wILL THE ALIBABA DEAL AFFECT smeS?

The business relationship between China and New Zealand is growing strong, and with our Prime Minister paying a key visit to secure new trade deals, there seems to be even more opportunities knocking on the door for Kiwi businesses to get involved in trading. 

The Beehive has been buzzing with news about a number of developments surrounding agricultural supply agreements, strategies to encourage more Chinese visitors and new pathways for business. However, one of the most notable agreements was with Alibaba, as CEO Jack Ma agreed to provide support for New Zealand businesses and better access to online platforms  

What exactly will this deal mean for New Zealand companies looking to trade in Asian markets? We’ll explore the possibilities and the potential roadblocks that come with making your way to China through the internet.

What is Alibaba?

Established in 1999, the Alibaba Group is an online retailer that covers business to business (B2B), business to consumer (B2C) and even consumer to consumer (C2C) trading across a number of different websites and subsidiaries. These include AliExpress and Tmall for B2C and Taobao which facilitates C2C selling (similar to Trademe). The Alibaba.com site covers the international B2B and wholesale market, which has its own unique opportunities and challenges for New Zealand businesses.

In a country without Amazon, Ebay or even Google, the Alibaba Group is a key e-commerce platform, reaching over 80 per cent of the market in China without even owning any merchandise of its own. 

According to Forbes, the Alibaba Group achieved a 45 per cent increase in revenue in 2015 compared to the previous financial year. This trumped growth of rival company Amazon, which saw 20 per cent growth in the equivalent period. In fact, Forbes believes the site could outpace Amazon in expansion and gain 3 per cent of the US market share by next year.  Although Alibaba.com doesn’t schedule deliveries, it does set up payments and sends notifications to the user. The complex system removes some of the trade risks, making it an appealing avenue for many small businesses.

The B2B Internet market in China Alibaba has achieved incredible results through careful mergers and acquisitions, and opening opportunities for Chinese small to medium enterprises (SMEs). Although these businesses are smaller in scale, they collectively make up 50 per cent of China’s domestic e-commerce market, according to data from iResearch China.  Selling B2B may not seem as exciting as directly engaging with a consumer base but in China it is big business. In fact, iResearch found that around 70 per cent of all sales online fall under this category, generating 5.14 billion Yuans in revenue (around 1.1 billion in NZ dollars) during the most recent quarter. This is a good sign for Kiwi businesses as Alibaba.com handles both exports and imports between China and other countries, including New Zealand. 

How can Kiwis utilise Alibaba?

Alibaba is a huge marketplace and smaller voices may tend to get drowned out in the crowd. However, the Memorandum of Understanding (MOU) that Alibaba signed is a formal commitment to strengthen trade between China and New Zealand. A key part of this is the collaboration with New Zealand Trade and Enterprise (NZTE), which will leverage the various Alibaba platforms for New Zealand businesses. Todd McClay, Minister of Trade, highlighted another advantage of the deal at a recent meeting with the Chinese community.

“A major hurdle for New Zealanders trading in China besides the language is the documentation and fulfilment of orders. As such, the trade deal with Alibaba means that they will be playing a more active role in bridging this gap for New Zealand businesses.”

This doesn’t necessary mean it will be an easy process to set up a channel to China and businesses still need to take action to ensure they are on the right track. James Sun, Marketing Manager of Multimarketing, an agency which helps New Zealand businesses connect with Asian firms, explained that businesses need to be prepared to do some leg work.  

“It is still important to consider how you will operate on your own. Alibaba only offers a pathway 

and IT support but will not help with vital tasks such as marketing.”

Here is a checklist for small businesses to mull over before breaking into the Chinese market.

 Ensure you have the budget

In order to establish and develop a strong presence in China, you need to invest a fairly large sum of money into marketing. This can be costly in the short-term but is necessary to see profits later down the track. Entering in a group with other businesses or seeking out assistance from services here is a good way to spread the costs of marketing ventures.  

