Exporters cautious about doing business with China

media release

Kiwi exporters cautious about doing business with China
Export barriers hinder prospective trade with China

Auckland, 12 December 2006 – A survey by DHL, the world's leading express and logistics company, has found that 75 per cent of companies surveyed see China as the key market for developing economic relationships, although there are widespread concerns about the barriers faced by New Zealand companies exporting to China.

China is New Zealand's fourth largest trading partner, growing faster than any other market, and the government is working to facilitate a free trade agreement by April 2008. However, while the majority of respondents felt China is an important destination for New Zealand goods and services, 69 per cent are still wary about doing business with China and want more support to help facilitate trade.

"While China is seen as a significant opportunity for receiving New Zealand goods and services such as agriculture, food, beverages, wood and building products and education, New Zealand businesses are concerned about the obstacles presented when trading with this emerging global power," said Derek Anderson, General Manager, DHL Express.

Nearly 70 per cent of respondents stated there are major barriers to New Zealand companies exporting to China. Over half of these (54 per cent) perceived language as a problem and 44 per cent had concerns about red tape. Other barriers included difficulty with intellectual property protection (37 per cent), the complex regulatory environment and cultural differences (both 36 per cent), and having no local relationships or partners (30 per cent).

While trading with China may appear attractive and potentially lucrative, Mr Anderson says more help and advice is needed for New Zealand companies wanting to enter this market. "We cannot sit back and wait for things to happen. It requires increased activity from government agencies and the private sector to help New Zealand companies develop business with China."

The key areas seen as crucial for support are advice, mentoring, information and research, with 73 per cent stating this to be critical to assist companies in trading with China. Nearly 50 per cent of respondents felt that national branding campaigns to showcase New Zealand in China was important, 46 per cent wanted access to local markets and networks, and 41 per cent stated more New Zealand business and government trade delegation visits to China would help. The survey also found that more government or private funding was needed (38 per cent).

According to Mr Anderson, the recent government-led trade delegation to China leveraged the achievements of New Zealand companies successfully operating in China, and raised New Zealand's profile in this fast evolving market.

"By negotiating a free trade agreement we can remove obstacles to trade and, through New Zealand Trade and Enterprise and other agencies, build successful trading relationships for New Zealand companies."

"DHL was the first international express company to enter the Chinese market and in 1986, DHL-Sinotrans, a 50/50 joint venture was founded. Today, DHL has China's largest and most extensive freight and logistics network, covering 318 cities across the country. We have made significant investments in our China operations with more than 9,000 staff," said Mr Anderson. "DHL is committed to helping New Zealand companies to successfully trade overseas, easily and cost effectively. We offer the highest quality export freight solutions, based on strong local expertise combined with the most extensive global network presence."

The results show that to be successful in trading with China there is a perceived need to set up a physical presence in that country (58 per cent). When setting up a local operation, the best approach was felt to be a partnership or alliance with a Chinese firm (29 per cent), joint venture (26 per cent), stand-alone branch office (19 per cent) or by leveraging a New Zealand holding company (for small New Zealand firms to join, 19 per cent).

Respondents that have established a physical presence in China advised other Kiwi companies to partner with Chinese firms (30 per cent), employ local staff (23 per cent), set up a local office (18 per cent) and be prepared to wait a long time for a profit (11 per cent).

A large proportion of the respondents (60 per cent) felt that the major competitive advantage enjoyed by New Zealand companies selling in China, is our innovative approach. In addition, fast response times (32 per cent), global approach (30 per cent), proven track records (29 per cent), operating in an excellent business environment (28 per cent), and competitive costs (27 per cent), were also felt to be significant benefits for trade with China.

"Our success in exporting relies on the quality, cost competitiveness and marketing of the goods and services produced, and the innovation and creativity that is put into these products," said Mr Anderson. "This finding supports the view that New Zealand companies that leverage Kiwi ingenuity are most likely to succeed," said Mr Anderson.

Further results

The results show that people feel strongly that there are advantages for companies manufacturing in China. Those advantages include lower production costs (85 per cent), access to a larger market (40 per cent) and faster production times (38 per cent).

Other markets that respondents felt New Zealand companies should focus on developing stronger economic relationships included the United States (64 per cent), Australia (61 per cent), South East Asia (41 per cent), India (37 per cent), Japan (36 per cent), continental Europe (28 per cent) and the United Kingdom (27 per cent).

The respondents that have established a physical presence in China have taken a variety of approaches, including establishing a manufacturing facility (10 per cent), setting up a distribution network (9 per cent), establishing a sales office (9 per cent), operating own warehousing (5 per cent) and setting up a research and development arm (5 per cent). The level those respondents are manufacturing in China ranges from complete product production (12 per cent), through to components (5 per cent), basic production (3 per cent) and packaging, printing and finishing (3 per cent).

DHL works with companies trading with China, providing them with international express services, freight forwarding and supply chain solutions. DHL's air operations in China utilise over 500 flexible commercial flights every week, as well as four existing DHL direct flights. The seamless connections between DHL's Asia air network and its global network, enable the company to further promote trade exchanges between China and its trading partners, including major markets such as the United States.

ENDS

About the survey

More than 490 companies from across the country responded to this online survey conducted on Friday 1 December. Fifty four per cent of respondents were from companies with less than twenty employees, and 46 per cent were from companies with more than twenty employees. Seventy four per cent of those surveyed export overseas and 26 per cent export to China.

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