JUNO INVESTING ©

Orient-ation – Exporting to Asia

JUNO INVESTING ©
Orient-ation – Exporting to Asia

 

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SPRING 2015

By Michael Bignell, Export Sector Leader and Partner, PwC

Moving beyond New Zealand for the first time is always challenging, more so when you are still building your core domestic business. The sheer diversity of Asia and the fact it does not share a common legal or (until recently) social background with New Zealand, bring additional complexities when exporting there.

Here are five top tips for exporting to Asia:

1. Choose a defined market

It’s common to refer to the opportunities that abound in Asia. Of course the region comprises many countries, each with its own language, economic outlook, culture, consumer preferences, laws and ways of doing business. You might dream of conquering the region, but you need to start with a specific country or perhaps even a particular city or defined territory within that country.

There’s no one-size-fits-all answer to which country to tackle first. For each potential market you should weigh up the size of that market, the appeal of your product, how quickly you can form the necessary local relationships, whether there is available support from banks and other services and so on. It’s tempting to start with China because it is so large, yet the size of the market can also make China a very challenging place for smaller businesses to start.

Choosing the right market involves thorough market research. There is plenty of material available, but nothing beats getting on the ground locally to assess market conditions and forming the key local relationships that are essential to success. 

Leverage any assistance you can get from others. Is there a complementary New Zealand business already trading that will share its experiences, or even partner with you in tackling the market? Talk to your bank and government agencies such as New Zealand Trade and Enterprise (NZTE), who may be able to provide market research and put you in touch with useful local contacts.

If you believe you have identified the right market, think about how you can test the demand for your products or services before committing to full-scale export. Find out about any trade exhibitions or conventions you can participate in to gauge local response.  


2. Get to grips with the business culture

Once you have decided on a local market, you need to work out how business is actually conducted there. The ‘rules of engagement’ are likely to be significantly different to what you are used to at home, and what you might have experienced if you have done business in other western countries. 

This means getting to grips with cultural expectations, such as how to greet a person you meet for the first time, and business practices, such as how meetings are conducted and what constitutes a binding agreement. Having a strong awareness of these matters avoids potentially embarrassing situations – or worse still, misunderstandings, which can erode the trust that is essential to doing business across borders.

Plenty of material is available to help you research these things, but there is no substitute for engaging with a local representative, who can help you navigate you through this often tricky element of doing business. 

With New Zealand’s increasingly diverse workforce, you should also consider whether New Zealanders with insights into the local culture could be engaged as part of your team.

3. Understand the regulatory requirements

It is critical to know the legal requirements for doing business in your chosen market: 

•  Is it legal to import your goods or services? 

•  Are any tariffs payable on importation? 

•  Are their restrictions on who can sell the product or service or where it can be sold? 

Asian countries tend to be more highly regulated than New Zealand and you shouldn’t take for granted that what you can do in New Zealand will be acceptable in your export market. 

You also need to understand how you’ll be taxed on your activities and any requirements to file accounting, tax or other returns. New Zealand has a very straightforward tax system compared with Asian countries, and again, you should not take anything for granted. 

It is important to get good local legal and business advice. You want advisers that not only have the right experience to assist you, but also take a commercial approach and want to help you succeed locally. Talk to other New Zealand or foreign businesses trading in that market to find out whom they use, and ask NZTE for recommendations.

4. Make it pay

Finance can be one of the trickiest aspects of exporting. Typically, you have to gear up your local operation to meet additional production or capacity requirements, but you have to wait longer to get paid. If you are exporting physical goods, usually you will only be paid once the goods have arrived in the overseas market.

While your focus might be on export trade, don’t neglect your domestic business. Cash generated at home is your first port of call for financing your offshore trade, so make sure you are optimising your domestic business and working capital. 

Talk to your bank about how it can assist. As well as term funding and overdrafts, numerous other options for trade financing are available. Not all banks in New Zealand have operations in Asian counties, and having to deal across different banks in different countries can get complicated.

NZTE provides grant funding and the New Zealand Export Credit Office can assist exporters and their banks by providing credit insurance. 

It is likely your buyers will not want to pay you in New Zealand dollars, so you will need to think about whether you need to take out foreign-currency cover to protect against volatility in exchange rates.  

5. Be ready for anything

Being mentally prepared for all possible outcomes and having a resilient mindset are keys to success. Consider where things might go wrong and have contingency plans in place. 

No matter how good your preparation is, not everything will go according to plan as you get established in your chosen market. Being mentally ready for these outcomes – and able to navigate through and move past them – is essential.

 

TOPTIPS: Exporting to Asia

1. Choose a defined market

For each potential market you should weigh up the size of that market, the appeal of your product, how quickly you can form the necessary local relationships and whether there is available support from banks and other services.

Undertake thorough market research.

Leverage any assistance you can get from others.

Test the demand for your products or services before committing to full-scale export.

2. Get to grips with the business culture

Work out how business is actually conducted in your chosen market – the ‘rules of engagement’ are likely to be significantly different to what you are used to at home.

3. Understand the regulatory requirements

Know the legal requirements for doing business in your chosen market. Don’t assume that what you can do in New Zealand will also be acceptable in your export market. 

Understand how you’ll be taxed on your activities and any requirements to file accounting, tax or other returns.

Get good local legal and business advice.

4. Make it pay

Don’t neglect your domestic business.

Talk to your bank about how it can assist.

Think about whether you need to protect yourself against volatility in exchange rates.  

5. Be ready for anything

Consider where things might go wrong and have contingency plans in place.

 

DEFINITIONS

TERM FUNDING: Finance that has been provided for a specific purpose over a stipulated period of time. 

WORKING CAPITAL: The difference between current assets and current liabilities, it is a measure of whether a business has enough cash to operate in the short term. It is often used as an indicator of how financially healthy that business is.

 

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