How will the NZ-Alibaba agreement impact SMEs?

 

With Prime Minister John Key paying a key visit to China to secure new trade deals, there seems to be new opportunities knocking on the door for Kiwi businesses to get involved in international trading. 

One of the most notable deals was with e-commerce giant Alibaba, as CEO Jack Ma formally agreed to provide support for New Zealand businesses. 

But what exactly will this agreement mean for companies looking to trade in China? 

 

Established in 1999, the Alibaba Group is an e-commerce company that covers business-to-business (B2B), business-to-consumer (B2C) and consumer-to-consumer (C2C) trading across a number of different websites and subsidiaries. These include AliExpress and Tmall for B2C and Taobao, which facilitates C2C selling (similar to Trade Me). The Alibaba.com site covers the international B2B and wholesale market, handling both exports and imports between China and other countries, including New Zealand. 

In a country without Amazon, eBay or Google, the Alibaba Group is a key online platform, reaching over 80 percent of the market in China. According to Forbes, the Alibaba Group achieved a 45 percent increase in revenue in 2015 compared to the previous financial year. This massively outpaced growth compared to rival Amazon, which saw 20 percent growth in the equivalent period. 

Alibaba has achieved incredible results through opening opportunities for Chinese small to medium enterprises (SMEs). Although these businesses are smaller in scale, they collectively make up 50 percent of China’s domestic e-commerce market, according to data from iResearch China.  

Selling B2B may not seem as exciting as directly engaging with a consumer base but in China it is big business. In fact, iResearch found that around 70 percent of all sales online fall under this category, generating 5.14 billion Yuan in revenue (around 1.1 billion in NZ dollars) during the most recent quarter, providing huge potential for international wholesalers.  

 

Alibaba is a huge marketplace and smaller voices may tend to get drowned out in the crowd. However, the Memorandum of Understanding (MoU) that Alibaba signed is a formalisation of the commitment to strengthen trade between China and New Zealand. A key part of this is the collaboration with New Zealand Trade and Enterprise (NZTE), which will leverage the various Alibaba platforms for New Zealand businesses. 

Todd McClay, Minister of Trade, highlighted another advantage of the deal at a recent event with the Chinese community.

“A major hurdle for New Zealanders trading in China besides the language is the documentation and fulfilment of orders. As such, the trade deal with Alibaba means that they will be playing a more active role in bridging this gap for New Zealand businesses.”

This doesn’t necessarily mean it will be an easy process to set up a channel to China and businesses still need to take action to ensure they are on the path to success. James Sun, Marketing Manager of MultiMarketing, an agency which helps New Zealand businesses connect with Chinese markets, explained that businesses need to be prepared to do some leg work.  

“It is still important to consider how you will operate on your own. Alibaba only offers a pathway and IT support but will not help with vital tasks such as marketing.”

 

Here is a key checklist for small businesses to consider before breaking into the Chinese market.

 

• Ensure you have the budget. In order to fully establish and develop a presence in China, you need to invest a fairly large sum of money into marketing. This can be costly in the short-term but is necessary to realise profits later down the track. Entering in a group with other businesses or seeking out assistance from services here may help alleviate the costs. 

 

• Build a logistics contingency plan. Currently, the logistics and fulfilment systems in China are still developing and are often not as reliable as businesses in New Zealand are used to. It is important to have back-up plans available for possible delays and other concerns. As the academic paper “Value Creation in B2B E-Markets of China” states, supply chain management must be responsive to real-time events and specific to the digital platforms.

 

• Get a distributor. As mentioned before, logistics is a major challenge for New Zealand businesses. Having a local distributor who understands the market and can work quickly to solve any issues quickly is of immense value. A good local distributor can maintain a good reputation for your brand in China by ensuring your products are delivered as efficiently as possible. 

 

• Understand the difference in culture and values. For small New Zealand businesses looking to become successful in the Chinese market, it is important to understand how complex the Chinese market is. With over one billion people, the country is full of different cultures, lifestyles, spending habits and behaviours.

The ability to express your values and ensure alignment with new partners is often overlooked, but can be vital in maintaining a cohesive business relationship. For example, a Chinese manufacturer may employ cost-saving methods that do not meet a New Zealand business’s expectation of quality. While it is a good idea to be open and flexible, it is vital to highlight the values that you cannot compromise on.

 

Translating into Standard Mandarin or any unofficial languages of China is also a challenging task. Direct translations can be inaccurate and many New Zealand business rely too heavily on these, affecting the context and precision of their messages. Therefore, it is important to select a partner or translator/interpreter who has been exposed to Western business practice as well as the Chinese commercial culture.

 

• Protect your brand. According to the “Special 301” report, China is one of 11 countries on the US government priority list for Intellectual Property (IP) theft. In New Zealand, getting patents and protections can be one of the biggest challenges to market entry, according to NZTE.

Luke Minford, partner of global IP consultancy Rouse and Co International, highlighted three key considerations for New Zealand business looking to protect their IP. These are: Setting aside a budget for IP and treating them as long-lasting assets; building a strategy that breaks down your assets and how you will protect them; and getting support in China to help enforce your patents and trade secrets. 

 

• Think carefully about your location and segments. As Mr Sun stated, selecting the right market is all about precision. In this regard, it is often best to choose one key city to focus on, and base your research there. This makes it much easier to build a network, identify the needs of clients and the subtleties that exist in trading. 

“The more accurate, fragmented and segmented your strategy is, the more successful you will be as even the smaller consumer groups in China can provide a lot of value,” said Mr Sun.

“If you find the right niche and engage with it closely, you can build successful relationships and strong sales.”

 

Taking the time and effort to make a confident and prepared offering into the Chinese market will no doubt set a company up for success. The door has been opened, now it is up to New Zealand businesses to make an impressive entrance.