Your business’s products are selling well in New Zealand and Australia, and you’re thinking about getting into the Asian market. An acquaintance puts you in touch with potential business partners in several Asian regions. The volumes they’re talking about are impressive.
Then you start hearing the horror stories:
- The Hong Kong business partner whose assets were frozen due to corruption claims, leaving a shipload of NZ/Pacific juice products to rot on the wharf at Fu Zhou without clearing Customs. See story.
- The Shan Dong trading company which took the precaution of registering its New Zealand supplier’s trademark in China in case contractual negotiations went sour.
- The distributor which said it had an “understanding” with China Customs to under-declare the wholesale price of New Zealand kiwifruit for customs duty calculations. See story.
For more examples see International Business Partner Due Diligence article at Deloitte Forensic Centre.
These are extreme cases, but, for whatever reason, and despite opportunities increasing, the failure rate for New Zealand business initiatives into foreign markets is persistently high.
Joanna Doolan, who chairs Ernst & Young’s NZ-China group, says that based on EY’s research, on average only 20 to 30 per cent of China signed letters of intent make it through to a final contract. To get to that point can take a year to 18 months and then it’s usually around another two years to get the business operational. See story.
You still think it’s worth taking the plunge, but how can you avoid having a bad experience?
The GFC has taught us that undertaking any type of business activity is inherently risky. Doing business in foreign countries with very different cultures is much more so, and you must actively plan to minimise the risks.
There are many sources of helpful advice available for businesses planning to trade offshore.
These include government agencies (eg. NZTE), exporter representative bodies (eg. Export New Zealand), trade associations (eg. NZCTA), in-country advisors (eg. Mahon China) and global organisations (eg. organics group IFOAM).
All organisations and advisors have their own area of expertise and view of what is most important and of course each business proposal will have different imperatives. Areas which have significant legal risks for business owners include:
- Intellectual property management;
- International trading structures; and
- Overseas business partnerships.
Before you launch into offshore expansion, here’s a useful exercise to undertake, ideally with the help of an experienced strategic business advisor (eg. Corporate River):
- Make a list of the markets that offer the best opportunities.
- Determine the most effective way to enter those markets.
- Estimate the costs and time needed to enter each market and produce positive financial returns.
(From our Winter Newsletter 2013)