issue 25 Sep/OCT 2012
STAINLESS DOWNUNDER’S EXPORT JOURNEY ★ SINGAPORE’S DRAGONS’ DEN ★ CARBON & COMMODITY RISK
THE MAGAZINE BEHIND NZ’S EXPORT DRIVE
Worldwide & weightless How Vend is rewriting export record books $8.20
inc GST
BORN SURVIVORS Hats off to our resilient textile sector PAGE 24
AN EXPORTER’S GUIDE TO IP Issues when internationalising
ARE YOU COVERED? Marine insurance explained
PAGE 28
PAGE 32
BIG/VER711/ME1
FEATURES
18
23 CONNECTING AT A DIFFERENT LEVEL There has been much talk of an export-led recovery. Fred Ohlsson believes that the large number of ethnic businesspeople in this country have a key role to play.
24
BORN SURVIVORS
The textile sector has much to contribute to New Zealand’s export drive. Dig just below the surface and you’ll discover a number of firms achieving remarkable results with minimal backing. Wellington’s Hills Hats is one of them. Exporter highlights this ‘never-say-die’ industry.
28
AN EXPORTER’S GUIDE TO IP
Many Kiwi companies let themselves down when it comes to internationalising their knowledge. Yoke Har Lee looks at the IP issues to consider before entering overseas markets.
34
ARE YOU COVERED?
Export cargo in transit needs special insurance cover. Mary MacKinven looks at what is and isn’t covered, the terminology, the horror stories, and other important issues.
38 COMMODITIES & CARBON: RISKS & OPPORTUNITIES 51
FAIRS & EVENTS
52
MARKET WATCH
COVER STORY
Worldwide and weightless 16,000 installs in 90 countries in less than 24 months and counting – Auckland-based Vend is rewriting the export record books with its cloud-based point-of-sale and inventory management software. Glenn Baker talks to CEO Vaughan Rowsell and head of marketing Nick Houldsworth about the journey so far.
42
53 VIEWPOINT
MARKET INTELLIGENCE
42 IS THERE GOLD AT THE END OF THE MYANMAR RAINBOW? Greg Reynolds reports on a country slowly emerging from its economic isolation.
44
INTO THE DRAGONS’ DEN
Singapore is a relatively small but potentially lucrative Southeast Asian market that deserves closer inspection. Cameron Gordon walks you through it.
46
FROM THE BEACHHEADS
PROFILES
10
SIMPLE YET ELEGANT
In an overcrowded spirits marketplace, Broken Shed vodka stands out like a beacon. And if early indications are anything to go by, it’s another standout Kiwi export.
12 RIDING THE WAVE OF RENEWABLE ENERGY
In-market advisors answer questions about doing business in two of the world’s economic powerhouses: the US and China.
Fledgling exporter Solar City is plugging into the global solar power revolution. Exporter backgrounds this Nelson-based business.
48
14
OPPORTUNITY KNOCKS IN INDIA
RISING TO THE CHALLENGE
To shed some light on the Indian marketplace, Exporter talked to Subhas DeGamia, CEO of ANZ India.
Andrew Lilly of Katikati-based Stainless DownUnder shares his export journey with editor Glenn Baker.
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16
A TASTE FOR AMERICAN PIE
Exporter reviews the latest initiatives by Gallagher in North America and talks to deputy CEO Steve Tucker about the market’s potential.
SUCCESS THROUGH LISTENING
Bluelab Corporation’s turnover has quadrupled since 2004. Exporter discovered that the company’s success can be attributed to a very simple formula.
NEXT ISSUE: NOV/DEC 2012
EXPORTER 1
Editor’s Letter
At least it’s a start So the Government has gathered together all its plans for New Zealand’s export sector into one report, entitled Building Export Markets, and set a rather ambitious goal of increasing exports to 40 percent of GDP by 2025. At the time of writing this I haven’t seen the report, but let’s hope our esteemed leaders have more luck with this goal than they had with its OECD one. We all know what happened there ... precisely nothing; if anything we have been going backwards. A plan, strategy or report is good if it contains plenty of new initiatives – some that are a little audacious maybe. Doing the ‘same old same old’ just doesn’t cut it in this new, Teflon-coated business world we operate in. I just hope the ministers who hold the purse-strings listen to what our exporters are telling them – more in-market assistance is one suggestion I’ve been hearing. We all appreciate that there is only so much funding available, but could we be helping a wider range of exporters? Regardless of what the Government does, thankfully there will always be plenty of export companies that succeed in new markets anyway. You’ll find some of them in this issue of Exporter. Our cover story on Vend is a great example of how a ‘weightless’ export business can go viral with its product. CEO Vaughan Rowsell and head of marketing Nick Houldsworth share their stories on how the company has gone from zero to 90 countries in less than two years. It sounds unbelievable, but this is the nature of cloud-based software applications. And the potential to grow the business further is huge because it has been attracting significant investor interest. Rowsell and Houldsworth are serious when they say they want to dominate their market niche (online point-of-sale software) globally in the not-too-distant future – and I reckon they’ll succeed. Of course if you’re in a more traditional market space, things can take quite a bit longer to come to fruition. Building relationships with buyers and distributors overseas can take years, many years. So if we’re to realise the Government’s 2025 goal, we’d best get started now! See you in a couple of months.
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, Colin Bass, Catherine Beard, Ben Coleman, Cameron Gordon, Yoke Har Lee, Jennifer Lucas, Mary MacKinven, Craig Milne, Greg Reynolds, Rom Rudski, Ellie van Baaren, John Walley. Adrenalin Publishing Ltd. 14C Vega Place, Mairangi Bay. PO Box 65 092, Mairangi Bay, Auckland 0754. Ph: 09 478 4771 Fax: 09 478 4779
SUBSCRIPTIONS Exporter is a 5 issue magazine. Subscription in New Zealand is $41 (incl GST). Please call us for overseas rates. Copyright: Exporter is copyright and may not be reproduced in whole or in part without the written permission of the publisher. Neither editorial opinions expressed nor facts stated in advertisements are necessarily agreed to by the editor or publisher of Exporter and, whilst all efforts are made to ensure accuracy, no responsibility will be taken by the publishers for inaccurate information, or for any consequences of reliance on this information.
Glenn H. Baker editor@exportermagazine.co.nz
Printing: GEON Distribution: Gordon and Gotch ISSN 2230-6528 (Print) ISSN 2253-2730 (Online) ISSUE 25
www.exportermagazine.co.nz
2 EXPORTER
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MAKING NEWS
FedEx introduces direct US-NZ service
Kiwi businesses can now benefit from greater connectivity with the US following the launch of a weekly direct US-to-New Zealand trans-Pacific
freighter flight by FedEx Express. The flight will be routed from Los Angeles-Honolulu-Auckland-SydneyGuangzhou and FedEx is the first
express transportation service provider to launch a direct US-to-New Zealand flight. Customers shipping from the US on a Friday using FedEx International Priority (IP) and FedEx International Priority Freight (IPF) will now enjoy next-business-day delivery and two-business-day delivery respectively. This service will also mean increased freight capacity for New Zealand trade with Australia. Kim Garner, MD, FedEx Express Australasia, said the new flight reinforces the position and role of FedEx as a key facilitator of New Zealand’s ongoing trade relations with the US, Australia and the rest of the world.
Results.com buys Canadian software firm Like many Kiwi-founded companies currently operating in the global market, the business execution specialists at Results.com have been prompted to take a look at their own model by the inherent challenge of being the market leader in a small market. And the company is responding by taking its own medicine (Results.com teaches its client businesses how to develop and execute strategy to future-proof their companies) and implementing a radical new strategy that will transform the company and lay the groundwork for the next 20 years. The plan involves maintaining a business execution focus, but replacing a labour-intensive consultation model with a bundled execution software-licensing system and virtual consulting model that puts the power squarely in the hands of business owners. The strategy is coming to fruition
4 EXPORTER
with the acquisition of Canadian execution software product Chief Execution Officer, and its integration into Results.com’s business consulting service. The bundled software-based consulting model offers Results.com’s clients access to world-class SaaS (software as a service), and takes advantage of globalisation, cloud computing, gametisation and the lingering instability of the local and global economy. Canada is a natural fit for the company, which opened a Calgary office in 2010 and a second Results. com Canadian office earlier this year. In 2011 Results.com also opened a US office, in Los Angeles. “Results.com is a $10 million business, and that’s not a bad place to be,” says CEO Ben Ridler. “But it’s not a good time to be modest and say our end goal is a doubling of our business. We’re focused on moving from a $10 million to a $100 million one,
in principle aiming for a smaller cut of the larger pie, rather than a big share of a relatively small market. We see a lot of New Zealand companies have matured to a point where they can start to do the same.” However, Ridler says, the team first had to have the mea culpa moment that a lot of businesses that have achieved some success must experience. Having become wellestablished in New Zealand and after expansion into North America several years ago, the company grew to a point where it had to apply its own teachings to the operation, along with what it had learned from working with business leaders overseas. The outcome has been a restructuring of the management team and a phasing out of most of the ‘bricks and mortar’ in favour of the virtual business model successfully implemented in North America.
MAKING NEWS
China launch a mint of a deal Quantec Limited has signed a major deal to sell its patented milk protein ingredient IDP to Auckland-based NZ New Paradise. NZ New Paradise has secured exclusive rights to the unique ingredient for use in oral care and throat care confectionery products manufactured in New Zealand and exported to China. It’s first IDP-based product will be a mint to fight halitosis, launched under its existing Purel brand. The company also plans to capitalise on IDP’s proven ability to kill bad bacteria in the mouth and reduce inflammation by manufacturing a flavoured chewable tablet for Chinese children to boost their oral health. “Purel sees IDP-based products as a
springboard into the Chinese market for oral health products that address the cause of bad breath and boost people’ immune systems,” says the GM of NZ New Paradise, Lavinia Huang. “Purel and Quantec share a desire to deliver high-quality, safe and healthy products made in New Zealand into the Chinese market. Based at the Waikato Innovation Park in Hamilton, Quantec is a company specialising in the discovery and commercialisation of high-value bioactives from natural products. In 2006, Quantec discovered and patented its novel milk fraction, comprised of native immune defense proteins (IDP), that has proven anti-microbial and antiinflammatory properties.
Founder and MD, Dr Rod Claycomb, explains that IDP “is a unique ingredient in that it is naturally derived from fresh milk. Plus, when used in an oral care product, IDP targets and kills organisms responsible for bad odour but leaves healthy mouth organisms unharmed.” Quantec and NZ New Paradise have worked together extensively to develop some unique formulations, scope the Chinese market and test consumers’ attitudes toward IDP-based products. “We’ve been working with NZ New Paradise for over a year to test the Chinese market and prepare for market introduction,” says Dr Claycomb. “As a result of time spent in-market, Quantec projects China has the potential to be a $2 million market for us.”
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
EXPORTER 5
MAKING NEWS
Rinnai heats up Aussie market
New Zealand heating solutions company Rinnai recently announced a 20 percent increase in trans-Tasman export sales. Its Kiwi designed and manufactured fireplaces are in high demand across the ditch with 113 percent sales growth in Australian
states such as Victoria. This growth follows the introduction of several innovative new fireplace models, alongside the trial of a new distribution model which saw a premium dealer network established to actively promote the company’s range of fires. Rinnai GM of sales and marketing Mark McCutcheon says the company has been buoyed by the success of this model in Victoria and now plans to roll it out across the country in 2013. McCutcheon says with a backdrop of decreased new home building in Australia the Rinnai sales growth has come from increased market share in a competitive environment. To capture this growth, Rinnai previously identified 16 specialist
fireplace outlets across Victoria who could offer a high level of end-to-end service for sales and installations and contracted them into the new Rinnai Premium Dealer Network. As part of this network, the retailers committed to displaying Rinnai fireplace models and utilised specific network signage across point of sale which lifted the profile and professional display of Rinnai fireplaces across the state, says McCutcheon. “This programme enables Rinnai to deliver a high level of customer service, installation and after-sales support to customers purchasing Rinnai fireplaces exported to Australia.”
Burgerfuel by the snow in Dubai desert BurgerFuel Worldwide (BFW) recently opened its latest store in the prestigious Mall of Emirates in Dubai. The Mall of Emirates, which attracts 25 million visitors a year, is known as a haven of luxury brands and entertainment, and features an indoor ski slope and two deluxe fiv5
star hotell. The new BurgerFuel store in the Mall of Emirates is located next to one of the UAE’s busiest cinema complexes and the iconic Ski Dubai snow resort. This latest BurgerFuel is the fifth in Dubai to be opened by local partner, Al Khayyat Investments (AKI), who will
also be opening more stores in Dubai and the first store in Abu Dhabi later this year. BurgerFuel Worldwide is part of the exclusive NZ Trade & Enterprise Beachheads programme designed for high-growth New Zealand companies.
Invivo Wines launches in Canada Following Liquor Board approval earlier in the year, Invivo Wines finally got to introduce its wines to the Canadian market in July. Invivo’s award winning Sauvignon Blanc is now available in British Columbia and Alberta stores, and will be available in the East Coast provinces later in the year. Mike Cornwell has been appointed North America market manager – the Kiwi expat was previously a director of
6 EXPORTER
Red Bull Canada and prior to that was with Lion in New Zealand managing the premium beer range. “We’ve been working with Mike since January and he has done a great job introducing Invivo to the Canadian market,” says Invivo’s co-founder Tim Lightbourne. “It’s important that we are able to utilise his extensive local knowledge and understanding of the various distribution channels.” Canada is New Zealand’s fourth
largest export market for wine with NZD$60million sold to Canada in 2011, up 28 percent since 2008. Founded in 2007 by school friends Rob Cameron and Tim Lightbourne, Invivo Wines produces world-class wines from both the Marlborough and Central Otago regions. The company was awarded the TNT Emerging Exporter Award in 2011 at the Export Auckland awards.
MAKING NEWS
Tait deep in the heart of Texas Tait Communications has underlined its strong growth in North America with a deal to install and support a new radio communications network in Jim Wells County, Texas. The Christchurch company will provide a radio communications network for the Sheriff’s Department, State Troopers, police and firefighters. More than 400 emergency services personnel will use the Tait designed and manufactured network. Once commissioned, the network will
also save the county money by re-using existing tower antennas, existing mobile radio units and 60 pagers deployed to volunteer firefighters. The deal also includes a three-year maintenance services contract. “Approximately 30 percent of our export volumes go to the Americas and we’re looking forward to future opportunities in the region,” says Frank Owen, MD of Tait Communications. “As the largest private-sector employer in Christchurch, this contract is also
great news for our 600-plus employees in the city.” The new system will be P25-complaint. P25 is an international open standard for the manufacturing of interoperable digital two-way wireless communications. The standard, also used by New Zealand Police, allows for improved communications within and between agencies – especially emergency services.
Mexican wave of wins for BCS There’s about to be a little bit of New Zealand greeting visitors to Mexico. Clever Kiwi technology will seamlessly unite airline passengers with their baggage as they head to popular holiday destinations. Grupo Aeroportuario Del Pacifico (GAP), which operates 12 airports in the Pacific region of Mexico, has chosen baggage handling technology from BCS Group for its showcase San Jose Del Cabo and El Bajio airports. The gateway airport for the region, San Jose Del Cabo is on the far west coast of Mexico at the base of the California Peninsula and a very popular tourist destination. It handles just on three million passengers a year making it one of the busiest in Mexico. BCS Group’s multimillion dollar win, comprising three separate projects, is a significant step for the company. It has set up a
new office in Mexico and employed several staff to service the existing and lucrative potential growth of the area. Brad Jackson, GM of BCS (International), says the company’s investment in Mexico is in full swing, with manufacturing capabilities now established and operational in Mexico City. It was assisted by BCS’ participation in a successful MFAT/NZTE trade mission to Mexico led by Tim Grosser, with NZ Government support valuable in adding a further dimension to the BCS offering. The company already has established a similar manufacturing base in Brazil to support other growth markets in the region. “We have a great deal of confidence that this area of the world will become an important market for us,” says Jackson. “We saw early on the constraints
The airport terminal at San Jose Del Cabo.
that the GFC would bring to the European market and so we made a deliberate strategic decision to expand into South East Asia and Central and South America. That strategy is paying off for us and through this opportunity with GAP we are well placed to extend our foothold in the region by adding more clients to
our portfolio.” BCS’s Mexico wins will see it provide an inbound system comprising five arrivals carousels and one oversize belt system, as well as a new outbound system featuring inline baggage screening at San Jose Del Cabo. The smaller El Bajio arrivals system features two arrivals carousels.
EXPORTER 7
MAKING NEWS
Wine exports continue to perform well Tighter market conditions are providing new opportunities for New Zealand wines according to the June year end 2012 Annual Report of New Zealand Winegrowers. “The vibrant and distinctive qualities of New Zealand wines continue to resonate with consumers in our key markets,” says Stuart Smith, chair of New Zealand Winegrowers. “In the past year exports value grew eight percent to $1.18 billion and international sales volumes have now lifted 79 percent since 2008. This strong sales performance combined with a smaller 2012 vintage means a changed supply/demand dynamic for the sector in the year ahead.” Smith says that total New Zealand
wine sales (export and domestic) rose ten percent to a record 242 million litres for the June year end 2012, but production from the 2012 vintage was less than 200 million litres. “Supply conditions are definitely tighter than at any time since 2007 which is a major turnaround for the sector. This provides the opportunity for the industry to focus on higher priced segments in the year ahead.” Smith is clear that there are still significant challenges for both growers and wineries. “Profitability is a key concern. Lower yields this year have restricted grower incomes while for wineries the challenge will be to maintain shelf space and grow key development markets in a time of tight supply. Returns have also
been impacted by the high New Zealand dollar and domestic tax increases.” Smith says the wine industry has a clear path forward following the Strategic Review of 2011 which is now being actioned by New Zealand Winegrowers. “We are now fully into the implementation phase with our new plan which includes increased focus on sustainability, social responsibility and export growth in development markets. We are confident the plan ensures the industry will be wellpositioned to take advantage of the significant international opportunities that exist for New Zealand wine.”
