China Business: A gateway for global investors (NZ Herald)

Tim McCready spoke to Stephen Phillips, Director General at InvestHK about Hong Kong’s role in attracting foreign direct investment into Asia.

When asked what makes Hong Kong the best place in the world to invest, Director General at Invest Hong Kong (InvestHK) Stephen Phillips points to its geographic positioning in the heart of Asia, the fusion of Eastern and Western culture, the melting pot of highly educated talent, and its proximity and connection to Mainland China.

The investment promotion agency of the Hong Kong Special Administrative Region (HKSAR) has been headed by Phillips for the past nine months — one of the highest positions in the Hong Kong Government that is open to expatriates.

Phillips has worked in Hong Kong on and off since 1989 — initially with Barclays Merchant Bank (now Barclays Investment Bank) in aircraft financing and structured project financing. Since then, he has had stints at Deutsche Bank, co-founded a tech startup in Hong Kong, worked for the UK government and the China-Britain Business Council. He’s also an avid fan of scuba diving in the tropics (he says his reluctance to cold water rules New Zealand out).

Phillips says the most notable change he has witnessed in Asia over past decades is the rise of China and the growth in other countries. But he says China is still not well understood by the rest of the world.

“The level of sophistication many of the businesses in China have is much higher than international counterparts recognise. It continues to transform at a very fast pace,” he says.

“There are also other economies in the region that have grown strongly. The Philippines is one example that has had robust growth for quite a period of time. There are lots of bright patches across the region.”

Hong Kong — which is part of China under the “one country, two systems” principle — has distinct advantages for attracting investment, including operating with a very strong rule of law based on English common law, independence of the judiciary, a simple tax system, and world-class intellectual property protection.

“This can’t necessarily be said of the other cities in the region,” says Phillips. “It’s the certainty that Hong Kong offers business that I think sets it apart from other cities across Asia — not just China.”

That said, Hong Kong is navigating its own challenges. Recent data from the United Nations Conference on Trade and Development shows the flow of foreign investment into Hong Kong has fallen over the past few years — from US$174b in 2015 to US$108b in 2016, which analysts attribute to the obstacles presented by crippling property prices, a constrained domestic market, and a lack of competition in some sectors.

But Phillips points out that the number of international and Mainland companies investing in Hong Kong continues to track upwards, and that capital flows can be misleading.

“At a fundamental level, from what we see, investment going into Hong Kong — where people are doing business and generating jobs — continues to track upwards. Tracking capital figures on a year-on-year basis can look a bit bumpy,” he says.

The transformation and growth in cities across China is remarkable on a global scale, and in recent years Shenzhen, Shanghai, Beijing and Chengdu have taken much of the limelight away from Hong Kong. But Phillips says the big difference between the fast-growing cities on the Mainland and Hong Kong, is that cities in China are still very focused on the domestic market and the surrounding hinterland, whereas Hong Kong remains one of the most international-focused cities in Asia.

“If companies are looking at a particular geographic market within China, then establishing a base in one of those cities might make sense,” says Phillips.

“But if they’re looking at a much bigger picture — at the whole Asian landscape — then Hong Kong is a great entry point to not only China but also the countries in Southeast Asia, Japan, Korea, and beyond.”

Hong Kong’s historic role as an intermediary for inbound investment into China from around the world continues to be important. In addition to this, the growth in the Mainland’s economy has seen Hong Kong’s role as an outward stepping stone for Chinese companies to access a global market become increasingly important for InvestHK.

China’s answer to Silicon Valley

The ambitious Greater Bay Area initiative has been put in place by the Chinese Government, aiming to link Hong Kong, Macau, and nine cities in Guangdong Province in an integrated economic and business cluster.

The 11 cities in the region have a combined population of close to 68 million people — greater than the world’s largest city cluster of 44 million in Tokyo — and a GDP of around US$1.4 trillion.

All cities in the Greater Bay will be within one hour’s travel of each other, with transport infrastructure under way including a 55km Hong Kong–Zhuhai–Macau bridge-tunnel system opening this year that will cut drive times from up to three hours to just 30 minutes, and a Guangzhou–Shenzhen–Hong Kong express rail link.

“The Greater Bay offers a very dense patch of the world with some of the highest GDP per capita in China — it is very attractive commercially, and this connectivity will help ease the way to do business,” says Phillips.

