China-watching is mandatory for many people in business.
The world’s most-populous nation looms large on the global stage in politics, commerce and sport. Its 300 million aspiring middle class citizens – still a small part of the total population - are increasingly sophisticated in their consumer activities, travelling a lot more and further, and pursuing business interests on all continents and the South Pacific region.
Looking back at 2016 in New Zealand, the standout in terms of Chinese activity in this country was the unprecedented level of investment capital that was available – looking for something to invest in. But just as glaring was the general failure of Kiwis to take advantage of that investment.
We had many local and overseas Chinese investors eagerly seeking businesses, ideas, or other opportunities in which to invest; but few takers. Or more accurately, few takers that were ready to work with Chinese investors to make it happen.
Standing on the sidelines as a bicultural facilitator of negotiations between kiwi and Chinese businesses, I have observed a few reasons for this.
New Zealanders are nervous about doing business with China. It’s not so much xenophobia, as it is suspicion about intentions and the enforceability of what is agreed. This suspicion comes from not understanding the language, the cultural differences and the way the Chinese do business. For instance, kiwis usually have an understanding of the people they’re doing business with, so they are quick to get down to business. The Chinese on the other hand find it strange that anyone would want to launch into the deal before building a relationship. To the Chinese, kiwi uneasiness and nervousness in dealing with them, and our failure to invest in the relationship first, comes across as showing a lack of trust and a reluctance to do business - a sure way to kill off any business opportunity.
Another major failing comes from the laid-back attitude of many kiwis and our naïve faith that the deal will sell itself. So often, I have seen New Zealand businesses present to my Chinese clients with poorly prepared proposals, key information missing or “assumed”, and unrealistic expectations of the value of the investment – with no hard justification for the value. They forget that any Chinese businessman who has made a truckload of money and has travelled halfway around the world to invest some of that money is likely to be a cautious, experienced and sophisticated investor. He is going to want to see a sophisticated proposal with detailed, justifiable figures, so that he can readily determine that if he invests $XXX he is going to get back $XXX times two. I have seen a number of deals that could (and should) have gone through but didn’t because of poor preparation alone. Such failures do not enhance New Zealand’s reputation as a place to do business.
Admittedly, it is tough for New Zealand enterprises to do business with foreign investors, especially when the large majority of New Zealand companies are small-to-medium-sized enterprises by our own standards, let alone international standards.
Many New Zealand companies that successfully pull off deals with the Chinese are already significant enterprises with the resources to do the job properly. Smaller start-up ventures are usually strapped for cash and don’t have the wherewithal to get advice from quality business consultants that can prepare them for discussions with potential investors. There is some funding available from the likes of the Callaghan Fund for that sort of support, though not as much as is usually needed. The problem is often that new entrepreneurs and even some relatively established operators simply don’t know how to make the deal.
On the intellectual property front, 2016 saw more people looking into IP issues more closely as part of becoming investment/deal ready. Sadly this focus has often been precipitated by the immediate past experience of having their products copied in China, or their brands misappropriated by opportunists, potential distributors or competitors.
This has been, and will continue to be, a significant challenge in doing business with China. New Zealand businesses are becoming smarter at navigating the risks, however, and there have been noticeable improvements in China to protect foreign companies from having their brands blatantly stolen under a Chinese trade mark system that grants ownership rights to the first person to register a trade mark.
In 2016, investment in the food and beverages sector led the way in NZ, reflecting the sound understanding that interest in foodstuffs does not come and go – food and drink is a constant human need. Chinese interest in New Zealand F&B offerings is strong: the Chinese are deeply distrustful of much of what is produced in the food and beverage sector in China and they see New Zealand food having an excellent reputation. Our products offer the promise of premium prices in the home (Chinese) market.
As a rule, these roaming investors are looking for innovation – new things to develop (and develop markets for) where there may be, for a while at least, little or no competition. And therein lies the other interesting development in terms of Chinese business that we are seeing. The Chinese, led by the Government, are striving hard to change their economy from one based on manufacturing of other people’s goods to one based on innovation – making and marketing their own goods. Driving the bus rather than being a passenger. Owning the technology and the brand rather than licensing them in from the US or Europe. For example, companies like Huawei are now pumping out flagship phones that seriously compete against the likes of Apple iPhones and Samsung Galaxy for quality, as opposed to price.
You may also have read of the massive push (again government-driven) to build a world-class football competition in China with the goal of becoming a great footballing nation. Huge sums are being paid to entice top players out of Europe and South America – Argentinean player Carlos Tevez will reportedly earn €110,000 a day to play for one Chinese club. Similar big moves are happening in basketball. China is determined to become powerful on the world stage in a variety of areas and is throwing a lot of money at initiatives to get it there.
It will also be interesting to see how the Chinese government, and as a consequence the Chinese market, reacts to the newly inaugurated US President Donald J Trump. So far Mr Trump’s antagonistic posturing towards China, no doubt for the benefit of blue-collar workers who voted for him, have been met with derision from China and no reluctance to say they’re ready to play “hardball” with the US. This, along with the upheavals in Europe, may well make New Zealand seem like a haven of calm and security for Chinese investors.
So, as we are not expecting to see a slow-up in capital flow to New Zealand any time soon, maybe it’s time for us to get ready for it?