OPENING DOORS TO CHINA

Moderated by: Jonathan Watt

Head China UnitNorth Asia Division

Ministry of Foreign Affairs + Trade(MFAT)

Opening Doors in China

New Zealand China Strategy

The Government NZ Inc strategies•Set goals and priorities for New Zealand’s key country and regional relationships •Coordinate government efforts •Boost New Zealand’s growth•Target key markets•Engage and support business

Why China?•World’s second largest economy – still growing relatively fast; major influencer in Asia Pacific region•By 2016 China could be the world’s largest economy•By 2025 China is likely to be New Zealand’s largest economic partner •We need to identify opportunities now for future growth•NZ’s relationship with China is crucial to delivering on government’s Economic Growth Agenda

New Zealand’s China challenge•To translate excellent political ties and a trading framework into tangible benefits for New Zealand.•To utilise our strong levers – China New Zealand FTA (2008), four firsts, knowledge and connections

The vision for 2015:

“New Zealand and China have strong and resilient economic, political and people to people

relationships which have stimulated New Zealand’s innovation, learning and economic

growth.”

Goal 1 - Retain and build a strong and resilient political relationship with China

•Importance of political relationship•Ministerial visit programme – especially in context of 40th anniversary•Establishment of NZ China Council

Goal 2 - Double two way goods trade with China to NZ$20 billion by 2015

•NZ exports have tripled since FTA•Underpinned by commodity growth•Development of higher value products and services.•NZTE focus on high growth companies project and priority sectors.

Goal 3 - Grow services trade with China, education by 20%, tourism by 60%, by 2015

•High value, profitable non-commodity growth•Education market analysis and develop targeted branding and promotion campaign•Support and facilitate expanded air links

Goal 4 - Increase bilateral investment to levels that reflect the growing commercial relationship with China

•Current levels low, room for growth•Creation of Investment advisory positions based in China

Goal 5 - Grow high quality science and technology collaborations with China to generate commercial opportunities

•Commercially-focused initiatives under the NZ China Strategic Research Alliance.•Lanzatech – NZ technology and Chinese capital in commercial venture

Cross-cutting Value Proposition: Develop and Protect the New Zealand brand

– Safe food– World-beating tourism– Tikanga Maori

Ministry of Foreign Affairs and Trade Role:•Protect and promote New Zealand's interests in China•Leadership role for the official relationship – Leadership role for the official relationship – onshore and offshoreonshore and offshore•China Strategy CoordinationChina Strategy Coordination•4040thth Anniversary Anniversary•Opening doors for businessOpening doors for business

New Zealand China Free Trade Agreement•Since October 2008, bilateral trade has increased Since October 2008, bilateral trade has increased 50% - NZ exports have increased 150%.50% - NZ exports have increased 150%.•Preferential tariff rates resulted in duty savings of NZ $130 million over the last two years.•Over 90% of tariff lines duty free since Jan 2012. Over 90% of tariff lines duty free since Jan 2012. •Keen for business feedback on challenges and opportunities.

OPENING DOORS TO CHINA: NEW ZEALAND’S 2015 VISION

http://www.mfat.govt.nz/NZ-Inc/6-Opening-doors-to-China/index.php

International Market ManagerNew Zealand Trade + Enterprise

(NZTE)

Opening Doors to China - Introducing the NZ Inc China Strategy

John BedkoberInternational Market ManagerNew Zealand Trade and Enterprise18th May 2012

New Zealand’s exports to China have been growing strongly while the trade deficit has been shrinking

Trade with China 2006-2011NZ $BN

*Figures are rounded to the nearest billion and are for exports of goods only.**NZTE customer numbers include service companies

12,000

Export goods earnings, year to June 2011*

$36billion

$5billion

$3billion

Companies $5-$25m

Companies< $5m

*Figures are rounded to the nearest billion and are for exports of goods only.**NZTE customer numbers include service companies

We are sharpening our focus… strategy is about choice

260Companies

earning >$25m

Number of New Zealand exporters

Focus 500

2000 NZTE CUSTOMERS

For NZTE… we are focusing on commercial companies

Logistic MangerNew Milk

NZ NewMilk Ltd. confidential. Do not circulate, quote, reproduce, or distribute without written approval from NewMilk.

EPIC NZOpening the Doors to China

Presenter Cameron Zhang fromNew Zealand New Milk Ltd. 新西兰新牛奶公司

New Milk introduction

• We are an infant formula OEM manufacture.– Focusing on formulated premium dairy products– Packing format includes 900g, 400g and 200g cans and

easy opening sticks

• Located in the Airport industrial park – Modern hygienic factory– Efficient equipments

• We don’t own brands and don’t marketing in retail markets

• We make infant formula products based on client required specification, and packing format

• One stop turn key service, including formulation

Stakeholder Position

-CIQ: China Entry-Exit Inspection and Quarantine-Customs

-MAF & NZFSA-NZTE-NZCTA

-Existing clients-Cash cow market

-New adventure-Future market-Marco Polo story

Government Agencies

• CIQ: China Entry-Exit Inspection and Quarantinehttp://en.ciqcid.com/– Understanding rules and regulations– Be open minded– Find the right partner

• NZ China FTA– Competitive tariff vs Non-tariff barriers– E.g. low tariff rates give advantage to NZ products– E.g. testing regulations raise the bar for imports

CN Govt. Agencies

Government Agencies

• Examples and Discussion:– GB standards in diary industry– E.g. one trading company brought products from

Europe to China without even considering quarantine and standard issues, the products had been returned (more seriously, it could be destroyed).