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8 EXPORTER
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> EXPORTER PROFILE
Simple yet elegant In an overcrowded spirits marketplace, Broken Shed Vodka stands out like a beacon for its purity and character. And if early indications are anything to go by, it’s another standout Kiwi export. By Glenn Baker It’s uncanny how circumstances and certain decisions can lead to the birth of an export product. The Broken Shed Vodka story began in 2008 when Americans Steve Turner and Mark O’Brien decided to move their families from their home town of Connecticut to Central Otago for a better lifestyle. Turner was a former banker and had co-founded Capital IQ, a software and data platform used by banks and investment management firms before selling up in 2004. O’Brien had a background in executive recruitment and property development – timing his exit from the
10 EXPORTER
property market just prior to the GFC. On the O’Brien’s property near Wanaka there was a shed slightly worse for wear. It became a kind of meeting place for the expats to discuss business opportunities. Decorated with old recycled furniture and with an old wood burner keeping the place warm, the shed quickly became a social focal point. More than a few parties were held there. “It was rustic, comfortable and right on the edge of Lake Wanaka, overlooking New Zealand’s Southern Alps,” says O’Brien. “We would make martinis with vodka made in France and
Russia and joke about how crazy it is that New Zealand imports vodkas made in countries that are comparatively over-industrialised and polluted. New Zealand has some of the purest ingredients in the world, so why doesn’t it have a super premium vodka?” He points out that vodka is 60 percent water and 40 percent spirit and by definition is an odourless, tasteless, colourless spirit, so the only critical ingredient is ‘purity’. Turner and O’Brien decided to start work on making their own vodka. The broken-down shed became the lab. “We would have tastings every Friday
at four and do blind taste tests with local friends,” recalls O’Brien. “It went from three or four friends to 15 to 20 people. The next morning my kids would ask ‘why are there so many cars parked outside?’ I guess people liked the vodka.” Around this time the two Americans linked up with Mark Simmonds, who had been involved in the beverage business in Central Otago for almost two decades and was co-founder of Benger Gold Juicing, a fruit juice and cider beverage company. “Mark had a wine bottling facility which was where we met,” explains O’Brien. “He was going to do our bottling and had some great ideas on how to develop a better taste profile.” O’Brien says the industry standard for vodka is to inject additives to help “hide the harshness and mask the taste”. They first experimented with typical softeners but wanted to make Broken Shed additive-free. It became their obsession. “Mark had us flying all over New Zealand tasting water and he was
the US we’ve just “ Infinished our first month, so it is way too early to declare victory. But we’re surprised how fast we’ve gained customers and volume.
”
right – the water makes the difference. So we use two water sources – one we fully demineralise and the other is pure South Island spring water that maintains its natural qualities. “Most vodkas demineralise their water and we found that by adding the right amount of fresh spring water we were getting a different and interesting taste.” The other major point of difference for Broken Shed Vodka is the use of whey for its alcohol source, rather than the traditional grain or potato. “Whey proved time after time to be better tasting and much cleaner than grain and its 100 percent New Zealand – perfect for making vodka, says O’Brien. Despite pressure from the local industry to use grain, they stuck to their guns.
Six months later, after careful filtering, water selection, distillation and a lot of time and money – “chief crafter” Mark Simmonds produced a very smooth vodka free of additives. It promptly won Silver at both the San Francisco World Spirits Competition and United Kingdom World Spirits Competition. Broken Shed went on sale in late 2010 and there are currently more than 450 clients including most of the top lodges, restaurants, bars and hotels in New Zealand. The whey and the water proved to be the winning differential, along with the typical Kiwi ‘can-do with what we have’ attitude of Mark Simmonds. “The two silver medals and broad acceptance throughout New Zealand and now in the US, give us confidence that people are becoming more aware of the truth behind vodka and the importance of purity,” says O’Brien. Comparisons The Broken Shed directors are well aware of the Kiwi vodka success story that went before them in the form of 42 Below – particularly in North America – but their approach to the market is very different. “42 Below was brilliant, edgy, smart and cool. We aren’t that cool but we know what Americans like,” says O’Brien. “They like clean, pure, additive free, and they don’t want to be over hyped to. “42 Below played well in the marketing game – that was their background. Our approach is to move slowly and maintain our premium positioning – as well as remain consistent with the New Zealand ‘brand’. “The imagery and reputation of New Zealand in the world is pure and clean. We align with that by not using additives and our name Broken Shed represents simplicity. The vodka market is awash with fancy imagery of copper stills and diamond filters. We are calling it what it is – a pure spirit that requires good ingredients.” O’Brien says Broken Shed is the only premium vodka in the US market that is made from 100 percent New Zealand ingredients and the only vodka sold in the US that’s bottled in New Zealand. Americans understand the attributes of whey as a source of alcohol too, he believes. And while the US market may be
(L-R) Co-founders Mark O’Brien, Mark Simmonds and Steve Turner.
overcrowded, both the trade and consumers still want authentic, honest artisan beverage products that have interesting backgrounds, he says. Export markets Broken Shed is cautiously lining up Asian markets and the UK, and has been approached by importers and distributors already. Small test orders have received favourable responses, so they are hoping to ramp up sales later in the year. “We are lucky to have attracted distributors that we trust and have skin in the game to properly position and work the brand,” says O’Brien. “It is still early and we do not want to stretch ourselves too thin, but we believe we are off to a positive start in Asia and the UK.” Almost two years on from launch, he says they are ahead of expectations. “We are ahead in New Zealand, comparing volumes to Belvedere and Grey Goose. In the US we’ve just finished our first month, so it is way too early to declare victory. But we’re surprised how fast we’ve gained customers and volume.” I ask if he has any advice for other exporters. His response is to add four months on to every deadline expectation and “prepare your wife and kids for missed birthdays”. His five year goal is to have their brand positioned and received exactly as it is now. It’s all about keeping things “simple and elegant”. Sounds like the perfect description for their vodka. Glenn Baker is editor of Exporter.
EXPORTER 11
> EXPORTER PROFILE
Riding the wave of renewable energy Fledgling exporter Solar City is plugging into the global solar power revolution. Exporter backgrounds this Nelson-based business. By Colin Bass Andy Booth has done a lot in his life. A global leader for Greenpeace, founder of World TV (a business that ensured environmental issues stayed at the forefront of global media) and then moving to Nelson in 2004 – it all formed the perfect foundation for building Solar City. Meeting Booth in his Nelson office, one is instantly struck by the aura of calmness that exudes from this global warrior. It’s not surprising when one considers his career to date, his obvious passion for the environment, and that two of New Zealand’s heavyweight venture capitalists are backing what is now our most significant solar power company only four years after he co-founded it. Booth met Barry Leay, an icon of the electricity generation industry in 2008. The two got along well and, having toiled for several years trying to develop an organic vineyard, Booth thrived on the stimulating conversation they had around renewable energy and its role in New Zealand’s power generation industry. “I was trying to produce organic wine which is not that easy, in fact to this day we are yet to produce a bottle,” he explains. “So it was a welcome distraction to start looking into why New Zealand, in
12 EXPORTER
particular Nelson, was so behind in solar power generation compared to Europe.” Leay introduced Simon Stockdale, one of the founders of the Sustainable Business Network to the idea and with an initial game-plan in mind, the three approached Nelson City Council with a proposal to match fund research into solar power adoption in New Zealand. The Council jumped at the chance. The research uncovered a number of valuable insights triggering the Council to introduce the Solar Promise programme, and Leay and Booth to
set up a solar company. “In that first year with the help of the Solar Saver Programme we put more solar panels on roofs in the Nelson region than the whole of the Auckland region. We were on our way to creating a real centre of solar excellence in Nelson,” says Booth. With the opportunity to take on the national market becoming more obvious, Booth set about an audacious plan. He wasn’t happy serving just the Nelson region, he wanted to go national and fast. In short, he did this by buying three
related businesses around the country – New Zealand’s only manufacturer of thermal solar panels in Christchurch, another sales and installation company in Nelson, and one in Auckland. Booth knew he needed capital to fund his big idea, so he embarked on a journey of multiple due diligence exercises, found his top three prospects, then packaged the transaction up into a proposal to put to the venture capital community. Eventually settling on the socialminded combination of Stephen Tindall and Anne Poindexter he closed all five negotiations on one day, taking Solar City from a five-person business to the country’s largest solar operation in a single afternoon. “Persuading the businesses we wanted to purchase that it was better to go on this journey as one larger group was one thing,” recalls Booth, “but integrating all four cultures under the new entity was the hardest thing I’ve ever been challenged with.” Immediately he pulled the team together and developed a manifesto for the one company to buy into – which still forms the glue of the business today. “It was then critical to have a clear business plan developed by everyone from the ground up.” Having just got on top of this significant challenge, the Christchurch earthquake took half of Solar
City’s business. “Our investment proposal had been based on a strong Christchurch market so we found ourselves having to review the whole business,” says Booth. “The quake was a good excuse for 12 months but we were under pressure to get back to positive cashflows as soon as possible. So we opened an Auckland office earlier than planned.” In hindsight he now accepts the quake opened up
have been very “ We lucky to strike up an exclusive partnership with Panasonic, the world’s leading producer of solar PV panels and battery storage.
”
exciting new opportunities. With technology improving and the investment required decreasing, a global solar revolution is now taking place. Six months ago a watershed moment was reached for the industry in Germany – one of the largest renewable energy economies. Contribution to the grid from renewables on a windy hot day saw the cost of power to the German manufacturing industry reaching $0/ kwh for the first time ever. “The technology required may still be a significant investment for some;
however people are now really seeing that the fuel required to produce solar is free,” says Booth. Unfortunately this is not the case for most Pacific Islands. In New Zealand we pay on average $0.28/ kwh. In the Cook Islands power is produced by diesel generators – the average cost is between $0.60 and $0.90/kwh. “It’s just unsustainable and a real threat to the economy and communities there,” states Booth. It’s this desperate situation that is leading to Solar City’s growing export business with the first of numerous tenders coming up in September for $6 million worth of solar installations in the Islands. “We have been very lucky to strike up an exclusive partnership with Panasonic, the world’s leading producer of solar PV panels and battery storage. This partnership is putting us in a good position to help develop more sustainable communities in the Islands,” says Booth. So the future is looking bright for this forward thinking, socially orientated enterprise with the next big export opportunity just across the ditch. Solar City has just completed its first few installations in the Sunshine Coast. Colin Bass / writeR
Colin Bass is a Nelson-based freelance writer. Email colin.bizlab@gmail.com
Coming up in the Nov/Dec issue of Exporter: Business Travel:
Freight & Logistics:
A special feature that aims to educate and inform international business travellers on how to get the best deals and the best service from the air travel and accommodation sector. Plus some tips from seasoned travellers on how to make getting around overseas markets just that much easier.
A report focused on helping exporters to deal with the issues surrounding freight forwarding and the logistics of sending goods from one side of the world to the other – or perhaps just across the Tasman. Exporter also looks at warehousing and distribution – the smartest ways to store goods and get them into the hands of customers.
To discuss advertising opportunities call Leanne Moss on 09 477 0368 E leanne@exportermagazine.co.nz
EXPORTER 13
> EXPORTER PROFILE
Rising to the challenge Freshly fired up from completing the owner-operator programme with The ICEHOUSE Business Growth Centre, Andrew Lilly of Katikati-based Stainless DownUnder shares his export journey with Exporter. By Glenn Baker
Katikati, about 25 minutes north of Tauranga, is a relatively quiet spot to raise a family, and, as I discovered when I rocked up to Stainless DownUnder, it’s a relatively affordable place to base an export business. Managing director Andrew Lilly tells me it was lifestyle that originally brought him and wife Suzanne to the town in 1997. Prior to that he had managed the stainless steel
14 EXPORTER
department at Auckland’s Alloy Yachts. In Katikati, Lilly worked for a local sheetmetal company before going out on his own in 1999 and starting Stainless DownUnder in 2001 – a business that manufactures mostly in stainless steel – everything from display cabinets to marine hardware. 2003 proved to be a watershed year, one in which the company pretty much ‘fell into export’. Lilly
‘piggy-backed’ with another Kiwi firm to share a stand at the Fort Lauderdale International Boat Show in Florida – an exercise which impressed on people their product quality, encouraged a US distributor to “informally” represent the products globally and opened their eyes to the market potential. “I think we were quite spoilt with how easy it was to get into exporting,”
recalls Lilly. Stainless DownUnder had a fairly basic range at the time, he says – hatches, port-lights, bollards, fairleads and the like – and the distributor wanted them to do the stainless work for specific marine doors. Sometime later, in order to operate under less limitations, Lilly decided to tackle the marine industry directly with specialised doors, teaming with a local supplier to produce a drive unit and manufacture entire door units – also making use of the new design office at his Katikati factory. 2009 was another milestone year with the establishment of Kiwi Closures, a company specialising in aluminium doors, sliders and windows. “These are regular weathertight and watertight entry doors that blend with the superstructure rather than the grand mirror-finish stainless entrances that we had been doing,” explains Lilly. Every door is custom-designed for every project; nothing is off the shelf, and because they must be watertight and have structural integrity, every door has to be certified by the likes of Lloyds – a process involving design appraisals and facility inspections. Today Kiwi Closures also manufactures fire doors, security doors and ballistically-rated doors for residential and marine applications. Currently around 80 percent of business comes from boatbuilders in export markets, with local yards also providing valuable business. Confidentiality agreements prevent Lilly from naming specific projects, but he can tell me that the size of the boats is getting bigger. “There are less projects, but the ones we are winning tend to be larger,” he says, adding that the economic recession stalled or slowed many projects. “It means that some of the projects we’re working on today have been around for some time, so consistency of work is currently a challenge.” There has been consistency in year-on-year sales growth, and despite a tougher than expected 2011 on new sales, Lilly says they’ve managed to continue growing through the recession, unlike some of their competitors. Their second factory, built in 2007, has already been extended four times.
“Part of our business plan moving forward is to try and consolidate our workload and look for other markets, such as security and high-end residential doors.” Bespoke furniture items have also been a good fall-back option in the past. “Flush-sliding doors, pantograph (pop-out) doors, anything outside the box is what we tend to specialise in.”
certainly “ Clients appreciate it when you go to all the trouble of jumping on a plane to front up to them. That negative of being so far away becomes a positive.
”
Still a long way to go Nowadays, Lilly has 20 staff, plus two reps based in the US, one in the Netherlands covering Europe, and another in Greece. He says although their brand is well-known internationally, thanks largely to their regular attendance at shows, his company has still got a long way to go in terms of developing international markets. Under their own backing, Stainless DownUnder and Kiwi Closures still regularly exhibit at two major international boat shows, Fort Lauderdale and METS – the annual marine hardware show in the Netherlands, and represent products from other marine-related Kiwi on their stand. In previous years, NZTE’s market development grant subsidised their attendance, but with the grants gone, it has been up to the companies to shoulder the financial burden. It takes the lion’s share of the marketing budget – shipping three tons of gear to the other side of the world comes at a cost. “We fly in up to $350k worth of product for display at the shows,” Lilly says. “It’s the only way for potential clients to ‘touch and feel’ the quality.” Some projects handled by Stainless DownUnder are ‘one-off’ custom jobs, challenging in itself, but made even more challenging by distance from
market and any perceived impact this has on service delivery and support. “To win these clients over you have to do something pretty extraordinary,” says Lilly. “Fortunately the greater the niche, the more likely we are to win the contract. “Also, Kiwis are generally regarded as easy to do business with – reliable, technically capable, and thanks to events such as the America’s Cup, we hold a good profile. “Clients certainly appreciate it when you go to all the trouble of jumping on a plane to front up to them. That negative of being so far away becomes a positive.” Looking back over the past decade, Lilly says there have been many hard lessons but he doesn’t think he could have gone about building the business any differently – although he does admit that it would have been nice to have completed the owner-operator programme at the ICEHOUSE much earlier in his career. The course runs over five months, involving three days per month, and he thinks it’s a great environment in which to refine one’s entrepreneurship and management skills. “It certainly challenged me to look more closely at what we’ve been doing on the export front.” There’ve been highlights of course – particularly being judged the Bay of Plenty’s Emerging Exporter of the Year in 2005 and Exporter of the Year in 2009 and attending the first Fort Lauderdale show to see the market potential (they sold their cows to help finance the trip). The goal today is to solidify where they are in the weathertight/ watertight enclosures market, as well as explore other opportunities within the marine industry and use their knowledge to develop products for the security and high-end residential markets. Priorities, says Lilly, include further development of their lean manufacturing programme and greater efficiencies; convincing potential clients that distance is not a problem, and continuing to develop extraordinary niche products. Glenn Baker is editor of Exporter.
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> EXPORTER PROFILE
Success through listening Bluelab Corporation is a standout Tauranga-based exporter that has quadrupled turnover since 2004. Exporter dropped in for a visit and discovered that the company’s success can be attributed to a very simple formula. By Glenn Baker
I couldn’t meet managing director Greg Jarvis the day I called into Bluelab Corporation – he was travelling in the US, somewhere between San Francisco and Los Angeles, two cities where the company has sales reps based to cover the North American market. But I needn’t have worried – Greg had arranged for two of his senior team members to fill me in on the company’s export progress, and the reasons behind its impressive growth in sales.
