Knocking on China's Door - Australia's SMEs to fly flag in Shanghai

TWO HUNDRED Australian SMEs will showcase in Shanghai, starting from February, as Australia’s combined Business Chambers move to properly position Australian products and services in global markets. Success in Shanghai could see a similar move into India. “This is a very strategic project for us – we have done a lot of exciting things, but we have never gone offshore on this scale, says Stephen Cartwright, CEO of the NSW Business Chamber . . .

STEPHEN CARTWRIGHT wants to take many of Australia’s two million SMEs into the brave new world of global trade, starting with China.
And he has brought together the combined strength of business chambers in all Australian States to a venture – Export Growth China – which is endorsed by both Chinese and Australian government agencies.
As he sees it, China is a pilot project for forays by Australian SMEs into other key markets, including India, South Korea and Japan.
“Let’s face it,” he says. “Australia is an SME economy – we don’t have many big companies here. The challenge is to get those two million SMEs into the game and to grow our economy by stimulating the great capacity we have.”
And that, he says, is not going to be done by Government agencies.
“What was made really clear to me in China was that Austrade was focussed on helping bigger companies that were able to go there by themselves, and NSW Trade and Investment (and other State Government agencies) were largely focussed on bringing Chinese money into their own State economies.”
Cartwright is Chief Executive of the peak business organisation in NSW, the NSW Business Chamber, and a Director of the Australian Chamber of Commerce and Industry (ACCI). At an international level, he is a Director of the
International Chamber of Commerce Australia (ICCA) and a member of the ICC World Chambers Federation Council (ICC WCF).
He told ATI that China has always been a taboo market for Australian SMEs because of cultural, language, currency and marketing
issues — and the stories they have heard of bigger companies being burned.
“So they were not brave enough to step in there, also knowing that, if they did get an order, it was probably going to exceed their capacity to supply.”
The Export Growth China programme had its genesis in 2012 when the NSW Chamber’s internal Trade department briefed Cartwright on a Chinese Government change of strategy — China wanted to become a more balanced economy, having learned from the lessons of Japan, where industries had become too exposed to the export market, and not enough to internal consumption.
As part of this strategy change, the Chinese Government decided to endorse a trade expo in Kunshan, Jiangsu Province (adjacent to Shanghai), open only to companies wanting to sell to China.
Cartwright saw this as an opportunity for Australia and put together a mission of nine companies – including Ugg Boots, Akubra, Draytons Wines and Costello Opal Jewellers.  “We had nine booths in an ‘Australia’ corner and the response was quite interesting,” he says.
“I witnessed a conversation between a potential Chinese buyer and one of the wineries – the owner and his wife were there — and they asked the buyer how many cases he might like. He said ‘X’ (a very large number).
“I thought the owner’s wife was going to fall off her stool because that number was bigger than their entire annual production. The scale of the market just hits you when you start talking to buyers in China.
“The second thing about that trip is that it allowed me to spend time in Beijing, and in Shanghai, and I guess, for the first time in my life I got a true understanding of just how big the market is — and, even more scary, just how big it will be.
“My other really salient meeting was with a former Australian Trade Ambassador to China. He pointed out that countries like France and New Zealand were really ‘killing’ Australia because they attacked the Chinese market as a single brand and stood for something unique in that market.
“He said: ‘The French lead with sophistication, for the Kiwis it is “Pure New Zealand”. Australia has no narrative and the States seem to compete against each other.’”
Cartwright explains:  “The former Ambassador told me that Australian food producers will pick some of the greatest fruit in the world, purify it, dice it up, put it in a tin, put a picture on it and it goes on a shelf in China next to the exact same product made in China – but we want three times the price of the Chinese version.
“Chinese consumers are wary of the Chinese product because of the less than ideal growing environment in China, but the products look identical. The French will put half as much fruit into a beautifully-crafted glass jar, with a hessian-covered lid tied with a piece of ribbon, charge five times as much — and it will fly off the shelves.
“The former Ambassador said we have not yet learned how to position ourselves in the market in China, and the more time you spend there, the more you realise that he is right.
“Australia should not be messing around with low-end, low-quality, high-volume stuff. We should be positioning for the absolute premium end of the market, positioning ourselves in the same way as New Zealand.”
Cartwright returned to Australia convinced that the way to bring SMEs into the China market was through the Chamber movement.  “There is a big Chamber in every State and then all the local Chambers (200 in NSW alone, which I guess is the distribution network), and collectively we represent around 200,000 SMEs.
“So I went to the (then) Gillard Government, which was constantly talking about the need for Australia to participate in the Asian Century. We put in a proposal under the Asian Century grants saying that we wanted to open a showroom for Australian SMEs in Shanghai and, at that stage, to also develop a retail distribution strategy in China for our smaller companies. We told them: ‘Here is the business case, here is the business plan, the Chamber itself will invest a couple of million dollars but we need matching funds from the Federal Government to really do it properly.’
