Bullet-proofing Your Business For Export

Are New Zealand exporters getting ambushed out there? Just look at the problems continuing to plague Zespri and Fonterra. If big businesses like these are having trouble, what chance have smaller exporters got?

Well, every chance actually. Those set-backs were self-inflicted, and could have been avoided if internal issues had been addressed at the right time. Fonterra has taken it on the chin, while Zespri continues to blame its Chinese ex-partner instead of taking responsibility for its poor control processes.

The principle remains the same for large or small exporters – don’t shoot yourself in the foot! Rather than blaming others, it’s better to think strategically before you put your business at risk.

Here’s another example. Cookie Time had decided to move into the Chinese market around 2011. They tried to register their brand in China but found a Chinese company had beaten them to it. Now Cookie Time can’t trade in China for at least 2 years while their trademark-squatting claim waits to be heard by a Chinese court. Cookie Time management seems to be taking the moral high ground about this, but isn’t it really all about their lack of forward planning?

The high water mark in this regard is owned by U.S. electric car maker Tesla Motors. Before it could trade in the lucrative Chinese luxury car market, Tesla spent 8 years and a lot of money retrieving its company name and logo, plus the Mandarin versions, from a young Chinese businessman. Mr Zhan said in interviews that he was an admirer of 19th century electrical engineer Nicolas Tesla, and sincere in his efforts to introduce an electric sports sedan into China. So why hadn’t Tesla seen this one coming?

We all know that New Zealand products are heavily traded in the Asian grey markets. Local entrepreneurs claiming to be authorised agents sell them under their own language versions of the New Zealand brands. Furthermore, organic-based New Zealand products are being sourced from New Zealand and at international trade fairs and reverse-engineered by overseas traders, just so they can patent the formulas.

New Zealand business owners are not used to having to deal with this level of aggressive commercial behaviour, but should appreciate that major damage can be avoided with the right strategy. If you intend to sell in foreign markets, the first step is to lay the foundations well in advance.

If you don’t have deep pockets, you should tailor your strategy to match and support your 1 year, 3 year, and 5 year plans. You must have everything in the way of intellectual property structured and locked down in New Zealand as a bottom line. This will at least give you a fall-back position for authenticating your business and products in global markets.

Events in the pipeline like the New Zealand-Korea Free Trade Agreement can stimulate predatory in-market behaviour. Korea, along with China, Taiwan and Japan, is known as a “first to file” country. Traditionally, these countries have had a “first come, first served” approach to intellectual property protection, effectively giving local entrepreneurs free rein.

Although this is starting to change now, if you have plans to sell in such markets, even if it’s in the longer term, you should think about getting a bulletproof vest on right now.

(From our Winter Newsletter 2014)

 

© 2015

What Is Your Business Identity And Why Should You Care?

Your business identity is not just a descriptor of your business’s line of work. Rather, it should be a message that “sells” a coherent vision of what your business wants to achieve and why it is different (and better) than competitors. This is also known as “your brand”. Business identity is made up of a number of intangibles. Company name, trading name, domain names, trade marks, straplines and colours are just some of the ways you can convey your business identity. With thought and planning you can control (virtually) all of the intangibles and ensure they are working for you. 

The major reason to invest in your business identity is that it is the strongest pillar of business growth. Global brands like Google, Apple, Microsoft and Facebook have achieved phenomenal growth by relentlessly focussing on developing and protecting business identity everywhere they trade.

Closer to home, Telecom is spending $20m implementing a new business identity based around a name change to “Spark”. A key motivation for the change, as CEO Simon Moutter puts it, is that it “better represents what we are today - it is all about digital services, fibre, mobile, data, cloud, entertainment, apps, or whatever new technology is around the corner".[1]

Behind the new image is the reality that Telecom has had to change its business model due to anti-trust regulation and increasing competition, as well as the impact of the digital revolution.  It’s not always easy to predict what’s around the corner, but all business owners must understand and control their business identity to support growth plans for the business.