16 EXPORTER
Production manager Mandy Jarvis and CFO Sharon Sutherland have no doubt participated in far fewer media interviews than Greg, but still very ably fielded my questions. The supreme winner at this year’s Bay of Plenty Export Awards, Bluelab manufactures electronic metering and control equipment to accurately measure and control parameters such as pH, temperature and conductivity in water-based media. Clients range across
various industries – notably horticulture, fish farming and cosmetics – even sushi-making (to check the pH levels in rice, I’m told). Products are currently exported to some 15 countries, primarily in the northern hemisphere, and 97 percent of output is sold in overseas markets. Located in a modern two-year-old building on a prime elevated site in Tauranga’s new Tauriko Industrial Park, you could be forgiven for thinking
Bluelab is a relatively new player in New Zealand’s electronics industry. But the company has been in business for more than 30 years. However, there was a major change of direction in 2004, when the decision was made to focus on Bluelab’s core competencies. “Our product suite has been refined and added to in response to the needs of our customers,” Sharon says. “The goal is always to help our customers do what they do better.” This collaborative partnership approach with customers and Bluelab’s extensive partner training programme are the reasons for the quadrupling of the company’s turnover since 2004. It’s a simple success formula – listen to your customers. This approach has produced some innovative new products in recent times – for example, their clever little ppm and pH pens. These are handheld meters aimed at monitoring nutrient levels in horticultural and hydroponic growing applications. It is simple solutions like these that help Bluelab live up to its “success by simplicity” mantra, say Sharon and Mandy. I ask them if New Zealand’s geographical isolation ever works against Bluelab’s quest for new business. They assure me that is never the case. “If anything, our isolation works in our favour,” says Mandy. “Customers still respect this country’s reputation for not just being clean and green but also for our innovation and reputation for quality manufacturing. Plus our customer
service people maintain regular contact with clients. We could be just around the corner.” Sharon says the partner training programme also negates the impact of distance from markets. Bluelab Corporation is very active in the US – making sure it maintains a high market profile by attending relevant trade shows in that country. Entering, and winning, the Bay of Plenty Export Awards was also timely recognition of all the hard work that has gone into building export sales. Growth has its challenges Strong sales growth quickly put the spotlight on Bluelab’s manufacturing efficiency and Mandy Jarvis says the company responded by adopting LEAN and TOC (Theory of Constraints) manufacturing programmes, which have refined process flows and increased production efficiency. “Production optimisation has been one of the many positive outcomes,” explains Mandy. “We’ve been able to double the capacity of certain production lines, using less staff and the same amount of time. Those spare staff have then been utilised to produce new products.” Bluelab competes with a number of large multi-national competitors with significant R&D budgets which, say Sharon and Mandy, requires them to think smarter and faster in the hunt for customers’ unmet needs. Being a smaller, nimble player in the market certainly works in their favour, as does having a loyal customer base.
been able to “ We’ve double the capacity of certain production lines, using less staff and the same amount of time. Those spare staff have then been utilised to produce new products.
”
A managed, carefully planned foreign exchange mitigation plan is also a vital requirement in this volatile, postrecessionary marketplace. I ask if attracting the necessary skilled staff is a problem for the company. Sharon, who also heads up human resources for Bluelab, assures me that the attraction of the Western Bay of Plenty lifestyle makes her job much easier. The central location of Tauranga also assists in getting product to market quickly, she adds. Looking forward, you can guarantee Bluelab will continue to listen to its customers’ needs. Sharon says their training partnership will remain their focus in the US, and the intention is to roll it out to other markets. And regardless of whether the boss is away or not, the Bluelab team will continue to look at better ways of doing things – either on the design and production front, or on how they look after their customers. Glenn Baker is editor of Exporter.
Choose the ultimate business location and enjoy more cost-effective exporting www.thetaurangabusinesscase.co.nz
EXPORTER 17
> COVER STORY
Worldwide and weightless 16,000 installs in 90 countries in less than 24 months and counting – Vend is rewriting the export record books with its cloud-based point-of-sale and inventory management software. Exporter talked to CEO Vaughan Rowsell and head of marketing Nick Houldsworth about the journey so far. By Glenn Baker
O
K, it’s been said before and I’m saying it again: The first thing you notice about Vend’s Vaughan Rowsell and Nick Houldsworth is the facial hair – particularly Vaughan’s distinctive handlebar ‘stache/chin puff combo. The second thing I noted when I dropped into their Parnell headquarters is the relaxed, minimalistic office environment: two rows of desks – sales and support one side, marketing on the other; billiard table in the corner. It’s simple, uncluttered and has room for expansion. This is the look and feel of ‘weightless’ exporting – not the facial hair – the simplicity of everything taking place online, ‘in the cloud’ if you prefer. Leaving a tiny environmental footprint it’s now possible to access multiple overseas markets almost overnight. Vend is setting the pace with its cloud-based retail point-of-sale (POS) software ‘app’ that lets retailers process sales, track inventory, and manage customers. The world’s first HTML5 retail POS, it works on any device or platform, including iPads or even existing POS hardware. Vend’s achievements in just two years has been impressive to say the least and it’s no wonder clients and investors are lining up. Vaughan and Nick attribute much of their success
to their ability to relate to retailers. “Retailers appreciate the fact that we understand them,” says Vaughan. Support is another vital factor. Vend has a helpdesk system and ticketing system which include forums and interactive participation. All support is channelled through email, social media and the ticketing system, and there is a special partner program for retailers – reps or resellers on the ground in various markets who can provide hands-on ‘added-value’ service. Vaughan and Nick turn out to be a couple of fairly relaxed sort of guys with a healthy sense of humour. Compare their stories about how they hooked up. Vaughan tries to tell me they met at a facial hair growing convention. The truth is that Nick literally walked in off the street looking for a job. “He was interested in anything marketing-ish; back then Vend was just me and there was no shortage of stuff I needed help with. I asked if he would take care of some support emails a few hours a week and we’d take it from there. “Nick has since grown the support team to four, made himself redundant by hiring a support manager and is now focused on what he really wanted to help me with, which is online marketing.” Nick informs me he had worked for
a point-of-sale company in Scotland during the late 90s. “It was about as far removed from Vend in design, user experience and marketing as is technologically possible, but it did teach me everything POS shouldn’t be. “Then more recently, working as an online marketing consultant in New Zealand, I discovered Xero. It was a revelation in terms of how people could connect with, and feel about, business software – even accounting software!” Nick read about Vend through the Xero newsletter. “It was like a light bulb went on,” he says. “There was obviously a massive opportunity to disrupt retail software on a global scale. So I kept showing up at Vend HQ and making cups of coffee until there was something else I could do around the office. There was just this one guy with a massive moustache and a rapidly growing customer base, which meant there was plenty to get stuck into.” Xero, the cloud-based accounting software pioneer, obviously had a huge influence on Vend’s founder. Vaughan has been a software engineer for almost 20 years, saw how archaic retail software was and thought it could be perfectly at home in the cloud. “I’ll admit my inspiration came from Xero; my plan was to build Vend as
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the ‘Xero for retail’.” He spent around six months developing the programme at home, launched in August 2010 with a couple of beta customers and today Vend installs total more than 16,000 in 90 countries. Seventy-five percent of sales are now in offshore markets. The company has an office in San Francisco and plans to open offices in Australia and the UK. Customers are basically any
week we hear of a “ Every new, awesome business in another corner of the world using Vend. Every single one of these is a remarkable milestone, and a story about how a weightless product like Vend can find a market anywhere in the world.
”
business with inventory – from chiropractors to service suppliers, retailers, to your local IT company. Google Adwords and smart SEO (search engine optimisation) brings many of them – others are referred on by the likes of Xero or Canadian e-commerce website Shopify (Vend synchronises with Shopify for businesses that want to make online sales) as well as various affiliates and resellers. “Every week we hear of a new,
20 EXPORTER
awesome business in another corner of the world using Vend,” says Nick. “A backpackers in Vietnam, a sports goods shop in Kuwait, a car-wash in Indonesia, or a monster supply shop in London.” He says they’ll notice one business in a street in San Francisco, as an example, signing up and then clusters of businesses close by quickly following. “For me, every single one of these is a remarkable milestone, and a story about how a weightless product like Vend can find a market anywhere in the world.” Vend was able to launch into the US market on day one. In fact, by securing funding they could do a bigger, more focused push into the US and other key markets such as Australia and the UK. Vaughan says they secured the funding by “having an awesome product, awesome team and awesome traction”. The investors must have been convinced, Vend has raised more than $3 million since launching and
the business model has allowed them to scale up quickly. “The relationships I have with our investors stretch back to almost day one,” he says. “This is one thing a lot of people get wrong when capital raising. They think they can do a road show, visit a couple of venture capitalists (VCs) and then the following week get a cheque. “What you need to do is establish a relationship with potential investors, then tell them a story with progress
over a number of months. Start raising funds six months before you need the money. “To get in front of investors, you need to get in front of investors. I spend quite a bit of time meeting with partners and future investors in the US. For the price of a flight and a week of motels you can get in front of a lot of VCs. Being face to face and pressing the flesh makes all the difference,” he says. Vaughan says you need to be prepared to do things slightly differently in each market you export to. “The features of Vend that appealed to US customers were very different to those that appealed to customers in the UK. In the US the credit card is the primary driver of POS integration, in the UK is more about cash. You must focus on the correct selling points for each of your markets.” Competition in the US is fierce, especially in the software space, says Vaughan, although they have managed to establish themselves as a market leader in this particular niche. “You’ve a dozen or more direct competitors who have the advantage of being local and in market. You need to counter that by understanding the market as well as they do, which can be tough. “Perhaps you are best to do this by hiring in-market people to represent you. Something we are working at.” He says they are grateful for the help they’ve had from expats around the globe who’ve helped open doors, and from their investors. “We get a lot of great advice from people who have been there and done that.” PayPal partners An early milestone for the company was linking up with online payments specialist PayPal. So how did that come about? In his inimitable style Vaughan makes it sound easy. “I dropped them a line one day saying something like ‘Hey, I have this awesome idea on some cool stuff we can do together’. I happened to be in San Francisco the following week so we caught up. I showed them some of our ideas and we took it from there. “We knocked together some proof of concepts pretty quick and then we were working with them on their cloudbased wallet, PayPal Here.
“We enjoy working with their guys very much and they enjoy working with us a lot too I think!” Timing is everything when launching a new business – and Vend seems to have timed its race perfectly so far. “We honestly thought we would’ve had a much slower start,” admits Vaughan. “When we launched almost two years ago the ‘Cloud’ was not a mainstream term. We had to explain how an Internet-based POS worked to most people at the start. “But very quickly the market has adopted the cloud and realised the benefits for small and large business alike. So growth has been pretty rapid for us.” Educating potential clients is very much part of the sales process for Vend too. For most business owners, unless you’re a start-up or still stuck on manual systems, making the switch to a new POS programme is a major decision. There are other POS applications for specific niche industries, much larger competitors such as MYOB’s Retail Manager. But Vend is more generic, says Vaughan. Although they make the transition as easy as possible for customers, there can still be barriers in people’s minds to moving. He says rather than shoehorn as many features as possible into Vend to make it work for every sub-vertical market, they make Vend extendable via APIs (Application Programming Interfaces) and product partnerships. “For example, we have a new integrated cloud-base appointment schedule tool for the services industry called Timely, a business intelligence reporting tool called People Minder, and a loyalty points integrator. “That’s probably the most exciting aspect of working in this space,” says Vaughan. “This eco-system of apps.” He says a year ago they thought it would be great for Vend to have an app-store of its own, but they weren’t sure about how to build such a thing. “But when you reach a critical size, suddenly people start approaching you with all these great apps that they want to add on to your product. “For us that’s a real competitive advantage – being ahead of the game and our competitors in terms of having that eco-system,” adds Vaughan. “It gives our customers so many more options. They can build this really
Vaughan & Nick’s best tips Think global! Create a product that has worldwide appeal. “It’s true that if you can get a product to work in New Zealand, you can get it to work anywhere, but that doesn’t mean you should forgo every other market. People can misinterpret that advice about testing first in New Zealand and then Australia. “Being a local company you should test the product in your backyard, that’s
great network of apps and only pay for what they need, and at a fraction of the cost of just five years ago.” Injecting some fun Ask Vaughan and Nick why they get on so well and the jokes start to fly. “I’m CEO,” responds Vaughan. “That just means I founded the company and gave myself the most impressive title. My job is to hire smarter people who make me look good. I’m still very much the product guy, and I’ve some fairly grand plans for what we’ll be doing.” Nick is Vend’s head of marketing, “which means I try to create a buzz online about Vend and translate Vaughan’s big personality and even bigger ideas into a unique voice for our brand on our website, social media, videos and customer support.” “When Vaughan and I first chatted over beers about how we wanted to build ‘brand Vend’, both as a product and a company, we clicked right away. We wanted to inject some fun into a stuffy sector. “B2B marketing, and the software it promotes, is often boring, conservative and lacking in any human emotion. But people start a shop or café because they want to ditch the day job, do something meaningful, and enjoy their working day. In everything we do at Vend, we try to celebrate this, show that we also enjoy our work, and hope that this resonates with our customers. We also share a childlike sense of humour, which helps.” You get the feeling nothing fazes these two. Vaughan describes his scariest moment in business as the time he jumped out of a plane at 14,000 feet to demo the new PayPal Checkin payment integration. (You can see it on YouTube). “I was more fearful of a
where you’ll get your first customers from. But at the same time, you should apply that market knowledge to other overseas markets, which in turn can help enhance the product even further.” When you’re a start-up build strong relationships with companies that are already working in your target markets. There are benefits for both parties, and down the track you can pay the favour forward to other emerging exporters.
bug in the software than the chute not opening,” he says. Nick’s scariest moment (he also describes it as his most satisfying moment) was dropping an old 12kg cash register off the side of a central city car park in broad daylight for a marketing video. “We only had one take to get the shot.” Where to next So what’s on the horizon for Vend? As you’d expect, Vaughan and Nick, along with the company’s two other directors Miki Szikszai and Rowan Simpson, have ambitious plans for the business. Staff numbers are 22 and growing. Fifty percent of new employees have probably “walked in off the street”, admits Nick, a reflection of the product’s appeal. The plan for 2012 and beyond is to roll out more sales offices in all of its key markets. “One of the factors that sets us apart from our competitors is that we sell to the world, whereas they seem to focus on the US,” says Nick. “Our immediate goal is to be the largest cloud-based POS provider to the world’s English-speaking countries.” Having a local sales presence makes life much easier, especially when the time zone is 12 hours away, says Vaughan. “Our plan is to do more of the same, keep growing and keep revolutionising retail all around the globe. It’s a huge market, there are literally hundreds of millions of retailers out there. “We plan on being the global leader for online POS. So no, we don’t have many plans,” he smiles. Glenn Baker is editor of Exporter.
EXPORTER 21
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> FEATURE
Connecting at a different level There has been much talk of an export-led recovery. Fred Ohlsson, ANZ’s MD Business Banking believes that the large number of ethnic businesspeople in this country, with their international connections and exporting experience, have a key role to play. This is backed by data from the bank’s 2012 Privately-owned Business Barometer. Exporter questioned Ohlsson about this largely untapped ‘source of strength for the economy’. EXP: From your conversations with ethnic businesspeople, what are some of the common reasons they give for wanting to trade with their mother countries? And are we talking more about import opportunities or exports do you think? FO: The main reason is that people know, understand and recognise opportunities in their own markets. They have the networks at home and have good access to them, they understand the culture and the system. Most importantly, they know where to start. There is a mix of export and import opportunities, probably more export. Ethnic people in New Zealand would typically identify a product or service that they know is lacking in their mother country and look to export this product or service. Similarly, they might identify a niche in New Zealand for products from their own countries – for example food, clothing or other cultural items – that would appeal either to their own ethnic group or to other New Zealanders. EXP: What do you suggest to other export-focused Kiwi businesses in terms of linking up with these potential connections? FO: My advice to Kiwi businesspeople would be to get actively involved and learn as much as you can about the culture of the people in the markets you are doing
business with. The more you know and understand the culture the easier it is to do business. The best way to do this is to partner up with a person who has immigrated to New Zealand and knows how business is done in that country. There are a number of Kiwi businesspeople who already actively engage with other ethnic communities and business organisations to look for opportunities. EXP: What are some of the barriers here that stop ethnic firms from linking up with other NZ companies? FO: Cultural differences, trust, and difficulties in identifying opportunities are among the major challenges. Immigrant businesspeople can better tackle these issues as they become more established in the local community and develop greater links with Kiwi business networks. It’s important that Kiwi businesspeople also network and build sound relationships with ethnic firms in order to foster trust. EXP: Do you think the New Zealand Government is doing enough to foster these links between companies here and links to other markets? FO: The Department of Ethnic Affairs is very active in promoting and encouraging business and
partnerships between local and ethnic businesspeople. We strongly support this work, and are proud to be part of a strategic partnership with the Department to help firms build these connections. This work includes connecting migrant entrepreneurs to Kiwi business networks; introducing investors to opportunities in this country; and finding new markets for New Zealand exports. The Government has also signed and is negotiating trade agreements with a number of key trading nations, making it more viable to do business with overseas markets. ANZ has strongly supported this and made a submission to Parliament last year backing moves towards a NZ-India Free Trade Agreement. EXP: Looking ahead, how do you see this sector of the export economy panning out? FO: New Zealand’s ethnic community is growing, as are the exporting opportunities, particularly in Asia. We see this as a key part of New Zealand’s economic future. With their knowledge, connections and trade experience, ethnic businesspeople are poised to play a key role as this country strives to build a sustainable export-led recovery.
