It’s a big day in our continued trade and bi-lateral investment relationship with China. Our Prime Minister, Malcolm Turnbull, is in Shanghai today as part of Australia Week in China, along with a delegation of over 1,000 Australian business representatives in attendance during the week. So it’s clear that apettie for Australian multi-national corporations (MNCs) to enter or expand operations in China remains high.
Notwithstanding recent increases in Australia’s trade with China, while appetite is high, the actual number of Australian business exporting to China or maintaining operations within China is quite minimal. Focus is acutely on how to take advantage of the China-Australia Free Trade Agreement (ChAFTA) which came into force at the end of last year. It presents Australian businesses with a 12-18 month window of opportunity to create a competitive advantage and outperform other markets who have yet to establish similar trade access agreements with China.
Historically, China has been the prime market for many MNCs to establish their operations and then directly manufacture and source goods and industrial products at a very low cost. But today, the primary reason to these same MNCs to maintain operations in China is to primarily serve the China market, or to ‘be in China for China’. The opportunity continues to be tremendous, even taking into consideration China’s new ‘growth’ normal , they will still have access to just under 1.4 billion prospective consumers and 10.6 million enterprises.
I spent over three years in China working with international MNCs on their market entry and expansion strategies. Our work with clients included things such as redesign of supply chains, regulatory environments, infrastructure development and the ever-changing patterns of Asian consumers.
Turning a China investment into a profitable business venture takes careful planning and a disciplined approach. Despite the numerous challenges of operating in China, we have seen foreign brands achieve amazing results such as Starbucks and Louis Vuitton. They have been successful because they’ve been able to truly understand local consumer trends, align their brand for Chinese consumers and navigate the regulatory challenges.
There are five critical elements that businesses need to consider to execute a successful market entry or expansion in China:
- More than 50 percent of the Chinese population will be middle income earners by 2020 and the future of China’s domestic market will be driven by these people with a propensity to spend. Australian businesses must be ready to compete in a dynamic and fast-paced environment and interact with new consumers through various channels.
- Selling into or sourcing from China’s many markets is not easy – view China as a number of markets and plan how to interact with each market separately, tailoring product specifications and delivery mechanisms that meet the needs of local customers within distinct markets.
- Think about the successful marriage and exit options upfront, not just the honeymoon. Plan an approach that aligns to your long-term objectives – businesses expecting to set-up as they have back in their home market and achieve overnight success, have usually departed from China quicker than they arrived.
- Finding and incentivising the right partners is critical – really understand who you are dealing with and what motivates them to achieve the outcomes that you both desire.
- Understand the non-trade barriers relating to your product, supply chain and chosen markets so that you can navigate local customs and regulations effectively.
Read KPMG’s report, Succeeding in China – Five Critical Elements for Australian companies, which is released today.
Peter Liddell is the Asia Pacific Lead Partner for the KPMG Operations Advisory practice and the Asia Pacific Supply Chain practice and spent three years at KPMG China.