Here are some practical reasons to invest in and protect business identity:

Good business identity awareness gives flexibility to move forward

  • As we’ve seen with Telecom, brands which describe the business’s offering can lead to a business identity dead-end. Note the clever 2-step process Telecom used to transition goodwill from “Telecom” to the new brand Spark by introducing the scribble logo 5 years before the name change.
  • The dairy co-operative merger which established the Fonterra dairy business giant went to a lot of trouble developing the “Fonterra” brand. Special care was taken to ensure it was not offensive in any language or already in use internationally. Although there was some initial scepticism, the brand has stood the test of time and evolution of the Fonterra business model.
  • And would we be listening to songs by Mark Foster & the People if early feedback had not prompted a change of name to Foster the People? (Yes, bands are businesses too!)

If it’s any good, a competitor will try to steal it

  • This can happen where a business is in transition. The threat may come from someone with a personal grudge looking for an opportunity to do you some damage. Owners of a manufacturing industry business which had just launched its new online identity were puzzled to find searches for the business ended up at a competitor’s website. The owners, who had previously all worked for the competitor, were stunned to find all their (unprotected) business brands registered as domain names linking to the competitor’s website!
  • It may be a case of a legacy business identity not standing up to the pressures of online competition. For example, Nakedbus were able to exploit Intercity’s somewhat generic brand by using “inter city” in Google adwords.[2]

Business Identity may be the only part of your business IP investors can understand

  • Businesses such as cloud infrastructure and service providers use a new and evolving business model.

Often such businesses are essentially project-based with most IP (intellectual property) resulting from the project’s output transferring into the hands of the customer on completion. Understandably, this can be problematic from an investor’s point of view.

For this type of business, development and protection of business identity is essential and should be high priority.


[1] http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11207031

[2] http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11204106

 

 

 

(From our Spring Newsletter 2014)

 

© 2015

 

Problems With Intermediary Contracts

Using a neutral intermediary to arrange offshore manufacturing can be a sensible option, but does not necessarily avoid all risk.

An Auckland medical devices supplier wanted to commission the manufacturing of a batch of components in China. As the company was not experienced with this type of project, a deal with a factory in Guangzhou was done through a Hong Kong intermediary agency. The components were made, but when fitted to the medical devices were found to be faulty, rendering them unusable.

The company had already paid out NZD30,000 and wanted their money back. But where to start? A major stumbling block was the absence of contractual relations between the Auckland company and the Guangzhou manufacturer. There was a contract between the Hong Kong intermediary and the Chinese manufacturer, but no ability for the New Zealand company to claim in breach of contract directly against the manufacturer.

In these circumstances, proceeding with a convoluted claim via the intermediary would have been prohibitively expensive, and the Auckland company decided to cut its losses. An amount like $30,000 doesn’t go a long way in international litigation, but would have been a big hit to the business’s bottom line.

There are many benefits for NZ businesses in using English-speaking offshore intermediaries who understand the languages and cultures of the Asian manufacturing powerhouses like Southern China, Vietnam and Thailand.

Their familiarity with these markets and ability to assess whether a manufacturer can meet requirements is also invaluable, especially for more technical products, and some agents also specialise in dealing with complex product categories.

A good local intermediary can provide essential support in the early stages until the supplier and manufacturer are ready to work face to face. They can also be a useful ear to the ground for the supplier.

However offshore manufacturing is an area where disputes, breaches of contract, and problems of enforcement commonly occur. These problems can be exacerbated where the contract is set up by an intermediary independently of the overseas principal.

For a lower value contract, it may not make sense for a business to spend money on legal protection just in case things go wrong, and instead the business may rely on insurance cover. Unfortunately, insurers may not be impressed with lack of due diligence and may not want to pay out. Consequential losses such as breach of contract with customers, loss of preferred supplier status, or breach of the business’s financial covenants may add to the business’s exposure.

