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China’s Food Controversies

As we have discussed on multiple different occasions, Australia has an incredible reputation as a clean, green nation that produces high-quality produce. This is, of course, thanks to the dedication of our small businesses and farmers, however, this positive influence is compounded by China’s own deteriorating perceptions.

China has been rocked by food scandal after food scandal over the last 10 years, and consumers have finally had enough.
Here we are looking at some of the reasons why China is so desperate to import high-quality produce.

Regulations
China’s local governments, state councils and regulatory committees all treat this issue as a top priority. The problem stems from the implementation and enforcement of said regulations.  In 2015 China revised their regulatory laws and enacted tougher and more stringent penalties for anyone caught breaking them. But, as I’m sure many of you are aware, China is big. Enforcing and assessing the safety of food from every farm, market and processing factory (of which there are over 35,000) is an incredibly difficult task.

Controversies

One of China’s largest food conspiracies occurred in 2008 when milk producer the Sanlu Group sold baby formula contaminated with melamine. Six babies died, 50,000 were hospitalized and over 300,000 were affected. Worst still, the company was found to have known about the contamination months before it informed authorities.

Similarly, in 2014, it was discovered that many meat products being sold to multinational franchises (such as McDonalds and Starbucks) were being bleached with Rongalite. Rongalite was originally used as in hair dye, however it is understood as a carcinogen in humans.

More recently, a company in Guangzhou has been caught melting down rotting pig carcasses to be used as oil. There are even reports that this is a common occurrence in rural villages. Needless to say, this practice has been condemned.

In fact, in less than 1 year, incidents reported of tampering or contamination found numbered more than half a million.

Fear and distrust

Clearly this is disastrous for the consumer; however, it has had an adverse effect on Chinese producers as a whole. Most Chinese consumers believe that their food regulatory committees are corrupt, with a large portion believing that farmers and politicians keep their own food separate from the majority to avoid contamination.

What’s more, nearly every economic demographic spends money on bottled water, not trusting tap water, despite the government acknowledging that 60% of bottled water is ‘fake’ tap water.

Unfortunately, even with officials calling food safety one of the most important issues in China today, there is a surprising apathy from Chinese elites. Statistics suggest that the inspection pass rate has risen by 30% to 90% over the last 15 years.
This might sound like a positive result, yet it is in part due to lower regulatory standards, allowing for easier passing grades.

Fake news

A natural extension of this not-so-misplaced fear is the propensity for fake news. It seems that just believing a product to be dangerous is as damaging as the dangerous product itself.
An example of this is China’s seaweed industry. Following a number of faked videos claiming that a Chinese company produced ‘plastic’ seaweed, there was an immediate cut in sales. Price of seaweed plummeted by half.

In the same way, there have been erroneous accounts of parasite-infested crayfish and pork. Each of these rumors, spread through Chinese social media, has had a devastating effect on China’s agriculture businesses.

Unfortunately for Chinese companies, there is very little recourse available to sway public perception for the better. Food Industry observer Yun Wuxin acknowledges that since the consumer cannot trust companies media statements, it is safer to simply trust any fake news they hear. “There’s nothing to lose by believing it” (Fake news). There have been so many false claims of safety that food companies suffer from a ‘Boy who cried wolf’ syndrome that threatens to ruin them.

Fundamentally this suspicion of Chinese food products has led to widespread importation from other countries, which Chinese consumers feel are more stringently regulated. Countries like Chile and Australia are looked on with favor, and premiums for safe, healthy food are expected and even welcomed.

For a nation that has declared a wish for self-sufficiency, the systematic negligence of the regulatory systems has crippled those dreams in the foreseeable future. Perception is a dangerous commodity to harm and China’s food industries are learning this the hard way.

By Lachlan Holt

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Myths and Concerns with Importing to China

There are a number of reasons why a company feels hesitant to dive into a marketplace as big as China’s. We hear many valid points, however, some of the more pervasive arguments are little more than myth. Here are two of the major concerns small businesses have with importing to China, and why they are fallacies.

Imitations, Counterfeits and ‘Knockoffs’

Imitations are rife within China and to suggest that any singular product or industry is free from its effects would be ridiculous. For any marketable product available there is a cheaper, often inferior, alternative.

However, the negative consequences of imitations on imported goods are vastly overstated.

Fundamentally, Australian merchandise is sold in China based on its premium brand association and its quality. It is not sold on cheaper price. While the China-Australia free trade agreement has been a boon for Australian exporters in lowering their price points, it is the assurances that Australian companies can provide that attracted customers in the first place.

To put simply, a consumer that is looking for a dramatically reduced product was not likely to purchase the genuine merchandise at its price point. As we will explain later, this does not mean they do not intend to.

As such, the idea that counterfeit items detract from authentic sales is a myth.

What most concerns Australian businesses when first stepping into the Chinese market is the potential damage that knock-off products may have on brand integrity. With imitations on the market, how can a customer trust the product they purchased is genuine?

Matthew Mckenzie, the marketing consultant behind China’s Weet-bix craze has suggested a simple solution. “For brands we are looking at protecting, we suggest a unique QR code is put on the product before it comes to China.”

E-commerce and internet literacy are incredibly strong in China and this little change could afford much needed piece of mind for both companies and individual consumers.

What is rarely mentioned in the media is the potential positive implications of counterfeits on the importing business. Instead of stealing sales of damaging reputations, the exposure created by a flood of imitations actually promotes sales.

Research Professor at Northwestern University’s School of Management, Yi Qian and MIT sociologist Renee Gosline suggest there is a heterogeneous, almost symbiotic relationship between authentic products and their Chinese impersonations. An influx of poor quality alternatives gives extra credence to the original, increasing its perceived societal value. In plain English, having imitations of your product is proof that you’ve made it.

We have already acknowledged that most clients of imitation items are those with few economic resources. I.E, consumers that could not afford the original in the first place.

Qian and Gosline found that once said people find greater economic security, they became far more likely to purchase the genuine article than those that never bought a fake. These people wanted the prestige that came with a high-quality purchase, and only chose the fake out of monetary necessity.

