How important will China and knowledge of China be in Ireland’s future?

Encouraged by captains of Irish industry, who should know better, Opposition politicians with an agenda, and armchair critics within the tabloid and online media, a degree of pessimism appears to be growing among Ireland‘s small to medium (SME) sized business sector regarding the ‘risk versus reward’ futility of getting involved in China business. More mature markets in EU and the USA are being represented as offering more scope to grow for Irish SMEs with the right value proposition.

Irish businesses no matter what their size cannot afford to be pessimistic about China and here is why.

“…China’s transformation is one of the defining facts of our lifetime. Last year China became the world’s largest trading nation. Next year China is set to become the world’s largest importer of goods and later this century it will become the world’s biggest economy.

We should be clear that there is a genuine choice for every country over how to respond to this growing openness and success. They can choose to see China’s rise as a threat or an opportunity. They can protect their markets from China or open their markets to China. They can try and shut China out – or welcome China as a partner at the top table of global affairs..”

Source: http://www.theguardian.com/commentisfree/2013/dec/02/david-cameron-my-visit-to-china

The British Prime Minister Mr. David Cameron, on the eve of his second official visit, in an article published this week in Caixin (pronounced ‘sigh sheen‘), China’s financial news heavyweight, couldn’t have been more explicit about China’s growing importance.

Accurate China Insight - How important will China and knowledge of China be in Irelands future

Most China watchers will agree that – largest, longest, fastest, biggest, greatest, tallest superlatives aside- China is still in the very early stages of its re-emergence: Get in on the ground floor now and potentially be in the happy position of earning revenue hand over fist.

Sure China is no cake walk. At the beginning, building a China market presence from scratch involves hassles, stumbles, issues, errors, problems, stresses and utter confusion.  Yet, isn’t that what getting in at the beginning of any start-up business or market looks like? The only way to WIN is through hard work, support, communication, committment, patience, and understanding that there will be many instances of having to deal with a lot of confusion. Similar to a start-up company, these are the learning steps that must be taken to break new ground and grow a viable market presence in China.  

In a start-up there also comes a point when the challenges start to be overcome and things begin to gel together. And so to in insatiable China where the surmounting of challenges and barriers or difficulties will open the way to doing fantastic things and improving on a daily basis faster than would have happened in more traditional, mature, markets. 

With certain senior business executives and media in Ireland advocating a niche market approach for SMEs with respect to China [“China is a … slow burn” (Mr. Sean O’Driscoll, CEO Glen Dimplex); “More fortunes have been lost than made by getting in too early,” (Liam O’Mahony, Chairman, IDA Ireland) “Putting Mandarin on the school curriculum is a typical proposal from armchair ‘experts’ who have no experience of the challenges of selling in China – – 1.3bn consumers and all we need is a very tiny slice of the pie!” (Michael Hennigan, Editor of Finfacts.ie)] the crux of this Accurate China Insight is to draw attention to the fact that almost all of Accurate Group’s Irish clients, no matter what size, doing business in China or with China succeed at it, while the vast majority of European and American companies in China are flourishing.

Moreover, we do not share the view that China is a particularly risky market for foreign companies. Like any foreign market with a unique language, business culture, and legal system something can go wrong. However, despite the challenges China remains, will continue to remain a very profitable place to do business, which is really what matters most for Irish businesses.

Returning to David Cameron:

China is at a defining moment. It has just announced bold reforms that show real ambition to free its markets and open them up to foreign participation…

As Chinese cities expand dramatically and Chinese people become more prosperous, Britain has the world-class goods and services they need…

Building on the recent launch of EU-China negotiations on investment, and on China’s continued commitment to economic reform, I now want to set a new long-term goal of an ambitious and comprehensive EU-China Free Trade Agreement. And as I have on the EU-US deal, so I will put my full political weight behind such a deal that could be worth tens of billions of dollars every year…