“The Greater Bay will allow companies to tap into the depth of financial and professional services, the innovation taking place, and the intellectual property environment in Hong Kong — and combine that with the scale of manufacturing and innovation within Guangdong.

“You can do R&D in Hong Kong, prototype in Shenzhen, and then take things to market very quickly as well. We will see this part of the world develop into a major financial and innovation centre.”

However, there is still a lot to work to do. Wang Rong — a top Guangdong official — was this month unusually critical of his exchanges with Hong Kong counterparts about the Greater Bay Area plan. He says the initiative involved more talk than action and noted that greater co-ordination across the region, policy reform, social support, as well as improvement in transport networks and public services is needed.

“Guangdong, Hong Kong, and Macau come under one country, two systems, and three custom zones,” he says.

“There [are] often many meetings, dialogues, and complicated etiquettes, but little strength in pushing things forward pragmatically, or systems in consolidation.”

Another grand project from the Chinese Government is the “One Belt, One Road” initiative (OBOR), linking China to the economies along the Silk Road Economic Belt and the 21st Century Maritime Silk Road — and cementing China’s position into the future as an economic powerhouse.

Hong Kong’s key role in OBOR will be the connectivity it provides.

It has the ability to bring together Chinese and international investors under joint ventures, for projects that will take place in other countries.

“These joint ventures will be tapping into the debt and equity capital markets in Hong Kong, the structuring expertise and so forth, and take advantage of Hong Kong being an acceptable jurisdiction both to Chinese and international players,” says Phillips.

The near-term opportunities will continue to be around infrastructure. According to the Asian Development Bank, developing the “belt” and “road” along the maritime and land routes will require US$1.7 trillion per year until 2030, including investment in power, telecommunications, and water.

Longer-term, Phillips suggests OBOR will rapidly provide more and more opportunities.

As the economic levels of countries along the belt and road increase, there will be demands for world-class healthcare, education, and other social services.

“A lot of the focus at the moment is on airports, rail, bridges … but companies need really to be thinking about what will be on that mid-term horizon — maybe three or five years hence,” says Phillips.

“You need to position yourself now for the future, because if you’re not in at the ground level yet, the chances are that you won’t ever get the business. I encourage companies to watch very carefully what is happening already.”

A FOCUS ON INNOVATION

Hong Kong’s support for incubators, accelerators and funding initiatives over the past few years has seen the startup ecosystem skyrocket. Between 2015 and 2016 the number of startups grew 24 per cent, and the number of staff working in startups ballooned 41 per cent.

InvestHK’s latest survey shows that 35 per cent of founders have come from overseas or Mainland China, and recent policy changes from the Government demonstrate Hong Kong’s commitment to continue to attract the best global talent, businesses, and academics in key sectors.

In particular, areas of high priority for Hong Kong include:

  • AI and robotics: building a centre of excellence by attracting leading universities and academics to do fundamental R&D that could then have commercial applications.
  • Fintech: attracting the very best wealth management, insuretech, payments, and blockchain companies to use Hong Kong to advance their globalisation journey. Hong Kong is assisting by providing an environment where fintech firms can experiment and prove their business model in collaboration with regulators, rather than being tied up in knots by regulations.
  • Smart cities: Hong Kong’s population density makes it an attractive location from a commercial point of view. This makes smart technologies in areas such as transportation, green buildings and smart buildings economically cost effective.
  • Healthy ageing: Hong Kong’s rapidly ageing demographic is providing an impetus to seek companies and technologies that can take pressure off the hospital system and shift care into the community and the home environment. As demographics in Hong Kong are similar to the Mainland, it is expected there will be transferrable innovation developed that will be well suited for scale-up.

While InvestHK continues to service Hong Kong’s historic investment links with the US, Canada, the UK and Europe, Phillips stresses that its focus isn’t on where companies come from, but rather on attracting the best from around the world.

“It isn’t about geography, but about the nature of the business. We want the best companies to be investing in Hong Kong either because they have good product or because they’re bringing new innovation and skills into the economy,” he says.

“When we look at New Zealand, we think of some of the fast-growing tech companies here, and the world-class food and drink companies.”

China Business: Payment giants battling the banks (NZ Herald)

Tencent is probably most well-known around the world for WeChat — which has transitioned from being an instant messaging system to more of an ecosystem and way of life in China. WeChat is used for everything from chat and games to paying bills, ordering a taxi, booking doctor’s appointments, and filing police reports.

