Key to China: Be quick, be smart

By LIAM DANN

China is big business for Fonterra and it is about to get bigger.

Patrick Kwok, general manager of Fonterra Ingredients China, who has been working for New Zealand dairy farmers for 14 years, says growth in the Chinese dairy sector is showing no signs of slowing down.

Kwok, who spoke at the Gateway to China trade summit in Auckland last week, is based in Hong Kong but will move to Shanghai when Fonterra's China head office relocates there later this year.

Fonterra is the largest importer of dairy products into China. It dominates the local market with an average market share of 65 to 70 per cent in most product groups.

It has sustained a leading position for past the five years, Kwok says.

There is no rocket science to achieving that result, he says.

It is mostly due to the commitment and hard work of a dedicated team in China and Hong Kong, with support from the parent company in New Zealand.

Kwok's advice to New Zealand exporters looking to make a mark in China is to be aware that they are entering a very different business environment.

"I like to say Kiwis are from Mars and Chinese are from Venus."

Chinese competitors can move with great speed, he says.

If you rely on the traditional advantages your products might have you'll quickly find the locals matching you on quality, he says, and always at a lower cost. Commanding a price premium is very difficult in China.

Unless you have something very, very special, "you shouldn't have too much hope about it".

Intellectual property law is also a problem for exporters. Or, as Kwok puts it, "It is yet to be improved".

Business in China is done against a background of constant change.

"I tell my staff that a successful strategy from the past doesn't guarantee your market in the future."

An example of the frenetic pace is a product lifecycle that is two or three times shorter than most other Asian markets.

"A lot of products are on the shelves for just one year then they are gone," Kwok says.

Companies prepare their product development for a very short time frame. The time from an initial idea to stocking the shelves has to be just months, he says.

Fonterra is in the position of always having the basic product ingredients on hand, he says.

The other vital ingredient for success in China is local knowledge, Kwok says.

China is not a single market but a combination of at least 30 provinces, each with unique characteristics.

Moving into the west of the country presents distribution challenges even for Chinese companies, Kwok says.

"To sustain your business it is vital to forge local partnerships."

While that can be difficult, those ties, once made, can last for 15 years or more.

The failure of many joint ventures has been due to foreign companies not taking time to get on the same wavelength as the locals.

People always ask why it is taking Fonterra so long to finalise its partnership with Sanlu Dairy, Kwok says. Sanlu is a top 10 consumer dairy products company in which Fonterra is negotiating to buy a 30 per cent stake.

A deal has been flagged as imminent since the start of this year.

"We view Sanlu as a long-term commitment. It's not about just five or 10 years," Kwok says.

"That's why we want to make sure that we align our strategic directions before we sign the contract."

Kwok says a deal really is getting close now.


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The Gateway to China conference is co-sponsored by the New Zealand Herald.