This is a critical point as China’s middle-class has been rising over recent years, as discussed here and the potential purchasing power of previous counterfeit patrons has never been greater.

It is important to note that this only relates to high-quality products and that the benefits of imitations do not apply to low-end products. Poor quality products which usually only sell on price point are negatively affected by fakes as they cannot compete with the cheaper alternative.

Thankfully, is the Chinese market, Australia is almost synonymous with excellence.

What this all means is that counterfeit purchases have a minimal effect on sales, rarely cause long-term damage to a brands image (and can be easily safeguarded by the original company), increase exposure and brand-awareness and provides a massive increase in potential clients once the original product becomes readily available.

A good example of this is Australian wine. As previous readers will note, Australia’s wine industry is making strides in the Chinese market currently. As such, imitations are bound to occur. A Shanghai man was arrested attempting to sell over 10 thousand bottles of fake Penfolds wine late last year. At less than a third of the original products price, one might be forgiven for assuming that this drastically hurt Penfolds sales.

In fact, Penfolds has seen a consistent increase in demand for their wine, proving that these fakes do not negatively affect overall sales.

Unpredictable economic climate

Most SME’s fear exporting to a foreign country. There is too much instability and unpredictability for most to handle. After all, small businesses can hardly afford to enter a market only to watch it fall apart and many choose to stick to what they know (domestic sales) rather than risk something new.

In this sense, a strong, stable economy with resilient trade links such as China would be a perfect candidate.

Unfortunately, this brings up questions and fears surrounding Donald Trump’s trade war.

Trump’s declaration to add $60 billion dollars to Chinese trade tariffs has caused a stir in the global community. Ausmate has no interest in judging the decision or taking a political stance on these matters, however, we are interested in how this will affect China’s perception as a ‘safe bet’ in the eyes of the international community.

There has been vitriolic debate over China’s protectionist policies and the arguments for and against the reduction of tariffs vary wildly from inconsequential to utter ruination. While it remains to be seen how tit-for-tat trade retaliations will affect US-China trade relations, there is a wealth of evidence to show how effective reducing tariffs can be for trade, here in Australia.

Bilateral trade agreements between China and countries like Georgia and Chile have seen the two smaller countries profit greatly. Georgia increased its wine exports by nearly 45% over the last two years thanks almost entirely to the abolition of tariffs.

Likewise, Chile (one of the furthest countries from China geographically) has been able to use its free trade agreement to become China’s largest exporter of fruit. Agriculture and commodities such as Chile’s lithium reserves, have allowed the two nations to prosper.

This is of course, not even including Australia’s prosperity thanks to tariff reductions.

Instead of an economic concern, the threats of trade retaliations between the two superpowers has only increased Australia’s bargaining position, with a greater demand for Australian products surely coming in the near future.

By Lachlan Holt

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6 Reasons Why Australian SMEs Should Explore The Chinese Market

Everyone can see China’s massive growth in recent decades. Suggestions that the 21st century will be the Asian century are far more than just hyperbole. With a growth of more than 6% GDP each year, China is the best opportunity for development of any company.
While many assume that this marketplace will be dominated by multinational corporations, there is still room for small businesses to thrive. Prime Minister Malcolm Turnbul has committed to bringing more Australian small businesses to Chinese platforms , making this one of the best times to explore the Chinese market.

Here at Ausmate, we specialize in facilitating trade deals between Australian companies and Chinese distributors, mitigating some of the risk of this new venture. Here are 6 reasons why Chinese export would be an intelligent move:

1. High quality demand 
Australia has always had a good trade relationship with China. Our massive wealth of coal and iron ore has made us an invaluable resource. While that is not about to go anywhere, anytime soon, our lucky country offers more than just basic commodities. Luxury wares such as skin-care products or organic produce are a fast-growing market in China.
Chinese have an aspirational desire for the same creature comforts that we in the western world take for granted. More importantly for you, they are willing to pay for it.
Ken Howell, from the South West Institute of TAFE, concisely explained his take on Australia’s role in the Chinese marketplace. “Australia is never going to be the bread basket of Asia but it can be its delicatessen,” he says. “China is crying out to get access to clean, quality food.”

2. Positive Aussie Branding
Have you ever seen the ‘Made in Australia’ logo? Chinese have. That golden kangaroo represents stability and customer piece of mind. As we have mentioned before , Chinese faith in its own quality control is extraordinarily low. Australia’s, perhaps naïve, faith that anything being sold to us is safe to eat, just isn’t true for the majority of China’s populous and they are keenly aware of the dangers they face.
We have recently experienced some of these fears with the outbreak of hepatitis-A being linked to Chinese frozen berries. This is just a tiny example of the mistrust that Chinese foods have garnered.
The public image of Australian Made foodstuffs is one of clean, healthy and environmentally-friendly produce. More so than perhaps any other marketplace, having a quality product is a strong selling point in China.

3. Middle-class Boom 
There are more than 150 million Chinese citizens that classify as middle-class workers. Let’s try some math:
A. Look at your current, Australian customer-base.
B. Buy a calculator and multiply that number by 10.
C. Keep that number for a second. The Australian treasury projects that the middle-class population of China will increase to 670 million by 2021 .
D. Take that previous number and multiply it by a further 4. That is your potential customer-base. That is a big number.
The sheer amount of wealth being generated in China now, and in the future, is staggering. The surge in wealth per capita has allowed more people than ever to look at the consumerist lifestyle as attainable.

4. Free Trade Agreement
The China-Australia free trade agreement (CHAFTA) has been in place since late 2015. This agreement reduced the tariffs that came from importing and exporting goods to and from China. If you have been thinking of getting into the Chinese marketplace, you are no doubt aware of this agreement.

If not, we recommend you look at it here .

What you may not have known is that there was a further reduction of tariffs in January this year. In competitive marketplaces such as food and beverages, these reductions can have a massive impact on sales. This coupled with Australia’s geographic proximity gives us a competitive edge over many of China’s other trading partners.

