Exporter Issue 21 by Adrenalin Publishing Ltd

ISSuE 21>>NOV/DEC 2011

TALK’N TURKEY • TRANSFER PRICING • INTUTO’S LEARNING EXPERIENCE • XTREME EXPORTER TONY WOODS

THE MAGAZINE BEHIND NZ’S EXPORT DRIVE

Dishing up export possibilities What the FoodBowl means for exporters

$8.20 INC GST

>>>Negotiating>the>intellectual>property>minefield > >>>Safe>passage:>Rena’s>lessons>on>seafreight>insurance> > >>>Southeast>Asia:>Opening>up>its>true>potential >

> CoNtENts

> FEATURES

2 6 WHAT’S MINE IS NOT YOURS

3 0 SAFE PASSAGE

> COVER STORY 2 0 DISHING UP EXPORT POSSIBILITIES New Zealand food and beverage manufacturers can now utilise the FoodBowl – a purpose-built, state-of-the-art plant designed for short-run, pilot scale processing of products for in-market testing. For exporters, it could be just what they need to extend their reach to new markets. Editor Glenn Baker reports on this exciting new initiative.

A useful guide for exporters daunted by the intellectual property minefield. By Mary MacKinven.

the recent grounding of the container ship Rena has highlighted the importance of having a watertight marine cargo insurance policy. As Yoke Har Lee reports, there are associated lessons for everyone involved in the seafreight insurance industry.

4 2 SCHOOL REPORT the New Zealand school of Export is celebrating five years of operation, which prompted Exporter magazine to catch up with the school’s director and founder Romuald Rudzki.

4 4 TAKING GOVERNANCE SERIOUSLY

What company directors can learn about corporate governance from the finance sector collapses. By Vincent Naidu.

4 6 INTRODUCTION TO TRANSFER PRICING

nthony Hayley has examples of common transactions A which may attract transfer pricing provisions, and discusses the opportunities available around international - expansion in relation to transfer pricing.

4 8 TECH SPACE

New technologies for business travellers.

> MARKET INTELLIGENCE

34 > EXPORTER PROFILES

34 TALK’N TURKEY

3 7 KIWI SOLUTIONS FOR KOREAN CHALLENGES

1 0 A LEARNING EXPERIENCE

I ntuto is a software development company majoring in online and blended English language courses.

12 TAKING A BIG BITE OF THE (SUSTAINABLE) EXPORT PIE

wo Bay of Plenty exporters that have successfully t applied sustainable business programmes.

1 6 25 COUNTRIES... AND COUNTING

tracing the history of Neudorf Vineyards, its journey to overseas markets, and lessons learnt.

xporter magazine catches up with Erhan Dagdemir, NZtE’s E country manager in turkey for a first-hand view of that market’s potential for Kiwi exporters.

Kiwi-born company NextWindow is helping change Korean perceptions of New Zealand.

3 8 SOUTHEAST ASIA: OPENING UP ITS TRUE POTENTIAL

recent survey conducted by Incite offers valuable New A Zealand private sector perspectives on the true potential of AANZFtA.

4 0 WELCOME TO OUR EUROZONE A recent study tour of Belgium, the Netherlands and Germany by MBA students proves to be an eye-opener.

5 4 VIEWPOINT

1 8 XTREME EXPORTER: TONY WOODS

Applying renewable energy expertise in some of the world’s most dangerous environments.

1 EXPORTER

NEXT ISSUE: MARCH 2012

> EDItoR’s LEttER EDITOR

Pause to reflect

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

As Christmas and the holiday season fast approach it’s an opportune time to reflect on the events of 2011 and look forward to what lies ahead in the New Year. It has been a turbulent year in more ways than one for New Zealand. We’ve gone from the dreadful lows of the Canterbury earthquakes to that magical night on october 23rd when the whole nation got on a patriotic high. the seas have been choppy for New Zealand’s exporters too, who’ve bravely traded on through profit-draining exchange rate fluctuations and widespread economic uncertainty. I note that in the three months to september Australia posted its largest ever quarterly trade surplus – a staggering $7.3 billion and a 16 percent increase on the previous quarter. the Australian trade Minister is quoted as saying that exporters across the ditch had recovered well from the weather-related disruptions to trade early this year and had proved resilient against global economic turmoil and the strong Aussie dollar. It would nice for New Zealand to be posting such healthy trade surpluses, but sadly that hasn’t been the case in 2011. I’m going to leave it to the experts to predict what will happen in 2012 with our export fortunes – but one thing’s for sure; this nation must pull out all the stops to encourage the export sector. We’ve proved that we are resilient, and during the RWC we proved that we can be galvanised as a nation towards one common purpose. Let’s now take some calculated risks. Let’s make that one common purpose exporting because, apart from some drastic cuts in wasted government spending, there’s nothing else that can give our economy its much-needed boost. Let’s see some smart spending from the decision-makers – let’s see more initiatives like the FoodBowl, for example, our cover story in this issue of Exporter. As the story mentions, the only way this country can increase its GDP through the food and beverage sector (which accounts for 62 percent of New Zealand’s exports) is by adding value to food. Adding that value requires considerable trialling and testing and that is what this new stateof-the-art facility will allow for our food manufacturers – particularly the smaller companies. technologies that help extend shelf-life (without compromising food quality) will be especially useful for exporters. But for now, it’s time to sign off for 2011. Keep an eye out for the completely updated 2012 Export & trade Handbook which is due out early next year, and the next issue of Exporter which is due to roll off the press in March. Have a wonderful Christmas and a relaxing, enjoyable holiday break!

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 Hilary Keen. subs@exportermagazine.co.nz CIRCULATION MANAGER Kim McIntosh. kim@adrenalin.co.nz PROOF READING George Ward CONTRIBUTORS THIS ISSUE steve Anderson, Cameron Bagrie, Colin Bass, Catherine Beard, Alan Chew, Linda Coles, Glenda Felts, Cameron Gordon, Brenda Harkin, Yoke Har Lee, Anthony Hayley, Ruth Le Pla, Mary MacKinven, owen Mandisodza, Vincent Naidu, Andrew sayers, John Walley. Adrenalin Publishing Ltd. 14C Vega Place, Mairangi Bay. Po Box 65 092 Mairangi Bay, Auckland 0754. Ph: 09 478 4771 Fax: 09 478 4779 SUBSCRIPTIONS Exporter is a 5 issue magazine. subscription in New Zealand is $41 (incl Gst). Please call us for overseas rates. Copyright: Exporter is copyright and may not be reproduced in whole or in part without the written permission of the publisher. Neither editorial opinions expressed nor facts stated in advertisements are necessarily agreed to by the editor or publisher of Exporter and, whilst all efforts are made to ensure accuracy, no responsibility will be taken by the publishers for inaccurate information, or for any consequences of reliance on this information. Printing: GEoN Distribution: Gordon and Gotch ISSN: 2230-6528 ISSUE 21 www.exportermagazine.co.nz

Glenn H. Baker editor@exportermagazine.co.nz

2 EXPORTER

Intelligence. Hamburg Süd’s secret. Hamburg Süd’s logistical expertise goes far beyond the secure transportation of merchandise and our frequent, reliable schedules. Our secret is the clever interlinking of our services, creating an intelligent network that provides fast connections across the globe. Put Hamburg Süd to work for your business. For hands on help call our local experts: Outbound: 0503 222 444 Inbound: 0508 333 666

No matter what. www.hamburgsud-line.com

> MAKING NEWs

Blenheim exporter gets Aussie foothold

nnies Marlborough recently secured a substantial foothold in one of Australia’s biggest supermarket chains. Blenheim-based Annies has shipped a container-load of its popular fruit leathers to Coles supermarkets, which has 750 supermarkets across Australia. ongoing the deal could be worth up to $3 million depending on how much Australian household shoppers like the Kiwi product. Annies is also shipping 24-pack boxes of fruit leathers, ranged in the confectionary section of Costco Wholesale. Annies managing director Annie Giles says

the move into Coles has been a “real intrepid journey of the commercial kind”. “It’s been an interesting process because Australian supermarkets have a different approach to those in New Zealand. Here we range in the fresh produce department but Coles wanted us to be in grocery. that involved a change of packaging but fortunately coincided with a brand refresh in New Zealand so we were able to piggy-back on that.” While the Coles sale is not Annies’ first foray in to the competitive Australian market, Giles says it is by far the most significant.

Annie and Graeme Giles.

Global ID to boost competitiveness

iwi businesses will get a muchneeded competitive boost in the global economy if recent proposals for a unified business identification system are adopted. New Zealand companies will be brought in line with international standards if the government adopts a unique numerical identifier for businesses. Dun & Bradstreet has supported a standardised numbering system since the creation of the DUNs Number in 1962, according to the GM of D&B New Zealand, John scott. “the DUNs acts as a virtual fingerprint for each corporation, allowing New Zealand businesses to easily identify foreign entities entering the domestic market and vice versa.” D&B has seen its ID system implemented with great success

4 EXPORTER

throughout its global network. the Us government has already adopted the DUNs to enable Us businesses to become government suppliers. “By using a single data source to verify companies and streamline transactions, the Us Federal Government has made it easier and quicker to do business in the country,” scott says. the DUNs Number, a nine-digit identification sequence unique to each of the 200 million entities contained in D&B’s global database, is used and recommended by the United Nations and the European Union as the global standard for business identification. “this is consistent with a recent World Bank study that shows it takes significantly less time to trade with the Us than with the oECD on average because of reduced barriers

to trade. this is something New Zealand firms need to keep in mind if we want to compete on a similar level.” the disparity in trading time (with the Us taking only six days to export goods but oECD countries taking ten days) could be eased with the adoption of a standardised ID in New Zealand for all businesses. only incorporated entities have a DUNs Number in New Zealand, which is already in use by larger firms with client billing and customer relationship management systems. “Attaching a DUNs Number to unincorporated and smaller entities will likely see increased and smoother cross-border trade as their activities will be easier to track,” says scott.

> MAKING NEWs

Go UK opens export doors

iwi businesses looking to expand into the UK market are invited to enter ‘Go UK’ – a business plan competition hosted by UK trade & Investment (UKtI). It’s a chance to win business support packages that include British Airways return business airfares to London, meetings with potential business partners, client contacts, business networks, a free limited company, business services, and ongoing UKtI support. Businesses must submit their business plan online before Friday 9 February, 2012. the New Zealand finalists for each region/category will be announced the same month. Around 80 New Zealand and Australian businesses expand their

operations in the UK each year, most with the help of UKtI. the British High Commissioner Vicki treadell says now is an opportune time for New Zealand businesses to expand into the UK. “It’s the easiest place in Europe to do business and has the least barriers to entrepreneurship in the world. We all know examples of great Kiwi success stories in the UK, such as Jade software, Pingar, Rakon, A2, and simpl.” UK trade & Investment spokesperson Paul Wilkinson says the UK is much more than a financial services centre; it is also the world’s sixth-largest economy. “UK is a must destination for New Zealand companies looking to expand

and provides the best environment to grow in. It is the ideal location from which businesses can realise their international business potential. “Real estate in the UK is competitively priced; the New Zealand dollar is buying more than it has for many years and the UK economy is poised for a decade of growth, especially with the London 2012 olympics just around the corner. If you are thinking about expanding internationally, enter Go UK and contact UKtI for assistance.” to enter the Go UK competition go to http://ukinnewzealand.fco.gov.uk/ go-uk

We’ve been opening doors to China for over 145 years We’ve been doing business in China since 1865 and today we continue to help you access this emerging market with our Renminbi (RMB) services. Whether it’s opening RMB accounts for you in New Zealand or facilitating RMB trade settlements, no bank knows China better than HSBC. For details, contact our Corporate Banking team on corporatebanking@hsbc.co.nz or visit hsbc.co.nz/corporatebanking

Terms and conditions apply to the products and services mentioned. Fees and charges may also apply. HSBC’s Quarterly Disclosure Statement is available on request, free of charge from any HSBC office. Issued by The Hongkong and Shanghai Banking Corporation Limited, incorporated in the Hong Kong SAR with limited liability, acting through its New Zealand branch.

EXPORTER 5

> MAKING NEWs

Green Monkey signs JV with China distributor

Andy Macbeth with Mr Lee of Power Unity Company after announcing a joint venture partnership to market New Zealand’s first super premium organic milk formula into Asia.

rganic baby food manufacturer Green Monkey is launching its most exciting product yet – organic milk formula – a product that has been on the drawing boards for more than three years. “We recently teamed up with one of the world’s most respected dairy scientists to create New Zealand’s first super premium organic milk formula,” says Green Monkey’s business ‘arkitect’ Andy Macbeth. “We are very excited about the potential for this product in Asia and secured a highend baby chain in Hong Kong for an

initial warm-up launch.” Green Monkey has also established a joint venture with a China-based company to assist with sales and distribution in China. “these partners recently visited our organic farms and manufacturing facilities to gain a deeper understanding of the pride we take in production,” says Macbeth. “And if phase one of our launch strategy and market testing is mutually successful they have expressed an interest downstream in investing in Green Monkey.

“We view this partnership as a key strategic plank to reduce the execution risk in tackling the China market which is somewhat overwhelming given its sheer scale and cultural complexity. “one of the greatest challenges of cracking China is how to ensure you can keep up with demand,” he says. “this is a bottleneck we have endeavoured to engineer out of our business model so we can scale effectively.” the next 12 month phase for Green Monkey is looking to be very dynamic for growth opportunities. “We are just about to hit a tipping point,” says a confident Macbeth. “the demand in Asia for premium baby food has escalated with the rapidly growing wealthy middle and upper classes. In China the one child policy places a huge focus on baby safety and well-being and a strong emphasis on parents doing the best they can for their child. this market has by far the greatest potential.” Macbeth says the market has also been influenced by all the recent food scares in China which has seen imported dairy-based infant formulas rise from just 30 percent of the market to 70 percent – a big factor in driving New Zealand’s milk powder prices up.

Entrepreneurs conference a sell-out

ew Zealand is hosting more than 400 influential movers and shakers from around the world at the 2012 Entrepreneurs organisation Queenstown University from 22 to 26 February 2012. the five-star event is one of only three staged worldwide each year and interest is so high that tickets for the event sold

6 EXPORTER

out in only eight hours. “Clearly our global membership of 8000 leading business owners in 40 countries are turned on by the idea of coming to New Zealand to learn, network, and embrace oncein-a-lifetime adventures,” says Entrepreneurs organisation Queenstown University chairman Mat Wylie. “Like the Rugby

World Cup, this is a golden opportunity to showcase New Zealand Inc to a large global audience of influential people – exactly the kind of people New Zealand needs to attract for investment, innovation, and new ideas.” Founded in 1987, Eo aims to build the world’s most influential community of entrepreneurs and

enable them to learn from each other, leading to greater business success. Membership is by invitation only and candidates must be the founder, co-founder, owner, or controlling shareholder of a company with an annual gross revenue of at least Us$1 million.

> MAKING NEWs

Hansells expands into Canada

ood manufacturer Hansells recently unveiled its stateof-the-art innovation centre and bakery line in Auckland, and announced that it is poised to make inroads into the Canadian market. Prime Minister John Key officially opened the new $18 million premises in Penrose, which comprises 4,000 square metres of warehousing and a blast freezer, a 5,000 square metre food processing factory and a 1,000 square metre office and innovation centre where the company will develop and trial new food products. Hansells Food Group CEo John McKay says the iconic Kiwi company had been quietly notching up a number of firsts both locally and offshore to the point where the business

now has an annual turnover of $160 million. “Whilst we are continuing to grow strongly in New Zealand, 60 percent of our business is now export-based and we are currently expanding into the Canadian market with the assistance and support of New Zealand trade and Enterprise. McKay said further expansion into offshore markets and innovation would be the key growth drivers for the company. “We’re currently establishing a Canadian operation which will introduce existing and new products to the area, while also exploring further sales opportunities other export markets. “Locally, we have a team of highly skilled food technologists to staff the innovation centre, with the

John Key helps employee No’o Pole to pack product.

focus being on developing high quality, great tasting new products.” the company has also become one of the first FMCG businesses in the world to adopt the Learn First Product Development system. the system is expected

to help Hansells gain a clearer understanding of consumer needs and the organisation’s product development and production capabilities to ensure success in its product development efforts.

Cloud-based approach to hedging

he company behind a recently launched financial management solution says it could be the end of the spreadsheet era in the way businesses manage their foreign exchange and interest rate risks. ‘Hedgebook’ is new cloud-based software that brings a greater level of sophistication to hedging in New Zealand and Australia. It gives business owners, CFos and company accountants much greater control of this critical part of their business. simon Boyd of foundation client CWF Hamilton and Co (Hamilton Jet), says his company has adopted Hedgebook because spreadsheets are an out-of-date means of financial reporting: “spreadsheets bring huge financial risk because the document is so easily lost

or corrupted. Plus, with spreadsheets there’s always a chance of human error and mistakes can be costly.” Boyd believes it’s scary to think how many organisations could be making expensive mistakes simply as a result of missing or poor information. “Managing financial data through an intuitive cloud-based system like Hedgebook allows for a much safer environment.” since the GFC, there has been an increase in awareness of the need for corporate governance standards. With its heavy reliance on exporting goods, the New Zealand economy is particularly prone to the unpredictable fluctuations of global exchange rates. Richard Eaddy, founder of Hedgebook, says “Having worked in the industry for

many years, we saw this as a key source of pain for many businesses.” Eaddy knew there was an opportunity from several conversations with leading members of the auditing industry. “We have spoken to the country’s big four auditors and they are all excited to finally have a financial risk management solution they can recommend to clients.” Auditing now has a far stricter and more regulated international standard. Despite this, New Zealand companies typically have a casual approach to managing their financial reporting. Eaddy adds: “often, it relies on one or two individuals, which presents a big risk if they walk out of the door with all that institutional knowledge.” www.hedgebook.co.nz

EXPORTER 7

> MAKING NEWs

Cashed up Gibbs thinks bigger

hat do you do when you cash up your business and take home a few million? Perhaps retire? Do the two B’s – Bach and Beemer? Perhaps the south of France might beckon. Not for Wellington’s sarah Gibbs. the co-founder of trilogy, which sold last year to listed home fragrance and bath and body company Ecoya, plans to make the company even bigger. Gibbs has been appointed to the Ecoya board alongside such prominent business people as Rob Fyfe, Collette Dinnigan and Geoff Ross, among others. she says now trilogy is within the Ecoya stable, it has much greater resource to become an even bigger Kiwi company. “this is what excites me. By growing and

creating more revenue we can deliver more jobs for New Zealanders in a high value category.” Gibbs is taking on a senior role in growing offshore markets for both trilogy and Ecoya. Ecoya executive chairman Geoff Ross says her skill set is unique. “sarah is a proven entrepreneur, she completely understands the category and she brings an additional female viewpoint to the board. Plus her appointment ensures the trilogy perspective is acknowledged and driven from the most senior level in the business. Gibbs also sits on the boards of Export New Zealand and the Cosmetics toiletries and Fragrance Associations.

Bank of India opens in NZ

ank of India (New Zealand) has opened for business in New Zealand. Located in Auckland’s central business district, the bank caters for both New Zealand citizens and expat Indians. Apart from financing corporates, the Bank also offers a full range of retail banking products, including savings and current accounts, cards, term and call deposits, mortgages and international funds transfers. “With trade increasing between India and New Zealand, it is the right

8 EXPORTER

time for Bank of India to establish a presence here,” says Bank of India chairman and MD, Alok Misra. “Bank of India offers a comprehensive bouquet of financial products, globally. our customers in New Zealand will enjoy the benefits of our India and global connections. the Bank will also leverage on its expertise in financing agriculture and small businesses for the benefit of its clientele in New Zealand. Bank of India has a customer base of over 48

million. It is one of India’s largest banks and has more than 3,750 domestic branches. It has a strong

international presence through 49 offices spread in 19 countries.