Government policy dictates WeChat users register with their real names, and a pilot programme by WeChat has seen virtual ID cards launched through the platform, which serve the same purpose as traditional state-issued ID cards.

The platform has more than one billion monthly active users; 400 million use its payment system Tenpay (which includes WeChat Pay). Alibaba’s Alipay, run by Ant Financial, has 520 million users.

The transaction figures are astounding. Between those two major players, they control nine out of every 10 renminbi of the US$5.5 trillion (NZ$7.6t) spent by Chinese consumers on mobile payment platforms — and both have lofty ambitions to move beyond China.

China’s payment companies have begun expanding into global markets. Alipay and TenPay chose to first introduce their payment facilities in popular destinations for China’s increasingly affluent and digital-savvy travellers — South Korea, Japan, and Thailand.

The World Tourism Organisation estimates Chinese tourists spent US$261b abroad in 2016. Retailers and service providers taking up the payment systems are hoping to entice Chinese shoppers to spend their renminbi with them.

Finland is an increasingly popular destination for Chinese tourists, and became the first country to offer Chinese tourists an entirely cashless experience when they visit.

Partnering with Finnish payment platform ePassi and tourism group Visit Finland, Alipay introduced the “Smart Travel” initiative to connect local businesses with Chinese travellers at every point during their visit. Shopping, services, activities and experiences can be paid for using Alipay — even receiving duty-free refunds at the airport.

Last year Christchurch Airport signed a memorandum of understanding with Alibaba, agreeing to promote Alipay in the South Island, and in the past month Smartpay announced a partnership with Alipay that will see Alipay capabilities rolled out to Eftpos and credit card terminals for up to 25,000 merchants.

Alipay Australia New Zealand’s managing director George Lawson says Alibaba now partners with approximately 2000 merchants here and expects this to grow dramatically.

“The recent Smartpay announcement will drive a lot of this growth as it gives Alipay access to tens of thousands of merchants with one software update. This is very exciting as it makes it much easier to accept Alipay with existing terminals.”

Increased use of Alipay in New Zealand means Chinese visitors can more easily find, rate, and pay for goods and services using their mobile phone app, providing a platform for Kiwi businesses to promote themselves and form a relationship with tourists before, during, and after they visit.

More than 400,000 Chinese visit New Zealand each year, and spend around $1.7b per year. MBIE estimates this figure will grow to $4.3b by 2023, and as independent travel grows in popularity the scale of the opportunity for business is clear.

Christchurch Airport’s Chief Aeronautical and Commercial Offer Justin Watson believes making the payment process easy and familiar will benefit businesses that take up the technology.

“The Chinese use Alipay more than credit cards,” he says. “They trust it and know how it works; our Chinese guests are more likely to spend with a business that offers Alipay than one that doesn’t.”

Lawson agrees: “The Alipay brand is a beacon for Chinese tourists as they are familiar with it, receive the best exchange rates and it reduces anxiety associated with dealing with another currency. It also breaks down language barriers.”

Though these payment services are initially targeting Chinese tourists, they are hoping to rub off on China’s growing diaspora — and ultimately more widely — encouraging locals to make use of mobile payments.

To support this ambitious growth strategy, Alibaba and Tencent are quickly expanding their presence outside China through partnerships and investments in global brands and foreign payment networks.

Tencent has acquired a stake in over 15 foreign companies at a cost of US$4.3b, including 10 per cent in Snap (the parent company of social media craze Snapchat) and 5 per cent in Telsa.

Tencent’s music unit recently exchanged equity stakes of just under 10 percent with Spotify.

Alibaba has also been investing globally over the past few years, including Southeast Asian e-commerce company Lazada, India’s largest online food and grocery store BigBasket, and Indian payment app Paytm.

Analysts say these investments are made for a variety of reasons: to help Alibaba and Tencent capture data and gain intel from market leaders, to export what they have learned from their operations in China to other countries, and in some cases to encourage customers in global markets to use their online payment system, cloud services, and other infrastructure.

Cracking the global payment system will lay the foundation to provide other services, including insurance, loans, and investment offerings.

Despite this growth in acquisitions, the US is starting to hit back at China’s expansion.

Ant Financial made a US$1.2b move to acquire MoneyGram — an American money transfer company with around 350,000 remittance locations in over 200 countries.
This takeover was under a year-long regulatory review as questions were raised over customer data and privacy.