5. Trade disagreements
It is not a well-hidden secret that America and China’s trading partnership is struggling. President Trump’s bombast has been attributed to increasing tariffs between the two superpowers. Areas like, industrial components, electrical equipment and food/beverages will all be affected by the escalation .
Regardless on your opinions on this, China still requires international trade, and Australia, for the many reasons outlined, is a perfect alternative candidate for increased trade. Beef imports, for example, are set to skyrocket, as our American counterparts contend with colossal 25% tariffs. Other western countries, like Europe, lack the ease of access and logistical efficiency that our country maintains.

6. Powerful E-commerce boom
While many of us use Amazon or Gumtree to buy luxury items, like electronics and apparel, E-commerce sites in China have permeated themselves throughout Chinese culture. Alibaba and JD.com are the two giants of the E-commerce industry and supply up to 99% of China (JD.com’s claim) with everything from luxury goods to basic, everyday necessities.
Unlike Australia, the Chinese populous is more open to buying a wide variety of items online, from fresh produce to toothpaste. Also unlike its western counterparts, who use multiple specialized retailers for each of their shopping needs, Chinese sites provide everything in a singular place.
While your products may have little to no online presence in Australia, there are still opportunities to be explored in a new, online marketplace.
During the largest selling day of 2017, Alibaba made 168 billion Yuan (about 34 billion Australian dollars).
This is not even close to China’s e-commerce potential. Only 30% of China has easy access to broadband, though that number is rising dramatically. Much like the Chinese middle-class boom, a rapid rise in internet access could dramatically increase your sales potential.

There is a window of opportunity for Australian businesses to become major players in the largest upcoming economy in the world. All we need are quality products and a strong connection to Chinese distribution. The product is on you. Ausmate deals with the rest.

By Lachlan Holt

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Taming the Dragon: Expanding into China

Taming the Dragon: Expanding into China

In the 21st century, no company with an eye on global expansion can afford to ignore China.

The country, which first launched onto the international economic stage in 1978 with its ‘reform and opening up’ policy, has been expanding at a breakneck pace ever since, reaching almost 10% annual growth on average since then, according to the China Business Handbook 17/18 from the China-Britain Business Council.

Although economic growth has slowed recently, China still outperforms many other countries. Driven in large part by an increase in middle-income citizens and growing consumer confidence, the Chinese economy continues to expand.

Companies wanting to do business in China will find themselves operating in a very different environment, where rules and relationships change. An understanding of the nuances and challenges of the Chinese market is essential before engaging this potentially lucrative region.

Language and cultural barriers

Companies wanting to do business in China should not underestimate the linguistic and cultural barriers. Mandarin may be the national language in China, but as a tonal language, it is notoriously difficult to learn.

The Chinese government only officially stipulated Mandarin as the national language in mainland China in 2001 according to the New York Times. The language is more useful the closer you are to Beijing, and as you venture further from that city, local dialects may make it more difficult to communicate, according to the China law blog.

The Han, the group which makes up 90% of the population, has 1500 dialects, says the Times, and many of them are markedly different. For example, the Wu dialect spoken in Shanghai has just 31% commonality with Mandarin (about the same lexical similarity as English has with French).

In addition, older Chinese people may still prefer Cantonese, and this language is still taught and spoken in Hong Kong and Macau.

There are also cultural differences to consider between the two countries, which can easily get a business discussion off on the wrong foot.

Some cultural nuances can lead to disaster in the boardroom unless negotiators are prepared. Start meetings with small talk, advises the International Business Times, and be prepared for it to last a while. Getting comfortable with each other is a big component of negotiating business in China. Don’t rush it.

Before you begin shooting the breeze, understand how many in Chinese culture view the world. China Daily notes disparities in Chinese and Western attitudes around several issues, including:

Privacy
Chinese nationals may be open in talking about topics considered intrusive by Westerners, such as age and income.

Family
While Westerners strive for family independence, many Chinese families are very close-knit and revere their elders, who will often live with the rest of the family.

Team involvement
China values community effort and collective reward, in contrast to traditional notions of self-improvement and individual achievement in the West.

The need for small talk illustrates perfectly the need for patience when doing business in China. This makes patience a particular virtue in the People’s Republic.

Don’t get frustrated while waiting for the real business to start and be sanguine as you work your way through layers of corporate and government bureaucracy. While Western negotiators might like to be aggressive and play hardball, many businesspeople in China perceive any such conflict as simply losing face. It may nix the possibility of a deal altogether.

Experts from global outsourcing company Nair & Co suggest getting a partner well-versed in Chinese business culture and markets. Many business arrangements in China are conducted informally, they say, and some of them may not even be written down.

In many cases, a lot rests on relationships with local government officials, who still play a big part in business fortunes. An overseas company entering China stands a better chance of succeeding having local expertise at its disposal.

Government policy

The influence of local officials is one example of the Chinese government’s power over business. Companies should not underestimate the effect of government opinion and policy on Chinese business. As McKinsey points out, government policy continues to be the critical shaping force in China.

The government’s policy around foreign investment has become more liberal since China entered the World Trade Organization in 2001, according to Deloitte. Chinese policies that used to prioritise local enterprises have shifted, and now allow foreign companies to compete equally with domestic businesses.

Small or low-margin enterprises, especially those with a technology focus, can often enjoy incentives such as a reduction in income tax rates. Depending on the Chinese region that they’re targeting with their business, they may also find exemptions from purchase or resource-based taxes.

The Chinese government has also taken steps to modernise its internal regime, embarking on an extensive anti-corruption initiative at all levels of government and allowing for more privatisation. This is evident in the number of Chinese millionaires that have emerged over the last few years (it had 1,590,000 in 2016, putting it 6th in the world, according to Credit Suisse’s Global Wealth Data book.

Government policy creates its own bureaucratic challenges that can be daunting for many Western companies doing business there. It be difficult to understand who you should be negotiating with in a Chinese company, or in a local government structure, and in private conversation, venture capital attorneys have discussed how difficult it can be to structure and authorise payments to overseas companies from China. Expect red tape.

Tech considerations

China may look favourably on technology companies doing business within its borders, but China’s approach to technology can often cause problems. These come in three broad categories; surveillance, censorship, and compromise of IP. They are often interconnected.

