a really expensive mistake.
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importer of Boeing and Airbus aircraft in the world. All this activity requires hundreds of new pilots every year and present opportunities for New Zealand pilot training schools. The terrain in many parts of Indonesia is rugged, something that New Zealanders are used to. Refrigeration is another example. In 2012, Indonesia is projected to need another four million refrigeration units. However, you can’t expect to have results in one year. Indonesia is a specialist, tough market. It’s a matter of knowing the market and how to enter it. Relationship building is important – you have to show up and get to know people; emails and catalogues alone don’t get you anywhere. If you can’t afford to have permanent local presence you’ve got to be travelling regularly. Hopefully by next year direct flights will be reinstated between Jakarta and Auckland. Indonesia’s flag carrier, Garuda, and Auckland Airport Authority signed an MoU to this effect during the recent visit of the New Zealand Prime Minister to Indonesia. For more information visit www.nzte.govt.nz/beachheads.
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> Tech SPACE
When ‘being there’ matters Gary Denman explains why video collaboration is breaking down barriers of distance and time for businesses competing in the global marketplace. The New Zealand export industry, while currently experiencing a slowdown, remains an integral part of the nation’s economy. Longer term, our export industry is expected to play a key role in New Zealand’s economic recovery. However, for Kiwi businesses wanting to compete in the global marketplace there is no getting away from the fact that we suffer from the tyranny of distance. While our geography and isolation clearly has lifestyle advantages, for exporters it also provides added layers of complexity where time (and distance) is money in the fast-moving world of multi-market transactions. Solving the challenge As a New Zealand-based exporter, ‘being there’ is not always feasible when your customers, suppliers and manufacturers are often located ‘half a world’ away. For many of us, while we know that face-to-face is the best way to assess the lie of the land and, more importantly, get the job done, sometimes we simply can’t physically be in all the places we need or want to be. Video conferencing has come a long
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way since the all-too-familiar memories of grainy, out-of-focus pictures and calls dropping off mid-conversation. In line with rapidly evolving technology, video collaboration has got its ‘mojo’ back. However, these days it’s not just about video conferencing; it’s about video collaboration, involving multiple people working together and sharing content across many devices – from traditional boardroom-based solutions to tablets
oday’s video “ Tcollaboration technology has been designed with the needs of the end user in mind. If you can make a phone call, you can make a video call.
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and smartphones. For example, project teams working across geographies can visually collaborate with other team members, suppliers and distributors to reduce time-to-market and control costs,
while improving output with better design analysis, component testing and quality assurance inspections – all without having to leave the office or manufacturing site. The Government’s widely anticipated Ultra-Fast Broadband (UFB) initiative is also expected to accelerate the adoption of video conferencing with its promise of faster speeds and greater bandwidth. From an exporter’s point of view, UFB is all about helping Kiwis go out and compete on an equal playing field in the international marketplace and, perhaps even more importantly, making it easier for the international market to communicate with us. Beyond the boardroom: any device, anywhere Today’s video collaboration technology has been designed with the needs of the end user in mind. If you can make a phone call, you can make a video call – it’s that easy. The flexibility of video solutions today means you can just as easily make a video call from your tablet or smartphone as you can from the company boardroom or workstation.
More importantly, video is an essential part of unified communications (UC). Put simply, UC describes a set of technologies and solutions that allow people to easily communicate and collaborate more effectively on any device and from anywhere.
