There's no reason for Australian businesses not to be in China

China's consumer-driven economy is growing and the newly signed China-Australia free-trade agreement (ChAFTA) might be the push Australian businesses need. The recently signed ChAFTA will effectively eliminate or phase out tariffs on 95 per cent of Australian exports into China in the coming years.

"You can't just arrive and say here I am, I'm open for business. You need to get the strategy right."
Peter Arkell, Chairman of the AustCham Shanghai Board

But ChAFTA is only the beginning. ANZ China Executive Director James Campbell warns it needs to be seen as only a “ticket to the dance" and not a one-time cash machine.

Campbell says Australia needs to be creating a unique message, not just the state-focussed messages pushed for the last decade.

During a recent China research tour, BlueNotes spoke to Shanghai-based Australian Chamber of Commerce (AustCham) head Peter Arkell about companies who have successfully breached China's market and how Australian companies could do the same.

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Arkell has worked in China for over 12 years while AustCham represents more than 400 active Australian companies in China and has matured over its 20 years in operation into the largest Australian business association in China.

BlueNotes' Rebecca Colquhoun: We hear a lot about how much opportunity there is in China but in what sectors and for what sort of companies in particular do you see the best opportunity for Australian companies?

Peter Arkell: My first response is: why couldn't any Australian company be considering China?

I don't know whether we should be restricting ourselves. At the moment we have very good representation from the banks. We have a very good example of manufacturing capability from BlueScope steel. We have very strong representation from the minerals side.

The big companies are already selling minerals into China. They've already made a successful market entry into China.

Then there are a lot of service providers such as lawyers, architects, management consulting companies active here as well. There's a spread of companies.

But I see a big gap in Australia's representation there. We still aren't well represented here (in China) in my opinion and this is a massive, massive market and where there are opportunities here for a whole scope of companies.

For example, who would've thought Australia's biggest flower wholesaler would be able to establish a flower farm here and then be looking towards growing and selling into the China market, from China?

If they can do it, you name me a company or an industry and I'll ask you, why couldn't that company be working here? It's such a massive, massive industry.

RC: With your experience assisting Australian companies into China's market, what do they actually have to do to successfully begin selling from China?

PA: The first thing they have to do is acknowledge potential here. I haven't discovered the reason why they're not here yet.

Perhaps it was the perception of barriers to entry that seems to exist. I would like to think many of those, through the negotiation of the ChAFTA with China, have been diminished.

The first thing companies have to do is get over the fear of entering China as a place to do business. The best way to do that is to come here and have a look and engage with expertise on the ground.

There are a lot of these, such as the Chamber of Commerce, AustCham and many others.

We have lots of years of experience in doing business in China available for gaining market knowledge and having someone to incubate your business into China. Having looked at it and seeing what the potential is, many companies can begin to develop their strategy.

RC: Is there a specific barrier that comes to mind when you think about why Australian companies haven't already tapped into China's consumer-driven economy?

PA: I don't know if there is a specific barrier because I look at other nations who are here already, doing big business and profiting from China's market.

The barriers are the same for every nation, be they Australian or American, French or German. Yet those nations are far more represented here, particularly by the top end companies, than we are.

The Germans do very, very well. When a big German corporation comes into China it almost secures its success by encouraging a lot of its supply chain to join them in China from Germany.

A big German corporation will have a lot of the smaller artisan suppliers, highly skilled, that have worked with them for generations in Germany. They will have encouraged them to come to China and assist them in getting established in China.

Big companies then have a familiar supply chain and smaller companies have a powerful company supporting their entry into the international industry, benefiting both ends of the industry.

China welcomes them because it spreads the IP and brings international experience into the Chinese workforce as well. Australian companies are more than capable of doing this too.

RC: How do you see China's representation in Australian companies?

PA: It seems to me that there is an exceptionally low representation on Australian boards of directors who have strong China experience.

When boards are making decisions about China they are doing so without a voice in their strategic planning that is very much in tune with what business is like in China.

Less than a handful of companies in the ASX 200 not heavily invested by China have a director on their board who is "China savvy".

Referring to someone on the ground in China who can speak from experience about how to do business there I think is somewhere boards are missing a piece of the jigsaw.

RC: Given your expertise, what do you think the fate of the free-trade agreement between China and Australia will be?

PA: This is a major breakthrough, to bring it to completion inside a year after the current government took office. I don't think they gave up anything to get it done in such a short time frame.

Both China and Australia had a very conscious approach to getting the best ChAFTA possible for both countries. Furthermore, as other nations find points of negotiations to free up their trade with China, those changes are capable of being incorporated into our negotiations .

This is not the end of the story but an opening position that will continue to improve and develop as our relationship with China does too.

RC: This notion of Australian companies doing business to China and not in China seems to be growing. What impact do you think this is having on future relationships these countries have with Chinese consumers?

PA: Many companies have international-procurement offices in China they use to acquire material, equipment or goods and services that are perhaps produced cheaper and in greater quantities so we can buy them in Australia.

Some companies may use China as a marketplace to acquire things. Other companies, have embraced China in a much deeper way with a much longer view to the future and have established a strong presence on the ground.

RC: For an Australian company to begin doing business in China, what legal process needs to be followed and how difficult is it seen to be?

PA: It's not difficult to get a license to form an incorporated company in China as a foreign company.

There is a class of company called a Wholly Foreign Owned Enterprise (WFOE). These are probably the most-common vehicles along with joint venture companies for foreign companies to operate in China.

RC: Do you think the door is closing for Australian companies wanting to tap into China's industries as more and more Chinese companies are internationalising?

PA: No. China is internationalising. That may be one of the market opportunities for Australian businesses to be here - not to wait for the Chinese to arrive and try and catch them as they come into Australia.

Being here and doing business in China so that you understand the Chinese way of doing business and get credibility and build your networks here will help you to then go internationally with China, just as Australian business entered the US.

You can find Australian business in partnerships with big multi-national companies and Australian people in very senior roles in the multi-national companies in the US, Europe and so on. That will happen in China too and if you're not here and you're waiting for it to happen to you in Australia you might not get a dance partner, so to say.

There's scope for all types of business here, not just the obvious ones of the iron ore and dairy, but everyday stuff. If we've proved we've got a market in Australia and you've proved you can sell it in Australia then give it a crack in this big market too. We might surprise ourselves.

Rebecca Colquhoun is a BlueNotes correspondent.