Emerging markets call, but be prepared

Westpac New Zealand's chief economist, Brendan O'Donovan. Photo / Hawkes Bay Today

Fifty-seven per cent of chief executives in emerging markets such as China and Brazil feel positive about their country's economic prospects, compared to 2 per cent in more mature economies such as New Zealand.

The survey, by business advisory firm Grant Thornton, canvassed 7400 chief executives in 36 nations - including 200 from this country - and also identified those offering the most business opportunities.

At the top of that list was China, followed by Russia, Mexico and Brazil.

It is therefore no wonder many Kiwi businesses are racing to grab a piece of the pie in the world's emerging economic giants.

But Peter Sherwin, a business adviser for Grant Thornton, urges caution: while the so-called BRIC countries are leading the world out of recession, New Zealand businesses need to be well prepared to engage with them, as fraud and corruption were often "systematic".

"Fonterra's experience in China is a prime example of how a brand can be badly damaged by corrupt practices," Sherwin said.

He said the recent strikes by Chinese manufacturing workers affecting foreign-owned multinationals highlighted the potential risk in shifting operations to that country.

"The [Chinese] workers are starting to understand things like health, safety and purchasing power," Sherwin said.

"I think we're going to see a little bit more organised unrest over in China."

Westpac chief economist Brendan O'Donovan, however, did not think the strikes should be a cause for concern to New Zealand businesses considering manufacturing there.

"Chinese workers will be demanding higher wages over time," O'Donovan said. "Where some of the strikes have been, they've [workers] had a 20 per cent or so increase in wages. Still the monthly wage bill [per worker] is only US$250 ($354)."

The strikes were not signalling the beginning of the end for China as a cost-effective manufacturing destination. "There's still a large pool of untapped labour available in China that's going to tend to keep a cap on wages," O'Donovan said.

Al Monro, chief executive of Auckland-based, touch-screen maker Next Window, said the strikes might become a concern in the firm's Chinese manufacturing operations but were "certainly not on the radar" just now.

Ross Green, chief executive of electronic motor maker Wellington Drive Technologies, was not worried about the strikes, as the North Shore-based company's contracted production lines in China were located in a city 400km inland - far away from the coastal manufacturing belt where the industrial action had taken place.

The strikes indicated changing times in China, he said, which was positive for business because rising wages meant more Chinese could become consumers and increase demand for his firm's products.

Green said Wellington's largest division was its Singapore facility, which was largely staffed by Mandarin speakers who spent their whole day keeping tabs on the quality of products coming out of the company's contracted production lines in China. "This is what working in China is like."

In his role as business adviser, Sherwin said he had dealt with a New Zealand firm that had its children's products denied entry to the United States because of poor manufacturing practices in the Chinese plant it had contracted operations to.

But Sherwin said emerging economies were developing at such a rate that ignoring them could also be a risk for businesses.