Opportunities and challenges

Opportunities and challenges

Geographically, China is 36 times the size of New Zealand, has a population over 300 times the size of ours and has a growth rate that sees the value of its economy double every seven years.

By some calculations China is on track to become the world's largest economy by 2020, but it is still a developing country. China's economic growth over the past 25 years is probably the largest and most sustained period of wealth creation in the history of the world. In 1800 China generated 25 percent of the world's industrial output. By 1975 it had fallen to 1.5 percent. It is now on its way back to 25 percent.

But experienced business people in China emphasise patience when doing business in China. Brendan O'Toole, Managing Partner of Summergate, says while China is growing rapidly, firms shouldn't lose sight of the long-term: "It's still very immature, very embryonic. The real prize to China is 30, 40, 50 years and beyond."

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The opportunitiesThe opportunities arise from rapid economic growth in the world's largest market and the availability of a cheap manufacturing base from which to sell to China and the world. From a manufacturing perspective, China in the long run will be distinguished by its overall business strength and structure, including the huge investments made to ensure China has a modern competitive manufacturing sector.

New Zealand businesses need to be clear about whether they want to sell or manufacture in China. Long-term, China business strategies shouldn't be based on the availability of cheap labour - this is disappearing as China becomes wealthier.

In 2007 China had 106 US dollar billionaires - more than any country other than the USA. There were just 15 in 2006 and none in 2002.

A new generation of consumers is emerging in China - they are young, well educated and familiar with non-Chinese cultures. This 'Y generation' of 240 million, born between 1980 and 1990, is now the highest earning age group in the country and is looking for a new way of life.

They typically live in the major cities on the Eastern seaboard of China and in particular in Beijing, Shanghai, Shenzhen and Guangzhou where GDP per person is now over US$5,000 but corresponds in Purchasing Power Parity terms to four times that amount.

Grant Walsh, a Kiwi businessman with 10 years' experience in China, says if his food business wasn't located in China he wouldn't be able to give the levels of service or meet the volumes demanded by customers. "I think it's really that simple."

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The challengesStarting to do business in China is likely to be more costly and time consuming than in other markets.

Challenges arise because of China's size, its 'gold rush' style growth and the fact China has a very different business culture and environment from what we are used to in New Zealand and in other export markets.

New Zealand and China are also markedly different in size,culture, politics, geography, history and economic structure.

These issues can present challenges for companies looking to sell or invest in China which can only be overcome by thorough research, spending a lot of time in-market and following a focused business plan.

Much of the information available on China may appear contradictory. You need to see for yourself which advice is right for you.

From a distance China appears huge. The reality is that it is several large regional markets and many more numerous niche and micro-niche markets which helps to make China more accessible to New Zealand businesses.

Differences between the size and focus of the two economies, rather than being an obstacle to doing business in China, often present opportunities for New Zealand businesses.

The Chinese dairy market is typical of the mix of the opportunities and challenges facing New Zealand businesses. Chinese consumption of dairy products is just one fifth of the international average, but is predicted to move more into line with the norm as incomes rise. It is estimated that if each Chinese person drinks half a kilogram of milk a day, the country's dairy consumption would equal more than a third of the world's total dairy production.

There's a twofold challenge for New Zealand companies wanting to take advantage of this opportunity. Firstly every other major dairy producer in the world is similarly focused and secondly the domestic Chinese dairy industry itself is growing rapidly.

You should also not underestimate the size and quality of your competition in China. The government's pro-growth policies have produced a host of businesses pursuing each and every opportunity.

Other challenges include the uneven application of regulations, local protectionism, indirect subsidies to local industry such as low interest bank loans, intellectual property violations and the need to build up closer relationships with business partners than would be usual in New Zealand.

While there are unique difficulties in doing business in China, they are not as great as they sometimes seem from a distance. Companies already in China see problems as fewer in number and of lesser importance than those looking at China from back in New Zealand.