Download Engaging with China must become an SA priority

Engaging with China must become an SA priority
February 2010
South African companies are still not tapped into China, we are not early adopters
and this is costing our companies in opportunity compared to other countries that are
more proactive. This is according to Kobus van der Wath, Group Managing Director
of strategy and investment advisory firm THE BEIJING AXIS and CEO of Chinafocused global procurement house Bateman Beijing Axis, who spoke at a GSB
Distinguished Speakers Programme this month.
Van der Wath opened by saying that China is actively engaging with the world more
and more – by example, the clients at his consultancy are now more Chinese moving
out into global markets than businesses seeking to enter China.
“China is now the second largest economy in the world, with Japan third and
Germany fourth, and the economy is currently growing at some 10-11%. China is by
far the world’s most dynamic emergent economy, and is playing a key role in Asia
and the developing world. Furthermore, China’s success is sustainable – what we
are seeing there is that Beijing is bringing other provinces into the equation, going
beyond the key GDP-creating eastern provinces. This is a long term development
theme – there is much more growth to come.”
China is also about more than ‘dumb manufacturing’, he explained. It is more
technology oriented than many think and a major exporter in high tech industries.
Interestingly, the services sector is also becoming a much bigger contributor to GDP
in China.
“In addition, the population is becoming more empowered and discerning. Most
Chinese consumers are not at the same levels as US or European consumers, but
when one considers that China is a one trillion dollar import market, it simply must
feature in the planning for any exporter. Being from a smaller market, like South
Africa, does not mean that we are at a disadvantage – consider that Chile is one of
the five biggest wine exporters to China!”
How does one take advantage of these opportunities? Van der Wath said that there
are a number of ways to do so, from setting up a Representative Office or R&D
centre to establishing a Joint Venture or Wholly Foreign Owned Enterprise (WFOE).
It is critical though to have an understanding of the Chinese business landscape, the
culture, the government, and the transformation in the economy.
“As a South African, who has been in China for many years doing business, I have
found it to be an advantage to be from South Africa – we can get meetings and there
is a natural interest in and affinity for our people among the Chinese. In addition,
there is a high level of strategic engagement between China and African countries.
Historically and politically there is quite a good legacy with South Africa in particular,
and our managers in SA are very capable and operationally tenacious thanks to our
1
tougher, more complex emergent market context. Make sure you leverage this
fortuitous backdrop,” advised Van der Wath.
“It is critical though that due diligence is done before engaging with China – research
must be done and information gathered. Sometimes this information is not in English,
but the information is there and one needs to get a solid grasp on issues like
changing labour policies and taxation from day one. You need to thus be research
based and flexible – you won’t get it all right from the start. Furthermore, you need to
think about implementation. You can’t just go in with some high level ideas for doing
business – ideas must work at ground level. It is critical to have learning systems in
place – you will make mistakes but you can also learn from the mistakes of others.
Also, be patient and don’t squeeze things – if you have patience people will adopt
you and your business.”
This research into China needs to also include developing an understanding of the
markets you want to enter. “It is not about saying there are 1.3 billion people I want to
sell to. China is big, complex and with a lot of systemic variability,” explains Van der
Wath.
“Things will be different from province to province, from rural to urban – all this
changes how you go to market. A province like Shandong has a GDP equivalent to
that of South Africa’s and you must choose exactly where to enter. For example, we
had a client who wanted to enter the province with a detergent product and we
discovered that there were 50 000 outlets in Shandong – we had to ask how we
could get the product on shelves in the right places. In the end, we entered 2 500
outlets, but because we chose the correct ones, we got 75% of the wallet size of the
province.
“So if you are thinking of exporting to China, don’t think China, think province, region
within province and even more localised in some cases because there are hotspots
where your market may be condensed.”
Van der Wath added that entering China need not be about making money through
exports, but can also be about saving it through procurement. Philips, the electronics
giant, procures massively in China as do other major electronics companies, which
illustrates China is high tech dense and not about ‘cheap toys’.
The other side of China is China as a foreign direct investor – China invested $70
billion in 2009 and this figure is rising rapidly and expected to reach $100 billion this
year.
“What does this mean? Well, you could be bought, or your competitors bought for
example. China is investing across all sectors globally. This has important
implications for public policy and for what is taught at business schools. Furthermore,
companies in which China does intervene often get a new lease on life and even
become market leaders – China is thus a game changer, and South African
companies must be very cognisant of this and on their toes. China is also a learning
nation; they learn from others and learn from mistakes. And when they put their
minds to something, they deliver.”
The GSB Distinguished Speakers Programme is sponsored by Deloitte and Webber
Wentzel.
Ends
2
Media interested in an interview or more information can contact Jane Notten
or Michael Morgan on 021 448 9465 or email [email protected].
3