Softly, softly key to Asia trade

By BRIAN FALLOW, Economics Editor

As trading partners, the countries of Asia are collectively as important to New Zealand as the United States and European Union combined.

Should we be worried that our exports to the region have fallen by 21 per cent over the past two years?

Perhaps not, considering that those exports are measured in New Zealand dollars which have appreciated by 25 per cent in trade-weighted terms over the same period, and that for much of that period commodity prices sagged.

But over those two years the share of New Zealand's exports going to Asia shrank, from 36.6 per cent to 33.3 per cent, despite the fact that the region had recovered from the Asian crisis and was again the fastest growing in the world.

"It may well be that we have found better opportunities elsewhere," Prime Minister Helen Clark told the Seriously Asia forum at the Beehive on Wednesday, "but for the medium and long term there has to be more growth potential in Asia than in ... the more mature markets of the United States and European Union."

New Zealand's business demographics, with its overwhelming preponderance of small enterprises, provide one impediment to a broader commercial engagement with Asia. Ninety per cent of New Zealand firms do not export at all, and a mere 150 companies provide 95 per cent of the country's exports.

Speaking to the same gathering Foreign Minister Phil Goff said New Zealand's small size and relative distance from Asia were impediments. "We lack a critical mass of resources, both human and financial. Many of our competitors for influence and markets in the region are larger, stronger, better endowed and closer."

Culture could be another impediment. "New Zealand is a young country and New Zealanders are impatient for results. People in countries with more than 2000 years of recorded history, like China, India or Vietnam ... invest in relationships for the long term ...

"They will not be rushed into decisions. We have to learn patience and persistence," Goff said.

Brent Taylor, who heads Fonterra's ingredients business in Asia (sales of $1.7 billion last year) and who has worked in the region for the past 10 years, agrees.

"We tend to be too eager. For those who want to export there is always more opportunity than we can service. You need to stop and think and plan.

"Be clear about what you want to achieve, how big you want to be. Don't necessarily go with the first opportunity that knocks on the door, flattering though it may be," he said.

"Visit the market two or three or four times ... Seek advice from those already there. Don't be too eager or too opportunistic because the opportunities are not going to go away."

David Mahon, a New Zealand businessman based in Beijing for the past 20 years, also counsels perseverance.

"Most companies going to China are successful and those which stay the course find their own place in the market and make money."

He cites a recent survey by the American Chamber of Commerce of US companies in China in which 75 per cent said they were profitable, and 40 per cent of those more profitable than in any other market.

Mahon's company, Mahon China Investment Management, over the past six years has managed companies worth US$175 million ($273 million), mainly in the food sector.

People tend to see China as one enormous daunting whole, he says. "Although China is one country politically and culturally, it is really a collection of small, poor economies. There are niches."

Some of the cities of the eastern seaboard have become the "spoiled brats of reform", Mahon said.

"I am more interested in going to more internal cities of the northeast or even the west, where they really need investment and are more grateful for it and you can often do a much better deal."

But there are pitfalls. "Corruption is the one thing China has to do a lot more about and deal with aggressively. The anti-corruption campaign is real but there is a lot more to be done. We had problems recently with a company that was doing well but there were issues of corruption and in order to hide those local authorities have worked to try and harm the business and get it closed."

Chinese courts had improved substantially, Mahon said. "Every time we have gone to the arbitration court in Beijing we have had a good result, a just result," he said. "There's every indication if you look at the velocity of change over the past five years that China is on the way to building a very credible legal environment, but it isn't there yet and one has to be careful."

Taylor, reflecting on his experience in the wider East Asian region, stresses the importance of developing trust. "We are parties to a lot of contracts but so far I haven't had to pull one out of the drawer and take it to a lawyer."

Mahon says New Zealand firms entering the Chinese market have tended to depend too much on go-betweens or consultants. It is better to retain control and a direct relationship with your market.

"Where you can do it yourself you should do it yourself and not be dependent on a Chinese partner. Try to have New Zealanders to run your business who know your corporate culture, your products and your aims in the region," he said.

"The deficit is people. We don't have enough people in business with international experience. When I left New Zealand 20 years ago there was much talk of teaching Asian languages in schools. But apart from a token effort to teach Japanese it hasn't happened."

But fortunately there was now a prospect of that people deficit being filled by Asian New Zealanders.

Exports to Asia, 12 months to September 30, 2003 (provisional figures)

1. Japan $3.19 billion

2. China $1.44 billion

3. Korea $1.05 billion

4. Taiwan $657 million

5. Hong Kong $571 million

6. Malaysia $558 million

7. Philippines $488 million

8. Indonesia $391 million

9. Singapore $325 million

10. Thailand $323 million

TOTAL $8.99 billion

Exports to EU $4.56 billion

Exports to US $4.21 billion

Source: Stats NZ