China has long maintained a regime of heavy censorship, centered around the ‘golden shield’ – a network of firewalls and government-administered policies that enables party officials to decide what those inside China can see.

China’s censorship rules have driven out both Google and Facebook, who refused to comply with the rules. Facebook has attempted to gain a foothold in China by sneaking under the radar with a stealth app, released through a local company.

Chinese censorship is sometimes closely linked to government financial policy, and can stifle the ability to conduct business freely there. One example is cryptocurrency. The People’s Bank of China has always been ambivalent about cryptocurrencies such as bitcoin, but in 2017, it took an aggressive turn.

PBOC halted the trading of cryptocurrency for fiat currency on exchanges, according to Reuters, and TechCrunch reports that it subsequently stopped people conducting initial coin offerings (ICOs). In early 2018, it also began discouraging the electronic ‘mining’ of bitcoin within its borders.

In general, China seeks a high degree of control over new technology entering its borders. For example, in 2015 Western tech companies were concerned about proposed new regulations that would force them to turn over their source code, submit to audits, and even build back doors into their hardware and software.

Many companies have capitulated to such demands, to varying degrees. For example, Apple accepted ‘network safety evaluations’ by the Chinese government on its products, although it insists that it has not created back doors, showed source code to China, or allowed for Chinese censorship in its products.

Other companies have reportedly shown source code to Chinese authorities as a condition of doing business there, including IBM and Microsoft.

All of this makes doing business in China a tricky proposition for technology companies.

IP law

Why might showing source code to Chinese authorities be a problem? For the same reason that sharing any intellectual property in China could be a problem: the country’s approach to IP law. Western countries have traditionally been suspicious of China’s treatment of IP, worrying that technology shown to companies or government officials there could make its way into domestic products and services.

A 2017 report to Congress about China by the US Trade Representative expressed concern about “serious problems with intellectual property rights enforcement in China, including in the area of trade secrets.”

The report describes incidents where “actors affiliated with the Chinese government and with the Chinese military have infiltrated the systems of US companies, stealing terabytes of data, including the companies’ intellectual property (IP), for the purpose of providing commercial advantages to Chinese enterprises.”

Moreover, China was put on a Priority Watch List in the US Trade Representative’s 2016 Special 301 Report, after an FBI survey showed a 53% increase in economic espionage cases. 95% of those companies that claimed to be victims of espionage said that attempts originated from individuals associated with the Chinese government.

China has vowed to improve its policy on trade secrets and IP, and signed separate agreements with the US and Canada. Nevertheless, companies doing business in China would do well to protect their assets.

There are several solutions. One is to set up a separate R&D centre in China focused on researching new IP in close collaboration with Chinese partners. By establishing a close collaboration, both parties have an incentive to avoid leakage, say experts. This approach can help to firewall new developments from existing core IP.

Structuring your Chinese venture

Companies wanting to establish a meaningful presence in China beyond simply being a foreign company with no on-shore presence have several options.

Open a Chinese branch
Multinational corporates can open representative offices, but their operating scope is limited because they do not enjoy the same legal status as Chinese individuals, according to Deloitte.

Wholly-owned foreign enterprise
One of the more popular approaches for Chinese investment, the WOFE only became a possibility after China entered the WTO. In this model, the overseas investor creates its own limited liability company in China.

Joint ventures
The downside to a WOFE arrangement is that without a Chinese partner, the investor is restricted in the kinds of business activity it can pursue in China. Setting up a joint venture with an existing Chinese company solves that problem.

A joint venture also gives the overseas firm a partner on the ground and can take advantage of its local connections and knowledge. This not only opens local markets, but also gives foreign partners easier access to local incentives and partnerships.

There are two kinds of company structure open to those pursuing joint ventures. The first is a co-operative joint venture (also known as a “contractual operative enterprise”). This can be a limited liability company, in which the foreign investor provides funds and technology while the Chinese partner provides infrastructure (land and equipment). This arrangement can help reduce risk for the overseas partner, which can take a minority stake in the venture and adjust terms more easily.

Conversely, an equity joint venture enables the Western partner to take a more active hand in the enterprise. It sees both partners manage the initiative more equally and assumes more equal liability, based on their capital contribution.

Joint stock companies
JSCs are also the product of partnerships with Chinese companies, but they are eligible for listing on Chinese stock exchanges.

Conclusion

Doing business in China is a daunting prospect, but the potential rewards are huge. It is a massive market, with more middle-income and high-income consumers coming on-stream every year.

Companies with an eye on China would do well to enlist the help of a third-party consulting company, and appoint someone with extensive and deep knowledge of the local business environment on the ground when they make their move. And unless your Mandarin is top notch, some translation services (hint hint) would be a good idea.

When it comes to building a presence in this exciting region, Chinese Whispers is one game you don’t want to play.

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How this Gold Coast millennial uses Chinese e-commerce giant Alibaba to sell coconut oil to the world

How this Gold Coast millennial uses Chinese e-commerce giant Alibaba to sell coconut oil to the world

The 25-year-old has watched her family’s business grow from a tiny operation in her Gold Coast garage, to a multi-million-dollar operation that’s made her an international coconut oil mogul.

Banaban Virgin Coconut Oil products are stocked on the shelves of department stores, health food shops and supermarkets in Hong Kong, Germany, Poland, Malta, Hungary, Taiwan and even Mongolia — all thanks to Chinese e-commerce giant Alibaba.

Started by entrepreneur Jack Ma in 1999, Alibaba is now the world’s largest retailer, and is about to ramp up its presence in Australia with a Melbourne office set to open later this year.

The company, whose 2014 debut on the New York Stock Exchange became the biggest IPO in history, is made up of e-commerce, cloud computing, payments, marketing, media and entertainment companies worth a collective $257 billion

Ms King and her family were quick to embrace Alibaba’s business-to-business selling platform, and are now turning over almost $6 million a year selling to far-flying regions of the world.

“For us from the Gold Coast, I don’t know how we could have ended up selling into a place like Mongolia,” she said.

“How the hell has someone from Mongolia found us? It’s just the power of Alibaba.”

Banaban now produces more than 90 coconut food and body care products, and overseas markets account for about 30 per cent of its sales.