EXPORTER 23
> FEATURE
Born survivors New Zealand’s textile sector has much to contribute to New Zealand’s export drive. Dig just below the surface and you’ll discover a number of firms achieving remarkable results with minimal backing. In the lead up to the Textiles NZ Conference at Auckland’s Crowne Plaza hotel, Exporter highlights a ‘never-say-die’ industry that deserves far greater recognition and support. By Glenn Baker
If you’re a business involved in New Zealand’s textiles industry, you’re definitely a survivor. Unquestionably it’s one of the toughest sectors of all in which to thrive and the chances of success have not been helped by the mother of all recessions and our geographical position in the world. But despite the historical upheavals in this once considerable industry there are still many shining lights, and more are needed. Nobody is more aware of this than Stephen Fookes, the incoming chairman of Textiles New Zealand (TNZ), the national association providing business support
24 EXPORTER
and services to the carpet, apparel, footwear and broader textile sector. “There are fantastic textile businesses scattered across the country – many of them are based in the provinces and have been going for many years. We have one member who has been going since 1875!” he says. Fookes finds it rather surprising, and inspiring, how successful New Zealand’s textile businesses are. “Many have carved out a niche market internationally and are right on the leading edge, however they go well under the radar. Kiwi creativeness
and talent produce some of the most innovative products in the textile world but they need help to get them into the international markets,” he said. “We need to tell the world about what we have in our own backyard. “For instance, did you know that we manufacture blankets in New Zealand that only go into the ultimate luxury export market? We also supply hats for Australian shows and international police forces and are the world’s largest manufacturer of sheep shearers’ jeans. Our yarns are on the Paris haute couture catwalks and our outdoor gear is being used at the
North and South Poles,” he says. Fookes has a big vision for the sector, as do the members of his organisation. Their goal is to see the textile sector rival the dairy sector in terms of contribution to New Zealand’s broader economy. Recent initiatives include TSEEP (Textiles Sector Energy Efficiency Programme), TNZ developing relationships with offshore trade commissioners, and collaborative marketing efforts – all of which has seen members growing their businesses, he says. “Everyone benefits from a thriving textile sector.” Unfortunately ‘thriving’ is perhaps a word that has not been associated with the textiles industry for a number of years; but, believes Fookes, it’s primarily the lack of government support that has been holding the sector back.
the US can turn “ Ifaround and say ‘No’ to having their apparel manufactured offshore and push to invest in onshore manufacturing, surely we can do the same.
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“The textile sector today is populated by businesses that have survived. What that means is that our businesses have been through it all, and if they are in business in 2012, they are sturdy. Government support would be good but it is sadly lacking at the moment. We have the raw material in our back paddocks, in the bush or even growing on the side of the road – so why not develop the sector and put the effort behind it like we do for dairy?” Fookes says many of New Zealand’s textiles businesses are big on product development and manufacturing and are leaders in their field. However, they are short of resources. “It takes significant capital and human resource to enter a foreign market and if you are thin on the ground it is almost impossible to grow offshore markets. The sector needs assistance in entering and expanding offshore markets – some sort of collaborative model.”
Textiles NZ the ‘go-to’ people TNZ members can access private and/or institutional equity, succession planning support, business insurance, innovation and research service providers, as well as market entry and training and development and more, all through the organisation. “We are to the ‘go-to’ people,” says chairman Stephen Fookes. “We don’t necessarily deliver the services and support ourselves; however, we have a fantastic network of business partners who are committed to the development and growth of this fantastic sector. “On behalf of the sector, we also lobby government on policy and seek support for programmes and initiatives that facilitate growth and development of the sector.” The Textiles NZ Conference is a major focus of the organisation’s efforts and this year takes place at the Crowne Plaza Hotel in Auckland on November 8th and 9th. $145 per day per delegate includes morning and afternoon teas as well as lunch. Register online at www.textilesnz.org.nz or call 06 353 8200.
Dispelling some myths Fookes strongly believes it’s a myth to think that ‘the guy down the road is the competition’. “He’s not! The competition is offshore sitting on the buyer’s doorstep; they come from Europe, the Middle East, the Far East,” he says. “The only way for us to survive in a global economy is to work collaboratively – the pie is big enough for everyone to get a slice. “Following on from that, our competition is with ourselves, not an exchange rate or some Far Eastern country. If New Zealand is to maintain or improve its OECD standings, for example, we need to be adding value to products and charging accordingly. One doesn’t go to Europe looking for quality at a bargain price.” Another myth to dispel, he believes, is that we can’t manufacture products onshore. “Many businesses that moved manufacturing offshore over the past decade or so are now bringing their operations back,” he says. “There is a distinct advantage being able to manufacture a product locally, in the same time zone, and with all communication in English. “My advice is if you are going to have something manufactured, look at having it done here in New Zealand first before you go looking elsewhere. And if it’s a question of price, have a chat with the manufacturer about it; perhaps there is an alternative.” Celebrating success Fookes, who admits to being fascinated by the whole process of
turning raw material into fabulous products, says it’s extremely hard to identify one single, outstanding export success story above all the others, especially when comparing the footwear, carpet, apparel and broader textiles sectors. But he says every one of those sectors has a story of a business overcoming extraordinary hurdles to achieve success on the world stage. “From high-end luxury products going into the Middle East and Japan through to stock-standard products where New Zealand manufacturers outshine the competition on quality and reliability, there are so many successful export companies. Swazi, Hemptech, Betacraft, Hills Hats, Columbine, Weft, FibreTech, Jaedon Enterprises, Cambridge Clothing, Kiwi Socks, Northland Carpets – the list is a very long one.” Fookes says New Zealand’s textile sector sits on the precipice of change. “As a nation we need to invest in our own businesses and purchase their products when we can. If the US can turn around and say ‘No’ to having their apparel manufactured offshore and push to invest in onshore manufacturing, surely we can do the same,” he says. “I believe the textile sector has, with broader support, the capacity to transform the national economy. We already have the sustainable raw material and the will; now all we need is the support.” This article can be accessed online
www.exportermagazine.co.nz
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> FEATURE
Hats off to Hills Boaters, busbys, deerstalkers, bicornes and tricornes, high fashion or steeped in tradition – if it’s a hat you’re after, you call Hills Hats. And it seems the whole world is calling them.
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When Exporter caught up with Simon Smuts-Kennedy, general manager of Wellington-based Hills Hats Ltd, he was about to depart for Goulburn in New South Wales to measure 550 police recruits’ heads for new uniform dress hats. He tells me it’s just another example of winning contracts through providing exceptional service, not by being the cheapest price. Smuts-Kennedy says they continuously delight their customers with their service delivery – the last time they supplied made-to-measure hats to this particular customer they were four weeks ahead of deadline. No wonder they get the repeat business, and clearly the Tasman is no barrier to service. Hills Hats is one of New Zealand’s most enduring businesses – of that there can be no doubt. It’s just 14 years since SmutsKennedy took possession of the business, but the company’s origins date back to 1875 when Chas Hill set up shop to import and manufacture sports caps. Much of the machinery still in use today is 40 to 50 years old – because no modern machine can alter, stretch or block in the traditional format, says Smuts-Kennedy. The skilled staff at Hills Hats’ Petone factory tend to stick around too – with one staff member’s loyalty stretching back 30 years. Smuts-Kennedy loves what he does – creating hats of all shapes and sizes and for all sorts of applications – military uniforms to high fashion to costumes for stage or film. In fact email him a photo of what you want, and after a couple of hours research on the Internet, he’ll produce exactly what you want. But he hasn’t always been a hats man. Although his father and grandfather were involved in textile manufacturing (neckties and dressing gowns respectively), SmutsKennedy had been running a ski-shop in Ohakune. That was before Mt Ruapehu’s eruption put a dampener on things and forced him to take up the hats business opportunity. He moved his young family to Wellington and set about learning the headwear trade, which instantly appealed to his creative, innovative mind. Hills Hats at the time was making berets, cotton canvas bucket hats and the
like, and Smuts-Kennedy admits that it was a challenge to reinvent what the company was doing at the time. But a number of factors were about to come into play which would see Hills Hats transformed over the next ten years into one of the world’s leading specialist hat manufacturers. Hats began to hit the fashion catwalks and emerging designers came to Smuts-Kennedy to help create the perfect accessory to their collections. Trilbys, fedoras, gorgeous dress hats, all manner of hats suddenly made it onto magazine covers. Film stars, musicians and young people, encouraged by the rise of social media, took to hats in ever increasing numbers. Schools are buying his hats to keep students safe from the sun. Sports organisations are choosing his designs – think All Blacks to club rugby and the latest technical fabrics that are windproof, waterproof and breathable. In the retail fashion market, SmutsKennedy is now so in tune with what his customer wants that he can front up with four or five new designs each time and know that they will choose to run with the majority of them. Business, despite the world recession, has been looking up – aided by the company’s consistent focus on quality materials (such as the finest English tweeds) and superior finish, not to mention SmutsKennedy’s absolute passion for the trade. Even the Australians started taking notice – realising for once that beautiful hats needn’t come from Ireland or Scotland. “The Aussies have even embraced the New Zealand-made aspect of our hats,” says Smuts-Kennedy, “because they’re sick of buying inferior Chinesemade versions.” The corporate and governmentrelated order books have also been full – think Air New Zealand pilots, the Army, Police, Department of Conservation. “Walk through any New Zealand airport and you’ll go by up to five of our hats!” he says. There’s strong competition out there, particularly in Australia and particularly when potential buyers shop on price alone. This is why Smuts-Kennedy is keen to promote their brand more in that market. But the real challenge, he says, is to
get even more people into headwear. Nowadays the increasingly confident GM of Hill Hats is fronting up to customers all over the world – in 2011 he flew 80 times, including twice to Japan (where he has recently secured a major trial order of top hats and bowlers for a chain of hatters) and twice to the US (where customers include Village Hat Shop, the country’s largest online hat retailer). Smuts-Kennedy acknowledges that future sales growth will primarily be driven by offshore markets, as well as a more diverse product offering. In a flat market where retail spend is down across the board, reinventing his hat range with new looks and shades is paramount.
a flat market where “ Inretail spend is down across the board, reinventing the hat range with new looks and shades is paramount.
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In 2012 the signs are encouraging. Hills Hats is working with NZTE again for the first time in six years to ‘doorknock’ new markets. Interest from the UK and Europe is stronger than ever. The hat market internationally is exploding, as famous and funky hatmakers like Goorin Bros in the US engage with a whole new “anything goes, break the rules” generation. So last year when government spending went down, the fashion side of the business enjoyed healthy growth. Hills Hats is also investing in its online marketing efforts, says SmutsKennedy, and is about to relaunch its website. Successfully marketing hats in 2012 is all about connecting with new customers via social media sites such as Facebook, and he spends a lot of hours doing his homework online. Perhaps if he was still alive old Chas Hill would get a chuckle out of that. And he’d no doubt take his hat off to the current management at Hills Hats in response to their export efforts.
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> FEATURE
An exporter’s guide to IP Kiwi companies are known for their innovation, but many let themselves down when it comes to internationalising their knowledge. Exporter looks at the IP issues to consider before entering overseas markets. By Yoke Har Lee
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New Zealand has a poor track record of converting its intellectual property into commercial success on a global scale – a key barrier to this being Kiwi entrepreneurs’ reluctance to enter into partnerships with bigger players outside the country. Kate Wilson, partner at James & Wells Intellectual Property, says one of the major barriers to Kiwis converting their knowledge into intellectual property (IP) is they are still not willing to “partner” up with businesses who have the ability to help with the process of commercialisation. New Zealand ranks 22nd among countries in the world that have successful patent filings in the US, and on a global scale, only 20 percent of New Zealand patents are
resources are an “ Ifissue, break down the IP protection plan into a series of realistic timelines for execution, and prioritise how you are going to finance the IP strategy.
”
successfully filed overseas. “What’s wrong is that we are great with innovation but not that good at internationalising our knowledge. We have yet to recognise there are a lot of businesses out there that can take our business further,” Wilson says. Businesses with great innovation have many ways of protecting their IP. Yet too many businessmen are caught up working in the business rather than sitting back to see how they can package their IP for conversion into commercial success, Wilson adds. For beginners without a current IP strategy, start by taking a look at the business plan for your export market, says Gus Hazel, senior associate at James & Wells. First identify your target markets. If resources are an issue, break down the IP protection plan into a series of realistic timelines for execution, and prioritise how you are going to finance the IP strategy,” he advises. “For most businesses, that would mean getting a trademark registered,
The Madrid Protocol: making global IP protection cheaper? New Zealand exporters will soon have an additional cost-effective option to protect their trademarks in overseas markets, under changes adopted under the Madrid Protocol, according to Sue Ironside, partner at Baldwins Intellectual Property. The New Zealand government introduced legislative changes in 2011 to pave way for participation in the Madrid Protocol. Companies are expected to be able to participate in the Madrid Protocol from December 2012. How it works The Madrid Protocol involves filing a single international application for trademark protection and designating the countries of interest (i.e. current and future export markets). This means a simpler process of application – one application at a single office, in one language, for one set of fees, in one currency. Currently, those seeking trademark protection have to do so by filing a national trademark application on a country-by-country basis. An application using the Madrid Protocol is contingent upon a basic national registration. That means a party would need to have the trademark or IP registered in New Zealand first. What this means Ironside says a company seeking IP protection can achieve greater cost savings through the Madrid Protocol route when compared with the cost of filing national applications in each market. The proviso is that the export markets must be members of the Madrid Protocol if they are to be designated countries/regions, she adds. Currently some 86 countries are
or a domain name registered. If you have technologies or designs that need protection, consider what budget you have to pursue those,” Hazel says. Register your trademark if it is key to your marketing strategy, says Charlotte Henley, partner and IP specialist at Kensington Swan. “It
members of the Madrid Protocol, which is administered by the World Intellectual Property Organisation. Most of New Zealand’s major trading partners are members of the Madrid Protocol including Australia, UK, the US, China, Europe and Japan. Is it useful for smaller companies? Smaller companies can take advantage of the Madrid Protocol system. In many cases, designating only two or three overseas markets will be costeffective relative to separate national applications, and additional markets can be added to the International Registration as the number of export markets grows or as cashflow allows, says Ironside. Some of the world’s most successful businesses utilise the Madrid Protocol to protect their trademarks internationally. These include such household names as Henkel (Germany), Novartis (Switzerland), L’Oreal (France), Unilever (Netherlands), Nestlé (Switzerland), Philips (Netherlands) and BMW (Germany).
is more economical to enforce your registered rights than to rely on establishing ‘use’ rights, and consider whether a patent or registered design would be worthwhile for your product,” Henley adds. Another method of taking a technology or IP across borders is to license the use of your technology in
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KEY TAKEAWAYS Identify target markets. If resources are an issue, break down the IP protection plan into a series of realistic timelines for execution. Register your trademark if it is key to your marketing strategy. It is more economical to enforce your registered rights than to rely on establishing ‘use’ rights. Consider whether a patent or registered design would be worthwhile for your product. Licensing out your technology makes sense when the fee you gain from the IP being used generates revenue for the same or less risk as not granting access to your knowledge.
Charlotte Henley
a target market, according to Simon Rowell, partner at James & Wells. He says licensing out your technology makes sense when the fee you gain from the IP being used generates revenue for the same or less risk as not granting access to your knowledge. Protect before you venture Never leave it too late to protect your own IP before venturing overseas. In some places, such as China, even if you don’t intend to enter the market in the immediate future, get IP protection, such as trademark registration, as early as possible. Chinese legislations, contrary to those found in other countries such as the UK or US, grant the trademark
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IP case studies:
Weighing the cost of IP protection The CEO of Goatley Technology Developments, Maurice O’Reilly, sometimes wishes he could just get on with business and not worry about the tedious process of filing patents for the company. Yet, keeping on top of securing patents for Goatley is a crucial part of developing the company as an ongoing start-up – looking to gain investors’ confidence by ensuring that their investments in the company’s technology and prospects are well protected. The company has what it deems is a revolutionary automatic gear transmission system that will allow one car to operate an automatic as well as manual gear for driving. O’Reilly says the company currently has one patent applicable in seven countries, and one Patent Cooperation Treaty (PCT) in seven international territories that is now ten years into a 16-year lifespan. A PCT is a patent filing convention which gives the owner the right to file for proper patents, given a set timeline. It is administered by the World International Patent Office and has 128 countries (as at 2005). The inventor must first file for a PCT in his home country before extending that to other countries. “We are in the process of applying for another PCT that will be examined in 47 territories,” O’Reilly says. The company has spent over $100,000 for IP protection to date, covering both its patent and PCT applications. There is also an ongoing annual patent maintenance cost. The new PCT will cost another $10,000 in New Zealand, and to extend that to 47 countries, another $170,000, he reckons.
rights to the first party who registers the rights for use in China. Henley says when venturing overseas, it pays to know what actions are needed to protect your IP or to find out whose IP you might be infringing upon. Should you intend to license technology, manufacture or use a foreign distributor, always consider
For a start-up, the cost is high, O’Reilly says. His advice for other start-ups weighing up on the cost is to determine whether they have the financial ability to fund the knowledge protection. The other aspect to keep in mind is the time delay needed to gain the protection.
IP may become “ An obsolete or superceded by new knowledge if the owner of the IP waits for full protection.