> MAKING NEWs

Christchurch entrepreneur thinks small

t dinner parties Hans van der Voorn tells people he sells invisible holes. the executive chairman and cofounder of Izon science is talking about the esoteric world of nanoparticle analysis. Put simply: an instrument about the size of a box of beer creates tiny holes that particles travel through. By changing the size of the hole, the instruments are able to detect different nanoparticles. Each instrument is sold for $25,000 to international universities and research institutes. Izon sold 50 last year, and is on target to sell 125 instruments by the end of the March 2012 financial year. Van der Voorn’s ambition is for Izon to be the world leader in nanoparticle analysis. Ninety-eight percent of Izon’s sales are outside New Zealand. “It is about having a global reach.” Most sales come from the Asia Pacific region, predominately Japan, Hong Kong and singapore. the target is

now China and India. About a third of Izon’s sales are in the UK and Europe. It has an office in oxford and has just been invited to open one in Germany. “We are just in the process of putting our sixth instrument into oxford University and aiming to get ten into there by the end of the year.” Van der Voorn acknowledges work is needed on their Us market presence. “It is very hard for a small company in New Zealand to make waves in the United states. You just have no idea how big it is until you go there. “It is quite conservative, quite slow and their economy isn’t very fast. they’re not very outwardly looking. Whereas I think the Asians want to grow their economy quite aggressively, anything that gives them an edge they get into.” Despite maintaining a global reach Izon is committed to Christchurch. After the February quake Voorn immediately

reassured its overseas clients it was business as usual. “We all came to the same decision that we should support the city and stay here. We made the decision to come here several years ago and we realised that the city needs us. they need businesses like us to keep going.” the biggest struggle for Izon is raising capital. the constant drive to raise funds under the current economic climate has been difficult. NZtE supported Izon with an export grant of $16,000 after the February 22 quake. A week after the earthquake Izon shipped

four instruments overseas, making it a record sales month, followed by another in March. Van der Voorn says no one would call him a well-rounded individual. “What happens is you get so involved in what you are doing you get a bit boring. As you soon as the conversation steers round to it you end up talking about your work, which is not terribly social.” And that is why he tells people he sells invisible holes for a living. Article by Hannah Lynch, University of Canterbury Journalism School. Email Hannah.l.lynch@gmail.com

Airline flies daily to Guangzhou

hina southern Airlines now operates a direct daily service connecting Guangzhou and Auckland and allowing more New Zealand businesses to engage with a thriving trade region with a GDP of Us$133.5 billion. Guangzhou, formerly Canton, is China’s third largest city and is already an important trade region for many New Zealand businesses. the increase

in services between the two cities, from three times a week to daily, will open up more of China to New Zealand tourism and trade – adding an additional 90,000 passenger seats per year. According to Pat English, New Zealand consul-general and trade commissioner for NZtE in Guangzhou, believes direct daily flights will increase the number of trade

opportunities in China available to New Zealand businesses. “southern China has historically had strong links with New Zealand, however it’s only been in recent years that the economic return from these links are having an increasing impact. China is now New Zealand’s second largest trading partner and we hope to double two-way trade with China to $20 billion by 2015.”

EXPORTER 9

> EXPoRtER PRoFILE

A learning experience

Intuto is a software development company majoring in online and blended English language courses. Its CEO Richard Warren backgrounds their export success so far.

BY G L E N N B A K E R

any of us have received snail mail or email that appears so ridiculously ‘too good to be true’ that our first instinct is to dismiss it as a scam and immediately trash it. Richard Warren opened such a letter in 2010 that was so beyond belief that he almost consigned it to the wastepaper basket. Luckily he decided that it warranted further investigation and, to cut a long story short, that letter turned out to be the first step towards his company Intuto gaining a crucial partnership with Cambridge EsoL, a division of

10 EXPORTER

Cambridge University, and taking the Kiwi company’s Vital English online and blended self-study English language courses to new markets. It turned out that Cambridge EsoL had started a search for a technology partner more than two years prior and had people anonymously trialling courses all over the world. “our Vital English courseware had been sampled through a language school in Canada by a Cambridge agent based in France!” says Warren. one initial project, for the development of an online IELts (International English Language

testing system) course, expanded to four separate projects: online and blended courses for both IELts and BULAts (Business Language testing service). And since those four projects have been started, Vital English has won seven more projects with Cambridge EsoL in a competitive tender. these range from online and blended BULAts speaking tests to applications for iPhone and iPad. Warren describes the day when he almost trashed the Cambridge letter as their best day ever in the export business. the fact that a well

ISSuE 21>>NOV/DEC 2011

TALK’N TURKEY • TRANSFER PRICING • INTUTO’S LEARNING EXPERIENCE • XTREME EXPORTER TONY WOODS

THE MAGAZINE BEHIND NZ’S EXPORT DRIVE

Dishing up export possibilities What the FoodBowl means for exporters

$8.20 INC GST

>>>Negotiating>the>intellectual>property>minefield > >>>Safe>passage:>Rena’s>lessons>on>seafreight>insurance> > >>>Southeast>Asia:>Opening>up>its>true>potential >

respected global education brand wanted to form a key strategic relationship with his company was indeed validation that they had a world-class product. “Cambridge EsoL told us that the reason we were successful gaining the contract was not just that we have a great product, but also the fact that we responded quickly to their questions and are a flexible and pleasant company to deal with,” says Warren. Intuto is a prime example of how a company can spend several years within an industry, then find a related niche that propels it forward. Intuto began life in 2000 as a community outreach It training business, in recognition of the need for It training in this country. New Zealand’s polytechs liked Intuto’s ability to deliver a good quality learning product in a blended format, and the company ended up partnering with many of them for the delivery of online and blended It training. “that gave us the ability and financial stability to develop our systems and explore the development of the English language part of our business,” recalls Warren. “Working with the New Zealand polytechs has been good for us because it has given us that core backbone.” Warren describes the company today as an education solutions provider. “People find us very hard to put in a box, but essentially we’re an online It trainer that develops English language material and has a back-end software development system. Now we’ve taken all our skills and systems and focused them on the big exportearning potential of the English language education arena.” Warren says they developed their Vital English product in 2005 because they knew there was a global market for such a product; and they knew there were high teaching skills and resource levels in New Zealand to meet that market. He says it’s only in the past four years that they’ve thought about the English language product from the customer’s point of view – not the manufacturer’s. “We started off with a vast array of online products, but we had never asked the customer what problem they wanted solved. so this material just wasn’t selling. We had an office in China and Australia and internationally

we couldn’t work out why no-one would buy it. “Four years ago a group of us sat down and said ‘strategically we know we want to focus on English’. Logic said that was a mistake because at the time there was no money coming from it. But we knew we had a good product. “so we asked ourselves, what problems are we solving for our customers? through our Canadian distributor we started talking to Canadian customers about what worried them the most when they woke up in the morning. “It turned out it wasn’t about a lack of English language resources, it was about attracting new students and having them arrive at the institution better prepared – and knowing more about them. the problems were fundamentally marketing problems and so we set about solving them,” says Warren. one of the outcomes was the ‘Pre-Arrival Learning’ package – which helps prepare and orientate students for the course and the country in which it will be studied. Warren says this approach to the market has resulted in some real traction, because it solves a problem. “If you have just one student that likes the experience and decides to stay, give a good report of the school, or is easy to work with, then that has paid for well over 300 students in terms of cost of the course,” he says. “It’s all around making the student experience better.” On the right track Despite the Cambridge EsoL partnership Warren believes it’s still early days for Intuto in export markets. “We’re on the right track, and we know we can be a major player in international English – but we’ll need a little more external funding,” he says. “the thing with exporting is, don’t be too greedy. You’re better off having ten percent of a really successful business than 80 percent of a business that might have been successful.” Intuto has been proven in both New Zealand and Canada, and a distributor has been appointed in California to service one of the biggest international student markets in the word. there’s also a distributor in Poland.

KEY TAKEAWAYS > Understand what the customer problem is and solve that problem. Don’t just build a product and try to sell it. > ‘Fly down the back’ when checking out new markets – watch your travel costs. And allow an extra day or two to get acclimatised to a market. Use Skype to communicate wherever possible. > Don’t be too greedy. You’re better off having ten percent of a really successful business than 80 percent of a business that might have been successful.

“opportunities walk through our doors almost every week,” says Warren, reeling off a number of markets they’re currently in discussions with. “We’re still in the early stages – but it all proves that if you stick around, treat your customers well, do a good job, then you’ll have something pretty special.” Warren says their biggest export challenge has been managing the costs associated with being so far from markets and building an international presence. that’s followed closely by the task of finding the right distributors. Intuto has two parts to its distribution strategy: working with groups such as companies and publishers; and working with individual distributors focusing in niche areas. Warren is confident that by actively seeking distributors themselves, rather than waiting to be approached, they can triple the number by the end of 2012. Currently Intuto has around 100 customers and some 30,000 students worldwide at any given time – but that’s just a drop in the bucket on the global stage. “We’re ‘laser focused’ on schools and language schools with our Pre-Arrival Learning and associated products. once we secure that business and our brand and distributor base gets better established then we can start addressing the other groups.” Glenn Baker is editor of Exporter.

EXPORTER 11

> EXPoRtER PRoFILE

Taking a big bite of the (sustainable) export pie Two Bay of Plenty exporters have applied sustainable business programmes to help drive export growth. BY RAC H E L B R oW N

ccording to statistics New Zealand, the food processing export market was worth $2,291.1 million for the year to June 2011, up four percent over the previous year. In this sizeable marketplace, two Bay of Plenty businesses are not only realising significant success, they’re also proving that sustainability and lean production can go a long way. Established in 1973, sustainable Business Network (sBN) member, taura Natural Ingredients, is a leading global manufacturer and supplier of functional, concentrated fruit ingredients for prominent brand marketers and product manufacturers. Utilising Ultra Rapid Concentration (URC) technology, the company manufactures a range of pieces, flakes and pastes for nutritional snacks, baked goods, cereals, chocolate and confectionery under the URC brand. taura was a finalist for the 2011 sharp tudhope Exporter of the Year Award, having first won the Award in 1992. the business operates a factory in Mount Maunganui, as well as a second one in Belgium (commissioned in 1997) which has supported rapid sales growth throughout Europe and the UK. Asia and other developing markets are the current major focus for taura, alongside its North American market expansion. More than 65 percent of sales from here are to export markets

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and many of its local sales are to companies that manufacture exportdestined products. Between 2006 and 2011, taura implemented numerous sustainable programmes which have had a positive impact on the environment and the bottom line. Initiatives such as increasing production throughputs, reducing product changeovers and cleaning downtime (thereby reducing the amount of energy used during non-production) have contributed to electricity savings of 250,000kWh per year and savings of approximately $38,000. Implementation of a recycling programme, along with a gradual changeover to raw materials with recyclable packaging, has seen a reduction in general waste of 500 cubic metres per year and savings of approximately $17,000. the installation

of a new processing pump that doesn’t require water for seal operation, and reduced cleaning and water flushes through efficient scheduling, has meant a reduction of three million litres of water per year and savings of approximately $4,000. Lastly, trade waste has also been reduced equalling savings of approximately $15,000. All of these measures have helped place taura in a position to compete in an overseas market that’s increasingly making demands where sustainability credentials are concerned. The little patisserie that grew Florentines Patisserie is a privatelyowned company that manufactures and sells a broad range of premium frozen cakes and desserts for Australasia’s food, service and retail markets. the business was established as a small

wholesale patisserie in tauranga 17 years ago supplying the local market and has grown by more than 900 percent over that time. the business began exporting to Australia in 2007, winning the NZtE Emerging Exporter Award in the same year. Florentines was also the recipient of the 2011 Productivity Award at the recent Bay of Plenty sustainable Business Network Awards. Florentines’ management recognised early on that it was important for the company to consolidate its position after three years of aggressive sales growth. In February 2010, lean manufacturing was introduced into the business to cope with system issues faced by having a larger range and bigger production facility. ‘Lean’ is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Florentines Patisserie has implemented change across the entire company and this has no doubt helped the business where exporting is concerned, with the clear

focus and strategic thinking assisting during the transitional period from domestic-only sales to supplying export markets. Patience and knowledge Exporting is not without its challenges and successful exporters are those that find ways of rising above the hurdles. It seems that having a great deal of patience is the key. on that subject Peter tinholt, general manager - Asia Pacific of taura Natural Ingredients, has this to say: “In our business, generally speaking, our products form a component or ingredient in another manufacturer’s product. therefore the conversion of an idea into a finished product that ends up on the supermarket shelf can take a long time. “As such, it’s essential that we don’t expect some of the results to come quickly – they take time and we need to view developing export markets as a long term investment.” Greg Knight, managing director of Florentines, describes the difference between the New Zealand

EACH COUNTRY NEEDS TO BE CAREFULLY SELECTED WITH ITS OWN MARKET DEVELOPMENT PLAN AND STRATEGY. AND THE IMPORTANCE OF BUILDING RELATIONSHIPS CAN’T BE UNDERESTIMATED.

”

and Australian markets as “almost completely different in terms of everything, bar the fact that both countries speak English!” Knight quickly realised that the market demanded different-sized products, distribution methods, costing models, and sales techniques. talk about a steep learning curve. Bureaucracy also meant simple tasks like opening an Australian bank account took much longer than expected. so what words of wisdom do

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with storage/freezer facilities in each of the five states. They’re now being taken seriously in the market and are trusted that they can manage big accounts. When asked what the important milestones have been, Tinholt found it hard to highlight one above another. “It’s hard to identify specific milestones as we’re on such an exciting journey and we’ve had so many. Every time we see a new product that we’ve help develop appear on the supermarket shelves, we feel we’ve achieved a significant target.” With a goal of doubling sales revenues by 2015, it’s clear that Taura is expecting to witness quite a few more highlights over the next few years. Sustainability adds value Adopting sustainability is critical to today’s businesses and while it doesn’t eliminate the usual challenges associated with exporting, it certainly adds value in an increasingly aware global marketplace. I believe that the environmental and social issues facing us are only going to worsen in the near future so it’s logical that we should expect a greater demand for sustainability credentials. If exporting is part of your ongoing business plan, it’d be wise to start thinking strategically how you’ll meet these future needs. Rachel Brown is CEO of the Sustainable Business Network. www.sustainable.org.nz Donna and Greg Knight

these businesses have for would-be exporters? Tinholt believes that knowing your markets is crucial. “Each market is different. Many people talk about Asia, for example, as one market. However, each Asian country is distinct with its own cultural identity, language, consumer behaviour, trading environment and tariff regimes. “Each country needs to be carefully selected with its own market development plan and strategy. And the importance of building relationships can’t be underestimated.” Drawing on his knowledge and experience, Knight thinks ensuring the business has enough capital available is fundamental.

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“Exporting costs a huge amount of money that can be unexpected if you haven’t done your research properly. The support needed to build a brand can be expensive. And the ‘fly-sell’ method isn’t reality. You can’t fly to Australia, sell the product to a distributor, and then fly home and expect products to continue selling themselves – it’s just not going to work.” Milestones Florentines originally employed five local people to grow the brand – they’re now part of an arrangement whereby they have access to 18 reps throughout the country. As of October 2011, the business has gone nationwide throughout Australia

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EXPORTER 15

> EXPoRtER PRoFILE

25 countries... and counting tim and Judy Finn in 1980.

Tracing the history of Neudorf Vineyards, its journey to overseas markets, and some of the lessons learnt along the way.

tim and Judy today with daughter Rosie.

BY CoL I N B Ass

n 1978 two adventurous spirits decided to opt out of the mainstream and be amongst the first to produce a world-class wine in a country known for its sheep, beef and pinus radiata. tim and Judy Finn had enjoyed successful careers; tim in the area of animal behaviour and Judy at the iconic National Radio. “I was lucky enough to be selected for a management training course,” Judy recalls. “After a day of double entry general ledger training I knew it wasn’t the future for me.” It didn’t take much for the two to agree on a future in the Moutere Hills at the top of the south Island, producing Neudorf wine. “We started with the end in mind, to create beautiful world-class wine,” says tim. However, it was intended for

16 EXPORTER

the local market, and with queues of people lining up to taste premium New Zealand wine, exporting wasn’t even a consideration. ten years on, the Finns were approached by an English distributor seeking a quality selection of the unknown New Zealand tipple for the UK market. their export journey began. Although this first partnership did not last, one has to admire the courage of the distributor at the time as the suggestion of wine from New Zealand was merely considered good humour in the motherland. today Neudorf wine is being poured at some of the finest restaurants in more than 25 countries, from ‘baby markets’ such as Malaysia, where product is provided to the exclusive Datai resort on Langkawi Island, to the Michelin-starred Alain Ducasse at the

Dorchester in London. More than 50 percent of production now heads offshore. While the UK is still a major market for Neudorf, Australia has grown rapidly to become the largest and most lucrative. As well as being the easiest market to service, Australia has the added attraction of a 29 percent WEt tax which is returned to the producer. In effect it is an extra sales margin; the tax was originally designed for supporting and protecting smaller Australian vineyards. However, under CER, New Zealand producers also qualify for the tax rebate. one market that excites tim and Judy immensely is sweden. through its government-owned monopoly systembolaget, Neudorf has one very reliable partner. “You just know the orders will come

KEY TAKEAWAYS > Be wary of distributors who come knocking on your door with big promises. Work with people who share the same desires. > Be absolutely clear in your own mind that you are going to maintain your [price] positioning and stick to it. > Collaboration is far better than going it alone.

through as scheduled and payment is not a concern at all. With no local production and a wealthy sophisticated population, it’s a very attractive market for us,” says Judy. When considering China, there appear to be some good reasons why the sales cycle might be a long one. tim explains: “Right now the volumes we are selling into China are to places where the product is probably being consumed by European tourists, not Chinese.” the fact is, China has a huge wine industry of its own and, given the country’s vast expanse, has growing conditions to suit every varietal. Huge efforts have gone into developing the now troubled Us market. “We hope we will eventually be repaid for the effort New Zealand wine producers have made in entering the market,” says Judy. “so far much has been spent by many of us for little return.” the currency has been cruel. Neudorf started selling product into the Us when the Kiwi dollar bought Us$0.49. It has since been as high as Us$0.86, literally doubling the price of Neudorf products.

However all is not lost. Neudorf is a keen member of Complexity, an NZtE initiative aimed at having one New Zealand red label and one white label on the wine list of every ‘White Linen’ restaurant in the Us. Export lessons Judy is clear on the most important export lessons learnt. “Be wary of distributors who come knocking on your door with big promises. You may well find that your product ends up sitting in a warehouse, destroying your cashflow. You need the right partnerships in place. You need to work with people who share the same desires. there’s a lot of trust in this game and for us that needs to be grown over time. “I am happy to say that we would have pleasure inviting any of our export partners to sit at our family dining table.” Vitally important to Neudorf is the positioning of its product. “Right now everyone is a deal junky. they want more for less. It has taken a lot of effort to remain firm on the fact that we provide a premium product at a price

that reflects that. It’s easy to go down in price but very difficult to come back up. so you have to be absolutely clear in your own mind that you are going to maintain your positioning and stick to it,” says Judy. tim has some sound advice too. “Collaboration is far better than doing it alone. the New Zealand wine industry has a long history of cooperation between producers and our involvement with the ‘Family of 12’ means we share the load even further. It’s just not feasible for us to visit all our markets and having 12 different wines on a show stand is far more interesting than just one.” Collaboration also helps reduce the pressure on their time and the size of their carbon footprint, he says. When asked what’s great about doing international business, Judy smiles. “As a tourist you live in a parallel universe enjoying a brief glimpse of what’s on offer. With our agents by our sides we enjoy a very local experience. on a recent trip to tokyo we were taken down a little back alley to a tiny restaurant with four top chefs and seating for eight customers. It is where wealthy local business people go for an expensive glass of wine and something to eat. “the food was sensational. We felt privileged to have been given that experience.” It may all sound glamorous, but tim and Judy remember only too well the hard work and toil that got them to where they are today. In the beautiful surrounds of their vineyard they grow the family business with passion. their eyes are now firmly set on Germany as a growing destination for their wine. Colin Bass is a Nelson-based freelance writer. Email colin.bizlab@gmail.com

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> EXPoRtER PRoFILE

tony Woods (second from left) with the sEsA team after completing the Panjshir wind farm in central Afghanistan.

Xtreme exporter: Tony Woods

In what could never be described as a typical export scenario, Tony Woods is applying his renewable energy expertise in some of the world’s most dangerous environments. Now he’s powering up Afghanistan from Timaru.