After launching a mini website on Alibaba.com three months ago, allowing potential distributors to easily find their products, it recently secured a deal to supply a major Spanish supermarket chain.

“That is a big milestone in our business,” Ms King said. “We are pinching ourselves.”

South Korea was up next, she said, with China and the United States on the horizon.

‘EVERYTHING ON THE LINE’

Banaban started out as an eBay store in 2004, when Ms King was just 12 years old — well before coconut oil became the sought-after product it is today.

“It was just lucky my mum was really tech savvy,” she said.

“She knew Alibaba and she said, ‘We could sell wholesale to the world.’ We just put the listings up and said, ‘Let’s just see what happens.’ It’s paid off.”

But success was not assured, and family friends were astonished when Ms King’s parents announced they were going into the coconut business.

“My parents mortgaged their house and sacrificed everything, kind of on a whim,” Ms King said.

Mum Stacey King quit her corporate job to set up the business with her husband Ken Sigrah, a Banaban islander from Fiji.

“Everyone told my mum, ‘You’re crazy, no one knows what coconut oil is.’ But they put everything on the line. Then one day it exploded and became so popular our business changed overnight.”

It was when a reporter held up a bottle of Banaban coconut oil on A Current Affair in 2011 that sales went off the charts.

“We went from doing five orders a day to 200 — it was crazy,” Ms King said.

The company now has 30 employees, including seven Banaban islanders at the coconut plantation in Fiji.

Ms King is herself a descendant of the phosphate miners who worked on Banaba Island in the early 1900s, when it was part of the British Empire.

Her family started its coconut oil business with the aim of drawing attention to the plight of the Banaban islanders, who were evicted from their home by colonial authorities and resettled in Fiji.

“We’re not just another coconut oil,” Ms King said.

FROM AUSTRALIA TO THE WORLD

Banaban is one of more than a thousand Australian small-to-medium businesses harnessing Alibaba to access global markets.

Chemist Warehouse was the first merchant on Tmall Global to reach RMB10 million (roughly $AU2 million) in sales only 46 minutes after the sales launched after midnight on November 11.

“It blew away our wildest expectations,” said chief operating officer Mario Tascone.

Alibaba is ramping up its local operations, with a Melbourne office set to open at the end of this year headed up by Maggie Zhou, employee number 48 in the company that now has more than 36,000 staff members across the globe.

Australian shoppers will be most familiar with Aliexpress, an English language eBay rival that sells everything from fast fashion to smartphone accessories, kids’ toys and camping gear.

But it’s the business-to-business side of e-commerce where mum-and-dad entrepreneurs stand to gain.

Ms Zhou’s vision is for Australia to climb the rankings on Tmall Global, where it is currently the fifth biggest seller country in the world with 1300 brands represented. It is already number two on Taobao Global, which taps into the network of Chinese resellers known as daigou.

The most popular Australian product in China were baby goods, skincare, fresh food, healthcare supplements, cereals, beef, dairy, natural skincare, organics and activewear, Ms Zhou said.

She said using daigou channels was useful because Western merchants struggled to understand the vastly different Chinese market — even those who spoke the language.

“These resellers have their own loyal customers and they know what the consumers want,” Ms Zhou said.

Tmall global was best for established brands, she said, while Alibaba.com allowed producers of lesser-known products to access wholesale markets.

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How to sell wine to China

How to sell wine to China- Chris Zappone, The Sydney Morning Herald

Profiting from Chinese demand for Australian wine doesn’t involve rocket science, said wine negociant Bede Doherty, but a knowledge of the Asian culture helps.

Mr Doherty sources wine from Australian vineyards and sells it through brands specially created for clients in the burgeoning Chinese market. The key objective of his Melbourne-based company Bede Doherty & Associates is to create viable brands for Chinese buyers by supplying a product-range that is custom-designed to attract positive attention and increasing sales in China specifically.”

Wine negociant Bede Doherty sells wine into the burgeoning Chinese market.

No small feat considering the gulf of difference between the Australian wine culture and the Chinese market. As a negociant – or dealer, brander and vendor of wine produced by smaller vineyards – Mr Doherty’s business is on track to hit $1 million in revenues this year.

Nonetheless, catering to Chinese clients brings unique challenges.

Branding, for which Mr Doherty works with a native-speaking Chinese consultant, is a critical, with factors that rarely matter elsewhere.

A perfectly appetizing name in the western world may in China recall unpleasant images or connotations. Ditto with numbers in a culture that places great significance on the luck or lack of it – associated with numbers.
For example, the English word bin used in a well-known Australian wine brand is like the word meaning sick in Mandarin. Western brands incorporating the number four may suggest the idea of death, because the word and the number sound remarkably similar.

Australian wine makers oblivious to these differences may find their wines don’t go very far in China. Although a name like Bester, which will be used for a forthcoming brand, does not mean anything in English, it sits nicely in a market filled with brands such as Dragon Seal, Great Wall, and Xanadu Estate.

The meaning of the sub-brands on the label, the part that would give a region or grape type, can be blunt. One brand created and exported for China has a sub-brand name in English that is like the Chinese symbols for, “Let’s get sit down and get drunk together.”

 “The Chinese have a particular interest in owning the brand,” Mr Doherty said, “because when they import established brands from overseas, those wine suppliers often expect sales to increase by a certain rate, especially into a country famous for its phenomenal growth”. “For Australian and western companies producing household name brands in wine, there are expectations for the volume to be sold”.

“It has been known for importers overseas to have brands taken away from them by the owners of the brands in the source country because they weren’t able to keep up with sales expectations, he said.

In addition to the branding, Mr Doherty handles the production and legal issues related to wine importing which in turn allows Chinese customers to focus on the distributing their product.

Often Chinese importers wanting to start importing from Australian vineyards come up against supply limitations.

“The problem wineries have is that they run out of wine,” Mr Doherty said. An interrupted supply forces importer in China to either find a suitable replacement, or to import a slightly different type of wine.

The disruptions in the importation process bring an added expense and difficulty.

Importers may have to register another type of wine to bring into the country. In some cases, it’s enough to make the importer start the process again from scratch.