CASE STUDY: Exego Group Exego Group is Australia and New Zealand’s largest reseller and supplier of automotive parts and accessories with a network of over 435 locations and more than 4000 staff. With four business units operating under its umbrella including Ashdown-Ingram, McLeod Accessories and Repco, in addition to a major procurement site in China, instant and effective communication is key to their business. In 2008, the company began adopting Polycom’s high definition (HD) telepresence solutions to streamline business processes, enhance collaboration, reduce travel costs and provide an extra way of communicating with customers and suppliers. Initially deploying Polycom HDX 8000 room telepresence systems within the boardrooms of the company’s four head offices, the systems soon became so popular that the rooms were overbooked. To ease pressure over time, the company expanded its deployment from boardroom to desktop for employees ranging from MDs to front-line staff. Now used for everything from executive meetings to training sessions, product demos and customer interviews, the Exego Group experienced significant ROI in just 18
months, expanding from five users initially to over 300 users today – equating to a 320 percent increase in month-on-month usage. Other benefits included significant reduction in travel and related costs, enhanced communication across dispersed work teams and accelerated decision making and go-to-market timeframes. “We have a very open and flexible work culture here at Exego and our employees understand the value of video. It is now a vital component in our daily business life,” says Alan Hodgson, telephony manager for Exego Group. “As our video conferencing needs grew, we began to look at it not only from a cost perspective, but from a lifestyle one. Instead of having to get up at four am to catch a six am plane, we can video conference. It is a much smarter and more effective way to do business. “We can have a staff member in Sydney show products to suppliers in New Zealand by simply placing it on the table. It’s a much more cost-effective way to showcase and sell our products and has really helped accelerate decision-making,” adds Hodgson. Going forward, the company plans to expand its video conferencing network to better communicate with customers and suppliers and is currently investigating a unified communications strategy.
UC driving value Entrepreneurs, SMBs and larger scale enterprises now have the ability to access their global customer base and supply chain in a rich media format. One that improves operating efficiencies, allows for greater collaboration and relationship building and perhaps most importantly, reduces the frequency of packing a bag – saving both time and money. Manufacturing industries are using video collaboration or unified communications to reduce time-tomarket for new products, bringing distant teams together for remote design; performing quality assurance inspections without having to ship samples; inspecting operations in offshore and supply chain management environments; and remotely troubleshooting products in customer service. Our appetite for increased connectedness is driving innovators to create new ways to bring us closer together. And these new technologies, such as UFB and mobility (e.g. tablets and smartphones) are some of the driving forces behind a whole new paradigm for communication centred around the power of video collaboration. New advances in video conferencing technology are helping the export industry solve the challenge of being there, breaking down the tyranny of distance and enhancing collaboration across any distance.
Gary Denman is managing director of Polycom Australia and New Zealand.
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> FEATURE
Gift or gaffe? How to make sure your business travel gifts do not unwittingly cause offence. By Cathy Knight.
Business gifting can help build and maintain business relationship in many countries, but the choice of the wrong gifts or even the wrong gift wrapping can work in reverse. International gift giving can be a minefield, in which the wrong gift becomes a gaffe. Here are five key considerations when choosing an appropriate gift: 1. Is it appropriate to give a gift at all? In some countries your corporate gifts may be perceived as bribes, when this is far from your intention. In Asian countries business gifts are virtually mandatory, and it would be considered rude not to give a gift. Do some research on the customs and practices of your destination country and the organisation. Many companies have a policy which prevent individuals receiving a gift, or may limit its value. These organisations may permit a gift to be given ‘from your company to their company’ instead of between individuals. In these cases it might be appropriate to include your company logo, and for the gift to be able to be displayed in an office. 2. Take a New Zealand made gift When you are representing a New Zealand organisation give New Zealand-made gifts. Do not be fooled by misleading labels such as ‘Designed in New Zealand’; doublecheck that the gifts are actually made in New Zealand. (You might