“The first time those grants came out, we got zero – and they told us they did not understand our proposal, and could not follow what we were talking about.
Cartwright pressed on with his project, convincing the Board of the NSW Business Chamber to commit AUD2.5 million.  He also bid in the second round of Asian Century grants, and won AUD130,000 over three years from the
Abbott Government.
Separately, he enlisted support for the concept from other Business Chambers in Victoria (VECCI), Western Australia (CCIWA), South Australia (BusSA) and Tasmania (TCCI).
Members of each of these Chambers will be eligible to join the Export Growth China programme. (TCCI has since been promised dollar-for-dollar funding by the Tasmanian Government up to AUD100,000 for additional consulting and marketing required by any TCCI members participating.)
Cartwright has also signed an MoU with the China Council for the Promotion of International Trade (CCPIT) to promote trade between Australia and China. Australia’s Government export agency, the Export Finance and Insurance Corporation (EFIC), has created a line of credit to support those SMEs in the programme who win export orders but are unable to fund them.
Says Cartwright: “My original thought for China was to have a retail site because, in London or LA, I know where the Australia Shop is. Australian expatriates in Beijing and Shanghai number about 10,000, but where do they get their Vegemite or Tim Tams? The answer is ‘nowhere’ — so there had to be an opportunity just in that.
“But in the end we decided to go down the showcase road, to open a big showroom (in ShanghaiMart), to carry about 200 Australian products in a six-month rotating cycle, and to really allow SMEs for a very tiny price of five or six thousand dollars to test the market.
“Then we will come back and say, ‘yes’, your product will really fly in this market, or ‘no’, you have to change the packaging — but it is worth investing because there are buyers and you can make a success of it.
“For the SMEs, we can offer an agency structure, and we have a lot of capability to help with packaging and marketing. But at the end of the day, it always has to be their call as to how to proceed.”
Participating companies may be eligible for a claim under the Australian Government’s Export Market Development Grant (EMDG) programme. They will also have access to a range of Chamber services — from training and development in the intricacies of international trade through to packaging and special needs in legal, marketing, foreign exchange and finance.
The Australian Business Chamber (a subsidiary of the NSW Business Chamber) has taken a three-year lease with two options over 130 sq m of space at ShanghaiMart. Xiao-Yu Wei — for the past six years China Country Manager for Woolmark in China’s domestic market — has joined the Australian Business Chamber team of eight, four in Shanghai and four in Australia, who will spearhead the Shanghai initiative.
Fit-out of the showroom began in December, and the first products are expected to go on display from February, with an official opening of the facility likely in May/June 2015.
Cartwright says there has been an overwhelming response from Chamber members around Australia, with more than 120 expressions of interest so far. The Chamber has developed a diagnostic programme that companies need to complete before they actually commit any funding. This basically assesses whether a product or service is likely to sell in China, and whether the company is in a position to meet likely demand.
Cost of joining the programme and actually displaying in the showroom on a six-month rotational basis starts at AUD4,500 (plus GST).
Says Cartwright: “Textiles, belts and hats are one market sector of interest. Akubra has big market potential there – interestingly, its biggest foreign market currently is Tibet.
“Nutraceuticals – unless they have the word organic on the label, in which case it becomes a two-year licensing battle in China – along with food and beverages, honey, condiments, those sorts of things, should go well.
“There is a company near Orange (NSW) which does specially-blended coffee beans from all over the world, and they are really interested in seeing how they could go.”
Along with ShanghaiMart, the Chamber is creating a virtual shop on Alibaba, China’s biggest online marketing portal. It will also look at placing products from the Shanghai display in trade fairs in other parts of China.
For those wanting to market services into China, the showroom will offer visual display panels with QR codes linking directly to websites in Mandarin.
Cartwright says the project has been a learning process for the Chamber itself, and that this will add to the repository of knowledge that can be passed on to members.
“The business name we ended up registering for the Shanghai project is Amaroo,” he told ATI. “The only reason for that is that it is an aboriginal word that does not mean anything in Chinese translation. You cannot register a company that does mean something in Chinese, so you have to invent . . .
“There were also some interesting negotiations over the lease terms at ShanghaiMart – for example, we were confronted with a clause requiring us to indemnify the entire building, which has a staff of 8,000 people in it. We had to get around such things.”
The NSW Business Chamber has its own in-house legal firm and trained trade consultants. “Some SMEs are really scared about what legal protection they need,” says Cartwright. “We can sit in the middle and be the vetting process for these kinds of deals.”
The next stop is probably India. “We have not been doing enough there,” says Cartwright. “I think India is a big opportunity, so if China works, I will go to the Board and say, ‘let’s look at India’. When I was in Japan recently, I was convinced that we have a lot more to do there, too.”

