Into China

Australian businesses can no longer afford to wait before tackling exporting to China. By MIKE PRESTON.

By Mike Preston

Chinese language, culture, laws and business practices may be very different to Australia’s, but SME owners who fail to cross this cultural divide risk being left behind.

A recent The Executive Connection survey of Australian chief executives found 22% are doing business in China, ranking it second only to New Zealand as an overseas business destination.

Recent research from Austrade/ABS/Sensis shows 20% of all exporting SMEs are involved in the China market, the number having doubled in only two years.

There is big money to be made in China – if you get your approach right.

Do your research

Lesson one for SMEs heading to China is to expect to be surprised by the business practices.

Fast-growing construction software company Aconex opened an office in Shanghai in 2006 to take advantage of the construction boom. Despite experience gained opening 30 Aconex offices around the world, managing director Leigh Jasper says he did not expect the resistance he encountered to the rollout of Aconex’s product in China.

He says the Chinese legal system, which is still developing, means business practices are different. “Our web-based system is about making information available to as many people as possible, but one thing we have found a little tricky is that in China there is an element of not wanting complete transparency,” Jasper says.

“We discovered there is a desire to maintain some opaqueness in the process to hide the fact that various people are making money along the way, especially in the local projects.”

Rather than compromising its product to accommodate local practices, Aconex’s response has been to put more resources into researching and developing those parts of the market where it would work.

“If we had done that research initially we would have more aggressively targeted particular segments of the market to go after. We now see that international investors building property in China are more open to our system, and they will absolutely be our focus going forward,” Jasper says. “It’s such a big market that we really only need one or two segments to build a substantial business.”

Meet the right people

Another advocate of thorough research is Ross Horley, chief executive of ASX listed medical training equipment company Medic Vision, which this year will earn more than $1 million from its China operations.

Horley says it is critical to research structure and key players in industries. “One of the things we did early on was pay a visit to the Vice Minister for Health to show our training simulators. We managed to get a photo of the Vice Minister using the simulator, which we used as part of a slideshow accompanying a presentation we did at a conference later that afternoon.

“The slide wasn’t even labelled with the Vice Minister’s name, but the number of people who came up afterwards to ask us if it was the Vice Minister for Health was incredible. They were clearly much more impressed with that than anything we had said. The photo, which we’d only taken a few hours earlier almost as an afterthought, really sealed our credibility at that conference and generated a huge amount of interest for our product,” Horley says.

The meeting was a more effective marketing tool than any advertising money could have bought.

Find local partners

Finding the right business partners is another critical challenge. Launceston blanket and bedding manufacturer Waverley Australia decided it did not have the resources to set up its own retail or distribution network in China. So the company has built relationships with strategically positioned local agents across China. (See Exports bring woollen mill in from the cold.) 

Dealing with agents has allowed Waverley to establish an effective local sales presence without the cost of setting up offices and hiring local staff. This has meant that, after just nine months in China, Waverley has already made close to $500,000 in sales and built up $1.3 million worth of forward orders.

Waverly managing director Bruce Grant says he used business-to-business online portals such as Alibaba to make the connections. “We focused on only very professional b2b sites and purchased premium memberships to filter out the jokers and just get people who are very serious about doing business. We must have got 40 leads that way,” Grant says.

From there, it was a matter of vetting these prospects to find half a dozen agents with the credibility and capability Waverly wanted. Austrade was instrumental to this “due diligence” process, providing background information, helping arrange social events and meetings and supplying the all-important translators. The bottom line, however, was building personal relationships – and that meant spending a lot of time in China.

“I have been to China five times in the last nine months because our agents want to have that relationship with us,” Grant says. “Doing these deals meant going and socialising. That is just how business is traditionally done there.”

Grant says the real business is often done in a bar or restaurant after the formal meeting has finished. He cautions that it is important to keep your head during the wining and dining: “It is very much part of the process to have a drink; they will toast you with hard liquor and expect you to join them all night long. It can get out of control pretty easily if you’re not careful.”

Show them what you’ve got

Now earning around 20% of its $30 million annual revenue from China, industrial oxygen sensor manufacturer Novatech Australia initially struggled to win business against a few dominant multinationals when it first arrived in China in 1997.

To crack the market, Novatech sought and received government approval to have its equipment trialled against a competitor’s in one of China’s largest power stations in Baoshan near Shanghai.

Success in the trial allowed Novatech to “come in from the cold,” managing director Karyn McDonald says. “Success in that one power plant made a huge difference; shortly after the trial finished in 1999 we started making sales across the country and we haven’t looked back.”

It took Novatech two years, and a significant investment of time and money, before it could begin making sales. This experience is common. As Aconex’s Leigh Jasper says, to succeed in China it’s important to be patient, plan carefully and avoid being “blinded by the prize”.

Rushing into China with a costly new office and full contingent of staff could lead to a costly disaster. By treading carefully, SMEs can make their way in the huge and rapidly growing Chinese market.