SMEs leading charge to embrace China

By Bill Bennett

The Icehouse chief Andy Hamilton says technology companies have tended to shy away from China as a first overseas market. Photo / Martin Sykes
The Icehouse chief Andy Hamilton says technology companies have tended to shy away from China as a first overseas market. Photo / Martin Sykes

China is rarely the first port of call when New Zealand innovators first head overseas. That's despite it being our largest trading partner and a free trade agreement that's been in place since 2008.

Andy Hamilton, chief executive of business incubator The Icehouse, says his organisation works with about 500 established small to medium enterprises (SMEs) every year and about 50 start-ups.

"With the start-ups we have two food and health related businesses currently looking at the Chinese market," Hamilton says. "The rest focus on the US and Australia while some head to Singapore or Europe."

The SMEs are different. The companies tend to cover a wider range of markets. Many, around 100, are already exporters.

Hamilton says they often have a greater focus on Asia because a large number are in food export sectors.

Technology companies tend not to go to China or elsewhere in Asia as their first overseas market because of the language and market challenges, he says.

"There are also difficulties raising capital when you are an outsider. The same issue applies in the US, but at least the language is the same. I think this is going to change with the creation of funds and more bridges between New Zealand and China."

Tony Wei, founder and director of The China Hub Inc, says New Zealand SMEs tend to be product-driven, especially if they are in the food and beverage sector. Wei also works for The Icehouse as head of China market development.

The companies head to China because of the large number of consumers and their appetite for high quality imported foods. They often rush in, leaping over a Chinese trader, Wei says. They think about strategy later, once they have hit problems.

The Icehouse China development hub works with a few companies that have a technology component to their business, he says.

"These companies are more cautious and appreciate the value of early preparation work. Their strategy is often by working things backwards. This means looking first at the market opportunities for the end products that the platform technology could potentially bring.

"They then filter this through a China lens so the proposition at present is well targeted for a bigger market opportunity in the near future. This approach is easier for Chinese investors to swallow," Wei says. "If you are not innovating with a view of making it into the China market from day one, it will just get harder as the product or service takes form. China is in a very interesting stage, transitioning from a socialist society and merging with the capitalist world," he says.

If you are not innovating with a view of making it into the China market from day one, it will just get harder as the product or service takes form.
Tony Wei, Founder and director of The China Hub Inc

"It's modernising but it's not westernising. The place has its unique social problems which brings many pain points that are waiting to be solved, ignoring these fundamental issues and forcing something in will [be] likely to deliver a poor return on investment."

He says the Icehouse hosts many delegations from China and understands the Chinese are setting up the platforms and support structures to attract companies, talents, ideas and knowledge to start up in China from places like Australia and the United States.

One fear entrepreneurs have when looking at China is protecting their intellectual property rights. Anton Blijlevens is a partner at AJ Park and is joint head of the company's China desk.

Many still think of China in terms of counterfeit products and little respect for IP law, Blijlevens says.

While that may have been true in the past, it is out of date. Blijlevens says China became a member of the World Trade Organisation in 2002 and put laws in place in 2003.

"The enforcement of those laws could sometimes leave a lot to be desired, but even that has changed in the bigger cities. Now enforcement is better and it is more cost-effective than in much of the world."

This is because companies can use the court system to resolve IP cases but there's the option of using local administrative offices. This is, in some respects, like going to the police with a complaint, Blijlevens says.

"It's cheaper and can be swift with black and white cases. The results can be mixed, but the important thing in China is about the statistics going to central government," he says.

"Businesses and local administrators need to look good in the Government's eyes and this is a way they can win approval".

China realised it needed some semblance of intellectual property rights when it wanted foreign investors to set up plants in the country, he says.

However, he warns there is still a problem with trade secrets. These are a form of intellectual property that is harder to protect, such as business methods or physical product design.

Blijlevens says the only way to protect this kind of information is to keep important ideas confidential.

- NZ Herald

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