Norco Foods creams the China market  . . .

STEPHEN CARTRIGHT is anxious to relate what he terms his “two favourite stories of the moment” in Australia-China trade. Both hold lessons for Australian traders.
The first involves the Australian dairy major, Norco, which is selling fresh milk into China at $9 per litre, against around $1 per litre in the Australia market.
“One of my (ABL) Directors is the Chairman of Norco, and he has a very interesting story to tell about how they got around shelf life and packaging issues,” says Cartwright.
“They had to change their packaging three times – twice for colour and once because the containers kept popping open when being flown into China at high altitude.
“Then there were the double-testing requirements – testing the product here in Australia and then again in China put them outside the allowed shelf life of the milk by two days.
“And counterfeiting problems – within weeks of Norco entering the China market there were fake ‘Norco’ products on the shelves in China.
“Norco put a QR code on every bottle of milk – the QR code tells you which farm produced the milk, what day it was milked, in which factory it was processed — and then eventually they were able to get around the double-testing requirements.
“So you have your two days of shelf life back. And the counterfeiter cannot duplicate the QR code. I think there is opportunity for more Australian fresh products to go down the same track . . .”
Cartwright says Norco also sees a big potential market in China for ice-cream – and because the peak consumer seasons in Australia and China are counter-cyclical, this option is very attractive.
He adds that Norco has, for many years, been a regular supplier to an Australian supermarket chain – on six month contracts which were renewed shortly before expiry.
“Within weeks of entering the China market, the retail chain offered Norco a five-year contract, because the reality is that if fresh milk demand in China is realised, Norco will not have the capacity to keep up supply at home. The China market is going to be massive.”
Cartwright says Norco has taken the five-year contract because the Australian retail market remains an important part of its business mix.

And a Brumby from Cowra takes wing . . .

CARTRIGHT‘s second “story” relates to Brumby Aircraft, run by a father and son team with 18 staff in the NSW rural town of Cowra.
The firm hand-builds two versions of a two-seater aircraft — a low-wing Brumby 600 and a high-wing Brumby 610 —  and is about to undertake a four-seater. It is also looking further into the potential of eight-seater aircraft.
The two-seater is regarded as one of the best available models for Ab initio (beginner) pilot training. Brumby builds between eight and 10 of them each year.
“So the aero clubs buy them,” says Cartwright. “The 610 is supposed to be the most brilliant light sports aircraft yet built.
“Brumby Aircraft asked us to facilitate a meeting in our Boardroom because they had been approached for a joint venture with a Chinese company, AVIC (the Aviation Industry Corporation of China), a huge Government
organisation in all fields of aviation, including military fighter jets and helicopters.
“So they came down from Cowra to meet with a group of people from AVIC and from the Chinese Government at our offices, where AVIC made a presentation.
“Basically, AVIC wanted to open a factory in Fujian Province to make the two-seater and four-seater aircraft designed by Brumby, and to put floats on the two-seater – as a seaplane.
From Fujian, it is about 100 km across the Strait to Taiwan, and the idea was that wealthy Chinese people could park their seaplanes at a seaport adjacent to the factory and fly across to Taiwan — or utilise the various rivers in the Chinese provinces.
“In their presentation, AVIC pointed out that, while aviation is opening up in China, there are relatively few airports. But there are lots of lakes and rivers — and executives could take off in a seaplane and land on a river or lake for a business meeting, then go home again.
“They were also proposing that anyone who purchased one of the seaplanes, or Brumby’s light sports aircraft in China, would come to Cowra to learn to fly – so they would build a residential flying school in Cowra.
“We thought – this cannot be right. It is almost like fantasy land.
“But just four months ago, I was in (the NSW) Parliament House with the Deputy Premier, officiating at the signing of a joint venture agreement between AVIC and Brumby Aircraft.
“They now have a joint venture with the Chinese Government which will see Cowra in future become a large research and development centre for a range of new Brumby aircraft.  It is an amazing story.”