China Business:A pathway to partnership

Paul Gestro, Head of Asia Desk, Institutional Banking at BNZ.

BNZ is developing a partnership strategy with key New Zealand stakeholders to create a pathway for smaller Kiwi businesses to make successful inroads into the Chinese market.

"We want to have a pathway for our customers, particularly into China," says Paul Gestro, Head of Asia Desk, Institutional Banking at BNZ. "Globalisation is a big thing, and China obviously is where a lot of this will head so we want to have some kind of presence there.

"What we want to do is see how we can create that pathway by using partnerships that we already have in the market."

The project is still very much in the planning stage, with discussions among potential partners focusing on how to build a concept which will optimise value to New Zealand businesses. This is vitally important to BNZ, which has more than 100,000 SME clients on its books.

Gestro says The Icehouse was a natural partner in their efforts to support customer growth into China. "With our extensive relationship with The Icehouse and being a founding partner of that, that was the obvious first port of call.

"With their view on having that kind of pathway into China and that validation for companies going into China, then it just made it obvious that we should partner with the Icehouse to do something very similar."

"[With] lots of people doing lots of different things you end up just getting mass confusion in the market, so having something that we can work together with the Icehouse on just made a lot of sense."

The idea is to emulate something similar to the Kiwi Landing Pad concept in San Francisco, recognising the unique challenges and points of difference in the Chinese market. The concept will be more of a virtual one, rather than focusing on establishing a physical presence on the ground in China.

It is hoped The Icehouse's relationships with a number of tech parks in China will be able to add value to the project, perhaps by providing some desk space for New Zealand businesses to base themselves out of these incubation hubs. "To be virtual, you've still got to submerse yourself somewhere," adds Gestro. "And that's why we thought with tech parks and NZTE, there's options for those SMEs."

Placing New Zealand companies in co-sharing environments does more than just provide the back-end service space and facilities essential for building an in-market presence.

The more intangible benefits of working in these hub-like environments can be crucial when starting out in a unique and highly network- dependent country.

"Plonk a New Zealand company in the middle of that, and all of a sudden they're talking to Chinese companies in the same boat as them, kicking off, but they've got some connections that you've never even dreamed about tapping into," adds Gestro. "So I think that co-hosting is where China wants to get to. You see them trying to develop these kind of models."

BNZ is able to draw on parent company NAB's resource team on the ground in China to support its SME customers' needs. Video conferencing and similar technology allows for engagement and support to be provided across borders. Through engaging with multiple clients at various stages of their market entry into China, they plan to connect these businesses in a way that will deliver mutual value.

Says Gestro: "Some companies who are based in China, for example, may have a spare desk in the corner of their office, and the companies engaged on a consultancy basis, and we'll then say: 'look if you want to stick around for three months, take that desk and then pay a small fee and away you go'."

Finally, a "concierge" service, similar to that which already operates in the San Francisco Landing Pad, is also envisaged. This will allow companies to access "on the ground support" in everything from finding accommodation or back-end service providers, to making connections with stakeholders in China.

BNZ hopes to be able to make a more concrete announcement about their plans in China early in June, when they will run a "Port to Plate" mission for some of the bank's customers. The tour will end in Xian from June 13-15, where NZTE has a desk at the World Dairy Expo.

The environment for SMEs in China is said to be improving dramatically, as the market shifts away from its traditional reliance on government and public enterprises.

As an example, Gestro says a number of the tech parks they have engaged with are being financed by private individuals from China.

"The interesting thing for me, and I think it's a bit of a change, is that they're not relying on government so much any more - they're relying on private sector investment. My view is that the government in China is realising they can't just take, they need to invent and innovate themselves for the long-term.

"The SME space is interesting. One thing I've noticed on recent trips to China is that the SME market is huge. The amount of entrepreneurs - you don't see them when you're walking down the main street - until you go to these things like tech parks, until you go to some of the networking events that are very Chinese-focused, you don't actually realise the extent of entrepreneurs there are."

Another macro trend is the Chinese Government's focus on IP regulation, and a move to become more sophisticated in the way that intellectual property is protected in China. New laws coming into play in China seek to make it more transparent for businesses to register IP and trademarks, and impose sterner fines, and possible jail time for theft of intellectual property.

"They're trying to encourage people to share ideas and innovation by introducing laws and rules around it. The environment for an international SME, or particularly a New Zealand company who has to export earlier is that they are a little bit more protected in the China market."

This is good news for New Zealand SMEs.

As the Chinese market becomes safer, and the risk of entry decreases, more businesses are likely to consider international expansion.

From BNZ's perspective, this reduction in risk is crucial to the level of support they can give to SME customers seeking to enter China.

Untapped potential
The Government's $30 billion target for bilateral trade with China cannot be achieved solely on the back of our largest companies and traditional export industries. Hitting those targets will require concerted participation from a range of businesses, regardless of size and industry area.

The greatest untapped potential lies among SMEs, who make up 97 per cent of New Zealand enterprises and contribute 40 per cent of the economy's output on a value-added basis. While these smaller businesses can contribute all-important value to New Zealand's trade relationship with China, they also experience unique scaleability challenges when attempting to break into new markets.

BNZ's partnership and collaboration approach draws on the idea that, with New Zealand's size and scale, tackling the Chinese market is impossible without the support of both public and private partners.