Relationships key to entering the Red Dragon
Enterprise - September 2010
When you’ve exhausted local sources of growth, it’s time to seriously consider going international with markets such as China – which offer a wealth of opportunity.
The New Zealand-China Free Trade Agreement (FTA) has opened doors wider for New Zealand businesses, with China now being our second largest trading partner. And those with extensive knowledge of the Chinese market affirm that New Zealand holds a strong level of recognition and respect.
Although China appears like a feasible market in which to expand, entry comes with a word of caution. To succeed, it requires a long-term view and a significant investment of capital and time – for some it can take years to simply break-even. Preparation is key to navigate the challenges and opportunities before stepping in.
While the biggest hurdles to entry will be around the strength of your relationships and commitment, there are many other aspects to consider, including Chinese tax structures, New Zealand tax implications, IP protection, the Chinese legal and regulatory environment, and how to overcome the language and cultural barriers. But if you establish a genuine commitment to the market, the opportunities exist for you to succeed.
Don’t do it alone
The Chinese have a saying: “If you want to know the road, talk to someone coming back the other way.” Never underestimate the value of talking to or working with people who have done business in China.
Deloitte was recently commissioned by New Zealand Trade and Enterprise to write a report and case studies on doing business in China. The report contains one over-arching message for New Zealand businesses trying to operate in China: don’t do it alone. There were several themes that 'leap out' from the research, all reinforcing the central message to get help before trying to break in to China.
The first thing that stands out is the sheer vastness of the Chinese market and how truly daunting that can be for any business. As a result it is important to use the likes of NZTE for guidance - if you don’t use New Zealand-aligned resources “you’re nuts”.
The key theme gleaned from the research is that “relationships are everything” when dealing with Chinese businesses, whereas New Zealand businesses tend to have a more “superficial” view of relationships. In China, after five years you have the beginnings of a relationship and after ten years you probably have a relationship. It is sometimes an eye opener and isn’t the way a lot of New Zealand businesses view relationships. However, to build successful relationships, it takes time, effort and supporting people through the down times, as well as enjoying being with them during the good times.
Another resounding theme is the amount of time and cost required to do things yourself, which will mean that a number New Zealand businesses will not succeed in China. Careful consideration is required before market entry, and collaboration with other New Zealand companies will help.
This report is due to be released later in 2010 and will be followed in the New Year by a series of workshops and seminars organised by NZTE on aspects of doing business with China. It includes six case studies of New Zealand companies willing to share the lessons they have learnt. The report, case studies and workshops are designed to assist New Zealand SMEs to succeed in a market renowned for make or break.
Our professionals advise companies on a broad range of inbound and outbound tax issues, including structuring initial overseas investments, financing international operations, cross-border transactions, management of the global effective tax rate and business re-structuring. Learn more at www.deloitte.com/nz/tax.