BY G L E NDA F E Lts

imaru is a world away from Afghanistan, but for sustainable Energy services Afghanistan (sEsA) director tony Woods, it is where he has helped develop that country’s largest wind and solar power systems. In Afghanistan, security risks posed by the militant taliban and the challenges of language, culture and the country’s fragmented village structure are the norm rather than the exception. Little wonder Woods, has, as he says, learned to keep his “eye on the objectives while dealing with the bumps on the road”. Woods, a former Massey University graduate in production technology, started his developmental consultancy business during the mid 1990s. He delivers renewable energy systems into countries such as Iraq, Bhutan,

18 EXPORTER

Vietnam, Pakistan and Afghanistan. His services include coordinating and procuring finance and, when competitively possible, accessing New Zealand technology and training. the initial impetus for his offshore work came while on holiday at a North Pakistan village where Woods noticed a turbine generating electricity at less than ten percent efficiency. on his return to Wellington, he successfully applied to the Ministry of Foreign Affairs and trade for funding to support a project designed to improve turbine efficiency in North Pakistan. Much of the work is now carried out in Afghanistan under the umbrella of sustainable Energy services Afghanistan (sEsA), a company registered in Kabul. sEsA survives by competitively bidding for renewable

energy construction work from development agencies such as the German and Japanese government, and more recently an economic development taskforce group within the Pentagon and United states Aid. In 2005, Woods’ family moved to timaru, where he directs his business activities using skype and telephone video conferencing to help break down boundaries, as well as regular overseas travel. the market share for a related New Zealand renewable energy company, smart Energy, is small because virtually most New Zealanders have access to electricity via the national grid. In contrast only ten percent of Afghanistan’s population have access to electricity. New Zealand lacks a political driver to encourage domestic scale

renewable energy sources as we are already a world leader, he says. About 70 percent of our national grid is based on renewable energy, compared to between 15 and 20 percent for countries with a heavy reliance on coal and oil reserves like Australia and some European countries. “our government doesn’t have the same motive to reduce our carbon emissions through our power grid. the way they see it, we are already pulling our weight on the national grid. And its true, compared to many countries overseas New Zealand’s national power grid is highly renewable energy based,” he says. “However, one could equally argue that a ton of carbon is a ton of carbon and whether we are at 15 or 70 percent we are still putting carbon into the atmosphere. the environmental driver is still the same but politically it is not the same.” Woods considered it was the rate of change in power prices that was of concern to most New Zealanders as opposed to the absolute cost, especially when compared to the international market. In some Pacific Islands power could be up to five times more expensive and in some places in Afghanistan, double or triple in price. “If you go to a combat outpost it could be ten or 20 or 50 times higher. If you talk to a marine in Helmand (a province in Afghanistan) it’s so high. It’s then that you can compete.” In comparison to a charitable organisation, sEsA’s business model is innovative and helps ensure their projects stay efficient and sustainable for local economies, he says. “It means we are hungry and looking for ways to do better. We also become a permanent part of the local economy. We don’t leave, so the projects stay supported.” the company introduced prepaid meters into Afghanistan three years ago. Despite the country’s poverty, the prepaid system ensures it remains financially sustainable over time, and, in terms of costs, a centralised electricity system is less expensive than the present means of energy or lighting via candles, kerosene or diesel. Woods attributes the success of winning contracts to the way sEsA communicates the customer’s

tony Woods (second from right), Us engineers and sEsA staff prepare to visit a local village by helicopter.

THE REWARDS FOR US ARE DELIVERING PROJECTS THAT ARE SUCCESSFUL. THAT’LL BE SOMETHING I REMEMBER FOR THE REST OF MY LIFE.

”

objectives by focusing on what the power will mean in real terms – such as community development, clean water, medical services, employment and stability. “the real story is what the community does with the power when the project is completed.” Another point of difference has been the company’s willingness to go to places its competitors have been unwilling to venture. they enter villages unarmed as a way of building up trust. In a country where resources operate at a village level, as opposed to nationally, village support is pivotal. the ability to identify opportunities and to see how to improve and add value to a project is another important formula for success. “to us, an eye for business simply means we have an eye for identifying an opportunity to make things better. If we can improve things then we can add value, and that gives us an entry point.” Living in timaru and travelling to the extreme environments of Afghanistan, with its unique

challenges, is a lifestyle that he clearly thrives on. “When we finish a project we can step back and look at a community and see jobs created or children drinking safe water or the lights on at the schools. these are tangible steps towards a better life that result from the projects our staff construct,” he says. “the rewards for us are delivering projects that are successful. that’ll be something I remember for the rest of my life.” Glenda Felts is a South Islandbased freelance journalist. Email gfelts1@hotmail.com

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> CoV E R sto RY

Dishing up export possibilities New Zealand food and beverage manufacturers can now utilise the FoodBowl â&#x20AC;&#x201C; a purpose-built, state-of-the-art plant designed for short-run, pilot scale processing of products for in-market testing. For exporters, it could be just what they need to extend their reach to new markets.

20 EXPORTER

BY G LE NN BAKER

he FoodBowl may sound like the name of some new restaurant or public dining space – but the only thing being served up at this brand new food processing facility close to Auckland International Airport is opportunity – of both the ‘new product development’ and ‘export’ variety. the FoodBowl is an initiative funded by the Government – which has set the goal of growing food and beverage exports by 270 percent by 2025, to $150 billion. It is part of what will eventually become a New Zealandwide open network of science and technology resources called the New Zealand Food Innovation Network (NZFIN) with bases in Auckland, Waikato, Palmerston North and Christchurch. the network aims to address a long-recognised issue – that the only way this country can increase its GDP through the food and beverage sector

EXPORTER 21

generally the domain of very large food producers,” explains Mitten. In other words, the Fonterras of this world. “And large food producers are hardly going to help you, a potential competitor, into the market.” sub-contract manufacturers are not exactly keen to interrupt their production lines for short-runs either, unless you’ve got very deep pockets. so there are few alternatives available for small and fledgling producers. the beauty of the FoodBowl concept is its flexibility. some fundamental

we are developing,” says Mitten. “We’re not going to do their job for them, it’s their IP. But we know what we’re doing when it comes to stepping up product development.” Mitten says they work with independent consultants who are then contracted by the client. “We give the client a list of experts who can run our machines, and it’s up to the client to pick one.” He says the whole partnership is about de-risking the production process for the client. “It really is a

THERE’S A WHOLE SPECIALIST SUPPORT NETWORK OR INFRASTRUCTURE THAT HAS TO SIT AROUND COMPANIES AS THEY GROW, WHICH WE ARE DEVELOPING.

”

(which accounts for 62 percent of New Zealand’s exports) is by adding value to food. to achieve this we need to assist more manufacturers, of all sizes, to develop innovative new food and beverage products. And help small companies, in particular, scale up production. We must enable new, emerging Kiwi manufacturers to ‘pilot’ new recipes; to ‘step-up’ small ‘home kitchen’ output to larger commercial volumes; to produce product batches on the very latest processing and packaging equipment for trial in local stores and supermarkets; and, more importantly for companies looking to establish or expand offshore sales, assist through the application of the latest technologies the extension of shelf-life without compromising food quality. the FoodBowl is dedicated to helping fulfil all of the above. It has another three years to reach breakeven and the clock is ticking. After a guided tour around the facility and its shiny, new food processing equipment, I sat down a few days later with FoodBowl director Colin Mitten to gain a better understanding of the facility’s true potential. I quickly discovered that it is a resource treasure trove for all food and beverage manufacturers, but especially for the smaller companies. And the need for such an ‘open access’ facility is indeed a pressing one. “Pilot scale production facilities such as those at the FoodBowl are

22 EXPORTER

equipment in the facility is fixed and dedicated to processing, such as a bottling line; while associated ‘floating’ equipment, such as mixing and blending tanks, can be brought in as necessary. Another big plus with the facility is that it not only has the equipment for aspiring food manufacturers to produce their food and beverage products, it also has the certification necessary that enables them to export those products. Mitten explains to me that the FoodBowl ticks all the boxes with MAF and the Food standards Authority to meet the highest level of hygiene standards necessary to cover the wide variety of products that will be produced there. And the users are assured of complete confidentiality of their products and process whilst utilising the facility. that’s another load off any future clients’ minds. And it doesn’t stop there in terms of client resources and services. You may have the product and the ability to produce it in trial batches, but do you have the expertise and the finance to grow your business? Do you have the export channels and have you done your market research? Is your packaging suitable and is your labelling legal? these are all areas of expertise that Mitten and his FoodBowl team will be able to assist with – along with food technologists who can help with tweaking scaled-up recipes. “there’s a whole specialist support network or infrastructure that has to sit around companies as they grow, which

try-before-you-buy scenario.” the facility is also useful for those food process companies that don’t want to disrupt their normal production schedules to allow new product development to take place. And Mitten says, not surprisingly, process, packaging and labelling equipment suppliers are all keen to be associated with the FoodBowl to demonstrate to potential new customers the capabilities of their latest technology. It really is a win-win scenario all round. Making a difference Mitten is convinced the FoodBowl will make a difference in the food and beverage sector. “It will encourage exporters to scale up their successful products. they’re effectively using our Risk Management Programme to market test their products. If it works out, great – if not, they haven’t lost anything.” the facility is keen to get up to speed quickly, and is therefore taking a flexible view to what it charges clients in the early days. “We’ve got all the ticks, but we don’t get everything verified until we’ve had product through it,” says Mitten. He says people look at the facility and all the shiny stainless steel and have initial concerns about the cost of utilising it – but those concerns soon melt away when they start talking to them. “It’s all about perception.” Early clients have found the facility incredibly helpful, he says. tasty Pots, for example (see separate story), found

(L-R) NZFIA CEo stuart Walker, chairman tony Nowell and executive director Colin Mitten.

FOUR hUbS, ONE NETWORK The New Zealand Food Innovation Network comprises four regional hubs, each with a different focus – building on the strengths and capabilities in each location. • The FoodBowl – This state-ofthe-art pilot plant in Auckland focuses on processed foods and opened in October 2011. It is HACCP and FSA certified and accredited RMP – facilitating for export from the facility. Client confidentiality is guaranteed and equipment management/control is managed using purpose-built software, which will also capture process parameters and supply documentation as required for regulatory certification. • The FoodPilot – Massey University’s upgraded pilot plant

it just as useful for determining what doesn’t work in terms of processing, for as what does work. And while it is still early days, indications are that the technologies designed to help extend the shelf-life of products, like the 55-litre high pressure pasteuriser (HPP), will be in strong demand. Hardly surprising when you consider this country’s distance from markets. “the technology interest, so far, has particularly been around the HPP, the aseptic filling line and around the dry

facility based in Palmerston North. Can be used for analysing processing problems, testing solutions or generating samples for export. A designated Food Projects Lab can be operated under controlled conditions and is suitable for confidential projects. • FoodWaikato – Scheduled to open in mid-2012. A purposebuilt evaporator and spray drier plant sited in Ruakara and with emphasis on dairy products. • South Island – Planned for 2012. Has a business development focus aimed at scaling up South Island producers by using the other three hub capabilities, and facilitating the move into overseas markets.

extrusion,” says Mitten. He says the FoodBowl, which is expected to eventually operate 24 hours a day, will appeal to three broad categories of users. “there are the large corporates who don’t want to break into their production flows for development work. the second category includes the firms that want to find some way of meeting their peak demand. And then there are the small companies who either want to access the technology

extension our facility offers or the export ‘flirtation’ that it offers.” Clients can consider the facility as their own temporary factory, explains Mitten. “the way we’ve set things up with proximity cards means people can come and go as they please within their confidential designated area. A lot of product development work could take place outside normal working hours.” Mitten says before they put all the hygiene standards in place and had the place ready for their first customers they had a window of opportunity to show people through the facility. He says he printed 500 brochures and mailed out 350 invitations. “We were open for ten days and by day three we had run out of brochures. We were stunned by the amount of people who came through.” It’s an indicator of just how much interest there is in this innovative new facility. Mitten says they’re still feeling their way in the initial weeks of operation, but there has been an encouraging number of bookings to date. Again he reminds me of their flexibility for the early-birds. “For the next few months we will be working with clients and giving them a fantastic deal on the use of the equipment, but at the same time we want to use their projects to help verify the whole process. “Early adopters will absolutely get a better deal.” Glenn Baker is editor of Exporter.

EXPORTER 23

An early taste Anthony Light, production manager for tasty Pot Co, sees the FoodBowl as a fantastic opportunity. the company has already made use of the facility. tasty Pot produces a range of handpacked ready meals for retail sale – products that meet the company mantra of being ‘natural, honest and engaging’. Light believes the facility is a great way to investigate ‘blue sky’ ideas without having to put much time into organising – thanks to help from the FoodBowl team. “It exposes our product to processes we simply cannot afford, but would invest in if the results were deemed good enough. I’m also very excited to show some of my loyal factory staff, who come along to help, the fancy process equipment. It allows them to see the bigger potential picture and adds a bit of excitement to their daily job routine. “Long term it will be great to be kept up to date with the FoodBowl’s processing capabilities. It will enable tasty Pot Co’s marketing and product development people to think up ideas based on the facility’s capabilities rather than our own manufacturing limitations. “We could think years in advance rather than limiting ourselves to months as we do now.” Light sees the facility making a difference for companies with export aspirations. “one of the only things holding us back from really making an impact is our limited distribution due to shelf life. If we could extend this even slightly we would be able to reach a much broader market, and potentially even Australia. “We are Not talking about making a fresh meal last 30-plus days, but rather gaining a few days so we can reach a broader consumer base. High pressure processing can potentially make a product like ours last twice as long with little alteration at all in the physical or chemical make-up of the food. this way preservatives become obsolete (we currently add none, hence our short shelf life) and

24 EXPORTER

tasty Pot’s Anthony Light.

everyone benefits. “However, this would require customer education and tasty Pot is not going to do anything like this quickly. We would talk to our customers first to see what they think. “Right now we are just very curious and want to have a bit of fun.” so with tasty Pot Co’s first trial of the facility completed – what is Light’s verdict? Particularly on the HPP machine and the blast chillers that can bring piping hot food down to four degrees Celsius in around 30 minutes? “the trial went pretty good, we had no trouble using the Food Bowl’s equipment to make our product as we do in our own factory,” he says. “After a slight delay in using the high pressure processing equipment due to its final commissioning we were able to process our meals. this final HPP step was the main focus of our trial and went as well as it could have. But our product was changed significantly due to the high pressures. therefore it’s not really a route we could go down any time soon. But I guess it’s better to find that out now rather than after spending a couple of million [on the technology].” He says although, understandably, there was initially a lack of knowledge on some items of equipment, they found the staff at the facility very friendly and competent. He says prompt technical support on all the equipment and systems is important down the track. “time is money, especially for the small businesses that the FoodBowl is designed to cater for.” Light can see the value in using the FoodBowl. “I do believe the facility

is necessary for New Zealand’s food industry to compete in the long term. New Zealand has to offer value added products, but we’re so isolated we will always struggle to win solely on price.” He believes that like most new ideas it will take some time before the facility reaches its maximum potential. “Especially in today’s economic climate when a lot of companies are tightening the strings on their new product development budgets.” However, he hopes his company can use the facility once or twice a year. “In the future it would be great to trial the complete manufacturing environment and design a purposebuilt factory from our FoodBowl experience. We currently work out of a factory that was built for someone else’s process. It has been a challenge to make it work for us. the FoodBowl allows you to see what a state-of-theart factory would be like to work in. In order to do this you would have to set up for a few days and that’s when the costs would go up. so that’s further down the path for us really.” out of interest, Exporter asked Light what they would have done to test HPP technology had the FoodBowl not existed. “swim to the bottom of the deepest part of the ocean, put our meals there for a while and then bring them up. But even that wouldn’t work because I believe this machine replicates that environment’s massive pressure many times over. or, put another way, we couldn’t do it full-stop as this equipment is very rare and costs a fortune.”

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> F E At U R E

26 EXPORTER

What’s mine is not yours A useful guide for exporters daunted by the intellectual property minefield.

BY MARY MACKINVEN

he business world is littered with tales of stolen ideas and brilliant designs dropped because they were too futuristic to attract support. If their uniqueness had been safeguarded these concepts might have benefited their creators. While the best way to keep an idea or invention secret is to tell no one about it, discussions with others are inevitable to get a concept off the ground. We are, of course, delving into the often-dreaded realm of protecting intellectual property (IP) – information that others might like to know that you know and want to gain from. IP can be any aspect of a business such as a brand name or product design. In fact, Baldwins’ Intellectual Property partner Philip thoreau says every export has some element of IP right. Businesses need to put aside their fear of these complex issues and realise the full economic potential of their IP, from their company name to information on their websites to new or improved inventions, says simon Pope, external relations and IP awareness manager at the Intellectual Property office of New Zealand (IPoNZ). this is the government agency that examines all applications

for patents, trademarks, design and plant variety rights in New Zealand, and maintains the registers for these. “Many people don’t realise how much IP they have,” says Pope. the types of protection for intellectual property are: • Patents that protect inventions for 20 years, with renewals required at intervals. • trademarks that protect brands,

• Plant variety rights grant exclusive commercial rights to them for 20 or 23 years. • Non Disclosure Agreements protect confidential information, typically for three years. Pope says people confuse the various rights so he recommends they “Lose ‘IP’, and talk about patents, trademarks, copyright, trade secrets, etc, instead.

THE POTENTIAL COMPETITOR OFFSHORE WILL SEE YOUR IP IN THE MARKET OR WHEN THEY SEARCH, AND NOT KNOCK YOU OFF BECAUSE MOST PEOPLE ARE LOOKING FOR A QUIET LIFE, NOT PROBLEMS. identity, logos, etc, for ten years. • Copyright is an automatic right that comes into existence every time an original work is created, published or performed. But it doesn’t last forever – for example, a book is the author’s property to gain from for 50 years after his/ her death. • Design rights protect the aesthetic features of a product – shape, pattern, ornament and configuration.

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“Know which ones protect which things, and how to leverage this asset once you have identified it.” the advantages of patents go beyond protecting inventions from being copied: they are also tradeable business assets. Principal patent examiner Mark Pritchard says around 80 percent of patent applications succeed and an increasing area of innovation is biotechnology. But preparing a patent specification involves complex technical and legal

aspects. “to get the best scope of protection we would suggest you get a registered patent attorney to help with drafting and other issues that might come up during examination,” says Pritchard. Strategists and advocates A patent attorney is not necessarily a lawyer but is qualified to act as a professional intermediary between clients (both local and overseas) and IPoNZ. Most are registered with the New Zealand Institute of Patent Attorneys, the organisation that sets legal and technical exams. some lawyers also specialise in IP services. Pipers’ Patent Attorneys’ attorney

“some of the best ideas come out of interactive team work. If these people are not all working for the same employer, who owns the idea? this has to be managed to protect IP rights.” Defining ‘invention’ is almost impossible, says Woodroffe. Broadly, it’s a new way of making something or using an item, a new action not performed before and not obvious. Draft patent legislation will bring New Zealand into line with most other countries, such as requiring an ‘inventive step’ (not just small differences from existing inventions). smythe points out that a great idea might change considerably once it’s designed and made, therefore requiring a new patent.

IP TIPS FOR IMPORTERS Importers must beware of buying counterfeit goods and infringing copyright in New Zealand, even in words on packaging. Suppliers might need to file in this market; talk to a patent attorney. Once a patent expires you can bring in copied versions for sale. Woodroffe warns: “If you see something in an overseas showroom bulging with products, who knows where anything originated? You are told its ‘designed by us’ but it might only be one percent smaller [than the copied product]. “Know your field; know what’s around in the product area.”

Colin Woodroffe explains proprietary information that businesses should keep secret can be wide-ranging – from customer lists to the way they do things, to a breakthrough idea. “But once it’s not confidential it doesn’t have any value, so you need to arrange protections while it’s secret.” A Non Disclosure Agreement (NDA) stipulates that the person you are disclosing to is not free to use the information without your consent to disclose it. “In any western country a business discussion is considered confidential by it’s very nature. But what are the terms? It’s better to have an agreement. People expect it,” says Woodroffe. Everyone who works on new ideas needs to sign NDAs and keep diaries of when they did what, advises Michael smythe, design consultant at Creationz.