With Mr Doherty’s services, the Chinese client typically takes control of the brand in China, while Mr Bede retains ownership of it in Australia.

Giving the example of the fictitious “Xylophone” brand Mr Doherty said the Chinese buyer would have to buy it from him because he owns the brand in Australia, which protects his local competitors vying to fulfil his orders.

Once the type of wine is settled upon with the client, Mr Doherty assures a steady consistent supply.

“It’s a manufacturing process, he said. “One can adjust the alcohol and sugar and ph (level)”. Part of his job, conducted from his home in Melbourne, is to sample wines, checking for taste, acid, and other aspects of its chemistry, which can be adjusted if needed.

“I do the quality control for the customers,” he said, adding that it’s surprising how many people in the wine dealing business forget to keep samples of past vintages for future reference.

“I keep samples of the previous wine so I know what it tasted like,” he said. “I can cross compare the new batch with the old batch.”

“It’s simple stuff. There’s no rocket science in this at all.”

The Chinese are primarily interested in red wine, using requesting it at $US20 a case, although Mr Doherty only sells at the US$30 a case level and above. The prices work out to about $US2-$US3 a bottle.

As an American living in Beijing explained, “There are a lot of western wines in China but of course, the market is still very undeveloped and immature.”

Local wines may cost 20-40 renminbi ($3-7) on a menu, whereas a cheap bottle of foreign wine would be around 80 renminbi ($14).

Nonetheless, demand for western wine is growing.

Last year, the China imported 25.1 million litres of Australian wine, a jump of 84.3 per cent from a year earlier, according to data from the Australian Wine and Brandy Corporation.

Based on growth of that scale, the thirst for Mr Doherty’s services should remain for some time.

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‘CHINESE TOURISM’: THE NEXT BEST THING FOR AUSTRALIAN BUSINESSES

It all started with a scoop of lavender ice cream. In the summer of 2008, when social media was in its infancy, visitors’ snaps of Bridestowe Lavender Estate’s exotically purple treat went viral among the Chinese community. The Tasmanian farm’s new owner, Robert Ravens, saw an opportunity to maximise Bridestowe’s appeal to this lucrative market.

“We worked very creatively with a lot of Chinese travel agencies and Chinese media to reposition our product,” he says. Where once Bridestowe “was a genteel place where Yardley gathered its premium fragrance”, Ravens wanted to reposition it into something more contemporary. The momentum continued, thanks in no small part to Bobbie the Bear – a purple, lavender-stuffed teddy that made use of the farm’s excess crop. Sales skyrocketed after a Hong Kong chef was photographed with Bobbie among the flowering lavender fields.

The Australia China Business Council forecasts that total Chinese visitor numbers to Australia will reach 3.3 million a year by 2026, triple the million Chinese tourists who came Down Under in 2016. With China forming Australia’s fastest growing inbound tourism market, insights from operators such as Ravens are invaluable to others hoping to share in this Chinese gold rush. “People are buying authenticity,” says Ravens, who has a Chinese-language version of his website but steers clear of Chinese signs at his farm.

Chinese tourism around the world is experiencing a boom: the numbers of tourists are increasing and the types of tourism diversifying. But Australia will need a more culturally sensitive approach than the catchy advertising of old to capitalize on this emerging market.

How Chinese tourism is changing

recent Goldman Sachs report on the Chinese tourist boom finds that Chinese outbound tourism has risen from only 10 million in 2000 to over 120 million travellers in 2015. This is expected to growth to 220 million by 2025 (although this includes visits to Macau and Hong Kong).

Expenditure by tourists will grow from US$290 billion to $450 billion in 2025. At present only 4% of Chinese own a passport, predicted to grow to 12% within the next 10 years.

Chinese millennials, a young generation that is well-educated, speaks English and is highly connected through the internet, has attracted interest from the tourism industry. Chinese tourists use digital media to plan for their travel but they use different types compared to Australian tourists. Over 90% of Chinese internet users engage in social media, WeChat and SinaWeibo. Weibo, for example, is used daily by over 50 million bloggers.

Australia cashing in

Australia needs to ensure that the “tourism experience” is what Chinese people want. Some other destinations offer better deals, such as the no-visa policy that the Maldives and Fiji have introduced. Open borders encourage more travel.The tourism industry in partnership with government is busy addressing this. Tourism operators are also adjusting their experiences specifically for the Chinese market, to improve the food and dining experiences and to offer more in Mandarin and other Chinese languages.

Going further, there is the potential to attract more Chinese brands to Australia, including Chinese-owned hotel chains that offer very different experiences from traditional Western hotels, Chinese clothing brands, and entertainment experiences that are popular in China. This will improve the satisfaction of Chinese tourists.

But it’s not all a one-way street. To share the benefits of Chinese tourism it should be linked to other investment. Often Chinese visitors will holiday in Australia and on their trip, look for information about an investment property or business or perhaps investigate schools or universities as places for their children to attend.

Australia can also benefit in terms of protecting its natural environment. One of the main attractions for Chinese tourists is the clean and green environment and native animals.

Chinese visitors could be actively engaged in nature conservation activities. As Chinese travellers become more independent, Australia has opportunities to entice a proportion of them “off the beaten track” to engage with local culture and the environment as well as contributing to economic activities outside the main tourist centres.

Now is the time to plan for how the vast Chinese market can generate the greatest overall value to Australia. This could be by targeting young millennials, luxury travellers, environmental or cultural special interest markets, or any other sub-group that generates benefits beyond the sheer numbers. Planning means we can target market segments to maximise the return for Australia.

Why the shift in consumer behaviour?

This shift in behaviour most likely reflects the transition to millennials (15-35-year-olds) as they become the dominant source of incremental consumer spending; and as baby boomers retire and are therefore more likely to travel and dine out.

Despite their low-income average, China’s millennials desire international brands, lifestyle and health and wellness products; and they are willing to undertake material search costs to maximise their disposable incomes. This has contributed to strong growth of online retail within this cohort.

