The Business Herald’s markets and banking reporter.

Online venture opens door to Chinese market

From a small start, student's business grew into a $30m-a-year operation, writes Christopher Adams.
"I'm really lucky that I chose New Zealand as my second home country," says e-commerce entrepreneur Kevin Wang. Photo / Doug Sherring
"I'm really lucky that I chose New Zealand as my second home country," says e-commerce entrepreneur Kevin Wang. Photo / Doug Sherring

Kevin Wang reckons he hit the jackpot when he decided to study in New Zealand.

A native of the northeastern Chinese city of Qingdao, he arrived in Auckland in 2003 as a fresh-faced 22-year-old, without even the English required for basic communication with his host family.

Back then Wang, now 35, had no idea he'd still be here 13 years later, running an e-commerce business with about $30 million in annual revenue, expected to grow to $80 million over the next two years, and with plans for an eventual stock exchange listing.

"I'm really lucky that I chose New Zealand as my second home country," he says as he gives a tour of the 2000sq m Penrose warehouse his company, Health Element, has just shifted into. "I really appreciate that this country has given me a lot."

In the new building, which has quadrupled the firm's warehouse space, stacks of products sit on rows of shelving.

They're brands most Kiwi consumers would be familiar with - from Comvita manuka honey to Anchor milk powder and Healtheries vitamin supplements.

Nearby, hundreds of little cardboard packages are awaiting dispatch to almost every corner of China.

There's a box of Trilogy skincare products, headed for Shanghai, and a consignment of magnesium supplements destined for Shenzhen.

In a few hours the packages will be trucked out to the airport and air-freighted to Chinese buyers.

Wang, whose company employs more than 50 full-time staff and sources product direct from manufacturers, says two to three tonnes of goods leave Health Element's warehouse every day.

Welcome to ground zero in the online retailing boom between New Zealand and Asia's biggest economy.

Health Element is one of a new breed of local businesses tapping into China's lucrative cross-border e-commerce trade, which China's Ministry of Commerce expects to become a US$1 trillion market this year.

Many Chinese consumers prefer buying products from outside their home country because they're seen as less likely to be counterfeit.

And they're not bothered by the two- to three-week delivery time. In fact, they like the wait because it provides some confirmation the goods really are from overseas.

The growth in online retailing into China has been a boon for local manufacturers, and a catalyst for the rapid profit growth - and corresponding share price surges - that listed companies such as New Zealand's Comvita and Australia's Blackmores have been enjoying.

Comvita chief executive Scott Coulter says e-commerce businesses such as Health Element play an important role in connecting the Bay of Plenty-based firm with Asian consumers, and have contributed to Comvita's recent sales and earnings growth. That growth has sent its share price soaring by more than 150 per cent in the past year.

"They're generally good to deal with and they promote your product," Coulter says. "They also know what the [Chinese] consumers like."

He says Asian migrants have been purchasing Comvita products and selling them back home for decades, initially through mail order.

"It started with a big influx in particular of Taiwanese who came into Auckland and started exporting Comvita product to Taiwan," Coulter says. "This is going back to the 1980s."

Just five or six years ago, the cross-border e-commerce trade was dominated by small-time players, often Chinese New Zealand residents and international students, who sourced products from local supermarkets for resale in China.

Even Wang started out that way, in 2009, after graduating from AUT with a double major in accounting and IT.

He would buy health supplements from Auckland pharmacies, which he sold in China through Taobao, a platform operated by Chinese online shopping giant Alibaba. That kind of thing still goes on, but many individual traders now work through firms like Wang's.

He refers to these partners as "aggregators" and his company has 500 of them -- a figure he's aiming to increase to 2000 this year.

They operate their own websites and earn commission from selling product housed in the firm's Penrose warehouse to their networks of customers in China.

Andrew Zhu, a researcher with the University of Auckland's New Zealand Asia Institute, says it's not unusual for Chinese international students to be making $2000 a week selling Kiwi products, either as aggregators or on their own through platforms such as WeChat, a Chinese messaging app.

"A lot of these students are already from wealthy families," Zhu says. "They do this kind of business to be independent."

He says some students are even using e-commerce income to invest in the Auckland property market.

Health Element - which operates 14 bricks-and-mortar stores in New Zealand and has plans to open hundreds of outlets in China - also sells directly to Chinese customers through Taobao, as well as Tmall, another Alibaba platform.

Last year the company launched an IT system, called Aladdin, which oversees the entire supply chain, from the purchase of products from New Zealand manufacturers to Chinese customs clearance and delivery.

"Health Element is doing a good job to standardise this industry," says Zhu, adding that one of the firm's strengths is the solid relationships it maintains with manufacturers.

Wang insists all of Health Element's exports pass through official - "sunshine" - channels into China, rather than the murky so-called grey channels, often via Hong Kong, that are sometimes used.

He says supportive policies from the Chinese Government are helping stoke growth in cross border e-commerce. "They're providing ways to avoid the grey channels through Hong Kong," Wang says.

On the back of anticipated growth in the trade, there's a plan to list Aladdin International, a company associated with Health Element that operates the firm's IT platform, on the New Zealand sharemarket.

As the technology platform's name suggests, Wang and his right-hand man, Ray Deng, Aladdin's vice-president, hope to make their business a kind of New Zealand-based version of Alibaba.

"We want to become the first Chinese listed company in New Zealand in cross-border e-commerce," says Deng.

What they're buying

Five popular products for Chinese online buyers

1 Comvita manuka honey

2 Anchor milk powder

3 Trilogy skincare products

4 Healtheries vitamin supplements

5 Antipodes moisturiser

- NZ Herald

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