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As well as focusing on a product’s inventiveness exporters must grasp that by not being on the ground where their product is sold, branding becomes their connection with customers, says thoreau. “Look at what you can protect and do, not just designs and technology patents. the more informal IP rights such as trade secrets and copyright are as important as the registered rights. “File your application before you launch the product in New Zealand,” he says. “International conventions also extend this protection for a period in other countries.” Industrial Research Ltd (IRL), a crown research institute, helps clients put together IP identification and protection plans and gives general IP advice, but refers them to a registered patent attorney for legal advice, according to IRL’s IP manager Neville Queree.

KEY TAKEAWAYS > Intellectual property (IP) is something one person knows and wants to gain from, that others might like to know. > Visit iponz.govt.nz for IP resources including registering patents, trademarks, designs or new plant varieties. > IP rights to confidential information and copyright are as important as the registered rights. > IP protection is insurance against enforcing rights down the track.

technology commercialization consultancy EverEdge IP also sends clients to patent attorneys after doing an IP search and risk analysis. Director of IP at EverEdge, Paul Davies, says companies must assess what IP they have, what protections are possible and how that stacks up with supporting a real commercial opportunity. If you have a poor product and poor IP no one will copy you anyway, but if you have a great product and poor IP you are in trouble. “Pick your countries, know how to market and find the best IP to support that. And match the protection to the type of enforcement you are likely to do,” says Davies. Country variations IRL says each country has different IP protection processes and rules, which generally require the assistance of a New Zealand patent attorney who can work with the overseas-based counterpart. Woodroffe says some products can’t be patented in some countries, for example software, but a patent attorney might be able to dress it up so it doesn’t look like software. thoreau explains the World trade organisation’s trade related aspects of IP rights (tRIPs) Agreement establishes minimum levels of protection that member governments have to give each other. But, he says, “the laws can be similar but the details not.” Davies concurs. “It’s really a global

village now, but it’s not a case of one size fits all: be specific per country with strategies. “often countries in Africa, Asia and Latin America have poorly designed IP protection systems. Brazil takes five years minimum to grant patents and last year 3600 of 28,000 applications were successful. “India has a reasonably good patent office but it helps to flick money here and there. “In China, local government agencies are empowered to raid factories to collect evidence if copying is suspected,” Davies says. New Zealand recently joined the Madrid Protocol International trade Mark (tM) filing system, which is expected to reduce the costs of protecting IP from around the middle of 2012. New Zealanders will be able to file a single international tM application through IPoNZ to the international examination authority for cover in around 80 countries.

OFTEN COUNTRIES IN AFRICA, ASIA AND LATIN AMERICA HAVE POORLY DESIGNED IP PROTECTION SYSTEMS. BRAZIL TAKES FIVE YEARS MINIMUM TO GRANT PATENTS AND LAST YEAR 3600 OF 28,000 APPLICATIONS WERE SUCCESSFUL.

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Dangers of not protecting IP the greatest risk to a business of having no IP protection is losing the ability to gain from its product or service. says thoreau, “IP protection is not a cost but good insurance against enforcing rights down the track. “the potential competitor offshore will see your IP in the market or when they search, and not knock you off because most people are looking for

CASE STUDY: STUDY: Teknatool Teknatool International International CASE Teknatool International makes lathes, chucks and accessories for the home woodworker, and a motor for multiple applications. It exports to more than 20 countries, and has facilities in China and the US. Chief executive Peter Baker recommends businesses build IP protection into their costs from day one. It can be an enormous cost depending on each market but patent attorneys have clever ways of coping with this, he says. “The rules are changing so you can’t dabble at this. A patent attorney will discuss what you are trying to achieve, as well as budgets and risks you hadn’t thought of.” Baker suggests a trademark is often cheaper and more sensible

than a patent. “Your product might be very unique but you might want to ensure your name is protected.” A worldwide patent of Teknatool’s cost $150,000 but it’s possible to start with small steps at $8000 to $10,000. “The first rule is you have to have potential large markets! “You also need to protect against staff access to your ideas, as we did, in our factory in China. “IP will be crucial around our new motor development. “China has good laws around IP but at a grass roots level there is not a lot of respect for other people’s ideas. But it keeps improving; so DO bother with that market.”

a quiet life, not problems.” there are plenty of case studies in smythe’s book New Zealand By Design - a History of New Zealand Product Design. An iconic case was Colin Murdoch, inventor of the plastic pre-filled disposable syringe (and other products) that he filed for patent in 1956. the Department of Health said it was “too futuristic!” but he made prototypes and not long after his concept was published in patent gazettes, multinational drug companies began offering vaccines in such a syringe. the rest is history. Murdoch got ripped off but didn’t have the resources to sue, says smythe. His own experience in registering a patent taught smythe not to rely solely on a patent attorney. “You know your product best and have more at stake. Be prepared to do battle [with patent offices].

MaRy MacKinvEn / WRITER

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

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> F E At U R E

Safe passage The recent grounding of the container ship Rena has highlighted the importance of having a watertight marine cargo insurance policy. There are associated lessons for everyone involved in the seafreight insurance industry.

> F E At U R E

BY YoKE HAR LEE

nion exporter Guy Hilson will be looking at his marine insurance policy up close and personal. Although he has an annual marine cargo policy, the grounding of the Liberianflagged container vessel Rena has given him some food for thought. Rena had 2,100 containers on board, some of which are empty. some insurance companies are already paying out claims for shippers who have bought marine cargo insurance as a way of life. Hilson is among the converted – he can’t afford not to have marine cargo insurance. At any one time, during the peak onion exporting season, he has several hundred containers “floating around the world”, he says. It’s the same with Keith Mawson, owner of Egmont seafoods, who says he exports just under $2 million worth

of seafood to export markets although he has never had to make a cargo claim. Hence he has not tested the efficacy of his policy. According to published reports, there are about five or six million commercial vessels plying the planet’s tempestuous seas. Every hour, on average, one container is said to fall off, never to be seen again. And containers don’t just go missing at sea, often they go missing on the wharf or while in transit. small exporters who are sending one-off shipments should definitely obtain cover even though their shipments may be few and far between. For exporters with regular exports to multiple destinations overseas, an annual policy (based on a company’s export turnover) should be the preferred option. A third but slightly more costly option – annual

IF YOUR SHIPMENT IS DELAYED BECAUSE THE CONTAINER VESSEL HAPPENS TO RUN AGROUND, AND THE PRODUCE YOU ARE SHIPPING GOES BEYOND THE USE-BY-DATE BECAUSE OF THE DELAY CAUSED BY THE VESSEL’S GROUNDING, THE STANDARD MARINE POLICY WON’T COVER THE CLAIMS MADE AGAINST THE DETERIORATED PRODUCE.

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CARGO ON ThE CAMEL’S bACK: AN UNdERWRITER’S NIGhTMARE Years ago, insurance underwriter Allen Chong, currently technical and sales manager at Vero Marine Insurance, wrote a risk involving a singapore import across the ocean from Afghanistan. Chong had no idea that the local transport

included cargo being carried on the backs of camels. “the cargo was stolen by armed persons who fled with the camels and the cargo. We paid the claim (for the cargo) but it did make me ask more questions on similar future risks.”

Allen Chong of Vero Marine Insurance. “A good marine cargo policy needs to look at not only the potential of physical loss but also the consequence of the loss.”

policy with declaration – allows the exporter to report exports and pay premiums on a periodic basis, says Burke Butler, NZ marine manager for Vero Marine Insurance. Always pick an insurer with a global claims network, Butler says. this will ensure that the exporter can rely on the insurer’s network in the event of a claim occurring outside of New Zealand. What constitutes a good watertight marine cargo policy? A good marine cargo policy needs to look at not only the potential of physical loss but also the consequence of the loss, adds Allen Chong, technical and sales manager at Vero Marine Insurance. What is adequate cover? to protect a shipment against a potential loss and its consequence, consider whether there is sufficient contingency cover for extra storage charges, demurrage cost, and expediting expenses (for example, the additional costs to replace a shipment). Always check that the bottom limit of your policy per cover is sufficient to cover the risks associated with the

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insurers and prevents them issuing cargo insurance going into Iran where claim payments are to be made to Iranian nationals.

Marsh Ltd’s Graham Forbes: “People forget that when you sell on CIF terms, the risks transfer to the buyer once the goods are on the ship.”

level of shipping you are doing, Chong says. If, for instance, you have a claim of $1.5 million for a loss and the bottom limit you have in your policy per cover is $1 million, you have underinsured. take precaution when you are sending marine cargo to war-torn destinations or those prone to frequent industrial strikes. While most insurance policies provide cover for war, this may not be available for certain countries that are fighting protracted wars. Kiwi exporters would, for instance, not be able to find insurance for goods shipped to Iran as that country is on insurers’ exclusion lists. the United Nations security Council has imposed financial sanctions on Iran which apply equally to international

In the beginning was Incoterms the road to covering risks for both importers and exporters begins when the terms of trade and delivery are being ironed out. Even with terms being spelt out, often the claims are never quite easy to sort. “A lot of people don’t fully appreciate that claims are never quite black or white, explains Graham Forbes, principal at insurance brokerage Marsh Ltd. His advice to exporters or importers is, where possible always take ownership of your insurance rather than leave it with a foreign trade counterpart. QBE Marine’s underwriter Neil Cousins says businesses need to learn the Incoterms which, he reckons, should to those trading internationally be something that comes as naturally as “pressing the buttons on your calculator”. Forbes advises exporters to always have clarity about the terms of delivery, which should be settled at the beginning. Importers, for instance, should close deals based on ex-works (EXW in Incoterms) or CFR (cost and freight) as this gives the buyer latitude to arrange his own insurance with a New Zealand-domiciled insurer. If a buyer imports on a CIF basis (cost, freight and insurance), this means the seller is responsible for arranging the insurance. Forbes says people forget that when you sell on CIF terms, the risks

CASE STUdY hIGhLIGhTS IG LOSS OF REVENUE bUFFER An importer was planning to fill an order for five container loads of calendars and diaries from China, well in time for their october delivery date. the order was pre-sold to a New Zealand distributor. However, the ship carrying the calendars and diaries was attacked by pirates and held for ransom. It took eight weeks of negotiation before the ship was allowed to

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continue its journey. the container, however, missed the october delivery deadline. the distributor no longer wanted the shipment as it was too late for the Christmas season. Luckily the importer had protected himself with additional cover which compensated for the impact of the cargo being late, loss of revenue and profit benefits. (source: QBE Marine)

KEY TAKEAWAYS > Whether you are importing or exporting, be clear about where the transfer of risk takes place. > Negotiate to buy on cost and freight terms so you can arrange your own marine cargo insurance. > Export on FOB basis to transfer risk to buyer when goods are loaded onto the vessel. > To secure good pricing from your insurer, disclose vital information about how well you are protecting/ packaging your goods. > Always ensure your bottom limit is sufficient to cover your level of trade. > Think about getting cover for loss of profit, extra expediting costs, or costs not normally covered by a marine cargo policy.

transfer to the buyer once the goods are on the ship. this scenario is being experienced by many buyers of New Zealand products which are stranded or have fallen off Rena, and have to deal with insurers in New Zealand, says Cousins. He adds that the Rena experience has shown that exporters are still selling on CIF terms, often thinking they are doing the best terms for their buyers. the fact is, as shown with Rena, offshore buyers have to deal with a company based in New Zealand for claims. For an exporter selling on FoB (free on board) terms, there are also potential exposures to liabilities unless contracts are specific on where the exporter’s responsibility ends. to get around such situations, inserting a “seller’s interest” clause would help manage the potential risk. Another option – which would add to the insurance cost – is to gain additional cover by purchasing a broad-form policy that would help an exporter cover liabilities not provided by a normal marine cargo policy, Forbes says.

ThE PERILS OF ThE SEA Insurance folklore has it that in Marco Polo’s day, he and fellow travellers undertook a form of “shared risk”. When they were attacked or someone lost a camel or some goods, others in the group would contribute to help make up for the loss. this concept of risk sharing has left one major legacy – the “general average” formula used to share out the load of loss between carriers and cargo owners. A carrier may, under some conditions, be forced to jettison cargo to save the ship and its crew and other cargo. this might result in a loss for some and not others. the general average ensures all parties in the shipment contribute to the loss. the Rena’s grounding will present an interesting case on how the cargo owners and carrier will share this loss load. While exporters with damaged cargo onboard Rena may get their claims soon, it may take a few years for risk underwriters to recover their payouts from negligent third parties. one insurance company is still waiting to recover payouts made

Protecting against loss of profit It is always important to consider what value to attach to the goods as this valuation will determine the costs associated with replacing the goods in the future. “think about how you want to be paid, eventually,” is Cousin’s advice. Insurers normally provide insurance based on the invoice value, the costs associated with transportation, and a portion of the buyers’ expected profits. Always value your shipment for when it arrives at the ultimate destination, Forbes says. When shipping machinery or capital goods, it is important to consider not only currency movements (devaluation or appreciation), lead times needed to replace shipments, and the potential loss of profits associated in the event the shipment is damaged or lost. An Advanced Loss of Capital Profits policy will cover these risks, Forbes says.

on a shipping mishap involving an Australasian food processing company which happened more than three years ago. QBE Marine’s Neil Cousins says the biggest lesson underwriters have learnt is that “we haven’t been charging enough premiums”. For the risk underwriters, the process of claiming liabilities against the carriers can be glacial. Further, maritime conventions give carriers exemptions for liabilities. shipping contracts currently exempt a carrier from liabilities caused by “perils of the seas.” (Perils of the sea is defined as an accident or damage caused by certain incidents that happen at sea – for example, grounding, sinking or burning.) should there be a liability on the carriers’ side, there is set formula applied, meaning the carrier’s liability is limited according to shipping laws prevalent in the country. In New Zealand, for instance, the New Zealand Maritime transport Act 1994 applies, subject to the Hague-Visby Rules. the Hague-Visby Rule, currently adopted by New Zealand, absolves

Groundwork is everything when it comes to preparing a shipment. one way to mitigate potential risks is to have pre-shipment surveillance. Engage a surveyor to certify that the goods being shipped are packed and secured properly prior to shipping. “Pre-shipment surveys are becoming very important in the process,” Forbes says. Exporters should take note that delay is a difficult word for underwriters of marine risk. the consequences of delay are not measurable and what underwriters can’t measure, they won’t provide cover for. If your cargo is damaged during the course of its transit, you can recoup your loss if the investigation shows your goods actually were damaged. But if your shipment is delayed because the container vessel happens to run aground, and the produce you are shipping goes beyond the

carriers of liability under the rule of “nautical fault”. this states that neither the carrier nor its shipmaster shall be liable for goods damaged as a result of any “act, neglect or default” in the navigation or management of the ship. Internationally, however, there are moves to replace this rule. the Rotterdam Rules and Hamburg Rules, seeks to address the loophole in the Hague-Visby Rule, to include liability for the carrier in the event of damage or delays in delivery, according to published information. New Zealand’s marine hull/ cargo premiums were NZ$119.59 million for the 12 months to september 2010 with a loss ratio of 58.8 percent, according to the Insurance Council of NZ’s published information. Marine cargo premiums can vary greatly – between 0.01 percent and 0.50 percent or more – of the cargo’s insured value, depending on the commodity, the shippers’ risk profile, claim history, and the exposure involved in the shipping destination.

use-by-date because of the delay caused by the vessel’s grounding, the standard marine policy won’t cover the claims made against the deteriorated produce. Providing full information is one way to get the best pricing for your premiums, Chong says. “two companies with the same business, shipping abroad, can have different premiums – based on their historical risk profiles. For instance, a company that tells us he uses packaging that is way better than industry norm, presents a better risk profile, hence better pricing.”

yOKE HaR LEE / WRITER

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

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> MARKEt INtELLIGENCE

Talk’n Turkey Exporter magazine caught up with Erhan Dagdemir, NZTE’s country manager in Turkey for a first-hand view of that market’s potential for Kiwi exporters.

he turkish economy is large and performing reasonably well in contrast to many other economies in the world, according to Erhan Dagdemir, NZtE’s country manager in turkey, speaking from his office in Ankara. It is interesting to note that the turkish GDP growth was nine percent over the last quarter, he adds – higher than China for the same period. And therefore the turkish market can provide substantial business opportunities for Kiwi businesses. turkey’s imports are almost 70

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percent made up of raw materials and intermediate goods, followed by capital goods (15 percent) and consumer goods (approximately 13 percent). In other words, turkey’s biggest import items are used for production and energy. New Zealand companies offering competitive products and smart services to turkish businesses are most likely to be successful, says Dagdemir. the only exception to this is agricultural products. “turkey has made some changes to their policies for importing

meat, dairy products, livestock and others in recent years but these have not been enough to let New Zealand suppliers of these products into the turkish market, he says. “Nevertheless, New Zealand consultancy and professional services are partially filling this gap. “there are good business opportunities in specialised manufacturing, energy, marine and ICt for New Zealand businesses operating in these sectors.” so let’s look at turkey’s pluses as an export destination.

such as being within the world’s top economies in the coming decades, also offer opportunities. “this target is regarded as reachable by authorities when looking at the country’s performance over the past ten years.” Potential stumbling blocks turkey is in negotiations to become a full member of the EU and signed the custom unions in 1996 so the turkish political and business environment has similar fundamentals to the ones in Germany, France or UK. Dagdemir says turkey shouldn’t be affected by the ‘Arab spring’ and is not a low performer like Greece and Portugal within the EU. therefore the only stumbling blocks to the turkish market for Kiwi exporters are likely to be tough competition, longer delivery times for bulky products, logistics challenges and different business ethics and practices. “once these issues are addressed and the right solutions are identified, this is usually the start of a long-term relationship between companies as relationships and personal trust are very important to turkish companies,” he says. Dagdemir says there are some really good examples of successful

service, being able to adapt to new trends and combining all of these with the company’s spirit and culture. “the lessons to potential exporters interested in getting into the turkish market would be to identify the right company to work with, listen to your partner and customer, check these with your business realities and take the right steps. At NZtE we are happy to assist through our international offices.” Long-term prospects the turkish market is forecast to achieve a reasonably high growth. According to Goldman sachs, turkey

NEW ZEALAND BUSINESSES HAVE VISITED TURKEY WITH THE SUPPORT OF THE NZTE OFFICE IN ANKARA, AND HAVE BEEN STAGGERED AT THE OPPORTUNITIES THAT THE COUNTRY PRESENTS.