Social media has also facilitated the rise of ‘conspicuous leisure’, with platforms such as Facebook, Instagram and Snapchat inspiring the observation and creation of lifestyle image posts that highlight an active and adventurous lifestyle as a global citizen.

The future of Chinese consumption

Australia’s tourism, education and property sectors will continue to benefit from Chinese expenditure, a trend that we expect will last for decades to come. The continual shift in spending from baby boomers to millennials will only progress with time, as will the relentless rise of social media, thus cultivating the trend for consumer spending on non-material expenses and changing the landscape for investors globally.

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CHINESE PHARMACIES KEEN ON AUSSIE PRODUCTS

China’s 240,000 pharmacy outlets are keen to see Australian products on display, say organisers of the Qingdao International Health Products Expo. The exhibition is expected to attract some 60,000 visitors including 7000 industry buyers. These pharmacies serve more than 1.4 billion customers a year who increasingly are looking to their pharmacy as a “one-stop shop”.

President of the Complementary Health Product Association (Qingdao exhibition organising committee for Australia and New Zealand), Sunny Sun, says the ‘one stop shop” approach for pharmacies in China has gained a lot of momentum. “This is giving pharmacies the opportunity to expand their product range and Australian manufacturers and suppliers can take advantage of this trend by displaying their products at the Expo,” Mr Sun says.

“The demand for Australian products is very high because of the strict regulations governing the manufacture of health products in Australia, and indeed other products which can be sold through Chinese pharmacies. “Bringing a broad range of top quality products for visitors and buyers to examine at the Expo will open a lot of doors for Australian companies.”

He says Chinese pharmacy executives have already made several ‘raids’ on Australia to lock away suppliers, but are looking to the Qingdao International Health Products Expo, being held from 16th-19th March, to develop lasting trade links with Australian manufacturers. “On top of health products there is strong demand for Australian breakfast cereals, chocolates and biscuits and these products align with the “one stop-shop concept,” he says.

Various model “one-stop shops” at an average size of 100 square metres will be highlighted at the expo featuring exhibitor from 10 countries and regions including China, Australia, New Zealand, USA, Canada, UK, Japan, Korea, Germany, China Taiwan will be participating at the EXPO. It is expected to attract 60,000 visitors and some 7,000 buyers.

Victorian President of the Australian China Business Council, Ken Smith, says the Qingdao Expo, which he will be attending as leader of the Australian delegation, will be unique. Mr Smith stresses that the development of the pharmacy in China, with the introduction of the “one-stop shop” concept, has opened the door to a wide range of Australian producers and manufacturers.

The National President of the Pharmacy Guild, George Tambassis, says the Guild recently signed several Memorandums of Understanding with its Chinese counterpart and Australian presence at Qingdao will be a major investment in Australia’s health products export capacity. “The Chinese want Australian products because they are produced and manufactured under extremely strict health regulations,” he says.

“China is reducing the red tape on importing packaged food products and as a result registration and approval, which was difficult, is now much simpler,” he says. They are targeting a wide range of Australian and New Zealand healthcare products as they introduce “one stop shops” to their 1.5 billion customers.

China Business Council. “They will be designed areas set aside for Australian products; health products and healthy products, breakfast cereals, biscuits, jams, wine, possibly fresh and tinned fruit, cleaning products, etc,” Ms Sawczak has said.

“Australian products including pharmaceuticals, complementary medicines, food and wine are in huge demand in China due to various factors including the rise of a wealthy middle class with an insatiable appetite for clean, green and safe premium products,” she says. “Australian products are highly regarded as being of a consistently high standard.”

The Australian Pharmacy Guild, Canadian Pharmacy Association, industry representatives from USA, Britain and Japan as well as major pharmaceutical suppliers have been invited to exhibit along with numerous cosmetic, toiletries and medical, rehabilitation and aged care equipment companies.

The Expo will cover 10,000 square meters and is expected to attract 60,000 visitors, including 7000 industry buyers and professional visitors. The Expo will feature various examples of “one stop shops”, with an average size of 100 square meters, for Chinese pharmacy owners to review.

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'It's like a licence to print money' — Citrus industry urges government to help preserve China trade

The citrus industry has called on the Federal Government to not “trip up” their trade with China, as Australian orange and mandarin growers enjoy the best prices in years. Key points:

·        Nearly a quarter of citrus exports went to China last year

·        Pink navel oranges can fetch as much as $1,300 a tonne

·        The fruit can take five to seven years to come into full production

Citrus Australia chief executive Nathan Hancock said the industry was experiencing boom times, with growers getting twice to three times as much for their fruit as they were five years ago.

The citrus harvest started in early May and this season demand is expected to outstrip supply, largely due to increasing exports to China.

China accounted for almost a quarter of the total 273,000 tonnes of citrus fruit exported last year.

“In 2013 we were close to zero export tonnes to China … In 2017, we exceeded 10,000 tonnes to China,” Mr Hancock said. But Mr Hancock was concerned about the fragility of the current world order, and Australia’s relationship with our most lucrative trading partner. “I’m not the only one in industry who is nervous about that,” Mr Hancock said.

“We can’t do anything much about those political machinations except to say to our government we don’t want them tripping things up. “Mr Hancock said the industry’s peak body, Citrus Australia, along with growers and packers had put “a lot of work” into supplying China’s needs. ‘It’s like a licence to print money’

The on-farm protocols the Chinese government demanded, primarily to prevent pests and diseases, had been difficult to enact but the hard work has paid off. Of the 25,000 hectares of citrus trees planted across the growing regions of Queensland, the Northern Territory, New South Wales, Victoria, South Australia and Western Australia, 9,200 hectares have been registered for export to China. Second generation fruit grower John Hederics at Trentham, near Mildura, said one variety of pink-fleshed navel orange was particularly popular.

“China’s been a big change for us in the last four years with that market opening up and the demand for our fruit, they really love our fruit, especially the pink navels,” he said. “The Australian dollar has been good to us the last couple of years, it has really made a difference to the profitability of us growing citrus and exporting it.”

Mr Hederics grows 130 hectares of citrus on his property adjacent to the Murray River, and he is clearing more land to expand the orchards to 350 hectares over the next three years; he wants to increase his production of seedless mandarins and pink-fleshed navels.