 Build a logistics contingency plan

Currently, the logistics and fulfillment systems in China are still developing and are often not as reliable as businesses in New Zealand are used it. It is important to have back-up plans available for possible delays and other concerns. As the Academic paper “Value Creation in B2B E-Markets of China” states, supply chain management must be responsive to real-time events and specific to the digital platforms, so make sure you keep your systems up to date. 

 Get a Distributor

As mentioned before, logistics can be a major headache for New Zealand businesses. Having a local distributor who understands the market and can work quickly to solve any issues quickly is of immense value. A good local distributor can maintain a stellar reputation for your brand in China by ensuring your products are delivered as efficiently as possible. 

 Understand the difference in culture and values

For small New Zealand businesses looking to become successful in the Chinese market, it is important to understand how complex the Chinese market is. With over 1 billion people, the country is full of different cultures, lifestyles, spending habits and behaviours.The ability to express your values and ensure they match with new partners is often overlooked, but can be vital in maintaining a positive business relationship. Price and value psyches vary depending on the culture and it is important that everyone is on the same page.

For example, a Chinese manufacturer may employ cost-saving methods that do not meet a New Zealand business’ expectation of quality. While it is a good idea to be open and flexible, it is vital to bring the values that you cannot compromise to the table early on. 

 Protect your brand

According to the “Special 301” report, China is one of 11 countries on the US government priority list for Intellectual Property (IP) theft. In New Zealand, getting patents and protections can be one of the biggest challenges to market entry, according to NZTE.Luke Minford, partner of global IP consultancy Rouse and Co International, highlighted three key considerations for New Zealand business looking to protect their IP. These were: Setting aside a budget for IP and treating them as long-lasting assets, building a strategy that breaks down your assets and how you will protect them and getting support in China to help enforce your patents and trade secrets. 

 Make use of Word of Mouth

Building a network of Chinese immigrants here in New Zealand can be an effective way to build contacts in the domestic Chinese market. Immigrants and visitors to New Zealand act as ambassadors, bring back products and positive experiences to share with family, friends 

and business contacts. Visiting China in person will also help strengthen ties with your contacts.

There are a number of associations and ongoing events that help facilitate this network. Using these to build partnerships and collaborations can help leverage your resources and present a stronger offering to the market. 

 Think carefully about your location and segments

As Mr Sun stated, selecting the right market is all about precision. In this regard, it is often best to choose one key city to focus on and base your research there. This makes it much easier to build a network, identify the needs of clients and the subtleties that exist in trading. 

“The more accurate, fragmented and segmented your strategy is, the better as even the smaller consumer groups in China can provide a lot of value,” said Mr Sun.

“If you find the right niche and engage with it closely, you can build successful relationships and strong sales.”

 Find a translator who understands both China and New Zealand

International trade often presents language barriers and translating into Standard Mandarin or any unofficial languages of China is a challenging task. Direct translations can be inaccurate and many New Zealand business rely too heavily on these, affecting the context and precision of their messages. 

To ensure clarity of communication, New Zealand businesses should select a partner or translator/interpreter who has been exposed to Western business practice as well as the Chinese commercial culture.

Taking the time and effort to make a confident and prepared offering into the Chinese market will no doubt set you up for success. The door has been opened, now it is up to your business to make an impressive entrance. 

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References: 

https://www.beehive.govt.nz/release/successful-trip-china-concludes

http://www.businesswire.com/news/home/20160417005102/en/Alibaba-Group-Zealand-Government-Form-Strategic-Alliance 

http://www.forbes.com/sites/greatspeculations/2015/10/13/why-alibaba-can-expand-faster-than-amazon/#266ea84959a5

http://www.pymnts.com/news/b2b-payments/2015/b2b-makes-up-a-whopping-70-of-chinas-e-commerce-market/

http://www.iresearchchina.com/content/details7_19971.html

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.502.9094&rep=rep1&type=pdf