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the large domestic market and financially strong economy are the first positive facts about turkey, followed by the good connections turkey has with many countries. Due to the positive political relationships turkey has with other countries, turkish companies can provide easier access for New Zealand suppliers into some challenging markets in the Middle East, Balkans or the ‘stans’ (former soviet states), says Dagdemir. “Political stability and the secular government’s passionate targets,

New Zealand exporters in turkey. “there are companies operating by themselves in the turkish market like Fisher & Paykel Healthcare and Wellington Drive technologies and others operating through their local contacts like scott technology, Robinson seismic, NZ Wool services International and Dairy Goat Cooperative. “Whether the companies are represented by distributors or not, the main reasons for success will be knowing the market needs, providing a good combination of price and quality without any sacrifice in

will be the ninth-largest economy in the world and the third-largest economy in Europe by 2050 (it’s currently the world’s 16th-largest economy). Dagdemir says the growth will be initially achieved in the sectors where turkey has comparative advantages such as motor vehicles, machinery, textiles and process minerals. “In addition to these, the energy sector and tourism will be even more important for turkey in the long-term. therefore, New Zealand businesses with innovative and competitive products in these sectors

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can tap into the opportunities in the turkish market.” NZtE’s advice to Kiwi firms looking to export to turkey is to talk to them first in New Zealand. It has well-designed services that can increase the capabilities of these firms and take the first steps towards internationalism. the Ankara office will step in at the right time to identify the right market and suggest the next steps to take. For companies that have the resources and capabilities to export to turkey, NZtE can look at the basics like understanding the needs of the market, legal requirements, then identifying the right companies to cooperate with and initiating the first contact. In-market visits are crucial to understanding the market – a number of New Zealand businesses have visited turkey with the support of the NZtE office in Ankara, and have been staggered at the opportunities that

the country presents. NZTE has an office in Ankara, headed by Erhan Dagdemir. NZTE is also hosting ‘Talking Turkey’ seminars in New Zealand in 2012, to provide an insight into doing business there. To understand the performance of the Turkish economy and market further, visit the following web pages: www.invest.gov.tr/en-US/turkey/ factsandfigures/Pages/TRSnapshot.] aspx www.invest.gov.tr/en-US/ turkey/factsandfigures/Pages/ Economy.aspx www.invest.gov.tr/ en-US/turkey/faq/Pages/Welcome. aspx

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ANZAC connection still strong I t’s been 95 years since the Battle of Gallipoli ended, but the link between the turks and the ANZACs is still strong and New Zealand and turkey are now firmly on the same side when it comes to doing business. Based in Rotorua, Hayes International is a market leader in the design and manufacture of roll-forming machinery for the production of roofing, wall cladding, and structural sections. It also manufactures long-length power folding machines and a wide range of metalworking equipment. Hayes has been operating in turkey since 1998 and business has been consistently good, averaging $2 million annually and accounting for a sizeable portion of Hayes’ exports which go to 74 countries. “It’s a fascinating country – great to visit and easy to do business in,” says Wayne Kennedy, sales and marketing manager for Hayes International. “the people are very polite and friendly and they love to swap stories about our grandfathers’ exploits in Gallipoli during the First World War. that connection means a lot to the turks and they like doing business with New Zealand companies.” It’s like doing business in any other western nation, but turkey is a hub between Europe, Africa, Middle East and the ‘stans’ (Kazakhstan, Uzbekistan, etc), says Kennedy, and many of these countries access western goods and services via turkey. “We export primarily to the turkish steel construction industry which has been developing and growing extensively over the last ten years, not least because steel has better load-bearing capabilities and holds up better during earthquakes, which is, sadly, something else we have in common. “Companies need to build relationships and understand

the culture,” adds Kennedy. “A few ANZAC stories will help, but what worked for us was having a presence in the market and New Zealand trade and Enterprise in Ankara have been extremely helpful, providing market knowledge. “turkey is a long way away and at the very least, company representatives need to be there two or three times a year so turkish companies get to know your face,” says Kennedy. “Alternatively, use a strong local agency but be mindful that the turks are wary of agents and like to work with actual company representatives. so they may try to go round the agent and come directly to you. Be patient and take time to select your agent. “It’s a large market, and they are always on the lookout for new ideas and products. We get many online enquires so have a good website with some turkish language information, although there will usually be good English speakers in most companies. It’s worth learning a few greetings and pleasantries. “the only negative to working in turkey is the distance to market and the delivery frameworks required. You not only have to consider how long it takes to make the product, but how long it takes to get there. this isn’t so much of a problem for It/services companies. “If the turks like a product, they want it yesterday and they are hard negotiators on value. Demand is growing and, their isolation from the Us dollar and the Euro means their economy is strong – and important,” says Kennedy. “one other top tip is to plan any trips around Istanbul very carefully. ten years ago I used to be able to meet three or four companies a day, but Istanbul is a melting pot of many different cultures and it’s now a logistics challenge to get from one part to another. “If you’re in country, you get to know the country and you’ll soon learn how to get about whether it’s by bus, taxi or sea!”

> MARKEt INtELLIGENCE

Kiwi solutions for Korean challenges Kiwi-born company NextWindow is helping change Korean perceptions of New Zealand as a technology provider. BY RUtH LE PLA

here’s a certain coals-toNewcastle aspect to the idea that Kiwis could provide technology solutions to the Republic of Korea. that country’s technological prowess is world-renowned. New Zealand’s expertise is on a far more limited scale. the irony isn’t lost on Ys Kim who fronts NextWindow’s Korean operations from premises in seoul’s busy Gangnam business district. When we sit down to talk at the New Zealand Embassy in seoul, Kim admits he was initially surprised to find he’d be suggesting Kiwi solutions for Korean challenges. NextWindow designs and develops optical touchscreen technology which can be used in a wide variety of applications including computers and large-format signage. since he joined the company last year, Kim has been working with some of the giants of Korean business. Both mega-conglomerates samsung Electronics and LG Corp are pushing the frontiers of touchscreen technology and NextWindow’s technology dovetails well with their requirements. As an example of the company’s upside potential, Kim tells me Korea already has more than 50 percent of the world’s digital signage market. Within Korea itself, there’s plenty of room to grow. the Korean Government recently announced plans to invest Us$2.4 billion in digital textbooks for schools by 2015. the move is likely to bring with it an increased need for

digital whiteboards as well. Kiwi-born NextWindow was last year bought out by Canada’s electronic whiteboard maker sMARt technologies. But the company’s R&D remains in New Zealand. Kim says NextWindow demonstrates its innovative streak by cherry-picking the best source for each component of its work: whether that be ideas, parts or partners. Dealing with this mismatch between Kiwi abilities and the world’s perceptions of us is core to the work of Graeme solloway. As New Zealand trade Commissioner in seoul, solloway sees evidence of this mis-alignment time and again. “to most Koreans, New Zealand as a technology provider simply does not compute,” he says. However, from his talks with customers, Kim says he is beginning to see signs of less stereotypical thinking about New Zealand. “People who are globalised aren’t really surprised about where we source things from,” he says. “our products have components from Korea, Europe, Malaysia and China. so it’s not about the country, it’s about the company.” Kim says the minimal time difference between Korea and New Zealand provides a very practical plus-point to basing R&D in Auckland rather than in the Us or Europe. solloway adds, however, that Korean companies often expect business to be conducted in a far more timely manner than Kiwi firms’ usual practices. they

expect to receive a response to an email within an hour, he says, and no allowance is made for time zones. Nor is much leeway given for holidays. “A Korean company expects to be able to contact somebody at holiday time,” he says. “they appreciate that individuals take annual leave but they expect the company to respond. “so it’s unacceptable for them to reach a voice message that says, ‘We’re all on holiday and won’t be back until the third week of January’. solloway adds that the highlyregulated Korean market demands that information is provided in a very clear and precise fashion. Labelling regulations must be followed and samples provided in order for a product to be accepted. “such requests are often not driven from the same rational science-based view that New Zealand authorities would have. there’s no tolerance in that sense and often quite complex information is required. “As Kiwis, we sometimes underappreciate some of the market demands.” Ruth Le Pla travelled to Seoul in the Republic of Korea on an Asia New Zealand Foundation Media Advisory Grant. RUTH LE PLa / WRITER

Ruth Le Pla is an Auckland based freelance writer. Email ruth.lepla@xtra.co.nz

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> MARKEt INtELLIGENCE

Southeast Asia: opening up its true potential A recent survey conducted by Incite offered valuable New Zealand private sector perspectives on the true potential of AANZFTA.

BY CAMERoN GoRDoN

n 1 January 2010 the Association of southeast Asian Nations-AustraliaNew Zealand Free trade Agreement (AANZFtA) came into force with the objective of growing New Zealand’s trade with this dynamic region. AANZFtA gives New Zealand businesses preferential access to major southeast Asian markets including Malaysia, singapore, Vietnam, thailand and the Philippines, and emerging AsEAN economies such as Myanmar, Brunei Darussalam, Laos and Cambodia. Indonesia is also part of AsEAN and has signed AANZFtA, but it is yet to complete the formal processes required to ratify the FtA and enter it into force. the New Zealand Government is confident that Indonesia will undertake the necessary processes to enter this FtA into force in the short term. on 28 september Incite ran a 48-hour snap survey giving the New Zealand business community the chance to voice their perspectives

38 EXPORTER

Kuala Lumpur, Malaysia.

about their practical and commercial experiences in trading under AANZFtA. Feedback received from the survey was presented in early october to senior customs and trade officials from AANZFtA partner countries that met in Indonesia to discuss AANZFtA-related issues, including the streamlining of FtA related processes. Incite was invited to present at the meeting to provide officials with an overview of New Zealand private sector perspectives about AANZFtA. Key results obtained from the 94 survey respondents painted a picture of how AANZFtA effects New Zealand

traders – from the benefits the FtA creates for the private sector through to the challenges exporters are facing exporting to AANZFtA partner countries. the major markets of southeast Asia contribute significantly to the success of New Zealand’s export industry. For the 12 months ended september 2011, statistics New Zealand valued New Zealand’s exports to the AsEAN region at NZ$4.46 billion. During the same period, exports to mainland China were valued at NZ$5.8 billion and exports to the Us at NZ$3.9 billion. the opportunities that the southeast Asian

markets present to the New Zealand export industry were confirmed in the survey with 77 percent of survey respondents telling us that southeast Asian markets either offer ‘excellent’ or ‘substantial’ opportunities for their businesses. Compared to the New ZealandChina FtA that entered into force in late 2008, it can be argued that AANZFtA has not received the same level of media coverage about either its entry into force or the benefits it offers to New Zealand’s private sector. there are a multitude of contributing factors here which may include China’s rising position of power in the global economy, the fact that New Zealand was the first developed country to conclude a trade deal with China and that New Zealand already has a number of bilateral FtAs with AANZFtA partner countries. Feedback from respondents showed that there is a need to raise awareness in New Zealand about how this FtA can be better leveraged by business. the results showed that 23 percent of survey respondents were not aware that New Zealand was part of AANZFtA and that 40 percent of respondents felt uninformed about the benefits of using AANZFtA in their trade with southeast Asian partners. these figures illustrate that there is room for improvement in this area. A significant trend emerged in the survey that businesses would like more information about the benefits available by trading under AANZFtA and some respondents commented that they felt that information and resources should be made available to grow awareness and understanding of the commercial benefits AANZFtA presents. From a procedural perspective, if a New Zealand company does want to take advantage of the preferential access to AANZFtA partner countries available under AANZFtA, they need to clear their goods through Customs in the importing country with an AANZFtA preferential Certificate of origin. the first step in the process is to understand how your export goods qualify under the AANZFtA Rules of origin. survey results showed that a lack of understanding of these rules is a major barrier to private sector uptake of this FtA. seventy-two percent of survey respondents felt either uninformed or as having very

limited understanding about how their export goods qualify under AANZFtA. In New Zealand businesses should approach one of the agencies approved by New Zealand Customs to issue and certify AANZFtA preferential Certificates of origin, such as the New Zealand Chambers of Commerce. these agencies have the expertise to advise exporters about how their goods qualify under AANZFtA and they can issue exporters with an AANZFtA Certificate of origin once they have provided sufficient documentation to prove that their goods qualify for preferential treatment. Tariff reduction benefits the tariff reduction benefits that FtAs present to New Zealand businesses are the driving force behind their use by the private sector. Reductions in tariffs payable at the border in the importing country mean that exporters are able to sell their New Zealand goods to offshore customers within FtA markets at a more competitive price while still maintaining profit margins. Profitability is a margins game and taking advantage of tariff preferences can make a significant difference to the bottom line. one factor that often leads to missed opportunities in terms of accessing reduced import tariffs is a lack of knowledge by offshore partners about the existence and benefits of FtAs. I regularly meet with importers throughout southeast Asia who are not aware that New Zealand has a preferential trade agreement with their country. this fact is echoed in the survey with 69 percent of respondents feeling that their partners are either uninformed or have very limited understanding about the commercial benefits of using AANZFtA. Communication is key here and New Zealand businesses will benefit significantly from providing concise information to their partners about the benefits that are available to both buyer and seller. Manufacturers, in particular, will be pleased to know that opportunities under AANZFtA are not simply limited to importing and exporting finished goods. With the Accumulation Rule, New Zealand manufacturers and exporters can import componentry from AANZFtA partner countries at reduced tariff rates to be included

USEFUL AANZFTA RESOURCES - New Zealand Government AANZFTA website: www.asean.fta.govt.nz - AANZFTA Tariff finder: www.asean.fta.govt.nz/tariff-finder - AANZFTA Rules of Origin: www.asean.fta.govt.nz/chapter3-rules-of-origin/ - New Zealand Chambers of Commerce AANZFTA website: www.chamberdocs.co.nz/ - New Zealand Customs authorized AANZFTA certification bodies: www.asean.fta.govt.nz/ designated-issuing-bodies-forthe-aanzfta-certificate-of-origin/

in their production processes. And their finished goods will qualify for reduced tariff rates when exported to AANZFtA partner countries. the dollar savings at both the production level and in reduced import tariffs payable are often significant. the major economies of southeast Asia provide significant trade opportunities to New Zealand firms. Although not all markets within the region will suit all businesses and each come with their own challenges, the New Zealand Government has clearly indicated with the recent southeast Asia FtAs entered into that it sees this as a key region for New Zealand economically. to ensure that businesses are getting maximum return on their investment in entering new markets, it makes sense to make use of tools that are going to make you more competitive in what are already very competitive economies. Although it does take time to get to know how FtAs such as AANZFtA can work for you, the tariff benefits could be the difference between a company’s products being seen as too expensive or competitive. caMEROn GORdOn / WRITER

Cameron Gordon is a New Zealand specialist in FTA export compliance. He has advised and assisted many of New Zealand’s largest companies about obtaining preferential access to key Asian trade markets through taking advantage of New Zealand’s FTAs. For more information contact Incite on 09 889 0041 or at info@exportincite.com

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> MARKEt INtELLIGENCE

Welcome to our Eurozone A recent two-week study tour of Belgium, the Netherlands and Germany by Massey Executive MBA students was an eye opener for those engaged in export. Owen T. Mandisodza filed this report.

the student group on tour.

he classic “World famous in New Zealand” saying sums up how the world views our country. the New Zealand brand is real and has quite an impact on the world stage. our tour focused on the core Eurozone key players with emphasis on food industry innovation, strategies in agricultural developments and processing as well as assembly production innovation. the Eurozone is the grouping of European countries that have adopted the Euro currency. the major players are Germany, Italy, France and the Netherlands. In all three countries New Zealand is well-regarded. We heard good, vivid descriptions of our country. People listed our main economic activities as the sheep industry and milk and cheese

40 EXPORTER

production through the Fonterra brand. this got the tour group thinking: “what else does New Zealand produce and how can we enter such a sophisticated market?” An on-tour investigation of New Zealand venison exports showed that the clean, green image of our country is not well understood locally. Few Eurozone citizens could explain what that meant to them. that “World famous in New Zealand” slogan struck a chord with us in the group – it reflects the current situation in which the country has a strong image, but less-known exports. Professor Gow from Massey University puts it in perspective by saying that many New Zealand companies prefer to work alone and shun collaborative ventures. Unfortunately, what works in New Zealand may not work elsewhere.

Exporters really need to understand who they are exporting to, why those consumers are buying New Zealand products and how the demand can be increased in the market zone. It is a lot of work that takes time, but the rewards are profitable. the Eurozone market is about building relationships with local channels and customers. Massey’s Dr Bill Kirkley explains his experience; “the process is long and difficult but worth it. It takes at two years to establish a working relationship. But once there is a good connection, the market is yours.” there is a growing demand for strategic and tactical market entry for New Zealand exports into the Eurozone as the region opens up a large borderless market with more than 500 million citizeAns. there is stiff competition from Asia, Africa, the Americas and former Eastern Europe states – but New Zealand’s famous brand resonates well in the zone. However, the New Zealand story is yet to be told in the Eurozone. Advice from Icebreaker’s chief Germanybased executive is worth noting: “New Zealand has good products that are produced organically but your exporters need to tell the New Zealand story through the eyes of the local market”. Knowledge economics the key drivers of the Eurozone economies are marketing and innovation. the three countries we toured are leaders in their respective fields.

Belgium is quite innovative in beer production. Helping drive success in this industry is a group of academics who formed the Beeronomics society of Belgium. Beer in Belgium is not consumed for its alcohol content but as a refreshing beverage. New Zealand beers may find it difficult to compete in the Belgian beer market, but the concept of innovation using the knowledge available in New Zealand is essential for our exporters. In the Netherlands the ‘food valley’ is another hub of innovation that offered innovative ideas our exporters can use to boost production in New Zealand. Germany has a clear lead in the engineering and automotive industries when it comes to innovation. In that country the idea of knowledge economics is based on splitting research and development. Research is handled by local education institutions that investigate the market and new ideas (the generation of new ideas and concepts in these countries is phenomenal). Development is

handled by the relevant industries with the right technology and resources to invest in the process. Development focuses more on profitability than research does. In Germany the key is to incentivise academic institutions to go beyond publishing research and to explore business spin-off possibilities. For New Zealand exporters targeting the Eurozone markets we believe the focus should be on reducing the cost of market entry and improving product competitiveness. Exporters can use knowledge economics on three levels – that is, research into product improvement, market analysis and local production improvement through innovation. New Zealand’s educational institutions have plenty of global competitiveness capability. At a local level, product improvements lead to more business incubators of innovative ideas which in turn create a constant source of business spin-off. the essence of business incubators is to convert practical research

solutions into business solutions. By scale New Zealand alone cannot consume all of its innovations. the export market is the solution – hence the need for exporters to drive ventures in knowledge economics. By developing strong relationships with New Zealand’s educational institutions, exporters can influence research into market entry strategies and develop international business contacts through the universities’ research exchange programs. New Zealand’s venison industry has already taken a lead by engaging with Massey University to try and increase Eurozone market penetration. Research on how to increase demand and improve farm deer production is already underway. For this story Owen T. Mandisodza was assisted by Zephaniah M. Muchirahondo, Aleksandar Zivaljevic and Anton Oxiouzian.

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> F E At U R E

School report The New Zealand School of Export is celebrating five years of operation, which prompted Exporter magazine to catch up with the School’s director and founder Romuald Rudzki.

: The five year milestone is a good opportunity to look back and reflect. What, for you, have been the standout moments from those years? om: the landmarks have clearly been the official opening in 2007 by steve Maharey when he was Minister of Education and our local MP; the financial and marketing support from NZtE during Export Year 2007 which helped us get our first exporters on board; the launching of ELIs, our free online trade portal which has become the global standard; the first graduations of our exporters in 2009; being a finalist in the VERo Excellence in Business Awards; and in 2011 NZtE recognising us as a supplier for their Management Capability Development Voucher scheme which means that eligible companies get 50 percent of their costs met when they work with us. there have also been low points and looking back 2007 was probably not the best year to start anything, as it was just before the GFC, which is still with us and deepening. But we are still here and have no intention of quitting.

: How popular has the Diploma of International Trade been, and has its uptake lived up to your original expectations?

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Romuald Rudzki and friend Barkley.

om: our expectations were based on the fact that we only work with New Zealand exporters or staff in support organisations such as NZtE. We’ve made a business decision not to recruit school-leavers, the general public or international students. this limited the potential numbers but we are a niche distance education provider concerned solely with raising the capability of our exporters – of which New Zealand has some 8000. since we started we have had staff from multinationals such as Fonterra; established companies such as Atrax airport weighing machines and Cowell’s Pavlovas of Dunedin; plus start-ups such as New Zealand Liquor Resources who are now sending container-loads to China. NZtE staff who have completed the programme include Ziena Jalil, now the trade

commissioner in singapore. to answer your question, we could certainly do with more exporters, especially from smaller companies who want to grow large. We have only reached just over one percent of that 8000! the most humbling aspect is the wonderful things our exporters say about us and the value of the help they’ve had from the school.

: You’ve no doubt met many interesting export professionals during your time at the School. Who have been some of the standout students and what stories can you share about the positive outcomes from your courses? om: We don’t call them ‘students’ but ‘exporters’ to remind us that they are all working full-time and trying to get their professional

qualification under their belt at the same time. We actually lost one exporter during their first module after giving them advice on how to handle a request from the Middle East – they won the contract to provide services and were so busy as a result they had to stop their studies! that was quite an outcome both for them and for us. Apart from that we invite some of the exporters to become adjunct faculty of the school such as Pierre schindler, who is now the global supply chain co-ordinator at Fonterra’s European headquarters in Amsterdam. Another exporter who is now adjunct faculty is Dean (Dehua) Pan who specialises in getting New Zealand foods into China. the adjuncts provide incredible insights into the practicalities of doing business, such as Dean’s point that, “You don’t go into China; you don’t even go into a region of China. You go into one city which may have a population of 15 million.”