“You can’t just plant a tree and harvest it next year — you’ve got to wait five to seven years to come into full production, so it’s a real gamble guessing the varieties and what you should be doing.”

Mr Hederics is one of the Mildura Fruit Company’s (MFC) 130 contracted growers. MFC is the country’s biggest single supplier to the China market — accounting for about one third of the overall citrus trade. MFC general manager Perry Hill said the Mildura-based packing plant first shipped fruit to China in 2011, after the export trade to the United States collapsed. “Going back ten or more years ago, the biggest market for the premium grade fruit was the US,” Mr Hill said.

“That diminished because of the likes of South Africa and Chile pushing a lot of fruit into that market, so suddenly, we couldn’t get the premium prices we were looking for, so we turned our mind elsewhere.”

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8 TIPS FOR CRACKING CHINESE MARKETS

8 TIPS FOR CRACKING CHINESE MARKETS


 Sophia Zhao, Australia
China Business Review

When doing business with China and targeting Chinese consumers, it is essential to understand not only China’s business culture, but what drives its people towards Australian made products and services. With its population of over 1.3 billion, China has become one of the largest and most lucrative consumer markets in the world. Add in the fact Australian products are in high demand from Chinese consumers, China is clearly an attractive country to do business with.

However, numerous local and international brands still fail to crack the market.

Ridesharing giant Uber tried penetrating the Chinese market in 2016 and failed miserably. Why? Due to its disregard for China’s rideshare regulations and a lack of understanding of the existing rideshare market. A targeted and well researched approach is required to achieve the best market penetration.

Here are 8 tips for doing business with China:

1. Build trust

Trust is the cornerstone of conducting business in China. While China is going through enormous social and economic change, their business values are still very traditional.

When doing business in China, it is important for Australian businesses to first build rapport and credibility. Chinese business culture is more about building long-term relationships than quickly signing contractual agreements.

2. Be Patient

Patience is a virtue. Like any long-lasting relationship, building trust can take a great deal of time. Expecting to be an overnight success in China is unrealistic.

If the Chinese see you are genuine and not out to take advantage of them commercially, then they are more likely to be open to doing business with you.

Take for example, Coca Cola. It took Coca Cola almost 40 years to establish trust and credibility in the Chinese market.

In 1979, it was only selling 20,000 cases to China, but today China has become Coca-Cola’s 3rd largest market in the world, after the U.S. and Mexico.

3. Turn local Australian Chinese into your biggest fans

There is nothing more powerful than word of mouth advertising.  For the Chinese, this is especially true when sourcing overseas products.

Thanks to social media and instant messaging platforms like WeChat, overseas brands have gained more visibility in mainland China as consumers are now able to interact with these brands in real time.

Therefore, Australian-based Chinese consumers play a vital role in influencing their family and friends back home in mainland China about a brand’s credibility.

Depending on their local Chinese counterpart’s experiences, that product’s entry into the Chinese market can either scale at an unprecedented rate, or fail to enter the market completely. For this reason, it is very important to appeal to local Chinese consumers who can then influence your consumers in China.

4. Get market validation through local press

Equally as important as having local Chinese Australians vouch for your product, is establishing a presence in local Chinese press.

Chinese people believe foreign brands, particularly Australian ones, play an important role in improving their quality of life. By having your product not only talked about by friends and relatives, but also covered in local Chinese-Australian newspapers, can really propel your brand’s credibility within the Chinese market.

5. Cultural context

Australian businesses need to respect the Chinese view of the world and understand that the Chinese may not hold the same values as the West.

Brands need to be considerate of sensitive issues such as animal cruelty, human rights, its environmental state, and China’s territorial borders i.e. Taiwan and Tibet.

In China, business and politics are interconnected. The government influences almost all areas of life. It is therefore crucial to study the political landscape of the area in which you will be operating and learn how to navigate your business within it.

When selling to consumers, Australian businesses need to understand that China has about 56 ethnic groups, which bring with them huge diversity, different dialects, local customs and a significant discrepancy in living standards.

Megacities like Beijing, Shanghai, and Guangzhou will have a very different consumer culture to regional areas in China, which can be 20 to 30 years behind. Therefore, aligning your brand’s strategy to enter those different submarkets needs to be adjusted accordingly.

6. Work with E-commerce platforms

There are many e-commerce platforms that brands can leverage off to enter the Chinese Market. The two giant e-commerce players are Alibaba and JD.com, followed by Tmall and a number of other smaller players such as Kaola, VIP.com, YangMaTou and XiaoHongShu .

Before listing on these platforms, it is important to know the differences between how Chinese consumers use them. Alibaba and JD.com are mostly used for home appliances and electronic equipment. Tmall is generally used for buying clothes and cosmetics. Koala is used to predominantly sell Australian brands to Chinese consumers.

7. Have an offline strategy

While there are many benefits of doing business online, there are equally as many benefits conducting offline business activities. In China, one effective offline marketing strategy is the use of sponsorship.

Event sponsorship provides international companies with a viable alternative to mass media.  It is a particularly effective strategy to help resonate with your target audience as it establishes favourable links between an audience and a sponsor’s brand image.

Another offline strategy is linking up with Chinese business associations and government trade chambers. These organisations have extensive networks and being referred by these organisations holds a lot of clout. Their referrals could assist you in establishing relationships faster and in a less costly manner.

8. Partner with a local Chinese business

As previously discussed, the barriers to entry in China are quite difficult. That is why having a local Chinese partner can be beneficial to your business and help you tackle these barriers more easily.

Using the example of Uber again, despite being a huge company in its own right, its downfall in cracking the Chinese market came from deciding to enter the market alone. Had it partnered with China’s largest rideshare company, Didi Chuxing, it would have seen more success.

Again, this example shows the lack of understanding Uber had of Chinese culture.  For the Chinese, Uber’s attempt to tap into its market was seen as a Western company trying to take advantage of China’s huge market potential.

To succeed in China, businesses need to take a more collective and social approach. Having a local partner will not only assist you with navigating cross-cultural barriers, but shows you are willing to collaborate.