”
A company cannot place its product or invention in the public domain until the patent has been applied for in the home territory and a patent pending number is issued, he says. “And once a patent is in the public domain, it cannot be extended into other territories. Further, an IP may become obsolete or superceded by new knowledge if the owner of the IP waits for full protection.” A company owning new technology should also consider the cost of having to defend the patent should there be an infringement. “It is very difficult to defend a patent under another country’s laws. Many countries, for example China, often ignore IP protection,” he adds. Yet for companies seeking investors to commercialise a new product, getting full IP protection is often a prerequisite to investment. The investors may not take too kindly to them being asked to cough up more money to protect an IP, O’Reilly adds.
whether confidentiality agreements are needed to protect knowledge of your IP. Also, says Hazel, be mindful of what IP your competitors own. For example, if you were going to Australia, conduct a Freedom to Operate Search, to ensure, or at least minimise, the risk you will run into patent infringement allegations
IP case studies:
An uphill battle For Izon Science Ltd, a high-tech instrument maker, the company’s strategy to protect its intellectual capital reads very much like a classic battle strategy from China’s military strategist Sun Zi: ‘Know thy self, know thy enemy’. Izon is at the leading edge of making nano particle measurement instruments. So far, the company has already secured eight patents in its vault. CEO Hans van der Voorn says, depending on what pans out, the company may end up with about 40 or 50. The company’s intellectual property (IP) protection strategy is focused on protecting its wide spectrum of knowledge without losing sight of the commercial dictates. IP protection can be a long and uphill journey. Izon filed its first Patent Cooperation Treaty (PCT) in late 2004 and is just about to be issued US and Australian patents. It had sought early protection for the UK market, as that was an important market for the company to corner. Here is how its IP strategy goes. It has four ongoing platforms of IP that it is seeking to protect. The first is to ring-fence Izon’s know-how on using elastomeric holes for measuring nano particles. “This gives us wide protection and it would be difficult for anyone else to use a size tune-able hole. The patent encompasses the way the holes are used as well as the general approach to making them.” The second is built around its knowledge of how to make this ‘hole’. The third covers the knowledge of how particles are put through the ‘hole’ – in this case how pressure and voltage are used to control particles being measured, not just by adjusting the holes. The fourth covers greater depth of the process involved in measuring particles. “We did [protecting IP on how particles are put through the hole] this because we were developing solutions for markets which no one had identified before. We didn’t want a potential competitor coming along and just copying what we had done. We have inherent advantages by having an adjustable hole, but there are a lot of measurements where you don’t necessarily need the adjustability. The control of pressure and voltage enables us to speed up or slow particles
down and even stop or reverse the flow. That means we can do a lot of additional types of measurement.” The fourth IP coverage is aimed at detailed applications of the general principles on the process involved in measuring particles. Van der Voorn adds that the IP protection being pursued covers a lot of ground and it is unlikely the company will be granted everything it seeks to cover. Further, the process is long – it could be ten years after the first application until all of the patents covering the first IP platform (including China, India and Europe) are fully awarded. He cautions start-ups against over-investing on IP protection, although most start-ups will need to pursue some form of protection if they want to sell on or get investors. Start-ups should also be mindful that the commercial requirements should be driving a company’s IP strategy. “Collecting patents for the sake of it, as many research institutes like doing, is an expensive indulgence. It may be that the end markets or commercial potential are not fully understood at the start so filing a provisional application is quite a cheap way to get interim protection while continuing to do R&D, market analysis and get further investment,” van der Voorn adds.
and that no one is selling the product under a similar trademark.
Kate Wilson
Patent for patent’s sake Considering the incredible strain on resources, companies should not get sucked into the game of collecting patents without them actually providing any real commercial returns. “A total of 80 percent of the value of our entrepreneurs’ business is to be found in their intangible assets. Most New Zealand businesses just
focus on the other 20 percent of their business,” says Kate Wilson. Charlotte Henley has one final piece of advice for importers – don’t assume that the packaging and brands used overseas are fine to use or sell in New Zealand – they might infringe a third party trademark, or may breach local marketing regulations. Yoke Har Lee / writeR
Yoke Har Lee is an Auckland-based business writer. Email yokeharlee@yahoo.co.nz
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> FEATURE
Brand NZ: to use or not to use? Jennifer Lucas looks at the issues surrounding the use of New Zealand imagery in your international branding.
For manufacturers and marketers of New Zealand-made products, the clean, green New Zealand image can be relied on to bring in sales – particularly in international markets. In the natural products industry in particular, the New Zealand image can be a huge selling point, helping to promote the purity, freshness or environmentally-friendly aspects of a product.
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When using New Zealand’s image as part of your marketing strategy, it can be easy to rely on common words, phrases or images to form part of your brand. Often the easiest way to do this is by incorporating the word “kiwi”, using a logo that includes a kiwi, a fern motif or koru, or altering the spelling of your brand name to include “NZ” in the wording. These techniques make it obvious to
a potential customer where the product originates from. But given how widely they are used, do they give your brand its own unique selling point, and what are the legal considerations? Availability for registration A cursory search of the Intellectual Property Office of New Zealand (IPONZ) database for trade mark registrations that include the term
“kiwi” gives more than 1,800 results. A search for devices or logos containing ferns gives more than 1,600 results – a clear indication they are hugely popular and well used as brands or parts of brand identities. To be registerable, your trademark has to be able to distinguish your product or service over and above other traders’ same or similar goods or services. With so many different examples already on the register, it can be difficult to ensure a trademark incorporating a traditional New Zealand word or image is distinctive in its own right. It may need to use additional words or pictures to ensure it can be distinguished over other trademarks on the register.
use of any Maori sign “ The or imagery should be well considered as to its appropriateness before it is adopted as a brand strategy.
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A more original trademark, particularly a made up word or logo, will have a greater chance of being available for registration than the widely used kiwi icons. Scope of protection If you do decide to apply for a trademark that contains common New Zealand imagery or words, it is also worth considering the scope of protection that you will end up with if the mark is registered. When the courts are deciding whether a trademark is infringed, they will look at how similar the registered mark and the potentially infringing mark are, and on what goods and/or services the potentially infringing mark is placed. In a market where a kiwi image is commonplace, the goal posts will be fairly narrow. For example, a registered trade mark for a stylised kiwi on a natural cosmetics product will not provide the owner with a monopoly to use any stylised kiwi on those products, just the particular stylisation that has been registered. While very minor variations of the trademark may be found to be deceptive or confusing (and therefore potentially infringing),
in a market saturated with kiwis, the trademark owner is likely to have a difficult time showing that a kiwi that is only similar, but not identical to theirs, is infringing their trademark registration. Words or imagery derived from Maori Koru, moko and other Maori imagery and words are often used as alternative ways to give a product or service a New Zealand association. While the koru is a well-used Maori image, other less well-used Maori words or images may provide distinctiveness to a product or service. When a trademark that contains any type of Maori sign is applied for, the application will be referred to the Maori Advisory Committee at IPONZ. This committee will then provide advice to IPONZ on whether or not the use of the Maori sign on the goods, or for the service applied for, is offensive to Maori. While the advice provided by the advisory committee is not binding, it will still be taken into account by IPONZ when it is considering whether or not to grant a trademark registration. For this reason, the use of any Maori sign or imagery should be well considered as to its appropriateness before it is adopted as a brand strategy. Other ways to identify a product with New Zealand If you do decide to develop a brand that does not use common New Zealand icons or imagery, there are still ways you can provide the product with a New Zealand association. One option is to use the ‘New Zealand Made’ logo – well known to most New Zealanders. To use this trademark, you are required to become a member of ‘Buy NZ Made’. You will need to show your product meets the requirements to use this country of origin labeling, and membership needs to be renewed every year. A ‘Buy NZ Made’ membership allows you to use a variety of different styles of the ‘New Zealand made’ logo that can be used to suit differing marketing strategies. One of the main advantages of using a mark is that it can be placed anywhere on a product. This gives the user flexibility to promote their own unique brand, while still advertising elsewhere on the packaging or labeling that the product is proudly New Zealand made.
Statements such as “Product of New Zealand” or “Proudly New Zealand made” can be added on products or packaging. The rules of country of origin labeling are being looked at under the Fair Trading Act. Care should be taken that such is claim is not used unless the user is confident the product is entitled to this claim. It is worth noting that the Trade Marks Act in New Zealand does not provide any regulation or require any evidence as to the accuracy of “Made in New Zealand” claims. From a registration perspective, these statements on their own are not registerable, as they are merely descriptive of a product’s characteristic. However, if combined with a registerable trademark, then they are likely to be registerable in combination. Other considerations The pure New Zealand image has obvious benefits now, but there is always a risk that perceptions can change (rightly or wrongly). As environmental issues become more topical, there is likely to be more attention focused on how environmentally friendly or “green” New Zealand really is. If this image, for whatever reason, is compromised, will brands that are reliant on this image suddenly become unpopular? Will your brand be strong enough to stand on its own? For those reliant on New Zealand origins and claims to the use of pure New Zealand ingredients, will the brand be compromised if for some reason raw materials must temporarily or permanently come from overseas? Building a brand from the outset that is individual and stands for a unique set of values and characteristics will help to future proof against some of these unknowns. While it is tempting to rely on old favourites, you will be rewarded in the long run by choosing an original trade mark that can be well protected and enforced, and stands out amongst the many kiwi and silver ferns on the shelf. Jennifer Lucas is an associate at James & Wells Intellectual Property and a patent attorney specialising in the pharmaceutical and chemical technologies sectors. Email Jenniferl@jaws.co.nz or phone 09 914 6746.
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> FEATURE
Are you covered? Export cargo in transit needs special insurance cover. This feature looks at what is and isn’t covered, the terminology, the horror stories, and other important issues associated with marine insurance. By Mary Mackinven
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Did you hear the story about the containerised chocolates sent by rail across the US in summer with no temperature specifications and no refrigeration? They melted, of course. The exporter insisted such carriage had worked many times, but his insurer denied cover. Marine (also known as cargo) insurance only pays for physical damage or loss of the goods in ‘fortuitous’ (accidental or unexpected) events, not ‘inevitable’ outcomes. In another case, a ship sank because fireworks were loaded against the ship’s hot engine bulkhead and the fireworks went off. The exporter had failed to identify the goods as hazardous to avoid the higher freight rate, so was liable. Marine cover normally starts the minute the goods are on the move, when the risk of cargo damage and loss increases – in the air, on land and on the sea. Cunningham Gill freight forwarders director Jan Dupker explains marine/ cargo cover is for freight on its international journey including domestic transport en route to the overseas destination, such as the few kilometres from Penrose to Auckland Airport, but not for internal transport alone – i.e. not just for Auckland to Christchurch. The most common reason for damage to goods in transit is preventable, she says. It’s inadequate packaging for the nature of the goods and the journey. Unpadded goods joggle around inside their boxes, and cartons that are too soft get pierced. There’s the odd bit of pilferage, which is more likely if goods are not packed securely. Never indicate on the outside packaging what goods are inside, Dupker advises. Handlers only need barcodes, numbers and accompanying documents. She says exporters sometimes choose not to insure a shipment, and wear the cost of any loss, delay or damage they deem is unlikely. Other exporters are unaware they have insufficient cover or that airlines and shipping lines have limited liability for damaged cargo. “Many exporters are more interested in freight rates and how quickly they can get there, etcetera,” Dupker says. Andy Timms, senior marine executive at Vero Marine Insurance, adds that
‘Insufficiency/Unsuitability of Packaging’ is generally excluded from cover anyway. The exporter is considered to be in the best position to know how his product reacts to natural movement during transit, whether it is susceptible to temperature variations and how it must be protected from handling damage during transit. Timms agrees claims usually relate to damaged goods, but could be due to any number of factors. “In the main though, accidents do happen – pallets get dropped, cartons get banged against other cargo or even an incident like the Rena [stranding] occurs and containers end up being damaged or lost overboard.” Cover for goods ‘during transit’ can apply whilst being loaded or trans-shipped or packed into a container within a warehouse, explains Fraser Walker, senior underwriter – marine at Chartis Insurance New Zealand. During transit transportation risks seem to provide more claims, and more for damaged goods, but closely followed by ‘general missing’ (or stolen) portions of consignments. Some cargoes are more fragile than others and some are more theft attractive (desirable), which varies among trading zones. For example, bagged milk powder is not overly fragile by nature, but one tear and the entire bag is a loss; and although it is cheap and un-theft attractive in New Zealand, in Africa it is extremely theft attractive and valuable. Looters in parts of Papua New Guinea have been known to discard iPods and keep the milk powder and consumables, Walker says. Everyone interviewed for this article recommends exporters have a grasp of the terms of sale agreed with their buyers to understand which party is responsible for clearance of the goods [at the border], for transport and marine insurance. The International Chamber of Commerce provides a globally recognised framework, Incoterms, to facilitate dividing the risks and responsibilities between international buyers and sellers. For example, selling ‘ex works’ makes the exporter liable for the goods till they leave his factory door and from then on the buyer’s/importer’s insurance applies.
KEY TAKEAWAYS Marine or cargo insurance covers cargo in transit internationally. Even an ‘all risks’ cargo policy has exclusions; extra clauses can be added at extra charge. Shop around for a policy that provides adequate cover. Know relevant Incoterms to understand risk and responsibility. Visit www.iccwbo.org
Inclusions, exclusions and claims QBE Insurance (International) authors the insurance chapter in the New Zealand Export and Trade Handbook 2012 that is available from the publisher of Exporter magazine. The chapter explains that although much of the language around insurance, and in fact the transit of goods, is old fashioned and obscure, the exporting and insurance sectors have agreed common insurance clauses to demonstrate cover and expedite claims. The common clauses provide cover from the time the goods are removed from their pallet racking in the warehouse in New Zealand, while in the air or on the sea or land, at the next port, on the transhipped vessel, across the port through Customs and other checks at the destination country until positioned onto the receiver’s warehouse pallet. Anything outside the ‘ordinary course of transit’ will need to be agreed with the insurance company, and provided as additional cover. Standard exclusions from cover include the costs of expediting replacement goods and costs due to interruption of transit – i.e. delivery delay, and lost profit. Generally marine cargo policies do cover two fundamental risks in ship transit: general average and salvage expenses. Graeme Orchard, New Zealand marine manager at QBE, explains that an export company is covered when it incurs ‘salvage expenses’ from a shipping line that has to retrieve (salvage) cargo that the ship has jettisoned to lighten itself when grounded, for example.
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True stories, harsh lessons Trans-shipping breaks phytosanitary seal A shipping line alleged the refrigerating machinery on a container of frozen goods was malfunctioning so unloaded the container from the vessel at a port en route to the intended destination, and trans-shipped the goods into an alternative refrigerated container. Trans-shipping broke the original container seal, compromising the phytosanitary certificate. The goods were denied access at the final destination, shipped back to the country of origin and destroyed. As the goods were not physically damaged during the voyage, the cargo insurance policy did not pay out. Seasonal demand missed A container of seasonal goods was delayed when the vessel was stranded. Ninety days later the container was ultimately safely uplifted from the stranded vessel and placed on an alternate vessel. The goods arrived at their intended final destination in sound condition, but due to their seasonal nature their commercial value had been impaired. As the goods had not
The shipping line’s view is the offloading was for the common good of all shippers, so now the cargo owner pays. The ‘general average (loss)’ risk arises when a stranded ship, for example, has to choose which cargo to chuck over the side. All cargo owners reimburse the shipping line proportionate to the value of cargo saved. The insurance policy might be ‘as and when required’ for a single shipment or an ‘open’ policy covering exports and imports for a period of time and to a specified value – the latter often less expensive. Fraser Walker says the most comprehensive ‘all risks’ cover would be the broadest and provide the highest level of cover. Insurers can leave the typical exclusions excluded, or delete them to include the cover. Another common exclusion is ‘Inherent Vice’: apples ripen, meat products deteriorate and chocolate melts, so in most circumstances outcomes due to the inherent nature of the goods cannot be insured. “Some insurers may include cover for specific ‘types’ of inherent vice, but I find such clauses are carefully worded to restrict any extension,” says Walker. “I’d rather be upfront and tell the assured it’s excluded rather than face claims resolution issues down the line.” Exporters of produce such as dairy and meat can buy ‘Rejection’ cover. Each voyage faces different perils. Ocean voyages are typically longer than flights and if they cross the equator, 36 EXPORTER
suffered any actual physical damage during the voyage, the cargo policy did not pay out. Frozen doors distorted A container load of cabinetry doors for a super yacht were veneered and laminated with wood from a special tree and had fire retardant aluminium cores, but swelled because they got wet from being frozen. The freight forwarder was liable for mistakenly putting them in a temperature-controlled container (causing moisture release) and the exporter received an insurance payout. Abandoned ship A box (container) ship 1000 miles offshore in the Atlantic was abandoned at time of writing after an explosion and fire that killed two crew members, with the cause unknown. The same salvors that worked on the Rena sent three fire-fighting tugs and would be licking their lips at the thought of the reward (general salvage costs from cargo owners) coming their way.
the temperature will increase inside a container. But another typical exclusion is ‘Heating and Sweating’ related losses. Walker adds that when certain countries face international trading restrictions some insurers (including Chartis) use ‘Embargo and Economic Sanctions Exclusion Clauses’ which impose conditions on trading with those countries. Some countries are prohibited entirely. Vero’s Andy Timms says additional levels of cover, for example ‘Expediting Expenses’, pay for replacement product to be expedited (usually by airfreight) to market to replace goods lost or stolen in transit. QBE’s Graeme Orchard says most traders don’t read the fine print, hate insurance and are not aware of their cover or exemptions, or right to claim. For example, a little-known traditional area of exporters’ liability is damage to the inside of containers (owned by shipping lines) caused by cargo moving around. A classic illustration is frozen bread dough that was shipped at 4 degrees Celsius instead of -4 degrees, which thawed, swelled, blew out the sides of its three containers and oozed out. The cause? A freight forwarder set the temperature wrongly due a ‘typo’ on a shipping document! Orchard has written new polices in plain English that encompass more transportation and business risks than standard policies, relevant to modern times, including a small amount of
liability for when cargo damages containers. For example, the company’s new policy for ‘dry stuff’ covers cargo in transit as well as at overseas trade exhibitions, for insolvency of the carrier, cargo diverted due to strikes, and loss of profit (mostly applying to importers). QBE’s new ‘wet stuff’ policy is designed for New Zealand’s many primary produce and other perishables exporters. Unlike standard policies, it has cover for ‘inherent vice’. Charges: no rack rates Numerous factors influence the value and price of a marine policy and premiums vary among underwriters. Timms says pricing factors include an exporter’s historical loss record, the product type, the level of cover afforded, the amount of capacity required, the volume of goods exported, the destinations, the method of shipment and the level of proactive risk management the client has undertaken to identify and minimise risk factors in relation to the consignment. In turn, exporters need to know the marine insurer understands their export risks and has a claims team that can promptly deal with any issues. Fraser Walker adds to the list of factors affecting rating risk and pricing: • Value of the product. • Deductible (excesses) applied. •H ow the product is valued – for example, the inclusion of duty and VAT/GST can adversely increase the ‘increased’ value of the commodity,
• The need for extra (endorsed) covers such as Warehoused cover, Rejection, Vehicles and Live Animals. “There are no set ‘rack rates’,” he says. Choosing an insurer Cunningham Gill recommends an insurance broker to clients, or can apply online for a simple shipment to a low risk country on a direct flight without prior storage, for example. “But if it’s curly we would phone the broke – for example, for seafood to Japan that has to travel at a certain temperature,” Dupker says. She says most businesses rely on a broker for each aspect of their business, sometimes to hedge their bets in case an insurance company goes under. But discounts apply for staying with one insurer. Some offer a good rate for certain journeys. “Choose an insurance company with a global presence or at least an arm in the country you want to go to, or in your biggest market. You can talk to your New Zealand insurer if there’s a problem – it’s easier language-wise and the insurer can deal with their agent in China,” she adds. “Shop around for a policy that suits.” When New Zealand exporters manufacture overseas then export directly from those countries like China, Thailand or Mexico, should it really matter that the goods are not actually exported from New Zealand? Some countries require exports or imports to be insured locally – check with a broker, says Timms. Walker adds that ‘Throughput’ cargo insurance can cover goods processed in other countries as they are transported, being processed and stored/warehoused, both here and
Securing cargo in transit If your business involves exporting products that require proper securing while in transit, then a call to Secure A Load, a leading supplier to the transport, logistics and cargo handling industries, is recommended. Staff at Secure A Load have a unique blend of experience and skills in the transport, shipping and related industries – ensuring professional advice and internationally certified parts and equipment are supplied for the correct application, on time, every time. The company supplies a range of professional products from tie-downs through to superior load restraint systems – including a full range of specialised cargo care equipment for many different applications. It is fully equipped to provide solutions for shipping or container related issues. “The commitment from management and staff at Secure A Load is to ensure your organisation receives the correct advice, world-class products and technology and our guarantee of total satisfaction every time,” says a company spokesperson.
overseas. This cover also conveniently caters for the changes in value throughout the process – for example, a ‘finished’ handbag is worth more than the handbag without a shoulder strap or lining. An exporter could base their choice of insurer on factors including: • The policy content or depth: is it suitable and enough, and what restrictions are imposed? • The cost. • The claims service: is the insurer reliable, reputable and negotiable on claims resolution? But the option of having an overseas provider purchase cover on the exporter’s behalf can be fraught with dangers – language barrier, time zone differences and cover not being as promised, to name a few. Dupker’s summation perhaps serves as a word of warning: “Sometimes insurance is a low priority till all hell breaks loose and [because it seems] claims take a month of Sundays.”