E R

: What is the background and significance of the School being accredited by IATTO? om: IAtto is the global body founded in the 1970s that sets the professional standards for those working in international trade. Getting Accredited Provider status in 2008 after a three-year process – including a site-visit by the former IAtto chair Rose Blatch – was key to proving how much progress we had made. At the end of her inspection visit Rose said, “this is how we started in south Africa 25 years ago,” which gives you some idea of just how far behind New Zealand is with the rest of the world. the Accredited Provider status meant that we were deemed to be at the same standard as other bodies – such as the UK Institute of Export. For New Zealand, it means that we now have an organisation that provides the same standard of international trade professional development as overseas competitors get in the Us, Canada, south Africa, Australia, Britain and other leading industrialised nations. this may well explain why those countries are so much better at exporting than we are.

the 2008 IAtto Global Forum in stockholm’s World trade Centre, where the NZsoE received its Accredited Provider status.

E R

: What new initiatives does the School have for 2012? om: We are now ready to grow having built the foundations both in terms of the content of what we do (New Zealand materials, ELIs online trade portal, exporter case studies, export checklists and template documents) as well as our processes (such as building the networks of stakeholders including Chambers of Commerce, recruitment, ongoing adviser support and admin systems). We will be raising our profile so that we become known as the place to go for exporters who want to turn professional, or as I say “would you use an amateur dentist?” Finally, we have survived on the smell of an oily rag for five years but we now need major New Zealand benefactors to support what we do. We have proved we can compete at the international level, now we need backers to help us move to the next stage, just as so many of our exporters need investment to help their businesses grow.

: What is the feedback you are getting on the performance of our export sector? What will the newly-elected government need to do to stimulate our export sector? om: the most recent Global Competitiveness Report (2011-2012) shows New Zealand slipping further behind – dropping to 25th place and being overtaken by Israel and Malaysia. that comes on top of the credit rating downgrades. Unfortunately we have a monetarist mindset within treasury which is ideologically wedded to the belief in the free market but

unfortunately it’s not shared by other countries such as the Us which is ruthless in exploiting FtAs (such as their insistence on New Zealand closing down Pharmac as part of the trans-Pacific Partnership deal). to be honest, New Zealand has been very badly served by governments of all persuasions and we continue to decline because we still cling to the mistaken belief that we can somehow muddle along and get through. What we need is a comprehensive economic plan founded on an export-based economy. one which includes all the essentials such as use of the superannuation Fund to invest in New Zealand export companies (rather than losing billions playing roulette in the global stock markets), an Export Bank that has a different view than the ludicrously high interest rates of the Reserve Bank, more funding for NZtE both here and abroad, and major tax breaks for income earned overseas. Asset sales is not an economic policy. Neither is opening up coal, gas or oil reserves to foreign ownership. New Zealand could become a world leader – as so many of its exporters are. Instead we lack the visionary political leadership that can see beyond opinion polls and photo opportunities to a radically new kind of economy that will serve us now and preserve the legacy for our children. Just as in rugby, we are one kick away from defeat and need to raise our game if we are to continue to win and stay in the game.

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> F E At U R E

Taking governance seriously What company directors can learn about corporate governance from the finance sector collapses.

BY V I N C E Nt NAI DU

ne of the things highlighted in the recent wave of corporate catastrophes in New Zealand is that a critical factor in the success of a company is its ability to comply with its legal obligations in an effective and timely way. In a recessive economy, company directors have an even greater responsibility to adhere to the principles of good governance – to carefully observe the rules of their constitutions, to monitor statutory compliance, and to ensure that they are meeting their obligations in relation to duties owed to their stakeholders and creditors. In light of the media attention on the directors of several failed finance companies, various questions about the ethical and legal duties of directors of companies have been raised in the public sphere. these questions have tremendous relevance for the sME (small and medium enterprise) sector for two simple reasons: most of the finance companies affected

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were technically sMEs, with small(ish) boards and management teams; and, the legal duties imposed on the directors of the finance companies are similar to those expected of directors of small and family-run companies. so what can sMEs learn from the failures in the finance sector? Well, a lot really, but there are a few things that particularly stand out as essential skills for company directors: 1. Understand your governance obligations For corporate governance to be effective, it must be thoughtfully directed through policy and rigorously maintained through sound decisionmaking, continual risk assessment and compliance by the board and management. Directors, in particular, have a crucial role. they, more than others, bear the responsibility to ensure that the business and affairs of their companies are well managed and successfully governed. this expectation is consistent with the requirements

of the Companies Act 1993 (“the CA1993”) which places significant and extensive legal obligations on directors, including a duty of care. the board of the company also carries a heavy burden as it must demonstrate the principles of governance effectively in its policies and decision-making. It’s been widely suggested by business commentators that a major reason why there have been so many examples of corporate governance lapses in New Zealand is because, generally speaking, many private company boards don’t fully understand the legal requirements imposed on companies. sMEs can solve this difficulty by developing a board culture that is compliance focused, assesses risks continually, and is diligent in its performance oversight. 2. Pay attention to warning signs When problems arise within a company, the board has the prime responsibility to ensure that they are dealt with quickly and within the bounds of

the law. If there are billboard-sized warning signs of the ruin and disaster that would befall a company unless its leaders change course, then the board has to put everything else aside (including company retreats, holidays, and corporate functions) to deal with pertinent issues to avoid a crisis. A quick review of the company’s books, a frank chat with relevant stakeholders, and good legal advice are often good starting points to avert disaster. 3. Demonstrate proper financial management It is imperative that board members have a basic understanding of financial management. An awareness of financial systems and sound monetary management are critical to good governance, and board members, whether experienced in accounting and financial matters or not, have responsibility for the financial success and sustainability of the company and its businesses. It is an advantage to the company when board members have a general understanding of the effect of negative cashflow, and a basic ability to assess the financial health of the company, particularly in relation to the attainment of its objectives, and the cost of credit to the organisation. these elements are not only especially vital for the finance sector but for all sME organisations because the board is accountable to stakeholders (including employees and creditors) for the diligent application of cash assets and the prudent investment of stakeholder funds. 4. Manage conflicts of interest and make disclosure Conflicts of interest and proper disclosure are foundational blocks of good governance, and it is not uncommon for sMEs to encounter problems due to self-interest and a lack of disclosure on the part of the business owners and senior management. the CA1993 requires a director to make appropriate disclosure (section 140) and imposes the obligation that he or she must disclose to the board and shareholders whether he or she: • has an interest in a contract or other transaction and may or will obtain a material financial benefit from the transaction; • is a parent, child or spouse of a person who is a party to a

transaction, or who will or may receive a material financial benefit from the transaction; • is otherwise materially interested in a transaction, directly or indirectly; and is a director, officer or trustee of another entity that is a party to a transaction, or that will or may receive a material financial benefit from the transaction. Apart from making disclosure to the board and shareholders, it is vital that the board carefully records whenever a director is “interested” in a transaction in the company’s interests’ register. Making disclosure should ideally mean that the director (or senior manager) is excluded from the decision-making process in the matter in which he or she has an interest, but this can also

Family-run businesses may choose to embrace a holistic approach to governance which involves propagating values of responsibility, guardianship, strategic planning, vision and probity within the organisation, beginning at the board level and permeating the tiers beneath. Like finance companies, sMEs are also prone to disaster when governance goes wrong. A lack of corporate responsibility, transparency and probity have characterised the performance of many of our failed sMEs, with devastating results for employees and creditors. A quick survey of recent law reports suggests that there is certainly no shortage of case law in New Zealand relating to legal action against company directors. this should serve as a warning to directors about the

IT’S BEEN WIDELY SUGGESTED BY BUSINESS COMMENTATORS THAT A MAJOR REASON WHY THERE HAVE BEEN SO MANY EXAMPLES OF CORPORATE GOVERNANCE LAPSES IN NEW ZEALAND IS BECAUSE, GENERALLY SPEAKING, MANY PRIVATE COMPANY BOARDS DON’T FULLY UNDERSTAND THE LEGAL REQUIREMENTS IMPOSED ON COMPANIES.

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depend on the facts or the size of the transaction. It is also important to remember that boards have a particular duty to ensure that the assets of the business are not depleted or manipulated to maximise private pecuniary gain by its board members and shareholders at the expense of the company’s creditors. Final thoughts Corporate governance is not something that only concerns large corporates and listed companies. It is equally relevant to sMEs and family run businesses. In order to ensure continual success and longevity, it is vital that small and medium businesses embrace some level of corporate formality around the boardroom table. Corporate governance in a sME structure is about ensuring the efficiency of the organisation through commercial skill and the effective use of resources.

importance of taking their statutory duties seriously and demonstrating good governance in the performance of their roles.

Vincent Naidu is a partrner at Blackwells lawyers and notary. Email vnaidu@blackwells-law.co.nz

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> tRANsFER PRICING

An introduction to transfer pricing Anthony Hayley has examples of common transactions which may attract transfer pricing provisions, and discusses the opportunities available around international - expansion in relation to transfer pricing.

s entities grow and expand in a globalised economy (as they must to remain competitive and to diversify their commercial risk), they need to establish a presence in non-domestic markets. this is often achieved through a subsidiary or branch office. these new establishments may, for example, receive goods or services from their parent company or other group member, or in turn, provide goods or offer services to their parent company or fellow group members. these transactions occur between ‘related parties’, i.e. the entities subject to the transaction have common ownership or control. Due to the fact that the parties are related there exists an opportunity to move profits from one tax jurisdiction. this may result in a greater or lesser taxable income in one jurisdiction or the other. Given differential tax rates in various countries this may be advantageous, from a tax perspective, to the group as a whole. The transfer price Governments worldwide have enacted extensive provisions in their taxation legislation to prevent this shifting of profits to protect their domestic revenue base. the mechanism used to regulate this activity is generally based on arm’s length pricing, being the price an unrelated party would pay to obtain the same goods or services. this price is referred to as the ‘transfer price’. transfer pricing is the number one commercial and fiscal issue facing companies with intra-group,

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international transactions. this fact has been consistently borne out by many surveys over recent years. tax authorities worldwide are aggressively seeking out what they perceive as their “fair share” of the corporate tax pie. Jurisdictions with “mature” transfer pricing regimes, such as New Zealand and Australia, have invested heavily in recruitment and initiated more targeted and sophisticated transfer pricing reviews. on the other hand, countries which previously had little or no transfer pricing legislation, or guidelines, have rapidly been introducing them in order to redress this perceived imbalance.

the Global Financial Crisis had a number of implications from a purely transfer pricing perspective. In hindsight, it merely slowed down the pace of corporate globalisation. It put more pressure on multinational companies to critically look at their operational and organisational structures and gave fiscal authorities further impetus to aggressively pursue taxpayers. As a consequence, taxpayers should expect that their cross-border international transactions will face intense scrutiny both domestically and internationally from fiscal authorities. Four of New Zealand’s top five

trading partners (Australia, Us, Japan, and Korea) have ‘mature’ transfer pricing regimes. New Zealand’s top trading partner, Australia, with in excess of $10 billion in New Zealand imports in 2010, has one of the world’s most aggressive transfer pricing regimes. Accordingly, those organisations expanding globally will need to ensure they are aware of the relevant requirements imposed by the regimes they are operating within. In particular, the issues to be considered include: 1. Debt finance/loans Any intra-group finance provided between entities must be considered to ensure commercial rates of interest are being charged. this includes both loans and debtor finance. In pricing the loan, recourse would be had to the entities standalone credit rating. If they are high risk, but would still be able to raise finance from an independent party, a higher interest rate would be appropriate to reflect this. 2. Intangible property transactions the identification, location, payment for and valuation of intellectual property are critical for many businesses. this is particularly true in R&D intensive industries, or where brand, trademarks and other forms of intellectual property are critical to the overall success of that business. 3. Group restructures It is inevitable that at a given point in time a business needs to restructure its operations and its commercial and legal structure. taxpayers need to be aware that they are required to demonstrate that any restructure was done purely for “commercial” reasons and not to gain any tax advantage. Failure to demonstrate the commerciality of any restructure may result in significant tax charges. 4. Supply chain restructuring When multinational groups restructure there is an opportunity to review the location, function and risk profile of each operational unit in the supply chain to ensure the appropriate arm’s length remuneration for each individual unit. In addition, it may be possible for tax savings to be made, for example, moving a manufacturing unit to a lower taxed jurisdiction or a location where a tax holiday can be

TRANSFER PRICING PROVIDES TAXPAYERS WITH AN OPPORTUNITY TO REVIEW THEIR COMMERCIAL OPERATIONS, INTERNATIONAL STRUCTURE, AND THEIR DOMESTIC AND GLOBAL DIRECT AND INDIRECT TAX ISSUES (INCLUDING MANAGEMENT OF EFFECTIVE TAX RATES).

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taken. Your adviser can assist you in meeting your commercial objectives whilst at the same time seeking to reduce your overall effective group tax rate. 5. Documentation Different jurisdictions have different requirements in terms of documentation. In New Zealand there are no formal documentation requirements, however where the taxpayer has no documentation in place, they bear the onus of showing their prices are at an appropriate arm’s length. Conversely, where documentation is in place, the IRD will bear the onus of showing the prices are not at an appropriate arm’s length. this in itself creates a considerable incentive to have appropriate documentation in place when operating in New Zealand. 6. Opportunities While the requirement to appropriately document intra-group transactions is one further level of compliance placed on taxpayers, opportunities exist to take advantage of international expansion through the use of transfer pricing. Intellectual property, mentioned above, may be moved to an offshore location where it is tax effective to do so. this will allow for the payment of a royalty for the use of this intellectual property to the offshore entity. Consideration will need to be made of the various Controlled Foreign Corporation rules, for which New Zealand has a newly-implemented regime. However, where the offshore entity is also conducting some degree of trading business, these are unlikely to be an issue. Alternatively, one entity within the group may contract with the other entities to provide on behalf of the group certain services, and therefore take the risk associated with these

services. For example, one entity may contract to pay all of the group’s legal expenses. this entity therefore adopts the risk of potential legal actions, and in doing so, will be compensated accordingly with a higher fee. this allows payments to be made to an entity in another jurisdiction that would otherwise be excessive. Not just compliance An optimum transfer pricing policy is far more than a mere compliance issue. transfer pricing provides taxpayers with an opportunity to review their commercial operations, international structure, and their domestic and global direct and indirect tax issues (including management of effective tax rates). A well-documented, justified, operationally and commercially robust transfer pricing policy that maximises shareholder value is an optimum transfer pricing policy. such opportunities should be discussed with your advisor to ensure correct implementation and the maximum benefits are obtained.

Anthony Hayley is associate director - global transfer pricing at RSM Bird Cameron, Australia. RSM International has offices in 84 countries and operates throughout New Zealand as RSM Prince. Steve Hayes, partner at RSM Prince may be contacted at Steve.Hayes@rsmprince.co.nz

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Images on the go

pson has a completely new entertainment and presentation experience with its MG-850HD high-brightness projector equipped with 10W stereo speakers and a built-in dock for iPod, iPhone and iPad – providing instant high-quality sound and big screen images without wires. the versatile MG-850HD fits comfortably into virtually any setting, including at the office in a conference room presentation, or even outdoors. Watch movies, view presentations, share photos, or enjoy content saved

on portable devices on a big screen, easily project and play content from an iPod, iPhone, or iPad (while charging), or share high-quality imagery from a variety of other media devices, including smartphones, PCs, tablets, game consoles, and more. the MG-850HD uses Epson’s 3LCD technology to deliver reliable performance, high brightness of 2800 lumens light output, contrast of 3000:1 and vibrant colours at up to 1280x800 WXGA resolution. the two built-in stereo speakers allow the MG-850HD to be used as a standalone speaker dock with four optimised audio modes. And with the microphone input, users can narrate photo and business slideshow presentations, or sing karaoke. the projector features UsB Plug ‘n Play instant setup, enabling users to instantly project from a PC or Mac or

show slideshows via UsB. set up is easy with automatic vertical keystone adjustment and a horizontal slide keystone correction allowing the projector to be offset from centre. the RRP is $1,699. www.epson.co.nz

Agreement spreads TravelSIM availability

ravelsIM recently signed a major wide-ranging supply and distribution agreement with stella travel services, New Zealand’s largest fully-integrated travel services business. stella travel services also operates the Harvey World travel and United travel franchises, travel Brokers, and the specialist corporate travel management business Atlantic Pacific American Express (APX). this means travelsIM can now also be purchased at more than 70 United travel stores, and over 50 Harvey World travel stores, as well as more than 80 travel Brokers under the stella-operated travel Brokers brand. “travelsIM has already proved popular with our retail customers and is now seen as an essential travel product, which saves our customers

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significantly on their global roaming telecommunication costs,” says Neil Gestro, GM commercial of stella travel. the travelsIM prepaid mobile phone service offers substantially lower global roaming charges for text, calls and data via its global roaming network of 350 carriers. James Currah, chief executive of travelsIM New Zealand is delighted with the support they are receiving from the businesses within the stella New Zealand Group “travel retailers have embraced our mobile phone product as they look to add value to their customers travel experience, and reward them for choosing professional travel advice. “travelsIM users can look forward to additional services in the future as

we find ways to develop and improve our services so people can get the most out of their personal or business travel.” www.travelsim.co.nz

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Speech recognition comes of age Alan Chew discusses why now is a good time to start talking to your computer.

s I write this article using my voice recognition system, Dragon Naturallyspeaking, I realise that it was not too long ago that I was a speech recognition sceptic. Like so many others I had been disappointed by the shortcomings of similar software some years ago. In my first attempts to use the product some 15 years ago I was impressed by the concept and cleverness, but ultimately frustrated by the immaturity of the technology. Like many people, my incomeearning capability is highly influenced by how quickly I can enter data or type up emails, letters, proposals and the like. thus a technology like voice recognition that can effectively double to quadruple my typing speed is highly alluring to me. While I can type quickly, I cannot type as quickly as I can speak. Most people can verbalise two to four times as quickly as they can type. Unfortunately voice recognition had not lived up to its promises especially in the area of accuracy. there is no point in my being able to type as fast as I can talk if the typing comes out full of errors. In spite of this I decided that I should give the technology the opportunity to prove me wrong. thus, during Easter weekend in 2010 I gave the technology another go. I am so glad I did. the progress built into that release of Dragon (version 10) simply staggered me. I was very quickly productive, able to undertake a wide range of desktop tasks using speech recognition and voice commands, and achieving a very high level of accuracy. Instead of spending tens of hours training the software to understand my accent, I was productive literally within minutes. And even though it is not 100 percent accurate, the time I save greatly exceeds the time spent on corrections. suddenly I have turned unashamedly into an evangelist for speech

recognition, recommending it to colleagues, clients and staff. Kiwi accent About a year ago, version 11 was released with two major improvements over its predecessor. First, it improved accuracy by 15 percent on average. second, it added a New Zealand language choice to separate New Zealand pronunciations from Australian ones (both accents had been lumped into one Australian basket until now). No, even the latest version of Dragon does not give me 100 percent accuracy but it understands me correctly from 95 to 99 percent of the time. this is no mean feat given that I am not a native English speaker. the biggest weakness I’ve found with Dragon is its inability to always correctly tell the difference between homophones like ‘once’ and ‘wants’. It even sometimes gets confused between ‘with’ and ‘would’. But accuracy up to 99 percent of the time is impressive. I would never have been able to achieve that level of accuracy with my normal typing anyway. one helpful feature is Dragon’s ability to choose the right homophone based on the context. If you say “I write to my visitors to advise them to turn right at the entrance”, even though the two underlined words sound exactly the same, Dragon will choose the correct words based on the context of the sentence. Unfortunately, this contextual assistance does not work for all homophones. Improves typing speed If you are an extremely fast typist you may find that Dragon may not allow you to dictate faster than you can type mainly because of issues such as having to correct homophones. However, for the vast majority of people Dragon not only improves typing speed, it improves it dramatically.

Despite my earlier scepticism I am now a convert. Not only does it allow me to type at the speed of speech, it also lets me do it without fatigue. As a tennis elbow sufferer this technology is a godsend. My delight with Dragon has been further reinforced by unmitigated praise from clients and colleagues who have also started using speech recognition. Even if you have previously trialled Dragon Naturallyspeaking, I believe that it is time to take another look. Make sure that your PC has plenty of speed because Dragon is very demanding. Use the best microphone you can afford because its quality has a major impact on accuracy. And, if at first you don’t succeed, keep persisting. Like most technologies that adapts to the user, the more you use it the more it becomes useful.