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be surprised at the prevalence of imported ‘Kiwiana’ and Maori arts and crafts in shops). Quiz your supplier on the source of their products. Try to find gifts that reflect “New Zealandness”. Consider Maori art and handcrafts, paua products, manuka honey, wool, wood and leather products. The symbolism of certain Maori designs can be highly appropriate, and appreciated – for example, the Koru design which reflects growth and new beginnings. 3. One size does not fit all In many countries, company hierarchy is extremely significant and you will be expected to reflect this hierarchy in the perceived value of the corporate gifts you are giving. This requires a range of gifts of different values, and a few spare gifts can be useful too. Take small gifts for anyone who has assisted you – for example, your interpreter or driver. 4. Cultural considerations This is truly a minefield, where a well-intentioned gift can easily cause embarrassment or offence. For example, in China sets of four (e.g.most coasters sets), clocks, green hats or caps, empty carved wooden boxes and sharp objects such as letter openers are all inappropriate. Alcohol is not a good choice for India or Indonesia, but it is OK for Japan (provided it is not wrapped in white). Give generously in Japan, but
modestly in Thailand (make sure you don’t rip the wrapping paper of any gifts you open in Thailand). Not only is there potential to offend with your choice of gift, but the way you give or receive gifts, the colour of the wrapping, when and how to open gifts, the colour of writing on the card and other factors are all highly significant in some countries. The key point is never make any assumptions as to suitability of your gift. Do some research first on what gifts are appropriate in your destination country, and how to wrap them, how and when to give them (and when to unwrap any gifts you are given). A specialist gift retailer should be able to assist with all these considerations. 5. Practical considerations Consider the impact of temperature fluctuations, and expect rough baggage handling. Ideal gifts are robust and light. Make life easy by organising gift wrapping before leaving, with labelled outer packaging, so you can quickly identify the items. Cathy Knight advises in international business gifting at New Zealand Showcase Ltd, specialists in New Zealand made gifts. Visit www.newzealandshowcase.com
FAIRS & EVENTS
For more information check out these websites: • www.tradex.co.nz • www.messereps.co.nz • www.eurofair.co.nz • www.nzte.govt.nz • www.austrade.gov.au • www.germantrade.co.nz • www.biztradeshows.com To promote your export business event. Email the details to editor@exportermagazine.co.nz
SEPTEMBER 2-4
spoga/gafa The garden trade fair – Cologne. www.spogagafa.com 5-8 Food & Hotel Thailand Bangkok. Targeting the secondlargest SE Asian economy. Email: jlg@eurofair.co.nz 6-9 GIDA WORLDFOOD Istanbul. NZ Pavilion managed by Eurofair. Email: jlg@eurofair.co.nz 11-16 Automechanika World’s Leading Trade Fair for the Automotive Industry – Frankfurt. www.automechanika.messefrankfurt.com 13-16 Kind + Jugend The trade show for kids’ first years – Cologne. www.kindundjugend.com 16-21 iba World Market for Baking – Munich. www.iba.de
AUGUST
9 Global Expansion: Are You Ready? Training course for exporters. Book online at www.ema.co.nz/ events www.nzte.govt.nz. Or phone 04 499 6909
9 Fast Track to Finding International Distributors & Tradeshow Tips Workshop ATEED, Level 8 Cogita House, 20 Amersham Way, Manukau www.em.org.nz/index.php/ events/workshops_seminars/
OCTOBER
17-20 World Food Moscow Where the world of food meets Russia. NZ Pavilion managed by Eurofair. Email: jlg@eurofair.co.nz 18-23 Photokina World of Imaging – Cologne. www.photokina-cologne.com
OCTOBER 3-7 Intermot International Motor, Scooter and Bicycle Fair – Cologne. www.intermot-cologne.com 10-13 RehaCare Rehabilitation, Care, Prevention, Integration – Düsseldorf. www.rehacare.com 10-14 Buchmesse Frankfurt Book Fair – Frankfurt. www.buchmesse.de 21-25 SIAL – Paris NZ Pavilion managed by
Eurofair. Email: jlg@eurofair.co.nz 23-26 Glasstec International trade fair for glass production processing – Düsseldorf. www.glasstec-online.com 23-27 Orgatec Modern Office & Facility – Cologne. www.orgatec.com
NOVEMBER 6-9 7th Food Week Korea COEX, Seoul, South Korea. Contact Linda Gurney Email: foodnwine@ wineinternationalltd.com
13-16 Electronica Components, Systems, Applications – Munich. www.electronica.de
OCTOBER 14-16
MyBiz Expo
ASB Showgrounds, Greenlane Attracting a large number of SMEs hungry for deals, products and service suppliers. For information go to Mybizexpo.co.nz
13-16 EuroTier – The world’s top event for animal production – Hannover. www.eurotier.com 16-16 FHC China Shanghai. The proven venue to meet key buyers and distributors. For space email jlg@eurofair.co.nz 14-17 Medica World Forum for Medicine, Düsseldorf www.medica.de 19-21 Specialty Food Festival Dubai. Managed by Gulfood and targeting gourmet and specialty products. jlg@eurofair.co.nz 19-21 Seafex Dubai. A new event running alongside SFF. For more information jlg@eurofair.co.nz
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> MARKET WATCH
Watching the six C’s While we must be alert to the direct consequences of slower global growth on export demand, our six C’s reflect the key areas we’re watching. By Cameron Bagrie.