We should recognise that China’s economic transformation is happening at 100 times the scale and 10 times the speed of Britain’s own urbanisation two centuries ago. In the last 30 years, China has made unprecedented social and economic achievements. The recent meeting of China’s leaders – the Third Plenum – has now set a clear goal: comprehensive reform, including issues such as governance and the judicial protection of human rights, and recognising that all types of reform are inextricably linked. The promise is of an economy with a more predictable legal environment and with stricter enforcement of protection for intellectual property rights…

The fact is that businesses thrive in a stable, secure and corruption-free environment that limits the risk of shock, provides certainty of dispute resolution and offers protection of capital and intellectual assets. These conditions are good for growth in China…

Source: http://www.theguardian.com/commentisfree/2013/dec/02/david-cameron-my-visit-to-china

And therein lies the rub for all Irish businesses. For our closest neighbour China is now at the core of its international trade relations. With the Chinese Yuan surpassing the Euro to become the second-most used currency in global trade (Source: http://www.bloomberg.com/news/2013-12-03/yuan-passes-euro-to-be-second-most-used-trade-finance-currency.html, China, the number one retail growth opportunity in the world (Source: http://yum.com/annualreport/), is where it is happening NOW. Moreover,  the best has yet to come! 

Ireland’s SME’s should be able to determine a new China business model that suits their situation. Top management and business owners who are destructively determined to succeed by increasing efforts to ‘do more of the same better’ in their traditional markets and ignore the potential of China are going to lose out in the medium and long term.

Irish businesses across the board need to intensify efforts to tap the China market otherwise they will be left behind.

Accurate China Insight - How important will China and knowledge of China be in Irelands future 2

Source: Accurate China Insight http://accuratelimited.com/blog.view.php?id=SreDdexWHkE=

Niall O’Reilly

Managing Director, Accurate Group Ireland China Market Makers (Route to Market, Export, Import, Partner Due Diligence)

Website: http://www.accuratelimited.com

Twitter: @AccurateChina

China Office : Accurate Group China, Hangzhou – O: +86 571 8709 1253

Ireland Office: Accurate Ireland, Dublin – O: +353-1271-1830

Accurate China Insight: Entering The Dragon’s Den

Huge Opportunities lie waiting for Irish businesses in China, but know your market

From Ireland’s ‘Business and Finance’ magazine’s ‘Enterprise Insight’ supplement, Q2 2008 edition, by Niall O’ Reilly

The world’s second largest economy China, is now the largest market in Asia, and outside the Euro Zone only second to the USA for Ireland’s exports. According to the latest figures from the Central Statistics Office (CSO) exports to mainland China (excluding the Hong Kong Special Administrative Region) for the first two months of 2008 totalled €324.6 million, a year-on-year increase of 112%.  Exports to the Hong Kong Special Administrative Region over the same period reached €110 million.

 

In the face of the current global economic downturn, a difficult exchange rate and other cost base factors, including the flight of manufacturing processes to low overhead, low material cost countries in Asia and Eastern Europe, as our manufacturers struggle to maintain productivity, the rise in our exports to China is a major achievement and presents convincing evidence that Ireland is at last starting to hit the mark in China business. Given that over the past decade the development of our economic and trade relations with China has been a top priority the Irish Government will maintain that its Asia Strategy, with its particular emphasis on China, is the key reason for  this positive development. What the CSO figures do not reveal, however, is how indigenous Irish businesses are performing compared to multinationals businesses based in Ireland.

 

China’s rise to become Ireland’s eight largest export destination is directly linked to its own export prowess and the craving for technology, infrastructure equipment and knowhow by Chinese enterprises that cannot be satisfied by domestic suppliers. From this perspective it is not surprising that the majority of our exports to China should consist of the information communications technology, machinery and equipment China requires to fuel its heady growth. Buoyed by breakneck 7% to 8% GDP growth in China over the past 10 years, a trend that shows little sign of abating, so long as businesses based in Ireland stay ahead of the technology curve and maintain their competitiveness exports to China will only continue to expand, thus strengthening China’s position as a major export market for Irish produce.

 

Looking ahead, where are the China market opportunities for Irish exporters?