In January, the US Committee on Foreign Investment — a multi-agency government panel — scuppered the deal over national security concerns.

This has been the most high-profile Chinese deal to be axed by the Trump administration to date — occurring despite Alibaba’s founder and executive chairman Jack Ma wooing then-US President-elect Donald Trump prior to his inauguration with a promise to bring a million jobs to the US.

Piyush Gupta, chief executive of Singapore’s DBS bank, also recognises Alibaba and Tencent as among the bank’s biggest competitors and considers their rapid rise in China a salient reminder of the disruption that can occur if banks don’t react swiftly to innovation.

Gupta told McKinsey that it is not enough to apply digital “lipstick”.

“In 2013, the DBS board therefore took the view that the future for us and for our industry would have to be digital. We felt that if we didn’t lead the charge, frankly, we might die,” he says.

DBS recently launched its mobile-only bank to take on China’s e-banking giants. The bank is using the service as a strategic tool to strengthen its presence in emerging Asean markets — where the World Bank estimates 264 million people do not have access to banking facilities, and just 30 per cent of adults have debit cards.

The opportunity is significant, and the race to cash in is well and truly under way.

China Business: Blurring online with offline (NZ Herald)

Tim McCready visited Alibaba’s supermarket chain Hema, to understand what the future of retail has in store.

Alibaba’s ambition is to blur the boundary between shopping online and offline — so much so that last year’s Double 11 shopping festival was themed around it.

Nothing showcases this “new retail” convergence of bricks and mortar retailers with online shopping better than Alibaba’s new Hema supermarkets. They offer a fascinating insight into where the company is heading, and, for those of us living outside China, a peek into what the future of retail shopping might look like.

Fresh focus

The first thing you notice when stepping into a Hema supermarket is how remarkably tidy it is. The store is reminiscent of walking into a high-end department store instead of a supermarket.

Alongside with cleanliness, Hema is rigorous about the freshness of its products. In order to keep stock moving quickly off the shelf, items are packaged in very small qualities — enough for a single meal or for a family (bearing in mind Chinese families tend to be small).

My visit to the Hema supermarket was on a Saturday, and all bags of salad were branded ‘SATURDAY’ — indicating they had arrived in-store that day. Fish, crabs and shellfish are kept alive in large tanks. Cartons of eggs are labelled to show they were laid less than 48 hours ago. Butchers prepare cuts of meat for display, fill packs with ready-to-cook family-sized portions, and perform cooking demonstrations.

Hema’s app can be used by customers, allowing them to scan QR codes that accompany every product with their phone and receive details about the product, including its provenance, how to prepare it, and recipe ideas.

Prices are reasonable by New Zealand standards. A small pack of bok choy is 12.80RMB (NZ$2.81), a tray of Tim Tam’s 19RMB ($4.16), and a pack of six Zespri golden kiwifruit sets you back 29.91RMB ($6.55).

The Hema stores include a dining area that encourages customers to “eat as you shop”.

Along with regular food-court cuisine, an in-store chef cooks up seafood that customers have hand-selected.

Dispatch

One of the most fascinating aspects of the Hema supermarket are the chains whirring high up in the ceiling, carrying green canvas bags across the supermarket like something out of Willy Wonka’s chocolate factory.

This is all part of the secret behind Hema’s ability to get products out the door quickly.

Hema’s mobile app allows customers to browse the aisles of the supermarket from home and add items to a virtual shopping basket. If you live with a 3km radius of the store, they aim to have products delivered within 30 minutes of ordering — if you realise you’re missing an ingredient for a recipe, it can be delivered before you finish cooking.

There are 25 Hema stores spread across seven Chinese cities: 14 in Shanghai, five in Beijing, two in Ningpo, and one each in Hangzhou, Shenzhen, Suzhou and Guiyang.

Hema’s rapid growth continues, with Alibaba expecting to open 30 new stores in Beijing by the end of the year, and expand into Fuzhou, Chengdu and Guangzhou — opening up rapid delivery of fresh produce to millions more customers.

Alibaba’s use of smart logistics technology ensures the inventory inside your local store matches exactly with what is shown online — meaning all products are immediately available and ensure Hema’s supply-chain management system runs efficiently.

The supermarket doubles as a warehouse, and dozens of packers (Alibaba calls them “order-fulfilment specialists”) rush around each department armed with reusable shopping bags and scanners. When an order for home delivery is placed, they receive a list of those items that fall within their area of responsibility, scan the items, fill the basket, and place it on a hook attached to the conveyer belt system.