The world’s financial problems did not disappear in 2008; they were simply shuffled to one side. The focal point is now Europe and some key sovereigns. The level of debt in Europe and the OECD is substantially higher than it was on the eve of the 2008 GFC. What has changed is that it is governments, rather than the private sector, now shouldering the burden. The market is flexing its muscles, and unless we see some kind of circuitbreaker the sovereign debt crisis risks snowballing out of control. We will see some sort of policy response. In all likelihood, it will end up being more quantitative easing from central banks, or some similar ‘sugar pill’ solution. A temporary quick fix will be welcome, but it won’t solve the problem. This is the biggest ‘game of chicken’ you’ve ever seen, one where governments don’t want to make the hard decisions. It’s not the job of central banks to bail out governments either, but a failure of either party to act risks turning the situation into a systemic crisis. In New Zealand we’re watching the six C’s: competency, confidence, cost of funds, commodity prices, China and the currency. While we need to be alert to the direct consequences of slower global growth on export demand, our chosen six C’s more broadly reflect the key areas we are watching. So how do we stand? 1. Competency With the global banking/financial crisis now morphing into its sovereign equivalent, attention is squarely centred on the fiscal profligacy or responsibility of governments. Leadership and tough decisions need to prevail over populism. Election results suggest voters don’t want a bar of austerity or economic reform. The Government is sticking to its guns over turning deficits into surpluses. They have a plan, it’s being articulated and has
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the confidence of rating agencies. There also appears to be broad agreement across both the red and blue hue over the importance of limiting government borrowing and achieving fiscal surpluses. 2. Confidence Growth headwinds emanating from Europe will impact on our economy via a number of channels besides the direct impact on export incomes and tourism flows. If a weaker European economy starts to affect business and consumer confidence it can have a wider impact throughout the economy. Downturns can quickly become self-fulfilling. We’re seeing a gradual turn in leading indicators. However, we’re also detecting a ‘just get on with it’ attitude percolating behind the scenes. The danger though is that the longer the likes of Europe’s problems linger, and policymakers stand idly by, we’ll see turns in business sentiment turn into self-fulfilling prophecies on economic momentum. 3. Cost of funds New Zealand has a net external debt of 72 percent of GDP, and runs a current account deficit of four percent of GDP. Swings in global financial market could therefore have a huge bearing on the economy via both the cost and availability of funds. Of late we have seen a sharp rise in offshore funding costs. However, the flowon to New Zealand has been mitigated by: the implementation of several regulatory changes since the GFC (including the introduction of the Core Funding Ratio which has made the financial system more robust); falls in wholesale interest rates; and aggressive competition across financial intermediaries. 4. Commodity prices The outlook for our main commodities is
mixed in 2012-13. Some improve, but off levels that are often below the cost of production; others decline, but off all-time highs. The big offset to weaker European demand for high-quality protein and foodstuffs is China and the wider Asian/ Middle East region taking up the slack as diets Westernise, energised by income growth and urbanisation. 5. China Concerns are rising over a hard landing in China. Financial conditions have tightened as the country is attempting to transition from an investment-centric model to a consumption-based growth model. While we are closely watching the direct consequences of slower growth in China on the New Zealand economy, via areas such as export demand and commodity prices, more critical is the indirect channel, via our largest trading partner Australia. Of course policymakers are likely to intervene before a completely bearish scenario is allowed to take hold. Indeed, RBA cuts have already mitigated the potential downside risk to the economy and we would expect them to make further use of monetary policy ammunition. 6. The currency The NZD’s recent movements represent an important safety valve for the economy. It’s trading off the global picture and riskon (higher currency) versus risk-off (lower currency) moves help buffer the export sector. The dollar will remain volatile as we lurch from poor fundamentals (risk-off) and hope central banks will inject more liquidity and another sugar pill (risk on). It’s far from ideal, but we’ll take a floating currency over a pegged one, or a currency union. Cameron Bagrie is chief economist at ANZ New Zealand.