Context This article has only discussed insurance for goods in transit. As the Handbook explains, other risks such as harm, loss or damage caused by the export product need to be covered by ‘product liability’ insurance suitable for the consumer law requirements in markets where it is sold. Preventive or risk management measures such as accurate labeling and clear product use instructions may not be enough. And trade credit insurance, typically for a large percentage of the value of the sales invoice, protects exporters from nonpayment or loss due to the insolvency of the debtors (customers).
Mary MacKinven / WRITER
Mary MacKinven is an Auckland-based freelance writer. Email marymackinven@orcon.net.nz
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EXPORTER 37
> FEATURE
Commodities and carbon: risks and opportunities Lifting the lid on the risks and opportunities associated with the carbon and commodity trading market. By Ben Coleman and Craig Milne
The Westpac Institutional Bank plays a pivotal role in creating and supporting New Zealand’s innovative carbon and commodity trading market. Our Commodities, Carbon and Energy (CCE) team provides customers and their trading partners access to simple or tailored over-thecounter hedging solutions to assist in protecting against, or capitalising
38 EXPORTER
on, the volatile price fluctuations associated with raw material inputs or products of business. Commodities can have a significant impact on New Zealand businesses, and with the current global economic environment creating increased price volatility, the commodity market has reasserted itself as a business variable that requires price risk management. New Zealand businesses view
commodity exposures and ways to hedge them in many different ways. Businesses are either: 1. Aware of the risk but not aware that they could be hedged, other than sporadically, with suppliers or customers on a bilateral basis. 2. Aware of the exposure but previously thought the risk was insufficient to warrant price risk management.
3. N ot aware of the exposure until it hits their bottom line (and by this time it is often too late!). The good news is that there are ways to minimise this risk and take advantage of potential opportunities in price risk management. Managing commodity price risk is no different to managing foreign exchange or interest rate risk and can provide great benefits to a business, including: • Minimising risk by reducing volatility. • A bility to focus on core business expertise. • A bility to price contracts more competitively. • M ore predictable margins and smoother revenues. • P roject certainty – completing on budget. The opportunities With customers expecting to receive fixed trading prices in today’s more volatile markets, managing your commodity exposures can give you the ability to increase market share, particularly as competitors struggle to pass on higher costs. Commodity exposures can be obvious, but in many cases it can be harder to identify and isolate them. For example, they may depend on physical supply chain dynamics and understanding exactly where in the process the prices are fixed. It’s also important to understand whether any increases in raw materials can be passed on. Often the links between the people involved in the supply chain and those writing the cheques can be disconnected. Our CCE team helps customers from a wide range of industries manage their risks with commodities as diverse as cocoa, sugar, metals, crude oils and plastics. A recent example of this was securing a fixed price cap for a small business, even though its volumes had been viewed as small and irregular to manage. The owner had been watching with concern as diesel prices recently moved within a NZ 30c range – this was a significant variable for his bottom line result. Our solution of a price cap provided flexibility and protection for the business from further costly upside
movement in the diesel price but also allowed the owner to still take advantage of any price falls. Many companies are looking to negotiate future contracts against a pricing index because of the level of transparency and flexibility it provides, and that’s where our team can help you identify areas where commodity inputs into your business may be impacted. Whether you’re looking for risk mitigation or gaining a competitive advantage, we’re happy to talk to you about how commodity hedging can be employed to manage your commodity price risks. Carbon trading Since 2006, Westpac has played a fundamental role in supporting the emergence of carbon trading in the Asia-Pacific region, and developed an integrated strategic response for clients on both sides of the Tasman. A pioneer in the New Zealand Emissions Trading Scheme (NZETS) since 2010, and with trades undertaken in the European Emissions Trading Scheme as well as Australia’s first trade under its Carbon Pollution Reduction Scheme, our CCE team has developed a unique insight to deliver true value in this growing market. By market-making for New Zealand carbon units (NZUs), we help New Zealand meet its emission reduction targets at the lowest possible cost. This means there’s better liquidity of NZUs and more price transparency – so we are reducing costs for buyers and sellers across this market. We do this by: • Making a price with a view to buying and selling NZUs on a daily basis. • A ggregating smaller parcels of NZUs into marketable sizes. • Buying and selling NZUs to forward dates. The development of the NZETS extends our capabilities and cements our commitment to managing the risks and opportunities clients will be presented with. As the carbon trading markets develop, our bank will dedicate its resources to: • P roviding timely and valuable expertise in environmental markets. • O ffering hedging and risk
management products. •S tructuring solutions to help transition business into a carbon constrained economy. Our CCE team provides commodity price risk management solutions to producers, traders and consumers across a broad range of commodity markets. We are an active marketmaker in NZUs and specialise in a range of commodities, including emissions, precious and base metals, oil and energy markets, pulp, agriculture, resins and plastics. All strategies can be tailored to suit your time frame, industry and currency exposure, so your risk is hedged effectively.
Ben Coleman is director, Craig Milne, associate director – Commodities, Carbon & Energy, New Zealand Financial Markets, at the Westpac Institutional Bank. Phone 0800 659 307 or email Westpac_carbon@westpac.co.nz
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> Q&A
Llew Richards
CEO, International Accreditation New Zealand IANZ has been referred to as ‘the watchdogs’ watchdog – it plays an important role in protecting New Zealand industries and helping our exporters gain credibility and business in overseas markets. Its key functions are to ensure accuracy in testing, commercial reliability and provide public reassurance. More than two-thirds of New Zealand exports are tested in IANZ-accredited labs, either as part of local regulators’ export assurance or as a requirement of overseas markets.Llew Richards talks to Exporter about the organisation’s work and his current concerns.
EXP: With more than two-thirds of exports tested in IANZ accredited labs, you must be rather busy. What trends have you noticed in your organisation’s work in your time as CEO? And how much has the workload increased? LR: The real growth has come from national authorities, both in New Zealand and overseas, recognising the value of the accreditation process. It is a rigorous assessment of the competence of a lab, so that all users can be assured of the accuracy of the results. For any product that is health or safety critical, regulators have turned to using accreditation as part of their assurance. Big growth areas for us are the meat sector (including poultry, fish and shellfish) where accreditation now plays a major role in accessing overseas markets. Another one is the wine sector, where regulators (and their consumers) want assurance that alcohol levels are accurate, and that no contaminants have been added. Globally, the accreditation community signed a mutual recognition arrangement in 2000, and there are now 65 countries where the accreditation authorities are now signatories to the arrangement. This includes all our major trading partners. The ILAC arrangement
40 EXPORTER
also features in the discussions of the Technical Barriers to Trade Committee at the WTO in Geneva. I should add that we’ve also seen a lot of growth in New Zealand demand – for example all drinking water must now be tested in labs accredited by IANZ, as mandated by the Ministry of Health. Similarly, all Building Consent Authorities are accredited by IANZ, following the new Building Act in 2004. IANZ has been a part of the negotiating teams for a number of trade agreements, where recognition of accreditation plays a key role in the agreement. As a result, we have needed to come up to speed on what the regulations in other countries are, what standards they have stipulated, and what New Zealand must do to meet these requirements. Whether it is pressure equipment into Europe, electrical product into China, or beef access into the United States, IANZ has a role to play. EXP: What are some of the key issues you currently have to deal with in terms of compliance issues for exports and imports? LR: The biggest issue with export compliance is the growth in the number of new market access requirements.
As new toxins are discovered in food – whether beef contamination in the US, or sprouts contamination in Europe, we get notified of new testing requirements. Often these involve new testing techniques, new test methods, and sometimes major investment in new technology for laboratories. Every market has its own access requirements, and we have to ensure that the testing done in New Zealand meets every one of those requirements. As New Zealand exports products to more than 150 countries, it takes a lot of effort to make sure we are completely up to date. Probably the biggest current issue with regard to imports is the growth in both counterfeit product and counterfeit test reports from overseas. Product standards are developed for a reason – to ensure the product is safe. So when we get products that purport to comply with a standard and don’t comply, or a requirement for a product to be tested in an accredited lab, and the test report turns out to be counterfeit, it is a major problem for us and the importer. For product coming from some markets, we now regularly check with our overseas accreditation colleagues to ensure that test reports from their accredited
laboratories are genuine. It is a real problem when it involves consumer products, such as children’s toys which can be harmful, or things like aluminium ladders that collapse under load. EXP: Do you have any advice for exporters in regard to the testing of their products for certain markets? LR: The best advice I can give to exporters is know your market. Know what the regulatory requirements are, and make sure you meet them. People talk about non-tariff barriers, but they often don’t understand them. Everyone knows about tariffs (coming down thanks to our free trade agreements), and import quotas (they still exist in many markets for both beef and dairy products), but regulatory requirements in the new market sometimes get forgotten. These will often involve different standards to New Zealand, different test methods, and generally an accreditation requirement.
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EXP: What are some of the mistakes, myths and misconceptions associated with the testing of products for export in this country? LR: The biggest myth is that access is difficult. It’s not. Whether its access into New Zealand, or to an overseas market, it is often simply a matter of knowing what the requirements are, and then making sure you meet them. It also doesn’t have to be expensive. It is much easier to get a product tested properly, and know that it complies with market requirements, than to have to go through the cost of a product recall because something was overlooked. We hear of product recalls every other day. Sometimes it is labelling requirements that don’t comply, and sometimes it is products that are downright dangerous. Lead-painted toys have cost manufacturers dearly, and raised the level of regulator intervention around the world. It is far cheaper to get the product tested properly first. Another misconception is that accreditation for overseas markets is very expensive. Of course this is relative to the product, but the assurance given by IANZ accreditation affects over $20 billion of our exports. A typical lab testing product for export – for example a wine testing lab – pays less than $10,000 a year for accreditation. Our wine exports alone are now worth around a billion dollars a year. Another thing I should add here is that the IANZ team know what the test standards are. They know the test methodology, and they are working with the lab to ensure that everything is okay. Accreditation is not about finding fault – it is about giving an assurance that the lab is doing things right. EXP: New Zealand firms and goods are highly regarded in offshore markets for their standard of quality. Do you think they are fully deserving of this? And what can we do to ensure that this reputation continues? LR: I think New Zealand firms should be proud of the standard of their products. We don’t have a corrupt culture here, and exporters go out of their way to make sure products comply with any safety requirements. The technical demands are increasing every year, and we are lifting our game to meet these new demands. EXP: What’s the one message you’d like to convey to New Zealand’s export businesses? LR: Meeting new technical requirements is the challenge for the export sector. They are not difficult or expensive, but you must meet them. Ignore them at your peril!
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www.demm.co.nz EXPORTER 41
> MARKET INTELLIGENCE
Is there gold at the end of the Myanmar rainbow? Myanmar (formerly Burma) is slowly emerging from its economic isolation, revealing a number of significant trade opportunities. But is it too soon for Kiwi companies to get involved? By Greg Reynolds
An initial assessment by the Asian Development Bank (ADB) helps cut through much of the hype surrounding the emergence of Myanmar from the brink of self-destruction. Since 1962 its pathway to socialism has effectively driven the economy to a virtual standstill. The vast mineral and petrochemical wealth has maintained
42 EXPORTER
the military elité so many people weren’t bothered by tax – they were simply left to sustain themselves, as one harsh critic noted. The rights and wrongs of the past will consume scholars for the next decade – indeed much is written on Myanmar’s resurgence every day in both a positive and negative light.
So what are the real opportunities in the here and now? As with any market entry discussion it is important to strip away all emotion and look at the realities. It is well documented that the basic needs of the Myanmar people offer significant opportunities in themselves – i.e. water, sanitation, energy and
healthcare. Concurrent with these fundamentals are food and shelter – arguably more difficult to address as the ‘returns’ are not easy to measure in the short term. Of course, the underlying need for agricultural expertise is far reaching and is certainly not dependent on government funding. This sector offers a lifeline to much of the population to develop sustainability as well as become a major global exporter. From a business perspective, transport and communication are the country’s lifeblood. Throw in office space, industrial estates and hotels and you have the macro here and now opportunities. Naturally, people to do the work will then become the limiting factor so while education appears last on our list, given the timeframe to train people can be generational it is actually one of the first! For many years, 25 percent of the country’s budget went to the military, while just 1.3 percent was allocated to education. In the mid 1960s, a former leader banned the teaching of English at lower school levels. This followed on from earlier action which saw the military blow up Yangoon University – then regarded as a hotbed of dissent. In 1988 the failed pro-democracy uprising by Aung San Suu Chi resulted in the regime shutting down other universities and dispersing students to the countryside in a divide-andrule strategy that endured for the next 20 years. As a result, there is widespread disillusionment about the value of education and some suspicion surrounding the government’s sudden ramping up of its investment in this critical area. Just where education sits in the 12 macro areas highlighted above depends on the need for local labour, as language and technical skills are minimal. However, these macro areas provide a framework for new entrants to carve out their own niche. From a distance There are already significant multinational players setting up shop in Myanmar– many basing themselves in Thailand and servicing the country from a distance. The frequent brownouts (low voltage power interruptions) and hit-and-miss communications, not to mention lack of hotel and rental
housing, leave many no option. SMEs in particular have huge potential to support these companies who have the resources and balancesheet required to sustain the long term investment. General Electric is one of the first US multinationals to conclude an agreement – signing a medical supplies agreement with two of Myanmar’s hospitals. PTT, Thailand’s biggest oil and gas conglomerate is about to set up a subsidiary as part of a US$2 billion investment that will take them through to 2016. The investment
laws date back to “ Many the country’s colonial past and with no independent judiciary, how to withdraw if it all goes horribly wrong is an unknown.
”
is far reaching, covering upstream exploration as well as downstream refining, gas separation right through to pumping fuel and gas at service stations. PTT’s commitment is in part driven by its strong foothold in Thailand, which currently imports almost 30 percent of its natural gas from Myanmar. The impending ASEAN Economic Community (AEC) slated for a 2015 launch is a significant external factor which will drive much of the investment in Myanmar. This is selfserving to a degree, as Myanmar will be positioned as another lower cost production base in the region. In addition, its geographical position between India and China is somewhat unique – a meeting place of the two superpowers. The flow of trade between these two nations is likely to increase to massive proportions and Myanmar is the conduit. In any supply chain the focus is always on the bottleneck and both these nations have much to gain by helping Myanmar open up its transportation capacity.
making money and repatriating profits are the questions that should consume new entrants. Much has improved in recent times to ease the flow of money. In October 2011 Myanmar’s central bank opened up licensed exchange rate centres to facilitate an easier exchange of the Kyat which was previously only allowed through government banks. This had spawned a huge black market system where the former official rate was six Kyats to the USD and trading elsewhere took place at 800 Kyat to the USD! Then in April 2012 a new foreign exchange structure was agreed with the International Monetary Fund to reform the dual rate system to a managed floating exchange system. Earlier in July the Kyat was trading at around 880 to the USD. The absence of a robust legal and regulatory framework is the most tangible risk. Many laws date back to the country’s colonial past and with no independent judiciary, the important part of any market entry, how to withdraw if it all goes horribly wrong is an unknown. The president has frequently gone on record insisting new investment laws will include guarantees of investor protection, and planned reforms for both privatisation and minimum wages indicate a strong commitment to foreign investment. Infrastructure investment will require a massive diversion of funds from the military leaders pet projects of the past to those aligned to the future of the nation. Clearly it is their best interests to develop a framework which enables external investment to flow into the country. There is no doubt there is a vast pot of gold at the end of the Myanmar rainbow, but it is buried very deep and will take significant time, effort, patience and resources to dig up your share. 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. Email greg@yourbusinessinasia.com
Risk factor However, as with all such opportunities there is risk, and in Myanmar this is almost entirely in the hands of the Government of the day. The ‘who, what, when, where, how’ of actually
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> MARKET INTELLIGENCE
Into the Dragons’ den Singapore is a relatively small but potentially lucrative Southeast Asian market that deserves closer inspection. Cameron Gordon walks you through it. Singapore is a ‘Dragons’ den’ for many international food and beverage exporters. Considered the showcase market of Southeast Asia, Singaporean buyers are savvy and have a finely honed instinct for picking winners. But, impressing the Dragons is not your only challenge. Your next consideration is to understand the costs of entry and factor them into your business model. Assessing this small, value-driven market can take a considerable amount of time, but like the old adage says, ‘‘being there is everything’’ and Singapore should be carefully considered within a greater Southeast Asian export development strategy.