• Suggestion:– Understand your sector in China– Do enough homework– Finding the correct party to talk to– Always be cautious

CN Govt. Agencies

Agencies

• MAF & NZFSA– Provide manufacturing rules and regulations

• NZTE– Different programs to facilitate trade

• NZCTA– Large NZ China business memebers– Member events provide market info. and networking

opportunities– Valuable experiences to be shared

NZ Agencies

Markets

• Everyone has its own China storyChina is not that different from any other business environment

– Value for money– Long term relationships– Meeting their supply requirements– Quality– Profits

• Target market section• Finding the better trusted corporation partner

CN Market

Markets

• Some General Points#1 Quality and Premium – Not just a perception#2 Flexibility and able to understand the unique local environment#3 Use your strengths#4 Don’t forget the small talk (cultural)#5 Negotiating Skills#6 Control of your organization in China (WOFE/ Representative Office or JV)#7 Have a robust strategy with many facets#8 Use the NZ resources available#9 Have determination otherwise its hard to last the distance!#10 Differentiate yourself form your competitors by innovation and smarts – Our clients are very entrepreneurial they expect the same from suppliers.

CN Market

Markets

• Challenges:– Attaining legal status to operate, export, import– Understanding cultural differences– Achieving a work life balance while working in

China– Completing the work to a quality standard that

meets your clients expectation– Being cost competitive with local companies and

foreign companies who are well established in China

CN Market

Markets

• Solutions:– Form a WOFE where we have complete control– Use a combination of local on the ground services (accounting, legal)

and international firms– Employ Chinese staff who have spent sufficient time in New Zealand to

understand New Zealand business thinking, culture and language. (usually tertiary educated in NZ)

– Employ local resources and use local suppliers where possible to maintain competitive edge

– Offer a unique solution that other competitors can not offer– Work hard, but socialize with the locals so you understand their way of

life and thinking– Utilize trade associations (NZTE etc, we have probably not done this

enough)– Have a long term outlook and develop long term relationships

CN Market

Markets

• Maintain enough focus on your existing markets and clients

• Finding ways to bring your business to the next level from both ways.

Mature Market

Thank you for your timeany questions please?

Chief Executive OfficerEasiyo Products Limited

Department of Internal AffairsConference

Opening Doors to China

• China will soon be NZ’s biggest trading partner.

• China has an insatiable demand for NZ Dairy products.

• Infant Formula, Milk commodities and ingredients are critical for NZ

exports.

• Yogurt demand is growing rapidly 23% YOY (off a relatively small base).

• Yakult success has fueled probiotic demand.

• Drinking yogurt outsells spoonable yogurt 2 : 1.

• Local yogurt is generally low quality (runny/sweet).

• Little or no imported yogurt due to weight / cost / expiry.

• Demand for probiotics, protein, calcium and taste is high.

• Easiyo has been selling in china for 4-5 years.

• There are 450 illegal Easiyo web sites now!

• Initially Easiyo had an “exclusivity” model.

• One Distributor for one country – exclusive.

• But for China, it is too big and complex.

• Sales were slow, although easy to manage.

• Milestones were either not set or not met.

• The Exclusivity model was adopted to;

• Several non exclusive distributors for China/ SE Asia.

• However infighting rampant over pricing + territory.

• Web specials are too transparent, lots of grief!

• Supervision and admin costs increased to referee fights.

• This model was further adapted in 2011/12.

• The new model we call the OEM matrix.

• Early days so far but we are happy with progress.

• Sales have increased 2-3 x with less supervision.

• Distributors are happy as rules are clear.

• Cash in advance, NZ $, FOB, TT or L/C, we manage export documents.

• Minimum 20ft FCL.

• So what is the OEM matrix?

OEM China Matrix City Province

Shanghai

Beijing

Lushen

Guangzhou

Tricom

Shanzen

Lushen Foods

So Chuan

Zhengjiang

Liao Ning

Supermarket

Internet

TV HomeShopping

Pharmacy

Cookware

Independents

Rules we have insisted on;

•One square at a time e.g.: Shenzen/ Grocery.

•RRP’s encouraged at similar price e.g.: “RMB 60/sachet.

•Currently One Easiyo Branded Distributor although….

•Exclusivity contract expires in 2013.

•All other squares are OEM.

• OEM is unbranded Easiyo sachets and maker.

• Square “owner” does own branding / design in China.

• Design approved by Easiyo before stock made.

• Square owner investing in their brand not ours.

• Easiyo gets cash up front, milk volume, capacity.

• Also helps with make at home awareness in China.

• If square owner is troublesome we can stop supply.

• Easiyo control the IP as Westland Milk key specs.

• So far 4-5 squares occupied with 4.5 WIP.

• We only allow one owner per square.

• Most popular squares will go first.

Summary

• Easiyo has found this matrix works.

• It is not the long term goal as not brand focused.

• However in china for next 2-3 years is working as we build a war chest for

Easiyo brand investment.

• Other companies could adopt part of this model for themselves?

• Thanks for listening,

Good Luckwith your

Door to China!

OPENING DOORS TO CHINA

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