 

Ireland commands a very strong position in the world trade rankings for internationally traded services. Recently published statistics by the World Trade Organisation 2006 show Ireland as the 12th largest services exporter, commanding a 2.6% share of world trade, while services exports now account for 35% of our total export trade. China has only opened up the service market to any great extent over the past four years and there are clearly significant additional market opportunities now for Irish service exports in engineering consultancy, aviation services, information communication technology, education and tourism services. The latter two service sectors are particularly significant given the rise in the spending power of the Chinese consumer.

 

According to the China National Bureau of Statistics, in 2007, China’s retail spending rose 16.8 percent to 8.92 trillion Yuan (US$1.24 trillion), thus adding credence to a widely held view that Chinese demand will this year for the first time become the main driver of world economic growth, with the increase in its domestic spending in current dollar terms contributing more to global growth than US domestic demand. As such, Irish suppliers should be relishing lucrative domestic sales opportunities presented by an increasingly affluent population.

 

Located two hours south of Shanghai is the prosperous city of Hangzhou, Marco Polo’s ‘paradise on earth’, which Forbes ™ Magazine has repeatedly rated as China’s premier business centre. With a registered population of 6.7 million inhabitants and an urban per capita income of RMB21,689, Hangzhou provides the ideal glimpse into the phenomenal growth in the purchasing power of China’s increasingly affluent middle class.  Not only do Bentley, Maserati, Ferrari, and Prada showrooms do a thriving business here, even more remarkable is the thirst to travel abroad whether as tourists, with Paris and London high on the list of preferred destinations, or graduate students from the third ranked university in China, Hangzhou’s Zhejiang University, seeking further education in the best schools in Europe and the USA. 

 

As individual prosperity rises so too are people becoming increasingly concerned about their living conditions. Recognising such anxieties, and looking ahead to population growth of close to 20 per cent over the next five years, in addition to the huge infrastructure building projects already underway, the Hangzhou Municipal People’s Government is actively encouraging projects focused on providing fuel efficiency, cleaner water, better sanitation, and power generation, all of which whether in material or service form present significant opportunities for Irish suppliers. 

 

As patterns of consumption change, to reflect those found in wealthier countries, such as higher levels of meat consumption, the opportunities for Irish suppliers in the development of both the food ingredients market, such as diary fats and proteins, standard cereal and grain products and flours, vegetable oils, or standardised high-quality meat products, and markets for the products of large scale cropping and livestock activities, become all the more apparent. In 2005, Kerry Group quick to seize the market opportunity established its state-of-the-art China manufacturing, technical and administrative facilities in Hangzhou.

 

However, remove the rose-tinted glasses and it quickly becomes apparent that in China the size of the opportunity is only matched by the difficulty in weighing up the risk, as the great challenges for any Irish supplier in entering what is still a relatively immature market quickly become apparent.  China’s rapid growth since its 1978 opening to the world has not necessarily meant greater transparency.

 

Making sound business decisions can be very difficult when there is little timely information available, and when the information available is either unreliable, or misleading.  What’s more, a simple misunderstanding of local business practices, which can be very different from what is taken for granted in Ireland, can harm efforts to develop solid business relationships and leverage them into strategic opportunities. As Kerry, CRH and Glen Dimplex have found, there is an inherent need for proximity to the customer base  for supplying many services. However, this forces small and medium exporter into the high cost of establishing a commercial presence in the China.

 

Rather than going it alone, working with either the Irish Exporters Association, Enterprise Ireland, or some of the more experienced homegrown market-entry consultancy practices with experts based on the ground in China, and their ability to access key business and government decision-makers,  will greatly assist Irish businesses in getting the most out of the unprecedented opportunities available in China.”

Niall O’Reilly

Managing Director, Accurate Group – Ireland China Product & Business Development (Export, Source, Import, Partner Due Diligence) Consultants doing business in China for over 20 years

China Office : 1-3 Ying Hui Xing Zhou, Jiang Nan Shui Xiang Lian Sheng Road, Yu Hang District, Hangzhou. China 310023| O: +86 571 8709 1253

Ireland Office: 93 Upper Georges Street, Dun Laoghaire, Dublin, Ireland| O: +353-1271-1830