With new research showing that the Australia-China economic relationship is broader than previously assumed, many SMEs are asking how they can succeed in the Chinese market
Danny Armstrong, General Manager of China Banking at NAB, has shared his top five tips for Australian businesses to succeed in China – taking into consideration key findings from the Australia China Business Council 2014 Australia China Trade report, sponsored by NAB, that was released on 25 March.
“Investing in trade with China can reap tremendous rewards for Australian SMEs – but, it’s important for businesses to understand the complexities associated with doing business in the region,” Mr Armstrong said.
Firstly, Armstrong references the importance of understanding the Chinese Government’s Five-Year Plan, as it provides valuable insight on potential business opportunities and government incentives.
China’s legislature, the National People’s Congress, is due to announce its 13th Five-Year Plan for 2016-2020 shortly. This will set China’s course for the next five years and the social and economic measures contained in the plan will have a deep impact on the business landscape, both within China and for countries that do business with China.
Recent trends show that over the last two years, there has been strong interest in Australian dairy products and in Australian beef and lamb products – with more Aussie food manufacturers and exporters making a real effort to understand how to distribute their products onshore in China given the demand.
“Aussie businesses who want to succeed in China should look at the Chinese government’s growth priorities, as the government encourages business sectors and industries that are aligned with the plan to progress the nation’s priorities,” Armstrong said.
Secondly, Armstrong encourages Australians to be patient, and carefully plan according to the long-term impacts and benefits arising from the Australia-China Free Trade Agreement.
“The landmark Australia-China Free Trade Agreement will be an exciting time for Australia, and for creating local jobs. In fact together, Australia’s three leading North Asian trade partners – China, Japan and Korea – account for more than 50 per cent of our exports.
“The Australia-China FTA is predominantly about enhancing trade between Australia and China – with a significant opportunity on offer for Australian SMEs looking to establish relationships with China.
“We must however consider that the FTA will not generate large volumes of inbound investment overnight, and people establishing trade with China will need to have a solid plan in place”.
The report shows that China is Australia’s largest export market for both goods and services, accounting for around a third of our total exports, and a growing source of foreign investment.
“NAB wants to see Chinese markets unlocked further for Australian businesses. More markets open for Australian businesses means more jobs here in Australia.
“Australian business owners need to adopt a long-term perspective and strategy when thinking about China. The FTA will be more progressive particularly when looking at the decrease of tariffs – for most sectors, this will only happen over a four-year time frame.
The FTA is particularly important in making Australian companies more competitive with other countries which have already concluded an FTA with China. For example, New Zealand executed an FTA with China seven years ahead of Australia and Australian exporters are often at a relative tariff disadvantage compared to New Zealand exporters. With the FTA, Australia’s producers will progressively get back to a level playing field with their NZ counterparts.
Thirdly, Armstrong urges Australians to consider the benefits of on-shore/off-shore partnerships.
“One of the China inbound areas of investment we see a lot of interest from is from the Australian education sector, which is certainly a sector Australia is well-known for regionally and globally. For example, there are about 170,000 mainland Chinese students studying in Australia at any given point in time”.
Previously, a lot of the investments have been around partnerships with the aim of attracting Chinese students to head down to Australia or New Zealand. There has been much success in this endeavour – however, this isn’t the only avenue for Australian education institutions looking to enter China.
Investment in actual facilities onshore could potentially reap considerable returns for Australian education businesses in the long run. An example seen in the Australia China Trade Report is the partnership between Caulfield Grammar School signing a Memorandum of Understanding with Nanjing Middle School.
Fourth, it’s important for Australian businesses to consider second tier cities in China as part of the strategy, according to Armstrong.
The majority of large state owned enterprises (SOEs) are headquartered in the first-tier cities (namely Beijing, Shanghai, Guangzhou, Shenzhen), however a number of these SOEs are also based in second-tier cities with large populations – that can serve as a discrete test bed for products and services prior to taking on selling into China’s major cities.
Many of the second-tier cities, namely Tianjin, Chongqing, Chengdu, Wuhan, Xiamen that are primarily located in Central China, offer a lot of opportunities given that these cities have been growth engines of the Chinese economy. These cities are also boosted by significant amounts of government investment, new infrastructure and an influx of new talent.
For Australian companies exploring China’s second-tier cities, Armstrong mentions that it’s important to note that while the population of these cities are very large, they’re still relatively self-contained and potentially suitable for product testing. Companies can consider this as part of their strategy if they’re bringing new products to the extremely competitive first-tier city markets.
Lastly, Armstrong references the importance for Australian businesses to get connected with the right China advisors, with a wealth of knowledge being the key to success.
“It’s critical for Australian businesses entering China to get connected quickly with organisations that can offer them relevant business networking opportunities and deeper understanding of key issues in business and China’s changing business landscape”.
These organisations include the Australian Chamber of Commerce – where Armstrong serves as Treasurer on the AustCham Shanghai Board and Chairman of the Chamber’s Financial Services industry group – and many experienced China based consultants, accountants, lawyers and market entry firms.
“NAB was the first Australian bank to establish a presence in China in 1982 with a representative office in Beijing – which is set to convert into a foreign bank branch later this year. We also have a branch in Shanghai.
“Our forecasts for Asian currencies are also ranked in the top three globally by Bloomberg for three consecutive quarters since 2014 and these are available for our customers in Australia and across Asia through our monthly ‘Essential Asia’ report on Asian economies and market trends.
“NAB’s strategy in China is really about promoting bilateral trade and investment between China and Australia/NZ. In the Institutional space, we support large businesses in Australia/NZ investing in and trading with China and we also support large businesses and state owned enterprises in China investing in and trading with Australia/NZ.
“We see our role mainly as facilitating capital and trade flows between these major trade partners and as our customers capitalise on these developments, we are committed to continually meet their growing financing needs. In addition, we add value as an ‘expert mediator’ who can point Australian businesses in China to professionals in the market who can help our customers do their due diligence on potential business partners, make sure they check their partners’ reputation, and more”.
NAB in Asia has a strong role to play in helping customers navigate an unfamiliar market, such as China. With over 40 years in Asia, NAB have the expertise and local knowledge to help business customers do good and sustainable business in Asia, a region that is increasingly important to Australia.
About NAB in China
NAB was the first Australian bank to establish a presence in China in 1982 with a representative office in Beijing and later a branch in Shanghai. NAB’s approach in Asia is relationship-driven, supporting Australian business in Asia and Asian business in Australia. Our 500 people in Asia focus on the banking activities arising from the business, trade, investment and people flows between Australia, New Zealand, and Asia.
Further information about NAB’s work in Asia is available from: http://www.nabasia.com/