EXPORTS : Chinese Whispers

China is too big and too energetic to be ignored by New Zealand companies, even relatively small ones, says David Mahon.
The Beijing-resident Kiwi has box-seat view of the developing economic relationship between China and New Zealand and he has simple challenge for business decision-makers in his home country.
The investment manager, consultant and adviser to New Zealand Trade and Enterprise says: “Every New Zealand company that sees itself as medium-sized or bigger should hold board meeting in China within the next 12 months, even if the outcome is clear decision that ‘this isn’t the market for us’.”
The scope and scale of opportunities for doing business in China and for attracting new investment is that big, he says.
After living in China since 1985 and watching its economy grow at double-digit rates most of that time, Mahon knows what he is talking about. In fact, his company, Mahon China Investment Management, has been actively involved in that growth, connecting local partners with foreign companies – mainly from Europe and North America, but also an increasing number from Australia and New Zealand – who seek foothold in China beyond the sale of commodities or finished products at the border.
The opportunities arise, of course, with China’s sustained boom in business activity, in consumption and in savings.
Match these with New Zealand’s small market, scarcities of capital and the hugely constraining effects of these on business growth, and Mahon is in no doubt that our Free Trade Agreement (FTA) with China is the single biggest development for the New Zealand economy since CER with Australia in 1981.
He says New Zealand companies, with the exception of Fonterra – Mahon China client – and few dozen others, have yet to recognise this.
Mahon is certain that many New Zealand businesses are creative and innovative enough, and have sufficiently strong management, to prosper in China given time, perservance and commitment to learn.
He is particularly hopeful for companies in our small but world-class high-technology sector – companies like Christchurch-based Commtest Instruments which opened Beijing office in 2006 and now has seven staff there.
Commtest develops and makes instruments that detect vibration in high-performance machinery, so
enabling the most timely and cost-effective preventive maintenance. In China, the company is focused on instruments for the fast-growing wind-power generation sector. “They are intent on shaving off market segment that is worth pursuing and they’re getting on with it,” says Mahon.
He urges every other company of medium size or bigger to think hard about some form of involvement in China, or perhaps with Chinese investors in other markets, as part of its long-term planning.
“New Zealand’s physical isolation has promoted the myth that there is domestic market in the country separate from the rest of the world, when actually there isn’t,” says Mahon. The free trade agreement should underscore that point, he adds. (Note: the value of New Zealand exports to China jumped 43 percent during calendar year 2009, after the agreement came into force on October 1, 2008.)
Mahon says exporting more volume of current products to China is well and good, but the real value will come from finding out exactly what customers want and becoming involved in supply chains within the border. Fonterra is showing the way in its development of consumer brands – notwithstanding setbacks from the SanLu milk contamination crisis in 2008 – and in its own milk production from feed-lot farming in northern China, he says.
“It’s great example of New Zealand business applying its know-how in new ways, being highly adaptable and getting involved in the supply chain of food industry that is very important to China.”
Mahon China, operating from offices in one of the hundreds of new high-rise buildings that have transformed Beijing, manages private equity invested in companies within China, and offers corporate advisory services and market research for foreigners entering the country.
The business is testament to David Mahon’s own know-how and adaptability. He arrived 25 years ago on contract from Feltex Carpets to lay floor covering in the then-new Great Wall Hotel, and stayed on to teach himself Mandarin and become trader in carpet, meat and other goods.
He quickly recognised the pivotal role that finance would play as China opened its business sector for investment and growth, and began generating large surpluses.
Today, Mahon also chairs the advisory board for NZ Trade and Enterprise China Beachhead programme which offers information and advice to Kiwi companies entering the market.
He says there is no one best model for New Zealand businesses wanting to get involved in China, but that all new entrants must start by doing plenty of homework on the structure and dynamics of specific markets and regions, and on the relationships between businesses and government agencies.
“China is different, but not all that different. The differences are hard to quantify,” says Mahon.
He urges New Zealand companies not to balk simply at differences in language and custom, which can be overcome if there is genuine commitment to understanding China and to building relationships.
For companies starved of new equity or debt-funding at home, China can be great source of capital, thanks to the emerging wealth of its burgeoning middle class. “Chinese investors can be very patient and they value well-managed companies with products they respect,” says Mahon. “Their expectations of return can be surprisingly modest and long term. This is definitely not nation of asset strippers.”
One tip, however: China has welcoming and friendly culture, but that does not mean business contacts automatically become friends or that deals can be concluded without significant relationship-building.

Martin Freeth is New Zealand business writer who recently visited China.

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