Alan Chew is a chartered accountant and founder of Houston Technology Group, an IT productivity consultancy firm based in the Waikato/BOP region. Email alan@htg.co.nz.

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Online tools for creating export leads

o, you want to use social media for your export business but don’t really think Facebook is the right place to start? You could be right. so what other online tools could you use to get your product out there and create some export business leads?

Let’s look at probably the most obvious online networking tool for business, LinkedIn. With more than 120 million business people from all over the world all in one place, what a great place to start looking for prospects and business connections to start a conversation with. As LinkedIn is really just a database of people, it makes searching for the people you need very easy. But there are a few things you will probably need to attend to before you dive straight in because the first thing that person you reach out to is going to do, is look back at your profile. If it’s not impressive, you may as

well not bother spending the time and effort searching them out. By impressive, one of the main things to include is a great summary, packed with what you do and what makes you so different. Why should someone choose you over a competitor? Add in a PowerPoint presentation or video about your business, which doesn’t need to be any more than three minutes long. Whether it is a presentation or a video, keep it short and to the point and as interesting as you can make it. Don’t forget to add your contact details at the end for people to get hold of you easily. When your profile is looking great, then you can make use of the groups and “Answers” section to post great questions, add your expertise to existing discussions and network with others. Join your industry groups as well as perhaps some general networking groups depending on your product or service. But do check out how many discussions are going on in that group, make sure it is active. If the group isn’t active, then find another one that is. Use twitter to find valuable connections if you know the person’s name already. And when they tweet, if you can add to the conversation constructively, do so. Use twitter as an icebreaker to get a conversation started.

think about putting on a webinar together – one that adds value or shows your product off to its best advantage. A webinar makes it easy to see your product in action and to understand it better. this works really well if the product is very technical and depending on how you set your presentation up, participants can ask live questions. some useful mobile apps, particularly if you are out of the country include: • Dropbox – to keep your important files handy. • Evernote – your ‘brain extension’ for remembering things. • Money Exchange – to keep up to date with currency. • Mpass – if flying Air New Zealand and always cutting it fine to check in. • World Clock and, of course, LinkedIn to keep up to date with your business connections and discussions. Facebook isn’t the only social media site and is not going to work for every company. But if you are looking for connections in other countries, spend some time on LinkedIn. If you have a plan of what you are trying to achieve, it should work out well for you. Article by Linda Coles, a speaker, author and consultant on building relationships online at Blue Banana. www.bluebanana.co.nz

SLR camera control for iPhones

iwi company enlight photo, a leading innovator in photographic accessories and inventor of the orbis ringflash, recently announced its new ioshutter. ioshutter turns your iPhone, iPad or iPod touch into an advanced shutter release system for sLR, advanced compacts and Hasselblad cameras. the cable plugs into your device and the free app available from the App store completes the basic system. ioshutter features time lapse, timer, bulb, the awesome Claptosnap

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sound trigger and fun shaketotake movement trigger. It has more functionality than any traditional shutter release cables, opening a whole new world of opportunity and fun for serious photographers. the ioshutter app is available now to trial on the App store and the cables launch in early December for Canon, Hasselblad, Pentax and samsung cameras (with Nikon following in early 2012). Visit www. ioshutter.com for more information.

> FA I R s & E V E N t s

Local: 7 December Export Canterbury Breakfast the George Hotel, Christchurch. to register email: t canterbury@exportnewzealand.org.nz 4 February 2012 First Wednesday Brought to you by the ICEHoUsE and the Auckland City Council, this dynamic presentation and network opportunity is free for entrepreneurs with business ideas. For more go to www.theicehouse.co.nz 21 March 2012 New Zealand International Business Awards Hosted by NZtE and supported by ANZ. Recognising the innovative, the brave and the successful on New Zealand’s export front. www.nzte.govt.nz/events

Let us promote your export business event. Email the details to editor@exportermagazine.co.nz

International: 09-11 January 2012 Hong Kong International Licensing Show – organised by the Hong Kong trade Development Council and run in conjunction with the Hong Kong Baby Products Fair, International stationery Fair and t toys and Games Fair. For more visit www.hktdc.com/hklicensingshow 11-14 January 2012 Heimtextil – International trade Fair for Home and Contract t textiles – Frankfurt. www.heimtextil.messefrankfurt.com 16-22 January 2012 imm – the international furnishing show – Cologne. www.imm-cologne.com

21-29 January 2012 Boot Düsseldorf – International Boat show – Düsseldorf. www.boat-duesseldorf.com 27-31 January 2012 Christmasworld – the World of Event Decoration – Frankfurt. www.christmasworld.messefrankfurt.com 29 Jan -01 February 2012 ISM – International sweets and Biscuits Fair – Cologne. www.ism-cologne.com 31 Jan-03 Feb 2012 Pacific Maritime Expo – sydney Convention & Exhibition Centre. Business opportunities in the maritime industries. For more visit www.pacific2012.com.au

06-10 March 2012 CeBIT – Heart of the digital world – Hannover. www.cebit.de 07-11 March 2012 ITB – the World’s leading travel trade show – Berlin. www.itb-berlin.de 11-13 March 2012 Fine Food & Hospitality Queensland – Brisbane Convention & Exhibition Centre. www.finefoodqueensland.com.au 14-16 March 2012 GDS – the international trade fair for shoes and accessories – Dusseldorf. www.gds-online.com 26-30 March 2012 Wire – International Wire and Cable trade Fair – Düsseldorf. www.wire.de

01-03 Feb 2012 Australian International Furniture Fair - sydney Convention & Exhibition Centre. Visit www.aiff.net.au

27-30 March 2012 Anuga FoodTec – International trade fair for food and drink technology – Cologne. www.anugafoodtec.com

01-06 February 2012 Spielwarenmesse – International toy t Fair – Nürnberg. www.spielwarenmesse.de

15-20 April 2012 Light + Building – trade fair for architecture and technology – Frankfurt. www.light-building.messefrankfurt.com

04-07 February 2012 Reed Gift Fairs – Melbourne Convention & Exhibition Centre. www.reedgiftfairs.com.au 25-28 February 2012 Home & Giving Fair, Sydney - sydney Convention & Exhibition Centre. For more go to www.homeandgiving.com 25-29 February 2012 Reed Gift Fairs – sydney Convention & Exhibition Centre. www.reedgiftfairs.com.au 04-06 March 2012 ProWein – International trade Fair for Wines and spirits – Düsseldorf. www.prowein.com 04-07 March International Hardware Fair – Cologne. www.hardwarefair.com

17-20 April 2012 PaintExpo – trade Fair for Industrial Coating t technology – Karlsruhe, Germany. www.paintexpo.com 23-27 April 2012 Hannover Messe – the whole world of technology at one place – Hannover. www.hannovermesse.de

For more information on trade shows, 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

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GLOBAL STAGE EXPORTER LOOkS AT INNOVATIVE NZ PRODUCTS SEEkING A WORLDWIDE AUDIENCE

if yOU HavE an innOvaTivE PROdUcT yOU wanT TO TaKE TO THE wORLd, EMaiL EdiTOR@EXPORTERMaGazinE.cO.nz

Heinz Wattie’s As New Zealand’s largest grocery brand, we’ve been a part of New Zealand families’ lives since 1934. We have created Kiwi favourites that have become staples in New Zealand households, and delivered to New Zealand, and the world, innovation through healthy food, packaging and environmental considerations. Wattie’s products include soups, frozen and packaged fruit and vegetables and baked beans, to sauces, spaghetti, burgers, infant and toddler foods, cooking sauces, seafood, jams, dressings, simple tasty meal solutions and even pet foods. In addition to the foods we produce under the Wattie’s brand, Heinz Wattie’s also supplies products under a number of other well-known brand names such as Heinz®, Craig’s®, Farex®, Eta®, oak®, Good taste Company™, Greenseas®, Complan®, Chef® Gourmet® and Champ®. With so many products, and such loved brands, it’s easy to see how Wattie’s has made its mark on New Zealand and the world. It’s all good! As one of New Zealand’s largest food exporters, Heinz Wattie’s brings high-quality products from New Zealand to over 40 countries around the world. At Heinz Wattie’s, we take great pride in understanding the tastes of Kiwis, at every age. so o whether you’re cooking up baby’s first meal, making after-school snacks, or creating delicious, wholesome meals for the entire family, you can always trust Wattie’s products to help you satisfy your family’s appetites. We’re looking for partners in China to represent our Frozen Vegetable and Petfood products. If you think you have the scale, export and marketing knowledge and networks in the market then please visit the New Zealand trade Center for further information. We’re looking for established players with the ability to move significant volumes. FOr MOrE INFOrMATION vISIT WWW.HEINzWATTIES.CO.Nz

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Leading & More International Trading With more than four years industry experience and established relationships with several vineyards, Leading & More International trading is the professional expert on exporting New Zealand wine overseas. We are experienced marketing consultants in China and other Asian countries for the New Zealand wine industry. Leading & More International has a strong knowledge of the cross-cultural differences and an understanding of the different business management environment between New Zealand and Asian

countries, particularly the Chinese market. New Zealand is the first developed country to have a Free trade Agreement (FtA) with China. officially starting from 2012, New Zealand wine will be entering China without customs tax being charged, which will stimulate the growth of the current market. other countries incur 14 percent customer tax, which will give New Zealand wines the market advantage in China. Leading & More International trading can provide consultant services for businesses who wish to

enter the Chinese market and help clients with the required licenses and documents for exporting products into China. Understanding your future business market is the key to a prosperous venture and with our strong understanding of the Chinese market, we can provide market research services for the Chinese wine industry, by region and preference. If your business is ready to start exporting to China, choose Leading & More International as your preferred consultant for a successful outcome. FOr MOrE INFOrMATION CONTACT: FrANKLISF@gMAIL.COM

Timber Treasures We design and handcraft premium wooden albums from New Zealandâ&#x20AC;&#x2122;s finest timbers. our heart rimu is from a sustainable source and the swamp kauri is extracted from the swamps where it has been preserved for thousands of years. our handmade albums can be personalised with your own design or inscription. Preserve your precious moments now buried in your computer. We can also custom make a wooden album or book and add your company logo or event details to celebrate those important milestones.

the Colonial range is inspired by the rural craftsmen and women whose products were beautifully handcrafted. the style and fine finish reflects the heyday of the rural crafts era. the albums have traditional solid brass hinges and a book-style spine. We use acid-free paper for the photo albums and plain cream paper for the guest books.

the Classical range has the same quality as our Colonial range but takes its inspiration from the 21st century. Its sleek, elegant appearance gives it a contemporary look and the hidden hinges allow the album to lie flat. You can have the same insert as the Colonial albums, or a ring binder in silver, black or white. FOr MOrE INFOrMATION vISIT WWW.TIMBErTrEASurES.CO.Nz

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> VIEWPoINt

Why it’s smart to support exporting On the eve of Election 2011, Catherine Beard posts Export New Zealand’s wish-list to help grow export returns.

At the time of writing this column we are yet to find out who will be running the country for the next three years. Whatever party wins the election, we’re looking for some proactive policies that will help turn the tide of our declining exports. Growing exports from our nation of four million people is the only way we will produce bigger companies that can employ more people and allow for a better standard of living. the Export New Zealand exporters’ manifesto I have been pushing covers the following: 1. Trade policy trade is vital for New Zealand’s future – growing, profitable trade unhindered by tariffs and other barriers. Prosperity depends on selling goods and services into a wide range of overseas markets, moving up the value chain and diversifying our exports to spread our country risk. Free trade agreements and trade diplomacy are important to New Zealand as an export-led economy. the recognition by all major parliamentary parties of the importance of free trade and trade diplomacy is of great benefit to New Zealand’s economy. Export New Zealand is disappointed by the lack of progress in the Wto Doha Development Agenda (DDA) negotiations. these negotiations are particularly important for our agricultural sector as it is only in the Wto that meaningful disciplines can be negotiated on subsidies. We realise that progress in these negotiations is now unlikely before the end of 2012, but hope that New Zealand is active in encouraging a resumption of negotiations and an early conclusion in 2013 or 2014. Although no replacement for the

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Wto, bilateral and regional negotiations are important for New Zealand. In this context Export New Zealand is strongly supportive of the Government’s trade policy agenda. We hope that the Labour Party and other parties will support the continuation of this agenda after the election. We are also hopeful that details on a framework for the trans Pacific Partnership will be agreed in Hawaii; that this negotiation can be completed in 2012 and that work can commence to expand the membership of the agreement to eventually include all of APEC. We also expect that the agreement will live up to the rhetoric surrounding it. It must be comprehensive, covering all goods, services and investment and deal with a number of newer generation trade issues, including advancing regulatory coherence. We would not expect any New Zealand domestic policy settings to be affected by the agreement unless there is a net benefit for New Zealand. We hope to see the rapid conclusion of the FtA negotiations with India and Russia and a resumption of negotiations with Korea and the Gulf Cooperation Council FtA adopted and implemented. the potential benefits of a comprehensive FtA with India could be as significant as our FtA with China has already proven to be. Japan is another very important market. We trust the Government will continue to encourage Japanese participation in the tPP negotiation and the negotiation of a bilateral FtA with New Zealand. We would also welcome the Government exploring FtA linkages with the EU and with Mercosur. In addition, the expected economic growth in the Middle East and Africa requires a focus on growing trade with those regions.

New Zealand exporter interests in the Pacific should not be overlooked. We do not want to see our exporters disadvantaged by competitors from the EU. We support the expansion of CER to include investment, and we support the removal of double taxation faced by exporters to Australia. the mutual recognition of imputation or franking credits will remove a major disincentive to export to Australia. Government trade diplomacy also needs to focus on behind-theborder access for our goods and services, including breaking down non-tariff barriers such as sanitary and phytosanitary (sPs), ease of access through customs, technical and regulatory product requirements, rules of origin etc. the current time-line for getting sPs approval for export of horticultural products into China, for example, is often many years, which is far too slow. the non-tariff barriers are increasingly frustrating exporters and more government resource is required in this area. 2. Competitiveness Exporters need government policy that assists them to be internationally competitive, such as competitive tax rates, a reduction in regulatory compliance costs, competitive emissions trading costs and labour costs. the current emissions trading scheme exposes some of our biggest exporters to carbon costs with no free allocation of credits due to the methodology for credit allocation being based on an Australian scheme which was designed for their much more energy intensive and industrial economy. this undermines the competitiveness of some of our most important exporter sectors.

Exporters need a continued reduction in government spending to take the pressure off inflation, keep interest rates lower and the dollar lower. Also on the wish-list are policies that incentivise investment in the productive sector rather than the non-productive sector. 3. Global supply chains We operate in a global market and exporters need government to have an overarching national transport strategy. Working in a global market when you are a long way from your market requires world-class communication technology and the provision of competitive transport options. the competitive provision of transport is critical in keeping costs down. this includes sufficient investment and planning in the provision of roads, rail, ports, airports and the competitive provision of airline and shipping services. Efficient and competitive transport is more important for New Zealand exporters than for those countries that are close to markets. Also small domestic markets are more prone to monopolies and duopolies than large overseas markets. 4. Export market development New Zealand exporters face barriers to export due to their lack of scale. It is well-known that exporters do better in overseas markets when they can afford to have their own people in the market, which is costly for emerging exporters. Government can assist exporters by identifying their best performing “in-market” operations and replicating

this in as many markets as possible where there is sufficient export activity. 5. R&D investment Moving up the value chain and staying ahead of the competition requires investment in innovation. Both business and government underspend on R&D relative to our oECD competitors. ExportNZ recommends the government boost spending on R&D as a percentage of GDP to the same level as the oECD (the total R&D spend in the oECD as a percentage of GDP was 2.33 in 2008, while in New Zealand in 2010 it was 1.3 percent). We think this will incentivise greater investment also from business, especially if funding is on a shared basis. 6. Boosting venture capital availability ExportNZ recommends the government investigate new policies to increase access to venture capital, from both domestic and international sources. there are lessons to be learned from other successful exporting countries that use the tax system to incentivise investment in innovative export focused companies. the New Zealand Institute provides a good summary of the options. ExportNZ is very supportive of the important service provided by the Export Credit office, with its range of products that supplement the service provided by the banking sector. 7. Facilitate sector collaboration one of the solutions to having too many small to medium-sized companies that lack scale is to encourage them

to collaborate on-shore to compete offshore. ExportNZ has a role to play in encouraging this, and so does the government. We are aware that this has been tried in previous years with mixed success, but another look at this is timely. We believe there are more professional managers being appointed to run companies than was the case in previous years, who are more open to looking outside their own company and being positive about strategic collaboration where it makes sense. 8. Champion the export sector Exporters are often entrepreneurs and the sort of people that are motivated by a call to action. ExportNZ believes government has a role to play in championing the role of exports in the economy and encouraging the next wave of talent to ‘think big’. A wellcommunicated vision and strategy for export would be inspiring to exporters. this goes right back to working with the curriculum in schools, colleges and tertiary institutions to help build an entrepreneurial culture resulting in people prepared to think laterally, take risks and aim high. Many successful export businesses can be traced back to a single motivated and passionate person. As we move forward into 2012, I welcome your feedback on the above and any other exporting issues that arise. Catherine Beard is executive director of Export NZ. www.exportnz.org.nz

Coming up in the March/April issue of Exporter: FOREX/hEdGING:

LEGAL MATTERS:

A heads-up on how exporters are successfully

International contracts for the sale of goods or services can be complex from a legal perspective. Issues which may affect your ability to trade and operate offshore include the differences between legal systems; the question of which laws will apply in disputes; rules of competition; patent registration; IP issues; product liability; the list goes on. this feature aims to both educate and enlighten.

coping with the turbulent international financial markets and the foreign exchange uncertainty these markets create. We go to the hedging strategy experts for advice and gather as much helpful information as we can to assist exporters ride the global economic waves and stay profitable.

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

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> VIEWPoINt

From the Beachheads

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

: My company has always prided itself on being nimble and responsive to changing demands in overseas markets. Yet I hear advisors call for New Zealanders to be better at strategic planning. Doesn’t that straightjacket a company?

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: From Richard Keyse, Europe Beachheads chair Having a strategy and being “nimble and responsive” are not mutually exclusive. New Zealand companies going offshore should always review their offering to ensure there is demand, to establish market size, competitors’ positioning and confirm their unique selling proposition (UsP). the majority of companies assume that the demand they experience in New Zealand will naturally follow in overseas markets. But it is often only after a lengthy trial-and-error process that they determine what the new market really is seeking. Unfortunately, some find they run out of working capital, or there is no demand, or competitors’ offerings

have eliminated their UsP. this trend establishes the need for a set of strategies. Having understood the gap in the market, a company must still be nimble and responsive working within that gap to fulfil clients’ requirements. It is highly unlikely that the product or service fits perfectly. Any attempt to be all things to all people is doomed to failure, especially in a large or mature market. It is only after detailed analysis that you might find that perfect niche market. surely that is the last strategy? Unfortunately, you now need to establish how you will address the market and, possibly, even revise the entire business model. We all know companies that have fantastic global brands and marketing

strategies. Do you think that was luck (and like Houdini they had merely escaped from their straightjacket) or well thought-through strategies? As a buyer I want to ensure the product range or service will grow with me. I also want to know that it will be supported. You therefore must demonstrate to your client that you have a well-defined product strategy or service model. Yet another strategy! these strategies are essential for every New Zealand business in an offshore market. they also provide your backers with something to invest in.

: I am a manufacturer and have entered into a contract with a distributor in Brazil. After three months of working with him, I realise that he is doing very little to find market opportunities. I have invested $10,000 in entering into an agreement with him and providing him with training and samples. What should I do now?

IF YOU WANT TO ESTABLISH YOURSELF LONG-TERM, EMPLOY LOCAL PEOPLE, ALIGN THEM WITH YOUR VALUES AND WAY OF DOING WORK, AND GIVE THEM A STAKE IN YOUR BUSINESS. IT GIVES THEM OWNERSHIP AND A DESIRE TO SOLVE ITS PROBLEMS.

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not sufficiently motivated. there may not be enough rewards or the product may be difficult to sell. It may be helpful to try to find out what is the main reason behind the apparent lack of performance and try to address this. the main alternatives would be: Work with the distributor to see whether, jointly, there may be a way to improve market opportunities and/ or address the reason for the lack of performance. If possible, terminate the agreement and find another distributor. If the distributor doesn’t have exclusivity, look at other additional options such as engaging another company to provide a little competition.