44 EXPORTER
With a population of just over five million people, Singapore is by no means a large consumer market. Granted, on a per capita basis, consumers in Singapore have far greater purchasing power to buy premium goods than those in the Philippines or Indonesia for example. But at the end of the day the consumer catchment in Singapore simply cannot compete with that of some of its regional neighbors. It’s about value, not volume in this den. Free of the red tape and bureaucracy that is rife in many Southeast Asian countries, Singapore’s open economy is rightfully praised for creating an environment in which it is very easy to do business. Without regulatory constraints
putting up roadblocks as in other ASEAN markets, companies seldom hesitate to include Singapore in their export strategy and the competition is fierce. Walk into any major supermarket chain in Singapore and you’ll find an abundance of international brands, from very niche specialty products to global household names. Strategically, having a presence in Singapore can be very important if you plan to develop other markets within Southeast Asia such as Malaysia, Indonesia, Thailand, Vietnam and the Philippines. Major buyers within all these economies regularly travel to Singapore to survey the products available for sale in retail outlets and
often the first question most importers from neighboring countries will ask when considering a potential partnership is, “are they selling in Singapore?” Obviously, product attributes such as quality, food safety and novelty are key features of a winning strategy, but the true litmus test in Singapore is whether the opportunity costs associated with launching a new brand through the retail channel merits the exercise. It is this factor that importers and distributors will focus on before committing to a partnership with an international brand. Put simply, if your retail pricing will not be competitive then the return on investment will not justify the effort required to successfully sell your products.
open “ Singapore’s economy is rightfully praised for creating an environment in which it is very easy to do business.
”
Factors for success As with other markets in Asia, two factors that play a major role in successful negotiations with potential partners in Singapore are the division of payment for Retail Listing Fees and the size of the Advertising and Promotion (A&P) budget committed. Two major retail groups in Singapore, which each have a variety of retail outlets catering to different segments of the market, are NTUC Fairprice (www. fairprice.com.sg) and Hong Kong’s Dairy Farm Group (www.dairyfarmgroup.com). These titans rule the retail world and to succeed in Singapore you need to be on their shelves. As a general rule importers and distributors in Singapore expect that the principal (exporter) will pay the Retail Listing Fees, as well as all or part of the compulsory A&P costs that retailers demand suppliers commit to in order to secure a listing for their products in their stores. The most common argument put forward by importers and distributors is that it is the principal that owns the retail listing and history shows that in many cases principals have a tendency to shop around and change their partners over time, so it’s only fair that the principal pays. Feedback from the market in
Singapore suggests that Listing Fees for major supermarket chains at the lower end could cost SGD100 per Stock Keeping Unit (SKU) per store. Further, variants of the first SKU, as long as the category, size and price of the product are the same, could be listed at SGD30 per SKU per store. To enter sixty stores with five SKUs, one SKU paying SGD100 and the other four variant SKUs paying SGD30 each, could cost SGD220 per store. To enter sixty stores could cost around SGD13,200 To gain a listing in major Singaporean supermarket chains, feedback from the market suggests that brands would need to commit to at least one, but more likely two, promotional campaigns annually. I’m told that the cost of participating in a promotional campaign could range from approximately SGD7000 to 20,000 for a ‘standard campaign’ and somewhere between SGD30,000 and 80,000 for a ‘mega campaign’. An important point to understand when considering these costs, is that they do not absolutely guarantee your ownership of shelf real estate long term. Because of the scarcity of space on shelves in the most popular retail outlets, if a product does not perform within three or four short months, it could be removed, with no refund of listing fees and/or advertising and promotion funds paid. Further, failure the first time around can make it much more difficult to get back on retail shelves on a future attempt. As a result of the costs involved in entering Singapore, international food and beverage brands can opt to go direct
to the retailer, supplying major retail chains such as NTUC Fairprice and Cold Storage directly to take advantage of concessions retailers may be willing to make on market entry costs. While this strategy can work well for some brands, there is definite value in working with a local partner who will not only import your product and put it on the shelves, but also fulfill the all important role of brand building, ensuring your product remains on the shelves for longer than three months before being turfed out because of poor performance. Being seen The decision-making process employed when weighing up the costs and benefits of growing a retail business in Singapore should include consideration of much more than the simple forecasting of sales in Singapore. Any investment made in growing a retail business there should also factor in the opportunities that can be created in other Southeast Asian markets through “being seen” in Singapore. As with any market, the chances of succeeding in Singapore can be increased greatly by working with a local partner who will work in a true partnership with you to increase the visibility, consumer awareness and resulting sales of your brand in the market. Cameron Gordon / WRITER
Cameron Gordon is Asia market director at Incite, an international trade services firm that connects New Zealand food and beverage suppliers with partners in the high growth markets of South East Asia and Taiwan. For more information about Incite visit www.exportincite.com
EXPORTER 45
> MARKET INTELLIGENCE
From the Beachheads NZTE’s Beachheads programme is a global public-private partnership designed for high-growth businesses looking to succeed internationally. The programme connects participants with expert advisors who have the knowledge and networks to help them achieve international growth. Beachheads advisors are successful private sector executives 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 doing business in two of the world’s economic powerhouses: the United States and China.
Q
: Can you provide some general marketing advice about selling into the US? What part does social media play?
A
: Darci Eckerman, North America Beachheads Advisor Going into any market in the world you need to understand all the dynamics and what is your strength – what is the ‘white space’. For example, in food and beverage, is it a convenience item or a natural product? What is the demographic? What is the channel – Walmart, drug store, grocery? Then you need to spend as many dollars, and as much time and effort, on upfront research as you would on your first year’s marketing effort. If you do that, you will build a platform for success. The US as a market is fragmented and diversified and there are many options for consumers. You need to have talked to consumers and understand them. Then you can work out what
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is the communications strategy that will drive the marketing spend; and then how are you going to reach those consumers – for example, by print, through sponsorship or various retail promotions. Once you’ve got all that figured out, you must go out in a targeted way trying to create repeat sales, engage with customers and then build up loyalty. In the US at the moment we are seeing several broad trends as we begin to recover from the economic recession. One is that consumers don’t have the same level of discretionary income they had and are apprehensive about trying something new. There is one exception: the luxury band across all segments and industries. Consumers will not think twice about giving themselves a little reward. But the lower your product or service is on the commodity scale, the more ‘unique’ it needs to be. Another trend is that the US has been impacted by forces of nature. There is currently a drought, and fires burning out of control in some states – these impact on local economies. Do your homework to work out opportunities. Social media is a key resource in marketing because that is where consumers are spending an enormous amount of time. It’s a place where you can engage and interact with them. For example, YouTube is a place to have a product demonstration, perhaps with a celebrity. Facebook is a place where you can run contests for younger consumers.
Social media is an efficient, immediate way to engage one-on-one with consumers – you can make immediate announcements and adapt prices, for example. But you have to do it right.
Q
: When we launched our business in the US, we set up a basic company website but we are now wondering whether we should be doing more? How important is it to have an online PR strategy and do we really need to learn how to use Twitter and LinkedIn?
A
: Allen Weiss, North America Beachheads Advisor For companies trying to build a relationship with their customers or
constituency, a website is one way. Another way is to have a PR strategy to let them know the great things that are going on. Nowadays, all of this is done online. In my view, it’s very important to have an online PR strategy, including social media, to amplify the news. In this strategy, you need to consider: who is your audience? A lot of people are using LinkedIn – it’s very important, it’s where businesses go and you want to be there too; it allows you to get very targeted. Twitter is a bit different – not only do you amplify your message, it allows people to talk to you; you get to understand what the market is looking for. When you add your profile information to social media sites, add lots of information about yourself so people can see who you are and what you do. It builds up your individuality. If you use Facebook, which is very picture-orientated, use lots of pictures. Technically, you should be everywhere in social media but if you don’t have the resources, go where your audience is. To get customers to interact with you, come up with some questions to ask your constituency. You have to give them something to comment on. For example, when you post photos you could ask, “Where is this photo in New Zealand?” Think about what you put out there and see what gets the most responses. Be very analytical. Companies that use social media in an intelligent way use it to amplify their messages but also as a way for their constituency to connect with them.
Q
: We all know that relationships or ‘guan xi’ in Chinese are very important when doing business in China. What would be the key elements in developing sound business relationships in China?
A
: Gavin Crombie, China Beachheads Advisor The concept of ‘guan xi’ is highly misunderstood by Westerners. It’s a deep form of friendship, based on one-sided or mutual debt of obligation, and based on sincerity. So many Westerners sit around a table with their business partner’s Chinese official and think, ‘I’m well connected’. The reality is, your partner is well connected, you are not. If things go pearshaped, it’s your partner’s relationship, not yours – you can’t use the relationship
need a connection, “ Ifyouyoutake a stepladder approach moving from one person to another until you have a rocksolid relationship with a person you need to have to help you with a problem. It may take you six people..
”
against your partner. You have to develop your own relationships. It’s more important to know about how to develop guan xi than to have it. You must show up on the ground in person on a regular basis and it takes time to develop. The central relationships for a Chinese person are their family, then their school or university classmates, and then their business relationships. Beyond that, it’s a jungle. If you need a connection, you take a stepladder approach moving from one person to another until you have a rock-solid relationship with a person you
need to have to help you with a problem. It may take you six people. It involves meals, the giving of small gifts, showing gratitude and being humble. You build a chain of sincerity. It can go to the highest level, and you will find the experience very humbling and extremely powerful. For the business itself, there has to be an alignment of interests – some basic things you can work together on – and there must be relationships with the relevant government departments. When things are ready to go, they move quickly. It’s no good saying, ‘‘I’ll be in China in a month or so” – otherwise you’ll be seen as unreliable and untrustworthy. You need to be in China. For a 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.
EXPORTER 47
> MARKET INTELLIGENCE
Opportunity knocks in India India is New Zealand’s seventh-largest export market, yet for many Kiwi firms the market is still much of a mystery. To shed some light, Exporter caught up with Subhas DeGamia, the CEO of ANZ India, when he was in the country recently.
The day Exporter chatted to Subhas DeGamia at ANZ HQ in Albert Street, a fair chunk of the Indian continent was recovering from a massive power blackout. It served as a stark reminder that although India is fast-tracking billions of dollars worth of infrastructure development, it is still in catch-up mode and there will be speed wobbles along the way to achieving parity with Western nations. DeGamia, who grew up in Fiji and attended university in Wellington, started
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his career at ANZ and is now CEO of ANZ India, based in Mumbai. He was back on these shores to address a ‘doing business in India’ seminar, organised in association with the India New Zealand Business Council, and the official launching pad for the Viewpoint India publication Thinking India? Think Long Term (this publication has insights from respondents to the 2012 ANZ PrivatelyOwned Business Barometer who are already doing business with India or are planning to).
He had several key messages for the audience. The first was a basic reality check on the Indian economy. DeGamia paints a picture of a slowing economy, a weaker domestic market, higher interest rates, and significant delays in policy reforms. India relies on foreign direct investment (FDI) to support its infrastructure growth and with the weak sentiment coming out of Europe there has definitely been an impact, he says. In light of reduced demand from
consumers, many Indian companies are becoming more efficient, selling assets and scaling back, he says, while many others are taking the opportunity to build market share. But there are positives too – the banking system in India is stable, external reserves are solid and external debt is minimal. Like China, the economy is in good shape. But, like any market, you have to
he opportunity for “ TNew Zealand companies to expand beyond the established export sector boundaries is significant, and it’s encouraging to see the level of engagement between the two countries rising.
”
weigh up the challenges against the opportunities – and if you approach the Indian market correctly, the opportunities can be on an unimaginable scale. “Even in a slowing India there are opportunities for New Zealand companies, and in the short term as well,” says DeGamia. “The big message that we’ve been giving for some time now is that the story for India’s growth in the medium to longer term is still very much intact.” DeGamia says this comes as a result of India’s young population, the migration into cities and increasing disposable income. “All this underpins the strength of India’s economy, and out of these macro trends comes the requirement for more infrastructure, better utilisation of resources, and the requirement for food. These are all opportunities for New Zealand firms.” Agriculture is an especially important opportunity, adds DeGamia, because the supply and demand gap will get bigger and Indians will increasingly want to secure their food supplies – both in quality and quantity. Automation and agri-tech are also areas of opportunity he says, along with cool-storage technology and transportation. “These are relevant because in parts of the Indian food and agriculture industry there is significant wastage, gaps in the supply chain, from farm to the consumer.”
All levels of education in India offer opportunities too, says DeGamia, as the country strives to achieve higher rates of literacy across the board. And also on top of his list is renewable energy. “Anything that helps India have a cleaner, healthier environment – despite many conservation and environmental initiatives being undertaken by various state governments our challenges are significant,” he says. “We have a vast population base and as people spend more and consume more we remain in this catch-up mode.” DeGamia, who is bringing up a family in Mumbai, has noticed other impacts of the burgeoning young Indian population. Sport, leisure and recreation facilities are in big demand in the larger cities, he says. He knows of New Zealand companies that are doing business with Indian partners in such areas as theme parks, extreme sports and digital entertainment. Cinema management software supplier Vista Entertainment Solutions is just one of a number of examples. The opportunity for New Zealand companies to expand beyond the established export sector boundaries is significant, he says, and it’s encouraging to see the level of engagement between the two countries rising. Be ‘super granular’ When approaching the Indian market for the first time, DeGamia advises Kiwi companies to be “super granular”. “The market is very broad. To succeed you need to find your niche. Don’t consider the market as a whole – you know the macro trends, but determine what is your best path to market entry. India is many markets rolled into one – each with different segmentation of people.” Work out where your product is relevant the most, says DeGamia. “That relevance might only be in one part of the supply chain.” Become familiar with the market, he advises. “By visiting the market and engaging with advisors like NZTE, the India New Zealand Business Council or people with experience on the ground like us, you’ll be able to best filter down to where the best opportunities are.” Banks play a crucial role in facilitating the growth in trade and investor flows, he adds, largely due to their ability to make connections between investors, exporters and importers. “Once you’ve had conversations with
companies that are already established in the market, you can better identify any specific gaps that may require your technology or solution – areas where there is low productivity or significant frustration. This is where the next phase of opportunity lies,” he says. Think long-term when approaching India, says DeGamia. The market at first appears daunting and the process of gaining access takes time, but once you’ve done your due diligence, things become more manageable. Indians are natural entrepreneurs he says – they love building relationships over time and enjoy being in business – it’s not about making that next transaction. They, alongside government officials, are also keen to stamp out any corruption in business circles across India, believes DeGamia. As for New Zealand and Kiwis, he has witnessed a harmonious relationship between the two countries – encouraged by the shared Commonwealth heritage, our cricketing connections, our clean, green image (as portrayed in the many Bollywood movies filmed here) and reputation for technology innovation. And one final point from DeGamia: “Indian companies are also looking to create relevance for themselves in other markets of the world. So it is quite possible for New Zealand and Indian companies to collaborate on products and services to take to other markets. And remember that China is India’s largest trading partner. “India is indeed a very large market in itself, but there are many, many Indian companies looking to build market share offshore as well.”
EXPORTER 49
> MARKET INTELLIGENCE
A taste for American pie When searching for a standout New Zealand export story in the US, look no further than Gallagher. Exporter reviews the latest initiatives by Gallagher in North America and talks to deputy CEO Steve Tucker about the market’s potential. Gallagher has enjoyed considerable success in the US market since the early 1970s, when it introduced the world’s first high-powered electric fence to the agricultural sector. In more recent times, this high-flying exporter has been ramping up its efforts and investment in this important market in order to grow sales. Key to its business growth strategy in the US is the company’s innovative technology, which spans animal management systems (electric fencing, weighing and electronic identification readers) and security management (perimeter electric fencing, integrated access control systems). This technology is the result of serious money, time and resources being devoted to R&D (around eight percent of the group’s total revenue is invested in R&D annually). Gallagher recently announced that it is moving its base from North Kansas City in Missouri to a purpose-built 56,000 square foot facility at a new master-planned business park in the city of Riverside, Missouri. Following this announcement, Exporter questioned deputy CEO Steve Tucker about the US market, Gallagher’s plans there, and to see if he had any advice for Kiwi exporters eyeing up the States. EXP: How do you regard the current state of the US economy? Is it a good time for Kiwi firms to be entering it? ST: I think the US economy is showing signs of improvement from where it was two years ago, but forecasted growth is still relatively weak and slow compared to our part of the world and, as a result, is holding our NZ dollar high. From an exporter perspective at an $0.80
50 EXPORTER
exchange rate to the US dollar it is obviously more difficult than the days of $0.50. But those days are long gone and we need to treat these current levels as the new norm. In terms of the right time to enter the US market, I think it’s currently as good as it is going to be over the medium term. Waiting to ride out current economic conditions is not an option; if you want to be there you may as well start now. The United States is a large market and for many it probably represents half of the world market for your goods. We share the same language, it’s relatively easy to get there, and I think in harder economic times it can create more opportunities as customers look outside the box for solutions. EXP: What’s your advice for any Kiwi firms looking to establish themselves in the US? Is there anything they can learn from Gallagher’s experience? ST: When Gallagher started in the US we chose a mutually exclusive distribution model – that is, we didn’t sell to anyone else in that market other than our distributor and they in turn only purchased our product and not from our competitors. If you select the right distribution partner, and they have the majority of equity in their business, it can be a very successful model. The upfront investment is much smaller than a direct investment model and it means that you can afford to replicate this model in other countries simultaneously without breaking the bank. The downside can be less control over your own destiny from a brand perspective and being further from your
end customer. This has resulted in us purchasing back our key distribution companies, including our US distributor in recent years. Our Security business has required us to adopt a direct investment approach due to the nature of the products. In this market we are competing with large established players. Our strategy has been to focus on key vertical markets and find strategic local partners to work with to minimise the investment cost. EXP: What has surprised you the most about working in the US market to date? ST: Just the sheer size of the market and market potential. There are obviously larger countries in terms of population and growth rates, but not many have the infrastructure and disposable income to allow you to carve out a niche for your products like the US. EXP: What excites you the most about the market potential there for Gallagher? ST: Again, the market size. For most of our products the US probably represents nearly half of the world’s current demand – particularly with our Security products where we are in the early stages of establishment, the upside is enormous. We are excited that the purchase of our US distributor for animal management products in 2008, along with the building of a new facility and the merging of our Security operations in this facility, will allow us to build a strong base.
