'A Chinese has become a billionaire for packaging New Zealand meat for sales in China'.
Headlines like this cast a deep impression in my mind.
Not that I have a problem with Chinese billionaires (there are many of them of course), but more like ‘what could have been if a New Zealander or a New Zealand organisation did the same?’
The Beginning
New Zealand, like many smaller economies around the world, is predominantly an exporting nation.
Yet, at this point, the contribution of export to the economy is only about 30 percent while other, similar economies are exporting at least 40 percent.
This has prompted the New Zealand government to call for the figure to be lifted to 40 percent by the year 2025.
While I’m ambivalent about the emphasis on exporting, I am certain about two things.
First, New Zealand’s trading can become too skewed towards the reliance on exporting (and importing) alone. This neglects the importance of overseas direct investment from New Zealand organisations and foreign direct investment into New Zealand.
Second, and this is well documented in the international business and trade literatures, that exporting is the most hands-off mode of engagement in the international business operations.
In fact, models of international business engagement also put exporting as the initial mode of engagement, which is especially useful when you are not certain about a particular market and do not want to commit straight into it.
Where Are We Now?
New Zealand is bestowed with a good level of natural resources. We are among the best and safest places to live in. We also have a good social welfare system that takes good care of the people living here.
New Zealand has a good reputation and prides itself in having the best quality products. As such, New Zealand products are always able to fetch a premium in the international market.
But we are never going to be a volume player in the market. If we are agreeable on this, then we need to explore options alongside exporting.
Options alongside exporting
One option is to charge more premium prices for New Zealand products.
This option might work in some markets for some industries. But we also know that most recently China has been tracking foreign companies that seek to over-charge Chinese consumers for their premiums. So this option needs some rethinking.
But along this is the fact that the Chinese distributors for our New Zealand products may be putting an absurd markup on these products on the grounds that they are direct from New Zealand !
Exclusive distributorship of this sort needs to be agreed carefully. Unless a mechanism is in place, it is hard to know for sure if the Chinese distributor has over-charged the consumers.
This also alerts to the fact that even with exporting, understanding the local market conditions and dynamics is important. Not just in terms of balancing the bargaining power of the distributor, but also in terms of making sure that New Zealand organisations know what they are doing.
Learning about the market is also another great outcome from such engagement.
The other option is to explore the roles that a New Zealand organization can play along the value chain to allow it to capture more value from its goods.
Christina Stringer, in last week’s article in this column, has highlighted the fundamentals of the global value chain and has called for New Zealand organisations to engage in such conversations.
Taking Half a Step Forward
There is no doubt that New Zealand organisations playing bigger roles in value chains is better in the long run.
More exporting, which may be capped at some point by capacity limitations, and charging ever higher premiums are more short-term solutions.
Upgrading along the value chain can take many forms and each of the potential arrangements comes with benefits and risks.
Among the issues to consider are the levels of commitment to the market, the feasibility of local production, the resource requirements, the brand recognition in the particular industry, the structure of the industry in the market, and the degree of cooperation possible. The list goes on and on.
I hope to be able to discuss some of these elements in the column next week.
And let’s hope we are all half a step closer to doing better internationally in the long run, both for New Zealand and its organisations.
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Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with China. You can contact him here
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