So how should businesses protect themselves in this type of situation? Here are some points to be considered:

  1. Don’t accept the draft contract at face value – it will be drafted to protect the interests of the intermediary and manufacturer, rather than the ultimate purchaser.
  2. Ensure there is a direct link to sue the manufacturer or other parties who are supplying goods or services.
  3. Obtain financial profiles of counterparties in advance of committing to the deal.
  4. Use Incoterms® (international commerce terms*) where possible as these are universally understood and accepted.
  5. Consider including a liquidated damages clause with clearly defined events of breach.
  6. Insist that any performance or security bond be held in trust by an independent third party.
  7. Accept that arbitration in the overseas jurisdiction may realistically be the most effective way to enforce the contract, to avoid the problem of recognition of foreign judgments or awards.
  8. Be aware of potential threats to intellectual property rights from overseas business partners. These can range from copying designs, retaining and selling product over-runs, to registering brands which don’t belong to them.

Anyone involved in offshore manufacturing would be well advised to maintain an adequate fighting fund and a good understanding of the local legal processes.

 

http://www.iccwbo.org/

 

 

(From our Easter Newsletter 2014)

 

© 2015

Do I Need A Mandarin Trade Mark?

This is a question many Kiwi business owners never thought they would be asking themselves.

However, China is expected to soon become New Zealand’s number one trading partner on an annual basis[1] and opportunities for inbound and outbound Chinese business continue to increase.

It’s easy to underestimate the power of a Mandarin brand. The majority of consumers in the huge Chinese marketplace read and speak Mandarin so it’s a great advantage if they can understand and remember your product or service name.

You can create goodwill by adding positive connotations, buzzwords and spiritual concepts. Chinese people like words that convey good health, prosperity, luck, happiness and longevity.  The visual symbolism of the characters can also affect the brand. Colours such as red and gold are considered lucky while black and white should be avoided.  The numbers 6, 8 (money) and 9 are lucky, while 4 will bring bad luck and 44 very bad luck.

Be aware that even if you are not officially trading in Chinese markets at the moment, due to the reputation and popularity of New Zealand in Asia, some local entrepreneur may be already creating (and registering) a Mandarin version of your brand, to sell back to you in the future.

So how do you go about creating and protecting the right Mandarin brand?

Consider the core concepts that you want to be associated with. Go back to your branding consultants and work through this again if necessary. Decide on the message you want to present to Chinese-speaking customers. You will need input from advisers familiar with the various Chinese-speaking markets and their features and differences. Develop a list of options (not too short as some may not prove viable). Establish how many Chinese characters you want (ideally reflecting your English brand’s phonetic structure).

Decide whether you want a sound-alike brand or one with a similar meaning. If you can get both you could be onto a winner. Fonterra’s Mandarin brand 恒天然 has a similar sound (“Héng Tiān Rán”) and positive meanings of “permanent” and “natural”. Karicare 可瑞康 (“Kě Ruì Kāng”) in Mandarin not only sounds like the English version, but also means “lucky” and “healthy”.

Carry out searches for conflicting trade mark registrations in the major Chinese-speaking territories, i.e.

  • People’s Republic of China (China)
  • Republic of China (Taiwan)
  • Hong Kong SAR (Hong Kong)
  • Republic of Singapore (Singapore)

Google to check if anyone is using similar brands unregistered in your target markets, as they could still cause you problems. Eliminate the more risky options, those which are commonplace (too difficult to legally protect), those which are protected already, and those which have any undesirable connotations. Market test the remainder on a confidential basis with a range of Chinese-speaking “mystery shoppers”, and narrow your list down to several preferred options.

Depending on the size of your business and the potential value of the brand, apply to register the remaining trial options in your major target markets, so you can start your public domain research one step ahead of the brand squatters. Faithful adherence to the above strategy should leave you with at least one or two viable options for a good protectable Mandarin brand.

You may feel that the above process is lengthy and complex, and may not be worth the effort and expense. However, put yourself in the shoes of a Kiwi cosmetics supplier whose products are popular in the Chinese grey market. There is a well-known Mandarin version of their brand which is registered to a Chinese company apparently having no connection to the New Zealand business.