Items from various departments are collated in an area at the back of the supermarket and packaged — ready to go on the back of a motorbike and to the customer’s door — or perhaps to their car in the nearby carpark, timed to coincide with when the customer’s movie wraps up.

Alibaba says the first two years of Hema’s operations have yielded promising results.

Online purchases account for more than 50 per cent of total orders. For mature stores this number can be as high as 70 per cent.

By linking to a customer’s Alibaba account, the Hema supermarket allows Alibaba to learn more about its shoppers. Collecting data on every move a customer makes means Alibaba can leverage shopping habits and product inquiries to hyper-optimise its offering.
Payment

The supermarkets run almost exclusively on cashless payment. Alibaba’s Alipay technology uses facial recognition at self-service checkouts to identify the customer and charge their account.

Payment is made in seconds, and means the customer walks out with their goods without ever reaching for their wallet or a phone — let alone speaking to a real person.

I asked a shop assistant what happens if an elderly customer doesn’t have a mobile phone or an Alipay account, or — as in my case — if a foreign tourist wanted to buy a bottle of water to rehydrate.

She was surprised by my question — mobile phones and AliPay have become so ubiquitous in China. But after checking with store management she was able to confirm there was a counter in the corner of the store that could accept cash.

The Future

In China, innovation and competition follows fast. Already this year, JD.com — one of the other major ecommerce players in China — has followed Alibaba’s lead and opened its first bricks and mortar supermarket in Beijing.

Like Hema, JD’s 7Fresh supermarket offers a mobile app, digital payments, and 30-minute delivery. It also offers smart shopping carts, which follow a shopper around while avoiding obstacles (and other customers). JD says it plans to open 1000 supermarkets in China over the next three to five years.

American ecommerce giant Amazon has recently opened Amazon Go — a supermarket with no checkouts — in Seattle earlier this year.

Instead, cameras and sensors identify customers and keep track of the items they select.

Amazon calls this “grab-and-go” shopping, where customers can walk out of the store without any human interaction. They are emailed an electronic receipt as they leave.

If this convergence of innovation tells us anything, it’s that those pesky “unexpected item in the bagging area” self-service machines — and the queues we all dread — could soon be a thing of the past.

Fonterra partners for milk supply

Fonterra announced earlier this year that it has partnered with Alibaba’s Hema, to supply a new Daily Fresh milk range to the supermarkets. The fresh milk comes in 750ml bottles, sourced directly from Fonterra’s farm hub in China’s Hebei province.

The New Zealand dairy giant says initial volumes of its fresh milk are around three metric tonnes a day, with plans to scale up over time and expand with Alibaba as it progresses its rapid expansion of stores across China.

In addition to fresh milk, Fonterra also offers Anchor UHT milk products and its range of butter, cream, and cheese products in Hema. The in-store bakery uses Fonterra’s Anchor Food Professionals products in its items.

Hema Fresh’s CEO and Founder Hou Yi says he is excited by the strategic co-operation between the two companies.

“This co-operation between two powerful companies is set to redefine the concept of fresh milk in the new retail era. As a global leader in the dairy industry, Fonterra is well-known for quality milk pools, world-class breeding techniques and advanced experience in food safety and quality, which matches well with what we advocate.”

President of Fonterra Greater China Christina Zhu says the new product highlights how Fonterra’s business in China is leveraging the strength of its local milk pool, spread across three farming hubs.

“No other multinational dairy company in China has a local milk pool to draw from, so we are in an advantageous position.

“This milestone with Hema is a sign of things to come and indicates that our push to shift more of our local milk into higher-yielding consumer and foodservice products is well-and-truly under way.”

Disclosure: Tim McCready was a guest of Alibaba in China.

China Business: Rethinking the future of retail (NZ Herald)

Last year Alibaba announced its “New Five” strategy, which comprises New Retail, New Finance, New Manufacturing, New Technology, and New Energy.

At the time, Alibaba founder Jack Ma told shareholders the Chinese Government’s push for the One Belt One Road initiative presented Alibaba with a unique opportunity to grow its business globally:
“New Retail will bring about a restructuring of the global supply chain and change the complexion of globalisation from the domain of big companies to small businesses.”

