The "Made for China" path is the way to success
Business owners and their advisers should note carefully China’s recently amended list of foreign goods that can be bought on e-commerce sites. It now includes a so-called “positive list”.
The amendment has reportedly “spooked” many shareholders of Australian companies who see it as a none-too-subtle way of exporters being told they’d do better thinking less about branding products “made in Australia” and more about labeling them “made for China”.
A recent Australia-China business survey identifies administrative procedures, brand recognition and domestic market access as the three most difficult obstacles to surmount in doing business in China.
Yet it’s clearly worth exporters coming to grips with these problems, for in the past two decades China has become Australia’s largest bilateral trade partner to account for 23% of our nation’s trade worth $150bn – and there’s no end in sight to growth.
But Chinese markets are still in comparatively early stages of development. Regulations change quickly, so that businesses aspiring to be involved in this growth must ensure they stay abreast of the bureaucracy’s requirements.
Especially these businesses
China is the major destination for Australia’s agricultural products and education services and the third biggest buyer of our manufactured goods. Accordingly any businesses associated with these products and services have strong incentive to keep a sharp eye on China’s regulatory demands, especially given that sales are expected to increase significantly following last year’s signing of the China Australia Free Trade Agreement.
Indeed, for Australian businesses generally, it’s estimated that by 2030 the effect of the reduction of tariffs to zero will be worth $11bn to them in terms of international competitiveness.
Agribusinesses are well placed to benefit from this opportunity.
Meat & Livestock Australia reports beef sales to China increased sixfold in three years to be worth almost $1bn last year.
Enhanced by the perception internationally that Australian produce is “clean and green”, sales to China will be worth more to Australia than iron ore exports by 2020.
Business analysts advising companies on exports to China say they should be making the most of a reputation Australia has established for moving forward from food security to food safety – a virtue admired especially by a growing middle class that remembers the melamine infant formula issue of 2008.
By mid 2016 about 25% of Australian agribusiness exports to China were the products of companies in food and beverage sectors, and the tobacco sub-sector -- a somewhat lesser proportion of the sales to Japan and Korea. However, this is a situation likely to be reversed before too long as incomes rise in China.
Demand for processed and packaged food is expected to grow quickly according to market analysts.
The made-for-China trend
Companies, large or small, making the most successful inroads into China’s markets are those discovering, usually in the course of a joint venture, precisely how the Chinese want food presented to them.
There’s a rapidly growing market for premium quality products with a stated provenance, accurately recorded nutritional value, and convenient packaging, when they can be delivered consistently in a reliable supply chain in appropriate quantities.
Unless businesses are backed by the means – and especially capital – that will enable them to meet these requirements, they should resist the temptation to involve themselves in any attempt to become established in Chinese markets.
Macks Advisory has seen estimates that point to a current trillion-dollar capital requirement for Australia’s agricultural industry. Traditional funding for agriculture that has come from the big four domestic banks is now trending towards increasing supplementation from Asian and US pension funds – and to a lesser extent from domestic super funds.
From Australian farm gates direct to Chinese consumers is another process of increasing significance to agribusiness. Big agricultural companies can do such deals alone, but the way is clearly open to a large group of small companies acting as a reliable cooperative.
But large or small, independently or as a group, the agribusiness organisation aspiring to do well in China must, as Austrade says, be “export ready”.
What it is to be “export ready”
All signs and portends are that Australian agribusiness is now in a so-called “sweet spot” where, irrespective of slowing economic growth here or anywhere else, China will continue to import food -- and no country produces safer, higher quality food than Australia.
Currently in Australia are arguably the best, most efficient and generally unsubsidised producers of food in the world.
But there is no room for complacency. Producers, to be export ready, must have a keen understanding of their targeted market as well as their own business’s capacity – especially its financial position in regard to available capital and debt ability to fund growth.
Many companies under-estimate the scale of opportunity China presents, and the impact that it can have on a business. Directors should work to a scaleable business model that accommodates Chinese expectations of sizes of orders and how they’re to be met.
That means examining every part of a business – particularly components of its supply chain – to ensure all can function to a required scale in a required time.
Mack Advisory’s advice is that any company seeking to do business in China should think in terms of protracted relationships founded in trust that accommodates Chinese culture. In doing this, directors should make the best use possible of available business networks, State based export agencies, and Austrade.
For more information, contact Macks Advisory on 08 8231 3323 or visit our office on Level 8 West Wing, 50 Grenfell Street, Adelaide SA 5000.