> VIEWPOINT
The biggest mistakes exporters make How to avoid making the big export mistakes. By Rom Rudzki. Mistake No 2: ‘Not doing your homework’. In my previous column, I identified the biggest mistake exporters make as just ‘giving it a go’ – many simply lack the skills and knowledge to make a success of their activities. I now move onto the second biggest mistake: lack of preparation. The more you prepare for something, the better the result. It’s pretty obvious really – whether you’re talking about a hot date or your 60th wedding anniversary – so how does this affect exporters and what is the ‘homework’ they should be doing before they even talk to a foreign buyer? Let me first tell you a story to help put things in perspective. As a ‘Pom’ who has lived in New Zealand for over ten years, I still can’t understand loads of stuff about the country despite reading Michael King’s History of New Zealand, doing a yearlong Te Reo evening class, and becoming a New Zealand citizen. Just because you live in a place doesn’t mean you understand it, and no amount of Fred Dagg or the Topp Twins will make it magically happen. The old saying is ‘When in Rome do as the Romans do’, which translated into New Zealand culture means (as my son says to me) ‘Chillax, Dad’ (chill out and relax), especially in the evenings and weekends when I am used to the bad British habit of bringing work home. So think about what homework you need to do to even begin to understand a target market. They vary so much: from one which looks deceptively similar (but isn’t) such as Australia to one that may as well be from a different planet – such as Japan (different physical appearance, language, food, behaviour, ways of doing business, and so on). Here are five prompts to get you thinking about your homework and avoid costly mistakes:
1. How do we do it here in New Zealand and how is it different to how they do it over there? For example, if you are a food exporter, where is most food sold – street markets, corner shops, supermarkets or something else such as home delivery or Internet sales? 2. How can I get a first-hand experience of the country before committing myself to investing fully? Should I go on a trade mission, go on holiday (combined with a visit to a trade fair), ask a fellow Kiwi who does business there or employ a local who knows the language and culture? 3. What are the most fundamental mistakes that will destroy any chance I ever had of making a connection with these people? For example, Americans really do not like being criticised about anything and get very defensive. Similarly, Kiwis really do not like people who blow their own trumpet and much prefer a low-key approach to success. However, this modesty may well be interpreted in some other countries as a lack of confidence in your own product! 4. It’s one thing to have information, it is quite another to extract the value from it. For example, setting up your own country briefing file will help you to record important information (airlines, hotels, interpreters, simple words and phrases, key competitors, prices of similar products, methods of distribution, etc). This can then be read by any of your staff who are also going to the country. For example, avoid going to India just before and during
the monsoon season, just as you would avoid New Zealand in January when everybody is on their summer holiday. 5. Finding information and using it, is followed by systematically collecting and storing it over time to get the long-term benefit (in other words, knowledge management). In this way, the second person from your business to visit a market should perform better than the first person, given they have been better prepared and briefed using such things as your country file. NZTE produces free country briefings on its website which are a great place to start (simply add stuff to them as you go). All of these areas and much more are covered in Module 2, International Trade Research, of the Diploma of International Trade. This is the second of eight modules that help Kiwi exporters reach the same global standard as their overseas competitors by providing workbased distance education that leads to Global Trade Professional status. The New Zealand School of Export is registered to accept NZTE Capability Development Vouchers for its Exporter Health Check, Diploma of International Trade and Global Trade Professional services and is the only organisation in New Zealand to have been awarded IATTO’s Accredited Provider status. Are you ready to raise your game? For a free confidential discussion on how to grow as an exporter, contact Dr Rom Rudzki, director, New Zealand School of Export. Email: rom@export.ac.nz.
EXPORTER 53
> VIEWPOINT
Aussie lessons on accessing US Catherine Beard reports from San Francisco on an Australian initiative which also has positives for Kiwi tech firms. Last month I brought you news of the good work being done at the Kiwi Landing Pad in San Francisco with Kiwi tech firms endeavouring to access the US market. This week I talked to Louis Matthews of Advance in San Francisco, and gleaned some insights from his five years in the US tech space. Advance was set up over ten years ago as a global networking body to try and connect the one million Australians living outside Australia. It has developed into an innovation network, aimed at helping support Australians with global growth aspirations.
