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NZ business still ain't got it right in China says local expert

By Simon Louisson of NZPA

Thursday 16th November 2006

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Lion Nathan, when still a New Zealand company, went to woo China in 1995 and in the next decade reported a litany of woe -- unfulfilled promises and red ink that cost over $100 million. It finally quit.

Stories of shifting goal posts, corruption, even fraud and theft, are legend. However, a potential market of 1.3 billion people and huge production advantages are so immense China is hard to ignore.

Hard lessons companies such as Lion learned in the 1990s are now being taken on board in New Zealand.

But Glen Murphy, a New Zealander who heads multi-national research company AC Nielsen in China, said New Zealanders still have many painful lessons in front of them.

He was asked to speak last week to New Zealand's largest trade delegation to China.

His speech coincided with Air New Zealand opening a direct air link to Shanghai, the powerhouse of China's exploding economic growth.

"I actually think a lot of us still have a somewhat colonial opinion of ourselves -- as Westerners being somehow superior -- and it's completely wrong. And that's what we've got to get over," Murphy said.

"We have to get over the superiority complex. If we have any inkling of that in our heads, we will fail.

"We will not have our eyes truly open to the opportunities that exit because we will be thinking of doing things our way and not adjusting to their ways."

Murphy, who has 220 staff and expects to add another 400 to 500 next year, said former prime minister Jim Bolger was right in perceiving New Zealand as part of Asia.

"The fact that he was ridiculed for it points to our problem.
"I think the best thing we can do as New Zealand businesspeople is start to think of ourselves as Asian and I don't see a lot of that happening yet."

As well, a lot of the thinking of New Zealand business was too small scale.

"We are a bit unaware or afraid of what we would could do if we thought bigger," he said.

Many New Zealand companies looking to do business here were SMEs (small to medium-sized enterprises) that were understandably cautious -- and there was good reason.

Doing business in any international market has higher risks than in a domestic market, "but in China there is probably a higher degree of the unknown".

Commercial laws and the commercial framework was certainly different and purposely vague, Murphy said.

"Things can change without you really understanding who's changed things and why they've changed and why the landscape is against you."

His main advice to the 120 delegates at the symposium was to get "in-market".

If planning to enter China, businesses needed staff living in China, who could develop understanding, relationships and real trust.

"New Zealanders think you can't really trust Chinese -- I disagree with that.

"Local people we work with are very trustworthy, but you have to spend time to build that trust."

He cited the local saying that Westerners treat strangers far too well and don't treat friends and family well enough.

This is a Confusian value meaning that once friendship is established, anything will be done for you, but if people don't know you, then they owe you nothing.

So while you may have a written contract, if Chinese party does not know you, they might walk from the deal to leave you in the lurch.

"They won't necessarily see that as having done something wrong. They believe they don't owe you anything."

Even with official company stamp, local firms may not honour a deal.

"You have to invest the time to build a genuine relationship, not just a commercial relationship."

Murphy said it was important to identify which government agencies to have relationship with. It was often difficult to unravel the various layers of government.

Unlike in New Zealand, you not only need to have a relationship with the tax authority, but you had to know which one.

Mr Murphy still considered joint ventures the best way to go, although these could be fraught with the same difficulties as any other business, unless the relationship-building was done.

It was important to get a good combination of cultures and it was no good establishing something and then trying to manage it from New Zealand.

"You need to have people on the ground constantly working on the relationship."

While corruption was a reality, Murphy believed it probably a lesser problem than, say, in the United States.

"I think it's bigger in people's minds than in reality."

Murphy agreed with China's ambassador to New Zealand, Zhang Yuangyuan, who told the Shanghai symposium that when things went wrong, it was invariably due to a lack of respect for the hard learnt lessons of others.

"One should avoid looking at China through old, tinted glasses," the ambassador said.

Visitors to Macau, where billions of dollars were being invested, were older and less affluent-looking than Murphy had expected, yet casinos there were generally making larger profits than those in Las Vegas.

"It's not easy to get your normal way of identifying consumers and targeting them with your messages and getting into their heads, but they still have money."

He admitted research firms such as his may be out of the financial reach of most SMEs. That's why he advised putting someone in on the ground, plus working with New Zealand Trade & Enterprises.

Companies needed a long-term view combined with courage and an investment commitment.

"Don't put someone in and expect massive results in a year.

"Give them support and autonomy and listen to them when they come back to New Zealand. Don't take the attitude `we don't do that anywhere else in the world, we are not going to change for China'.

"That would be a waste of money. Don't make the investment and not listen'."

Murphy said drinks giant Pepsi had established its first beverage research and development lab outside the United States, where products and flavours specifically for the China market were developed.

Pepsi also expected those tastes, designs and styles to influence the rest of the world.

"They see the influence China will have will be global."
There are elements in China that are attractive to the world, he said.

A problem for New Zealand was its limited domestic economy and base.

"We can't get economies of scale that allow you to confidently export. Yet the potential market is immense, with Shanghai alone having a population bigger than Australia."

"There are opportunities to link with businesses in China and utilise the economies of scale combined with our design, and our ideas and our marketing capabilities.

"This way would allow us to attack the global market. The potential is there for us to that.

"If you are successful in identifying the consumers and getting the right messages across, China is no longer a disaster story for multi-national companies."

"It's already massive and will get more massive."

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