Imagine what it might cost to sort that one out when the time comes, if indeed it can be done.[2] Then think about the potential value to your business of success in the Chinese-speaking markets. *


[1] http://www.stuff.co.nz/business/farming/dairy/9450352/Exports-reach-new-heights-in-October

[2] http://news.alibaba.com/article/detail/knowledge/100899899-1-herm%25C3%25A8s%2527-china-trademark-case.-do.html

http://www.lexology.com/library/detail.aspx?g=5f768064-5fc7-4a61-a0ec-97847c743f51

http://www.ibtimes.com/tesla-motors-tsla-trademark-problem-china-what-multinational-companies-can-learn-tesla-about-1401973

[3] http://www.interbrand.com/en/best-global-brands/previous-years/2012/Nestle

[4] http://www.reuters.com/article/2013/08/30/us-china-autos-mercedes-idUSBRE97T02920130830

[5] http://www.forbes.com/sites/greatspeculations/2013/05/13/why-nikes-growth-will-outpace-the-sports-apparel-markets/

[6] http://www.bloomberg.com/news/2013-07-16/nike-s-lost-year-in-china-serves-as-cautionary-tale.html

 

(From our Christmas Newsletter 2013)

 

© 2015

Doing Business With Other Cultures

Mutual Respect

Mutual respect is the best foundation for a good business relationship. The ideal way of showing that is by demonstrating an understanding of your prospective business partner’s culture and language.


Meeting of the minds

To create a legally binding contract there must be a meeting of the minds. That’s a universal concept, whatever the culture. But how do you know when that moment has occurred?

When you put forward your business proposal, your prospect smiled, nodded his head and said “you yi si” “有意思” (“that’s an interesting idea”). You know a bit of Mandarin and now feel ready to move to the next level and close the deal. But have you completely misread the situation and are you actually about to blow it altogether?


Preparation

This scenario is surprisingly common. Whatever the culture you are trying to do business with, whether it’s at home or abroad, it’s essential to undertake adequate preparation before engaging. You need a basic level of understanding just to know what it is that you don’t know (thanks Donald Rumsfeld).


Doing the numbers

New Zealand is in somewhat of a sweet spot at the moment with our early China FTA. We are only 4 hours ahead of most of Asia, throughout which there are numerous speakers of Mandarin and Mandarin-based dialects. Trade figures with Europe and the US are reducing but those with Asia are increasing (see table below). Also, school children in China typically grow up learning English as a second language, so many contacts in China will be able to communicate with you in English.


Open-minded strategy

The reality for many New Zealand businesses is that they will not be able to satisfy the volume demands of larger markets in China. This suggests a more sophisticated strategy across more diverse regions and cultures, aiming at lesser numbers of higher end consumers.


Where to start?

Unless you are a mega-business, there’s never going to be enough time or money to address half of the initiatives you would like to implement. The Government wants us all to be earning export revenues, so isn’t teaching us about other cultures their problem? Sadly no, this is something you need to do yourself. You’ve just got to find a place to start, and a good strategy can be to engage people who already understand your target country’s language and culture.


What culture?

The first step should be establishing exactly what culture you are dealing with. For example, in Kuala Lumpur or Singapore, it may be ethnic Malaysians, Malaysian Chinese, speakers of Singlish (an English-based creole language spoken in Singapore) or Bahasa Rojak (the Malaysian practice of switching between two or more languages in a conversation, “Rojak” being the Malaysian word for a fruit and vegetable salad dish).


Communication

Understanding other cultures is much easier when you can communicate with spoken and written language. Unless you have the opportunity to practice a language frequently it is hard to advance and also to remember what you have learned. Being able to communicate in a foreign language is very satisfying. It can also be enlightening to find that some business and other concepts do not necessarily translate between countries.


Entry point

Most New Zealand business people have grown up learning only European languages such as French, German or Spanish i.e. no Asian languages. Learning the Mandarin language and Chinese culture now is a good entry point for any New Zealand business owner looking to the future. That won’t stop you exploring others such as Korean, Japanese, Indonesian etc once you get going. Don’t be put off by people laughing at your efforts, that’s about the worst downside. The major risk is that you might find it’s all a lot of fun as well as being good for your business.


Business Chinese Workshops

We would like to give you the opportunity to put this into practice. You are invited to the Business Chinese Workshops we are hosting on 15 October and 12 November 2013 (see below link). We look forward to seeing you.

http://languagehub.co.nz/chinese-business-communication/.

 

 

(From our Spring Newsletter 2013)

 

© 2015