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
SEPTEMBER
10 Global Expansion: Strategy Development Auckland. For more information go to www.ema.co.nz/events/ calendar
To promote your export business event, email the details to editor@exportermagazine.co.nz
SEPTEMBER 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
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
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
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 Nove
13-16 Electronica Components, Systems, Applications – Munich. www.electronica.de 13-16 EuroTier – The world’s top event for animal production – Hannover. www.eurotier.com
JANUARY 30-4 Feb Spielwarenmesse International Toy Fair – Nurnberg, Germany. For more information visit www.toyfair.de or email msurges@germantrade.co.nz
FEBRUARY
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
6-9 7th Food Week Korea COEX, Seoul, South Korea. Contact Linda Gurney Email: foodnwine@ wineinternationalltd.com
November
8-9 Textiles NZ Conference 2012 – Crowne Plaza Hotel, Auckland. $145 per day per delegate. Register at www.textilesnz.org.nz or phone 06 213 4232.
19-21 Seafex Dubai. A new event running alongside SFF. For more information jlg@eurofair.co.nz
6-8 FRUIT LOGISTICA – Berlin, Germany. A one-stop shop for the international fresh produce industry. For more information visit www.fruitlogistica.com or email msurges@germantrade.co.nz
EXPORTER 51
> MARKET WATCH
Cause for optimism Cameron Bagrie offers some thoughts on areas of unappreciated differentiation that will help ‘NZ Inc’ to navigate significant economic adjustments in an orderly fashion.
Pick up any newspaper or turn on the TV and you feel like you are listening to a coroner’s retirement speech. The weight of content is tilted towards bad news. While pockets of the global economy continue to perform well, the reality is that the effects of the GFC will continue to be felt for a long time – and New Zealand is sensitive to wider global developments. Increasingly it is becoming a game of confidence: debt burdens are serviceable if interest rates are sufficiently low and debt burdens are more manageable if economies have sufficient growth to lift tax revenue. A host of countries are now stuck between a rock and a hard place: their debt positions demand aggressive fiscal consolidation. This is hard to implement politically. Crunching government spending too hard can drive the economy into recession. Yet a failure to act has consequences too – investors lose confidence, demanding a higher risk premium, which drives up interest rates. The debt burden becomes unserviceable, and the skids are put under the economy. Either way you are in a death spiral. Welcome to the challenges facing much of Europe. In the current environment of unease you need to offer points of positive differentiation. Some areas of differentiation for New Zealand are widely cited, such as our growing connectivity with Asia, a key part of the structurally positive story for ‘NZ Inc’. But there are four areas not widely acknowledged: The first is our natural endowment base. The World Bank has estimated the wealth of nations in US$ per capita terms. New Zealand stacks up pretty well: 20th of 152 countries for total wealth per capita; and 8th for natural capital (subsoil assets, timber resources, non-timber forest resources, etc). The
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top seven for natural capital are all oil-producing nations. Australia ranks eleventh on the natural capital list. New Zealand tops the list for ‘renewable’ natural capital per capita, arguably the more important measure in a world of diminishing non-renewable resources. Unlocking a renewable endowment is not easy. You wouldn’t want one area of strategic excellence, such as aquaculture, to undermine another such as tourism, so sensible regulatory heads are required. Just like successful businesses need something in their offering that is ‘different’, the same applies for a nation. Thankfully, we are resource rich. It is critical we embrace the opportunities that are offered, for the more you pull an income-generating lever, the less pressure there is for austerity to pay back the years of living beyond our means. The second area of differentiation is our political framework. It may seem ironic to talk constructively about New Zealand’s political institutions, but in a relative sense they’re pretty good. At a time when we’re seeing growing political fragmentation internationally, New Zealand is increasingly congregating in the middle. Both major parties are articulating the importance of fiscal surpluses and rebalancing the economy. Of course they have different policy prescriptions, but at least they understand the economic imperatives. In a world where the nucleus of change and the hard decisions need to come out of governments, leadership must prevail over populism. This does not mean one dominates the other, simply that the tail must not wag the dog. The brutal reality is that a host of foreign governments have not accepted that 2008 was a game-changer. Thankfully, ours has. The third area of differentiation is evidence that society is changing.
New Zealand still runs a large current account deficit, is heavily indebted and has low nationwide saving relative to our investment needs. We still have a penchant for spending today over investing for tomorrow. Yet we’re seeing improvement. Some put this down to the economic cycle and argue households will revert back to a “borrow and spend behaviour” when the economy turns the corner. Recent fervour in the Auckland property market is cited as an example. I think the change in household behaviour is more enduring. We can see it in the aggregate data, which shows the household savings rate is now positive. The current account has gone from being dreadful to merely awful, but this is still an improvement. While the housing market has picked up, borrowing has not. Household house price expectations according to the Roy Morgan Survey are still falling in inflation-adjusted terms. The final differentiator is continued microeconomic reform. An austerity plan is half a plan. We need a firm agenda for driving growth. Any lever that drives growth is welcome, particularly given New Zealand’s weak balance sheet. Any business that gets into financial difficulty can address woes more easily it if can generate more revenue. It’s no different for an economy. New Zealand still has clear economic challenges. Yet in a world where investors are seeking points of positive differentiation, New Zealand looks solid. They won’t make our challenges disappear, but they do make them a tad easier to navigate. And in the current volatile world, the benefit of being able to navigate in an orderly fashion should not be taken for granted. 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 3: ‘Forgetting about your customers’. In case you missed them, the first two mistakes exporters make are ‘Just giving it a go’ and ‘Not doing your homework’. The third mistake is to forget about your customers. You may think that this is a ridiculous statement to make – ‘How can any business forget about its customers?’ – but, just think a moment about bad experiences you have recently had through a lack of customer care. My particular example at the moment is how an airline (that shall remain nameless) has reduced the space in both Premium Economy (the old business class) and Economy (cattle class) so long-haul for humans is now undertaken in a way which would be illegal for other animals transported by air and classified ‘inhumane treatment’ if undertaken in a prison. Think about the following four key questions: 1. Customers will buy what we make. Oh really? Did you ask them what they wanted before you made it or did you just design and manufacture based on your own assumptions? In other words, are you a ‘marketingled’ or a ‘production-led’ company? 2. Who is my customer? It is a common mistake to believe that just because a country may have a population of a billion people, then that is the size of your market. In fact, your market within that country may be zero (or less) in that nobody wants to buy your product at the price or with the features you have, such as hokey-pokey ice cream. It may be a top-seller in New Zealand but Indians like pistachio-flavoured kulfi.
3. What does my customer want? Indians like to cook with ghee (clarified butter), so Fonterra now produces ghee for the Indian market. In some countries butter is salted, in others unsalted, or it may already have other things added such as garlic or brandy. It’s simple when you think about it, but too often exporters forget how their product will be used, by not asking obvious questions such as: What do our customers use to cook with (fat, butter, lard, George Foreman grill, microwave)? Do they spread butter on bread? Do they even eat bread? 4. How do I need to change my product or service to meet their needs (not mine)? Click Clack, New Zealand manufacturers of plastic storage jars, increased US sales by over 30 percent when they added Spanish to the English packaging. In some cultures with high levels of illiteracy, it is essential to put a picture of what the product is made of on the label, such as strawberries on jam jars. Resist the tendency to put, as some manufacturers have, pictures of smiling white babies on baby milk formula. All of these areas and much more are covered in Module 3 – International Marketing – of the Diploma of International Trade. This is the third of eight modules that help Kiwi exporters reach the same global standard as their overseas competitors by providing work-based distance education that leads to Global Trade Professional™ status.
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. So, are you ready to raise your game?
n some cultures with “ Ihigh levels of illiteracy, it is essential to put a picture of what the product is made of on the label, such as strawberries on jam jars.
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In the next issue of Exporter magazine: The biggest mistakes exporters make, Number 4 – ‘Once it leaves the warehouse it’s not my problem any more.’ 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.
The New Zealand School of Export is registered to accept NZTE
EXPORTER 53
> VIEWPOINT
What exporters are saying Catherine Beard has been reviewing all the positives that can be taken from the latest ExportNZ Survey. According to our latest ExportNZ Survey, the future is looking up for exporters, despite the challenges of exchange rate volatility and the global financial slowdown. The key take-outs to focus on are that exporters are pushing into new markets, recruiting staff, and expecting profitability to improve. Recruiting is a telling gauge of the current state of affairs. It often lags a little behind demand, due to employers being cautious about over-extending themselves. Over the next 12 months, 36 percent of those surveyed expect to hire more people, 53 percent expect to maintain current staffing levels, while only 11 percent expected to have less people. Just over half the respondents (52 percent) expected their profitability to improve in the next 12 months, 20 percent expect their orders to rise substantially and 49 percent said they expected orders to rise slowly. The other good news is that regulatory barriers in New Zealand that limit export ability are low – only 13 percent of respondents said this is a problem for them; while 87 percent said there are no regulatory barriers in New Zealand that limit their ability to export. The domestic barriers mentioned included treatment of the export of education services (NZQA and immigration rules), food safety transaction costs, phytosanitary and AQIS costs and export freight costs. When asked further about regulatory barriers to export, the problems faced were more in overseas markets (34 percent said yes) than in New Zealand. The overseas barriers are mainly around issues such as tariffs, product registration, bureaucracy and non-tariff barriers. As for the main obstacles to exporting or exporting more, the top four issues
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reported were: demand offshore, exchange rate volatility, funding for developing export markets, and price competitiveness of their products. Is the Government doing enough to support exporting? Sixty-one percent of those surveyed said no (down from 65 percent last year) and when asked what kind of Government assistance was favoured, the majority said ‘Export Market Development’, followed by R&D assistance.
50 people or less, and 30 percent employing 50 people or more, the survey represents a good cross section of the export sector. The regions where respondents said they expected most growth were Australia, North America and China, and 40 percent of respondents expect to enter new markets in the next 12 months, which is encouraging. Overall, it was good to see the resilience of the export sector in the
When asked more generally what the priority issues were, development or venture capital was most important, followed by export market development and R&D. This emphasis on more help needed for export market development probably reflects the fact that many of our exporters are relatively small by world standards. While 24 percent of respondents said capital was no constraint at all, for around 32 percent it is a real constraint. Most New Zealand exporters are SMEs, and with around 70 percent of the 169 respondents employing
survey results, particularly given the global slowdown and the volatile dollar. Most regulatory issues are outside of New Zealand, and while FTAs are helping, there is a significant list of non-tariff barriers that exporters are battling. These non-tariff barriers are proving hard nuts to crack and ExportNZ is keen to work with government officials in tackling them. Catherine Beard is executive director of ExportNZ.To check out the full report on the 2012 ExportNZ Survey results, go to www.exportnz.org.nz.
> VIEWPOINT
Export growth the key, but still ignored A ‘wait and see’ approach to economic conditions that are battering our exporters just doesn’t cut it, says John Walley. He’s calling for more interventionist policies. The latest indication that we are still ‘bouncing along the bottom’ was an increase in unemployment in the June quarter. Worryingly the agriculture, mining, manufacturing and construction sectors were all down, which does not bode well for export investment. It is clear that debt problems will prevent spending in the domestic economy from achieving growth and employment to help the economy recover. The export sector must be the focus and we are still no closer to balancing the economy so that exporters are able to provide the lift New Zealand needs. In our own survey, staff numbers have been down in nine of the last ten months. That suggests a lack of confidence in the future, and an uncompetitive exchange rate underpins this. Here is the chart: There is indifference from the Government and its officials to the plight
of exporters. Alan Bollard made some comments recently that characterise this attitude: “History is littered with booms and busts, some of which seem to have gone on for a very long time. But these things pass. When New Zealanders today look at Australia’s prosperity, who remembers the searing financial and economic crisis Australia itself endured in the 1890s and early 1900s? Even severe overshoots in credit and asset prices, which can be costly and disruptive at the time, and which may permanently change the lives of some borrowers, are likely to throw our overall economic performance off course only temporarily. Our history, and the experience of other countries, attests to that.” Essentially the comment says we just need to wait for these events to blow over. Bollard is right in that often these things do run full circle, but usually this is the result of a leader grasping the
nettle on some key issues to help turn the economy around, rather than it just happening. The hard decisions are being deferred to someone else down the line. For those struggling to accommodate the ravages of the current situation just sitting and waiting while these ‘costly and disruptive’...‘things pass’ is hard to stomach. While we take the ‘wait and see’ approach and other countries pursue more interventionist policies, that comparison hurts our external economy. For example, we are unwilling to print money and yet happy to borrow the money printed by others. Doing nothing is always a choice, but it has long-term consequences. John Walley is chief executive of the NZ Manufacturers and Exporters Association.
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> VIEWPOINT
Chasing the dragon Four years ago New Zealand proudly became the first western country to sign a free trade agreement with China. But have our businesses taken full advantage of what the FTA offered and what other opportunities are out there? By Ellie van Baaren.
As the world’s largest exporter, second largest importer and the only large economy to average 10 percent growth every year for the past 30 years, China is a force to be reckoned with on the global stage. Which meant it was a considerable achievement for New Zealand to become the first western country to sign an FTA with the Asian behemoth in 2008. Four years later and China is our second-largest bilateral trading partner with two-way trade in the year to October 2011 reaching $12.7 billion, and exports from New Zealand increasing by 152 percent. It’s difficult to tell how much of that growth has come directly from the FTA, but New Zealand China Trade Association chairman Tim White says there is no doubt it has made doing business with China easier for New Zealand companies. NZTE recently said New Zealand businesses had saved $50 million in 2011 because of changes that came about through the FTA. However, they also estimated that around $90 million is going begging because Kiwi exporters fail to make the most of tariff preferences. “Have we really been able to leverage the FTA? No I don’t think we have,” he says. “I don’t believe we have evolved enough to take full advantage of the FTA. We are too focused on a small group of products. We need to be pulling together and looking at what they want, and what we’re offering.” White was in China earlier this year at the invitation of the Chinese Government along with 210 delegates from a range of other countries. Part of the visit included a group meeting with Premier Wen Jibao, who talked about the areas China was looking to external markets for help in – the largest being clean
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energy and energy conservation, and community healthcare. White says each of these areas provide opportunities for New Zealand businesses. One of the biggest challenges is scale. White points out that South America had a huge presence on this trip and in general the countries work together on their relationship with China in order to create a bigger market for the Chinese to deal with. “It’s not just a question of volume; it’s also about available capital to go into such a big market [like China]. Rather than looking at each other as competition, we need to see other businesses as collaborators so we can go into markets together. We need to do business in a way that we get maximum exposure.” Another opportunity that New Zealand businesses need to start taking advantage of is the increasing internationalisation of the Renminbi (RMB). The People’s Bank of China (PBOC) first started relaxing their currency restrictions through a pilot scheme in 2009. By 2011 all of China’s provinces were eligible to use the currency outside of China. Gary Cross, head of global trade and receivables finance at HSBC New Zealand, says New Zealand businesses need to seriously consider the option of settling some transactions in RMB, especially as more Chinese businesses look to cut out the “middle man”, such as the Euro and the US dollar. “There may be some pricing benefit for New Zealand companies,” Cross says. “It may be that the Chinese buyer wants to deal in RMB because that’s what they’re selling the product in. Being able to offer it eliminates an unnecessary expense for both sides.” HSBC’s economists predict that
the RMB is set to replace the pound sterling as the third most popular currency for trade settlement globally. An HSBC survey found nearly eight in 10 businesses in mainland China that haven’t yet started to use RMB to settle cross-border trade are planning to use it in some capacity for future transactions. The Reserve Bank of New Zealand and the PBOC established an RMB25 million (NZ$5 billion) reciprocal currency arrangement in April 2011 in order to support trade settlement in RMB. The swap line lets the RBNZ borrow RMB if financial market disruption makes it difficult for businesses to access RMB to settle transactions with Chinese businesses. Our Government has also approved New Zealand Export Credit Office trade guarantees to be underwritten in RMB. “There’s the opportunity for companies to have pricing discussions in two different currencies – ‘RMB or US dollar, what do you think works best in this case?’” Cross says. “We’re still going through a learning curve. There’s still a natural instinct for the US dollar, but New Zealand companies are becoming aware of the potential benefits. It’s an evolutionary process.” HSBC can settle in RMB and in June 2010 helped Fonterra become the first New Zealand corporate to issue debt denominated in RMB when it sought to raise 300 million Chinese Yuan bonds. “Both trade with China and the use of RMB are significant and it’s where things are going to be in the very foreseeable future. China will be even more of an economic powerhouse than they are now, so we’re in a good position to take advantage of that.” Ellie van Baaren is a freelance writer.
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