: How important is a physical presence in Southeast Asia for a New Zealand firm to grow in the region?

: From Stephen O’Sullivan, South America Beachhead chair What action you take now will largely depend on the terms of your agreement with the distributor. At the very least, the terms of the agreement will need to be complied with. For example, it may not be possible for you to simply terminate the agreement and find another distributor, since the distributor may be entitled to exclusivity and/or there might be penalties for terminating. Also, three months is a relatively short time and so it may be that expectations of ‘immediate results’ are unrealistic. on the other hand, if the distributor is not doing very much to promote opportunities, it may indicate that the distributor is

: From Chuan Seng Lee, Southeast Asia Beachhead chair and chairman of Beca Asia It depends. If you have a product that doesn’t need after-sales service, or a service like software that can be backed up by a website or a help desk, quite often you don’t need a local presence. But if you want to build something long-term that will be robust, have credibility and take on a life of its own, then a physical

presence becomes very important. When sir Ron Carter established Beca in southeast Asia in the 1970s, he spent time living in Indonesia and singapore and realised that in order to build long-term, you need to localise and tap into local talent. You bring a New Zealander up to set up but their first aim is to find good local people and develop them. We call it being ‘Becarised’. You become one of us with our value system. soon you have a whole group of people whose livelihoods are in the country but they share the company’s values and ownership. they take responsibility for issues, which takes the pressure off head office for details. When I joined Beca in singapore in 1989 we had 20 people. Now we have 500 and more than 25 times the profit. Local people speak the language and they have the relationships – through their work, where they live and through old college mates. It takes ten to 20 years to build up useful contacts in a new country. to get New Zealanders to build a new market in say China is quite tough. Mainland Chinese are more comfortable speaking with local people. If you want to establish yourself long-term, employ local people, align them with your values and way of doing work, and give them a stake in your business. It gives them ownership and a desire to solve its problems. For more information visit www.nzte.govt.nz/beachheads

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> M A R K E t WAt C H W I t H ANZ ’ s C A M E R o N B AG R I E

Volatility is inevitable Decisive leadership is called for if the world is to get on top of its economic challenges. If that doesn’t happen Governments will be forced into taking action.

continue to pay homage to the global scene in my economic analysis, in particular the developments in Europe. the unfolding European debt crisis is simply the lingering after-effects of the 2008 global financial crisis. the New Zealand growth picture looks somewhat scatty and fractured, but of rock star status compared to most other oECD nations. the ‘risks’ to the domestic economy associated with recent offshore events have not really had time to manifest in reality. We can take some encouragement from a ‘plan’ finally coming out of Europe that contains market-soothing steps, including: • Banks will be required to hold at least nine percent core tier-1 capital by mid 2012. stress tests using september 30th data suggest this means an additional ¤106 billion capital; • the European Financial stability Facility (EFsF) will be leveraged to around ¤1 trillion, but we do not know by what method; • the stepping aside of leaders in Greece and Italy, and replacement with so-called ‘technocrats’; • 50 percent ‘voluntary’ haircuts on Greek debt, which have been proposed to avoid triggering a credit event, and; • treaty change options to be explored (which include new rules, closer monitoring, and greater enforcement). While welcome, questions and issues remain: • Will we see sufficient nominal GDP growth to avoid the debt trap? If borrowing costs more than nominal GDP growth, you’re effectively kicking off from behind the goal line. the Us looks okay on the data

front based on recent key leading indicators. Europe does not. our lead indicators suggest Italy is set to head backwards at a fair clip, so debt to GDP will be rising even if we heroically assume they don’t borrow another cent. • Is the size of the package sufficient to truly ring-fence potential next cabs off the rank beyond Greece? We now know about Italy. Who is next? Figures of $2 trillion plus are being mooted as necessary for the EFsF. • Where are the details on the necessary fiscal union? A sustainable monetary union requires the same on the fiscal front. But this is asking democratically elected Governments to cede their democratically elected rights to a higher order. And who would that higher order be? • With the battleground shifting beyond Greece to Italy and co, will these countries be able to deliver on the required austerity to alleviate solvency concerns? Pending elections in 2012 will be key credibility tests. • there are a host of event dangers including potential political paralysis and possible further credit rating downgrades. Is it one-way traffic? of course not. I’ve been encouraged by the better tone to the Us data and China continues to perform strongly (although the latter has notable risks given a large share of growth is coming from investment alone and there are growing concerns over the bursting of the property bubble there). Financial markets have been performing more somersaults than a gymnast. one week it’s risk on and the next week (or day) it’s risk off. the NZD is the tin-pot player at the international roulette table.

such volatility is natural when you are experiencing the interaction of massive policy support and deep-rooted structural challenges that are beyond New Zealand’s control, the most obvious being an excessive amount of leverage. Rather than get caught in the noise of monthly developments, I continue to simply accept the inevitability of volatility. trying to pick niggling turns and settling points is quite frankly a mug’s game when we have such a complicated array of forces at present (and that is before you throw politicians into the mix!). Western society is paying penance for prior years’ (decades’) exuberance. It’s an inevitable trend of long slow grumpy growth. We’re probably halfwway through the journey, though even that is putting on an optimist’s hat. New Zealand looks better than most and we certainly have a lot more going for us on the opportunity stakes. But we need to accept the reality of the world we reside in. As a small trading nation we are heavily coupled with global economic trends. For financial markets including the New Zealand dollar, the trend is different. the only clear trend is the lack of one and this is likely to remain the case for some time. or at least until we see either: a) decisive leadership to address some of the global economy’s challenges (think group interest as opposed to self interest); or b) an economic accident that galvanises politicians into action by delivering the political mandate to make the necessary changes and restore semblances of confidence. History tends to suggest we are likely to see the latter rather than the former. Cameron Bagrie is the chief economist at ANZ New Zealand.

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> VIEWPoINt

Weighing up the market entry options Andrew Sayers looks at the market entry options for businesses looking to expand into Asia, and the tax implications.

his article builds on the assumption that you, a Kiwi business owner looking to expand into Asian markets, have decided to proceed with the Asian venture. You may have already found a local Asian partner or distributor to assist with your market entry strategy. Let’s look at the market entry options available when expanding offshore and the tax implications that arise from those options. But first, know what you want to achieve. It is essential that business owners determine their commercial drivers for going offshore, and their exit strategy. For example, the objectives may include organic growth and ongoing profitability,

implementing the right structure, the overall return to shareholders from the operation can be significantly increased. once a business structure is adopted, it is very difficult to change, so we recommend that clients plan for the future when first establishing their foreign strategy (and prior to setting up a entity). It is also important to note that New Zealand businesses are taxed on their worldwide income, so irrespective of whether the market entry options set out below result in a tax liability offshore, the profits will always be taxed in New Zealand. Market entry options Below is an overview of some options for businesses looking to

IT IS ESSENTIAL THAT BUSINESS OWNERS DETERMINE THEIR COMMERCIAL DRIVERS FOR GOING OFFSHORE, AND THEIR EXIT STRATEGY.

”

rapid growth and sale, or third party investment. When meeting with clients these are the first things that I get an understanding of prior to analysing the best business structure for the venture. the reason this is important is that there are business structures that provide for less overall tax impost on the repatriation of funds to New Zealand business owners. there are also structures that provide for ease of bringing new investors on board (foreign or resident) and further structures that may reduce or eliminate the impost of capital gains tax on the sale of the business. By

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trade in Asia. the first three options result in no foreign tax liability when implemented correctly, which eliminates “double taxation”. Double taxation (tax paid overseas and here on the same overseas income) will almost invariably occur when trading globally, irrespective of whether you are trading with a country that New Zealand has a Double tax treaty (DtA) with or not. It is a common misconception that DtAs eliminate double tax – they don’t! they reduce foreign tax imposed in some instances – i.e. withholding taxes on interest, dividends and royalties. But primarily,

they provide clarity in relation to whether a business has a foreign tax presence and, if so, which country has the primary taxing right from that operation. 1) New Zealand export operation this model suits those businesses that won’t benefit from establishing themselves in the offshore market, or don’t have the capital or inclination to create a taxable presence (known as a permanent establishment or PE) in the foreign market. By engaging with an importer/supplier or importer/ end user in the market, you do not have to deal with the foreign customs authority, local safety, hygiene, labeling and other local requirements, or set up an entity or register for taxes in that jurisdiction. Naturally, while this model is simple, it ordinarily results in the smallest returns. 2) Local agent New Zealand exporters may choose to contract with agents in that market, in order to assist with marketing, distribution, or production/assembly of their products overseas. operating under this model provides the exporter with a greater understanding of the local market while still not necessarily creating a PE in that market. However, if the agent is dependent upon the exporter (i.e. does not act on behalf of other businesses and is economically and legally dependent upon the exporter), or the agent habitually exercises an authority to negotiate or conclude contracts overseas on behalf the exporter, this may give rise to a PE. 3) Import/Distribution It is possible to import product into a market and distribute it without

creating a PE in that market. However, the business will have to take account of the local requirements of that market. It will also have to comply with local customs requirements and duties and any Gst/VAt on import. this strategy is good when testing a market and ascertaining whether a product or offering will sell successfully there. If successful, it also leaves taxpayers with a wide range of choices if they decide to create a business/tax presence in that market. specific tax advice must be sought prior to entering a market this way, as there are a number of activities that will result in establishing a PE, which in turn will result in a foreign income tax liability. Now let’s look at common structures that do create a taxable presence in the market - structures which may allow for establishing a greater market presence, or give customers more confidence in dealing with your organisation. 4) Foreign branch A branch is not a foreign entity, but rather a division of the New Zealand business. Branches usually must comply with overseas registration, reporting and tax requirements, including paying income tax on profits attributable to the branch. the New Zealand business will include the overseas branch income in its New Zealand income tax return, with a foreign tax credit available for some or all of the overseas tax paid. However, double taxation arises when these overseas earnings are passed out to the ultimate New Zealand business owners (because no New Zealand tax has been paid on it, which will generate imputation credits). Repatriating profits between an overseas branch and a New Zealand business is relatively straightforward; it simply involves a transfer of cash. If the branch is a division of the main New Zealand trading entity, the New Zealand operations’ assets are exposed to the branch activities. For this reason, we normally recommend that a newly-incorporated entity be used to undertake trade in a foreign country – and that entity holds no other assets (i.e. it can licence IP, etc, from your existing trading operation).

Exporters may establish an overseas company in order to provide separate legal status and assist with liability protection and financial reporting. A company in a foreign jurisdiction may also provide a perception of local presence and allow for ease of investment of local ownership participation by local representatives. An overseas company needs to satisfy overseas registration, reporting and tax requirements. In New Zealand, shareholders in a foreign company (with an income interest of ten percent or more) are unlikely to be taxed in New Zealand on repatriated profits. this is on the proviso that the foreign company derives active income – i.e. does not derive a significant amount of dividend, interest, rent and/or royalty income. However, double tax may arise on repatriated income on distribution of the funds to the shareholders of the New Zealand parent company. As the foreign-sourced dividends are exempt income on receipt by the New Zealand parent company, no tax is paid in New Zealand in respect of this income and therefore no imputation credits arise. therefore dividends paid by the New Zealand company to its shareholders are subject to RWt. this double tax can be mitigated to some extent by intercompany charges – i.e. the New Zealand parent may receive a management fee, cost recharge, royalties or interest. Transfer pricing In order to minimise overseas profits and prevent double taxation, exporters and importers should consider whether they can repatriate income to New Zealand through related party transactions. For example, a New Zealand entity can charge a management fee to an overseas company. to prevent manipulation of such transactions, most countries (including New Zealand) have transfer pricing rules which tax related party transactions on the basis of arms length prices, rather than what was actually charged. therefore, it may be necessary to prepare documentation to justify the pricing of related party transactions. (see separate article on transfer pricing on page 46 – Ed).

Other legal structures Exporters and importers may decide to adopt alternative legal structures, including trusts, joint ventures, general partnerships, limited partnerships or look through companies. Each are taxed differently in New Zealand and may not be treated the same overseas as in New Zealand for tax purposes. Each structure also has different commercial advantages and disadvantages. Used correctly, these structures can reduce/eliminate double taxation and overseas capital gains taxes, and reduce annual compliance. For ongoing compliance costs and tax repatriation efficiency, these structures provide significant economic benefits. However, as discussed earlier, they may provide an impediment to the final sale of the business. therefore it’s essential to understand your exit strategy prior to implementing these structures.

Andrew Sayers is head of Asian Business and principal-tax consulting at WHK.

5) Overseas company

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> VIEWPoINt

China:

the complex dragon China is a country of opportunities – but it’s important that you don’t misread them, say Stephen N. Anderson and Vincent J. Zinck.

hina is the business paradox of this century. It is a hybrid powered by a communist based government that has been evolving from its original “stalinist” model into managing the development of a capitalist economy. opportunities are apparent to everyone. But the process required for successful engagement for those outside the country is difficult, complex and frequently

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misunderstood. A classic example of the bifurcation of this Communist/capitalist system is the country’s need for potable water. Providing affordable, potable water in China could be undertaken by the private sector. It is a potential business opportunity. the government, however, invested billions in a coal-fired electric power plant that uses part of its generated heat to distill seawater. the Israeli

desalinization process is efficient, but the cost of producing fresh water is twice what the government has chosen to sell it to the citizens of China. so, water is subsidized. Preparation for entry the first steps in identifying the opportunities in China and how best to undertake them requires developing and executing a plan based on the following:

to really understand China and its people requires devoting time to its history and development. Henry Kissinger, former Us secretary of state, in his book On China (the Penguin Press) wrote in the book’s preface: “this book is an effort, based on my conversations with Chinese leaders, to explain the conceptual way the Chinese think about problems of peace and war and international order, and its relationship to the more pragmatic, case-by-case American approach.” this book might be a good place to start understanding the country.

2009) Ching Mia Kuang advises on many significant topics. For starters, “there are four main types of business entities in China for foreign enterprises. these are Wholly Foreign owned Enterprise (WFoE), Equity Joint Venture (EJV), Co-operative Joint Venture (CJV) and Registered office (Ro).” Each of these has different limitations and advantages. But, they are the foundations on which all else rests including taxes, range and limits of business activities and organizational structure. the recent experience of an investment banking firm in undertaking an IPo for a successful Chinese coal mining company is revealing. Earlier this year Peregrine Corporate Limited, a Melbourne, Australia, investment bank, was engaged by a Chongqing coal producer to list on the Australian securities Exchange. Despite a highly skilled Chinese management, a 12-year successful track record and great ‘upside’ potential, brokers and investors in Australia questioned why a mainland Chinese company with all its operations and markets in China decided to seek a listing on the AsX. In addition, there was some general scepticism with respect to financial reporting practices and the ability of the management team to make the business cultural transition from being a private company in China to an international enterprise listed on a western securities exchange. Richard Revelins, executive director, personally conducted the process and raised $70 million in the IPo. However, the current share price does not reflect the IPo price or the value of the company.

Entering China now the landscape of this nation is populated by businesses and professional organizations from all over the world. It also has its own private businesses and professional groups that can match the best of any country. A resource who can provide the insider perspective is Ching Mia Kuang, a respected and established Chinese corporate executive. In his book CFO Guide to Doing Business in China (published in the Us and China by John Wiley & sons in

An important tax consideration: international transfer pricing As mentioned above, joint ventures and WFoEs are two of the types of business structures that a foreign enterprise can establish in China. If the foreign enterprise then engages in cross-border transactions with these China-based entities, the transactions will be scrutinized by the tax authorities in their home country as well as by the tax authorities in China. the tax authorities will look to see how the transactions are structured but, more importantly,

• Understand China’s 12th five year plan which was released on March 5, 2011. It sets the priorities in many different areas, most of which have commercial potential. • Prepare a detailed business and financial plan that enables quick adjustments to unpredictable strategic requirements, government rule changes or market and competitive changes. • Conduct independent market research and devote time with your potential customers. • Engage Chinese owned and managed professional service firms or companies that share your language, business methodology and have partnerships with Chinese professionals. • If your China plans involve working with one of the state owned enterprises (soEs), it is critical to understand what the priorities of the soE are. You can have the best idea in the world, but if it doesn’t coincide with the soE’s priorities, it probably won’t happen.

they will look to see how the transactions are priced. the basic rule of thumb is “how would the transactions be structured and priced if they were taking place with unrelated third parties?” Each tax authority is interested in seeing if an appropriate level of tax revenues is being collected in their jurisdiction. Failure to produce the detailed documentation to support the case during a tax audit can result in substantial penalties in addition to back taxes and interest payments. Intellectual property and copy cats the reputation of Chinese businesses for illegally replicating music, movies, software, design, and patented intellectual property has not prevented businesses from nearly every curvature of the globe to take the risk as well as greater precautions to protect that which they value the most. China’s government has recognized this problem and has implemented limited steps to stop IP creep or illegal adoption. However, the problem still exists and precaution is warranted. Despite the problems, opportunities continue to rise in this powerhouse economy. China’s GDP for the latest quarter was 9.5. Industrial production was 13.8 in september 2011.

Stephen N. Anderson is managing partner and Vincent J. Zinck a partner of Marquis Advisory Group LLC, based in San Francisco, California. Email steve.anderson@ marquisadvisory.com

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> VIEWPoINt

It’s time to earn more In the current economic climate, exporting is viewed as a high risk activity. What’s needed is government policy that’s focused on helping New Zealand’s export sector to earn more. John Walley has more.

ost-election, it is time to deliver on the promise of a new economic direction. It is obvious that earning more is the best way out of a crisis and this should be the focus of Government policy. there have been several reminders lately about the urgency of such a change: Credit rating downgrades the credit agencies have demonstrated an increased sensitivity to ever higher foreign debt – hence the recent downgrade for New Zealand. A persistent current account deficit drives this result. Low local savings and an appetite for asset-backed debt, supported by tax distortions and high offshore borrowing, have created unsustainable deficits over the past couple of decades. Add to that the absence of the necessary focus on the needs of the tradable sector in Government policy, and the result is we earn less and borrow more; where we are today should be no surprise.

America are difficult, with weak markets and a high exchange rate. A continuation of the ‘maintain the status quo and muddle through’ approach risks another crisis in Europe, or elsewhere; significantly raising the cost of funding offshore debt, pushing back any potential Government surplus, or worse, causing another liquidity crisis which could threaten the ability of banks and the Government to roll over debt. these three points above demonstrate that not a lot has changed since the recession opened in 2008. Economic policy still incentivises consumption and borrowing over savings and exports. the graphs below demonstrate the impact this has had on start-ups in the productive sectors.

Trade balance the trade balance in september was a deficit of $751 million, according to statistics New Zealand. Imports have risen dramatically indicating that we may be back to the ‘spend and borrow’ mentality. European crisis Instability in the PIIGs (Portugal, Ireland, Italy, Greece and spain) nations has so far been accommodated (at the time of writing Greece still looks shaky and Italy is on the skids) but instability in international markets could have a big impact on New Zealand. Already sales in Europe and North

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It is clear from the feedback we receive here at the New Zealand Manufacturers and Exporters Association that established firms see high risk in export activity and it is clear from the graphs how tradable business start-up rates have fallen.

NEW ZEALAND’S NUMBER ONE CHALLENGE IS TO EARN MORE. SYNONYMOUS WITH EARNINGS IS EXPORTS.

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When returns are unpredictable due to a volatile exchange rate, when there is little support for innovation and the tax system fails to support such investment, this should not be any surprise. Where to start this is a list of policy items that has come from our members and would be a good starting point from the new Government: • Effective non-traded sector inflation controls. • Balanced taxation including capital gains. • Research and development tax credits. • Faster depreciation (write off) of plant and patents. • Investment incentives for productive investment and skill development. • Personal tax concessions for early stage productive investments. You will find more on these points at www.changenz.co.nz. to quote Ganesh Nana, BERL chief economist: “New Zealand’s number one challenge is not to spend less. It is not to save more. New Zealand’s number one challenge is to earn more. synonymous with earnings is exports.” this must be the policy focus from now on. John Walley is chief executive of the NZ Manufacturers and Exporters Association.