China: adapt to a fast-changing market


The speed of change when it comes to doing business in China means having eyes and ears on the ground can be critical to success.

China: adapt to a fast-changing market

Position yourself for knowledge and speed

You only have to look at the figures: 50 million babies being born in Asia each year; 20 million in China. Add to that urbanisation, an emerging middle class and more money being spent on children, and you have a clear opportunity.

For New Zealand’s Westland Milk Products, the opportunity was the promise of an eight per cent compounding annual growth rate in global infant nutrition – strong demand they were perfectly placed to supply.

But, says Westland’s GM Sales and Marketing Gregg Wafelbakker, without knowledge, insights and contacts, companies are blind to both the potential and the pitfalls.

“For anyone investing in processing, in brands or in people for China, it doesn’t take much of a change in regulations to completely derail your business,” he says.

Speed of change

“We’ve learnt that if you’re doing business in China, having eyes and ears in the country is critical to facilitate speedy and accurate flow-back about what the changing environment looks like.”

Westland now has its first overseas employee, based in Shanghai – a step Wafelbakker admits they could usefully have taken sooner.

“Not everyone needs to put their own people on the ground, but you certainly have to use the knowledge and experience of customers, distributors, agents, partners and government organisations fully. You need timely market, regulatory and political information because things change so fast.”

Westland is a 100% independent dairy farmer-owned cooperative, which sources and processes more than 600m litres of quality milk each year. It supplies dairy ingredients and finished products to more than 40 countries worldwide. Up to 85 per cent of the company’s products are destined for international markets and for some of the most recognised global food brands. China is the largest export country.

“Not everyone needs to put their own people on the ground, but you certainly have to use the knowledge and experience of customers, distributors, agents, partners and government organisations fully."

Adding value

Three years ago, Westland was considering its future. The company history was in commodity products, but its model wasn’t sustainable in New Zealand’s increasingly competitive milk market.

“We started to look at growing value,” says Wafelbakker. “We saw that we were small and nimble enough to increase the proportion of higher value product over a few years, and infant formula made the most sense – 80,000 tonnes of new demand each year and plenty of room for growth.”

The company carried out significant research into global demands, emerging markets and market conditions, which helped it rule out the US and Europe (because of access), South America (because of its distance and mixed regulatory conditions) and the Middle East (because of political uncertainty).

Targeting China

“On the plus side, we had the free-trade agreement between New Zealand and China, and Westland had more than 10 years’ experience in the Chinese market. It jumped off the page in terms of demand and feasibility,” adds Wafelbakker.

Westland talked to New Zealand’s Trade and Enterprise Board, the government’s trade development arm, and began the work of compiling data on the major players, brands, market share and value. From there, the company contacted potential customers through its existing networks, government agencies and stakeholders.

“In parallel, we had to convince the board to invest NZ$28m in the new plant, says Wafelbakker. “The customer engagement work we did in China helped us validate the business case, and the plant was commissioned last year.”

Adapt to regulations

A recent potential advantage to the Westland strategy was Notification No. 57 – a warning shot from the Chinese State Council and ministries that new regulations, designed to clamp down on unsafe products, were being drawn up. Back in 2008, 54,000 babies were hospitalised and six died after melamine was added to milk. More than 200 companies went out of business in the first phase of regulatory control.

“Accountability was the strong message in this government notification,” explains Wafelbakker. “There are more than a thousand infant formula brands in China and it’s the brand owners and third-party packers, who have very little investment to lose and so less reason to guarantee quality, who are now going to be targeted.

“For brands that have invested in packing, blending plants and marketing over the long-term, buying product from a secure source is about to become an even more critical factor. Demand for formula will still be there after the regulations come into force, but it will be those with a trusted reputation – like Westland – who will have a competitive advantage.”


References

Strategies:

Key points

  • Without knowledge, insights and contacts, companies are blind to potential and pitfalls.
  • You need timely market, regulatory and political information because things change so fast.
  • Businesses with a trusted reputation have a competitive advantage.
Best Global Trade Finance Bank, GTR Leaders in Trade 2014

More from HSBC

Back to top