Louis Matthews
This takes the form of an innovation pipeline from Australia to a platform in the US where firms can get access to mentoring, potential investment and advisory services. For example, Advance recently brought over 25 of the hottest tech innovators from Australia for an intensive three-day programme. Day one concentrated on helping firms to refine their pitch; day two was a panel discussion on US marketing strategy
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and how to build the “A team”; and day three was an investment forum where firms had the opportunity to pitch their technology to 300 investors in a five minute ‘shoot-out’. Advance also has a TV channel (www. advance.org/videos) covering Aussies in San Francisco and Silicon Valley – sharing how they have grown their companies in the US. This intelligence is then used to help the next generation of companies back in Australia. While Advance is a facility for Australians, it does collaborate with other international bodies, including Kea. I asked Louis what his top tips would be for Kiwi tech firms approaching the US market. Louis says one of the biggest mistakes that Australians and Kiwis make is that they come to the US with a “drive-by shooting” approach. They come to the area for a week or two and try to cram in as many meetings as possible. Then they leave, and try to follow up with those contacts from afar. Americans do not understand or respect this approach. “We encourage companies to really take advantage of the 90-day visa waiver programme,” says Louis. “Set yourself up at an incubator and use the time to really understand how the ecosystem works here – understand how a lot of business gets done in coffee shops and on University Avenue in Palo Alto. “You need to be here to feel it, to understand it and to maximise those serendipitous meetings that just come from being sat next to someone. Understand that every meeting is a good meeting. It is very non-hierarchical here, as opposed to the east coast of the US. Look at every meeting as a potential opportunity, as
you never know who is around you. “Of course, to take advantage of these meetings, you must be able to sell yourself well. You need an entrepreneurial mindset and must learn the American lingo. Invest in a crash course in sales and marketing here. The energy is really amped and can be very overwhelming for someone not used to that. The last thing you can afford to be in the US is a wallflower!”
energy is really “ The amped and can be very overwhelming for someone not used to that. The last thing you can afford to be in the US is a wallflower!
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Louis advises if you’re looking for investment you have to clearly demonstrate that you’re going to be based here or have strong intentions to build a team in the US. “There’s a mentality within the American investment segment where they need to be within easy reach of the business to understand it as its growing. “I would recommend using an incubator for start-ups and ask as many questions as possible. There is a phenomenal ‘giving back’ mentality from Aussies and Kiwis here. Even though they are busy building their next company, they are happy to give you their time and advice. Kea and Advance are perfect vehicles to help with this giving back. Catherine Beard is Executive Director of ExportNZ. www.exportnz.org.nz
> VIEWPOINT
The numbers the Government must watch John Walley argues that a Government policy focus on export growth, while reducing imports and cutting debt, will result in a better long-term outcome for the country’s economy. A lot was made of the Crown deficit in the recent Budget and whether the Government will be able to turn it into a surplus by 2014/15. However, this target is a result of activity levels in the economy. There are a few numbers that better indicate whether the economy is turning round, and even more importantly, if the growth is happening in the right areas – export growth rather than a return to property speculation-driven domestic
with governments around the world bailing out financial institutions, so the management of our current account must be the focus. This leaves an increase in exports as the only way to balance the current account and reduce debt problems. This graph below which splits traded and non-traded sector growth demonstrates the problems with New Zealand’s economy. The traded sector has been in decline since 2004, and
exporting firms, so that must be the number one policy priority. Investment incentives such as a research and development tax credit and faster depreciation would also help by balancing the playing field, but again, the expectation of returns and confidence make the exchange rate job-one for government.
incentives “ Investment such as a research and development tax credit and faster depreciation would also help by balancing the playing field, but again, the expectation of returns and confidence make the exchange rate job-one for government
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economy growth. Despite an improving Crown deficit the forecasts have the current account deficit steadily increasing from 4.1 percent of GDP in 2011/12 to 6.5 percent of GDP in 2015/16 – so although Crown debt improves, our overall debt position worsens. The major factor behind this is the flow of repatriated profits out of New Zealand. The distinction between Crown and private debt is essentially academic
even since the recession in 2008 the same trend is playing out. The beginning of the end to our nation’s debt problem will come when exporters start to invest in new activity. For this to happen, better returns and a greater confidence that they will in fact materialise are necessary. The overvalued and volatile exchange rate is consistently identified as the number-one constraint to more export activity by
It is worth noting that the ‘kick the can down the road’ approach promoted by the Government will only deliver a Crown surplus if the Treasury’s forecasts eventuate. The Treasury has been overly optimistic over the past few years, and the Reserve Bank is writing down their forecasts. So if growth doesn’t print to forecast, the surplus will evaporate. A policy focus on export growth, while reducing imports and cutting debt, will turn in a more robust outcome. John Walley is chief executive of the NZ Manufacturers and Exporters Association.
