In the second of a six-part series on exporting to China, Paul Lewis looks at how exporters can increase the quality of their products to gain premium prices in our biggest market.

An all-encompassing New Zealand brand, like our tourism brand, and new attitudes to go with a new business model led by stronger industry associations are needed to ensure New Zealand's bountiful exports to China continue to grow.

Those are the opinions of two China-based New Zealanders with deep knowledge of the market; Mark Tanner of China Skinny, a marketing, online and research agency in Shanghai, and Scott Brown, managing partner of RedFern Associates, a consultancy which specialises in helping businesses enter the complex China market.

Their calls are for changes in the way New Zealand does business in China to ensure future growth. Kiwi exporters are exhorted at all points by government and trade advisors when it comes to China. The two countries are aiming to increase the goal of two-way trade totalling $20 billion in 2015 to $30 billion by 2020.

To do that, exporters are told often, they need to diversify and/or develop products that sit higher up the value chain, rather than just providing raw commodities which already attract good prices from China because of our clean and green reputation.


There is less incentive to develop such products when commodity prices are so good - but Brown claims New Zealand exporters need to change long-held, complacent attitudes. He is supported by Tanner who accuses some New Zealand entities of paying "lip service" to such change.

But many producers say it doesn't make financial sense to process in New Zealand, particularly in food.

One of the Bank of New Zealand clients who toured China recently with a Port To Plate agri-business tour, designed to help exporters understand the market, spoke of the difficulty. Mike Wilkins runs Wilkins Farming, a successful and diversified Southland cropping, dairy, beef, sheep and deer operation.

"It's disappointing but there is actually more benefit to be had in sending whole carcasses up [as opposed to refining the sheep meat into more value-added products] because the Chinese are happier processing the carcass for many more food uses than we do. We get a better price but it's disappointing we can't do that in New Zealand."

"I am a big advocate of selling a brand rather than a commodity in China," says Tanner. "Commodities are price-sensitive and exporters can be doing so well - but then the backside can drop out of it.

"I think a lot of people pay lip service to it [diversifying and producing premium products] in New Zealand. I believe that an umbrella brand, doing the same sort of job our tourism brand did for us, would be a great asset in China. It would allow smaller brands to piggy-back and I believe it would do a great service for New Zealand products and business."

"I don't think it is that difficult," says Brown of the need to change. He is a 15-year veteran of the market based in Shanghai. "We are generally riding off the back of that [good commodity prices] alone and other countries and other companies are innovating, building their brands, building their market and so on. We [New Zealand] need to compare what we are doing and what others are doing and realise that we need to do our market building better than we have in the past."

Brown says New Zealand's current business model is "very limited" and now, while times are good in China for New Zealand exporters, is the time to change; there are opportunities in many areas including seafood and wine.


"We talk about change but we don't really," he says. "We haven't had to. We are getting too good a price. We have been brought up to expect that and we have had to change bugger-all. We sold butter and meat to the Queen for 100 years and that worked...

"Now we are sitting at the bottom of Asia with the biggest market this century in front of us and we have a great government, political and trade relationship. I realise this sounds terribly self-serving for a consultant to say but it is true nonetheless - we [New Zealand] have never been forced to do the research to understand the market, to look at our brand, at how to best package our products, to really dig deep into what consumers want here [in China].

"We just send off our produce from the farm gate, to use one example, and we have the attitude: 'We get a good price by sending off to our Hong Kong distributor; we get good results; we have a good life. Why risk all that?'"

New Zealand may not always be able to rely on the ground-breaking free trade agreement with China and the good prices applying at present, says Brown. He used the New Zealand wine industry as an example, saying that the industry had done a fine job in positioning its wine as a quality product driving premium prices in markets like the US and UK.

"But until the Chinese consumer understands the attributes and value proposition of New Zealand wine, they won't do the same thing here. New Zealand wine doesn't have a big outfit like Jacobs Creek and what it does for Australia or like Fonterra up here for dairy."

Brown says that without that industry brand investment, advocates of New Zealand wine start out having a quality discussion but end up being forced into a price discussion as Chinese customers point to cheaper Chilean and South African imports.

"If we can go to them and say: 'This is Roaring Meg or Sileni and they are regional champions, the best of the best, and here's what this wine offers each year' - then you can have a different conversation with those guys."

"Companies like Villa Maria have tried really, really hard in China to do it on their own but they just don't have the budget. Industry associations are fairly non-existent and coming up once a year and bringing 50 wineries and having a show is a waste of time and money."

Brown says the success of French and Australian wines in China is not, as most observers claim, that they have more money.

"It's not that at all. Look at the Spanish - they are doing well here now and are here because they have to be. All they have is a united export-based industry, supported by a strong industry association. But we don't have that.

"NZ Trade & Enterprise are doing a great job but the reality is that they are expected to do everything - and they can't. Theirs is an impossible mandate."

Industry associations and private companies in New Zealand have to play a stronger role, taking more of a lead and more responsibility, says Brown.

"A lot of these guys in industries need to take responsibility at home first and then in this market. They are the in the best position to do it and there are plenty of great examples of how other countries have done it. We see it all the time in China with Scotch whiskey, Napa Valley wine and plenty of others - a really strong public-private partnership pushing a strong brand."

Brown says the only way to change entrenched attitudes is for the Government to begin things - "they have to show some willingness to start. They can give a big budget to NZT&E, yes, but we need a different model too. The industry and industry associations have to take the responsibility.

"The Government can seed it and the industry has to contribute and they all have to come together as one big entity. The government could, using a really simple example, put in $50 and then the top five companies in that sector put in $10 each, so to speak, and then the government backs out in a couple of years when the financials are right.

"The producers, the companies, and the associations have a responsibility to show others the way and show it can work. It doesn't even have to be big companies - the guys who make the commitments to doing business up here usually have a great attitude.

"It doesn't have to be an enormous, capital-intensive, distribution thrust. You have to have a presence in the market, you have to make a brand investment here and maybe some technical people. Leave the logistics to the Chinese - they're very good at it. Get good partners and get control of the model."

Brown says it has taken New Zealand companies a long time to understand what is needed in entering the Chinese market - and he says smart Chinese companies soon figure out which ones have done their 'due diligence' and their research.

Tanner says: "China is a huge place; you have to hone in on the geography and who is relevant in that geography. Beijing is quite different culturally from Shanghai, for instance. So you really have to dig into the marketplace and understand that you may have to send different messages in different places, especially with things like food.

"You have to make sure the product appeals to them and you have to use channels that will resonate with them and engage them. But so many New Zealand companies do not do that."


• Market presence essential - the Chinese need to see long-term commitment

• Develop a legal infrastructure to control channels, pricing, placement, counterfeits, marketing and grow a brand right for the China market

• Do exhaustive homework - research: China is not one generic market

• Relationships first, business second - the opposite to the West

• Identify decision makers and government influencers & understand hierarchical structures

• Evaluate potential partners and distributors carefully - as they will evaluate you

• Understand the complex customs and quarantine regulations - there are 30,000 Commodity Inspection & Quarantine (CIQ) officials in 300 offices around China; it's essential to comply and recognise that non-tariff barriers to trade are on the rise

• Protect intellectual property; understand China's complicated patents system who've taken a controlled, incremental approach are those who will and are already seeing the long-term rewards.

• Those who take a controlled, incremental approach are far more likely to see long-term rewards.

(Sources: BNZ, NZT&E, consultancies)