EXPORTER 55
> VIEWPOINT
Money only sleeps if you allow it to In these volatile times, cash efficiency and disciplined cash management is paramount. Brent Malcolm explains. If there was ever a time when economies could be relied on to expand and contract in regular and predictable cycles, it seems that time has been and gone. Looking back over the past 15 years, the world has been convulsed by a series of shocks; from the Asian financial crisis to the dot.com crash, the credit crunch and the European debt debacle. As mathematician John Allen Paulos wryly put it, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” Here in the second quarter of 2012, New Zealand and Asian business sentiment is holding up relatively well. Australia and China seem to have avoided a hard landing, the US is nurturing its first green shoots of recovery and Germany is providing a beacon of hope in the embattled Eurozone. But, as we also know from Professor Paulos and from the headlines in Southern Europe, it would be unwise to assume that an end to market dislocation is waiting just over the horizon. In my career I’ve found there’s no financial discipline more important to businesses, and yet more frequently overlooked, than cash management. In some cases a small company won’t give it a second thought as long as there’s more money coming in than going out – the owners are entirely focused on products and sales. When market conditions are benign, even relatively large enterprises will sometimes let cash sit idle and fragmented in multiple accounts. When credit becomes more expensive and income less predictable, however, it becomes top priority for companies to locate and maximise returns from the cash they have. Internal transfers,
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overdraft facilities and overnight sweep accounts may sound arcane, but poor cash management is often cited as the leading cause of business failure. The larger the company is, and the more globalised its production and sales, the more complex its finances are likely to be. For this reason more companies are seeking advice from banks on how to be cash-efficient, and are adopting payment and collection platforms that speed up cash conversion and so free up working capital. The bank integrates its systems with those of its customers, and then handles everything from salary and supplier payments to currency pooling and account sweeps, so money lying dormant overnight can be used productively. The benefit of this trend for companies is that they gain transparency over their cashflow and cost benefits from greater speed and efficiency which, in turn, help them to become more competitive in their crossborder trade. The benefit for banks is that they deepen their relationships with customers. Because systems integration takes time and trust, the relationship matures in a way that reduces uncertainty for both parties and that provides a secure platform on which the company can build its business. Can your back office cope? In the Asia region, HSBC research indicates that trade will grow at an annualised 6.5 over the next five years as intra-regional commerce flourishes and flows increase on the south-south transport corridors linking Asia, Latin America, Africa and the Middle East. This is clearly positive news for New Zealand companies and bodes well for cash generation, but it should also serve as a warning to those that haven’t built
a scalable back office that can cope with growth efficiently. After all, no business wants to see costs rise at the same pace as sales. Whereas the US and Eurozone offer companies a degree of consistency, in Asia there are multiple currencies to reconcile and exchange rates to hedge as well as multiple tax and regulatory regimes to comply with. Huge time differences mean treasurers may need the capability to sweep accounts in countries from Australia to India. The further away from New Zealand your supplier or buyer is, the greater the need is to optimise the supply chain and to consolidate financial information from partners and subsidiaries. Personal experience tells me that there will probably always be some who choose to ignore Professor Paulos’s aphorism, and who view volatility as an occasional exception rather than the rule. As Asia opens up though, bringing new opportunities and new financial challenges for companies, I’m also confident there will be others who prefer not to bank on it. Brent Malcolm, is head of corporate banking, HSBC New Zealand. HSBC’s Cath Henry, head of global payments and cash management, and Gary Cross, head of global trade and receivables finance, can assist with related inquiries. Email: cathhenry@hsbc.co.nz or garycross@hsbc.co.nz or call: 09 918 8688. This article is for general information only and does not constitute personalised investment advice. It should not be relied upon or used as a basis for entering into any products or making any investment decisions. Readers should seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. HSBC does not accept any liability for any loss or damage whatsoever that may directly or indirectly result from any advice contained in this publication. The Hongkong and Shanghai Banking Corporation Limited, incorporated in the Hong Kong SAR with limited liability, acts through its New Zealand branch.
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