Alibaba’s vision is to use its ecosystem — which now includes commerce, logistics, entertainment, cloud, and physical stores — to support its new strategy and provide a platform for individuals, SMEs and large corporates to do business globally.

This strategy has seen Alibaba experiment with new technologies over the past year, culminating in a showcase of technologies during last year’s 11.11 shopping festival that demonstrated the increased blurring between online and offline shopping.

Customers can apply makeup using augmented reality “magic mirrors”. This means they can apply as many different colours and styles as they like, and then — through the use of the mirror — immediately buy the makeup and have it home delivered.

Providing customers with the means to test different shades in a short amount of time adds an extra layer of confidence and assurance they are buying makeup that will suit them. In addition to being placed instore and in mall kiosks, the mirrors are also undergoing trials in public restrooms.

Clothing stores have begun introducing similar technology. Alibaba’s virtual dressing rooms allow customers to quickly try on a wide variety of clothes — without removing any. A shopper can find a pair of jeans they like instore, try them on virtually, then receive suggestions using artificial intelligence and their previous shopping history on alternative styles and colours that might be of interest.

“In 2016 we had a small trial of augmented reality, and we are now starting to use it on a much larger scale — this is the future,” says Maggie Zhou, Managing Director of Alibaba Group Australia & New Zealand.

Alibaba has also started rolling out its technology to transform traditional retailers throughout China, providing them with data-backed point-of-sale systems.

This will allow stores, even some in rural areas which may not have previously used any technology whatsoever, to obtain access to Alibaba’s marketing, delivery, inventory management and payment capabilities.

One example is a point-of-sale kiosk that can use facial recognition cameras to track what shoppers do, identify who they are or estimate their age, and make insights into shopping preferences — effectively bringing what already happens online into physical stores.

Alibaba’s chief marketing officer Chris Tung says the enormous pool of data and analytics expertise will help change the offline shopping experience and bring retailing back into the real world.

“We know a lot. We can model the lifestyle of 500 million people,” he says. “Bricks and mortar retailers are suffering today, but there is a way to make them just as successful as online.”

Zhou adds: “As we continue to adapt operations to better suit the digital world, traditional retailers must look at ways to restructure and enhance the customer experience and the physical retail space. New Retail is the way forward.

“By leveraging the Alibaba ecosystem and technology such as big data and smart logistics, merchants can offer consumers a more efficient and flexible shopping experience, while also improving their bottom line.”

Zhou says the success of Alibaba has been possible thanks to the internet, and believes big data will become increasingly important to business in the future.

“The next 30 years will see the era of the internet flourish. We have the opportunity to change the world and to change people’s lives,” she says.

Will we see magic mirrors, virtual dressing rooms, and Alibaba’s point-of-sale kiosks in New Zealand?

Ultimately, that is part of Alibaba’s globalisation strategy. But for now, Zhou says China’s scale makes it an ideal market to test new e-commerce innovation before taking it global.

“China is a very large market, with millions of digitally savvy consumers. This makes it a great environment to trial new technologies, fine tune them, and see what works.”

China Business: Tapping into the food chain (NZ Herald)

Leading nutrition companies spoke to Tim McCready about expanding into China. Among topics discussed with Sanitarium’s China Country Manager Tanne Andrews, Blackmores’ Asia Managing Director Peter Osborne, and Fonterra’s Greater China President Christina Zhu were challenges they face in the market and the impact of e-commerce.

Herald: Could you describe your presence in China?

Christina Zhu: We refreshed our China strategy five years ago and we’ve gone from strength to strength in that time. China is our largest and most important strategic market accounting for a volume of 5.5 billion liquid milk equivalents (LMEs) which is equivalent to over 1000 glasses of milk sold every second. Today, we have a fully integrated model that enables us to capture value for our farmer shareholders — from the farm gate through to the end consumer.

Our business model is unique in China. No other multinational or local dairy company has the same mix of businesses and reach across sectors that we have. We have a strong in-market presence and operate a range of business units — including consumer brands, foodservice, ingredients and farms, as well as a number of strategic partnerships. In the past 12 months we have made great progress integrating these businesses more closely to capture the opportunities being created by rapid changes in China’s food industry, such as growing household affluence, demographic changes in the population and the rapid growth of technology and e-commerce.

We are the market leader in food service, Anchor is the number one imported milk brand both online and offline, we have around 35,000 cows producing a significant amount of milk each year and we are a leading supplier of dairy ingredients to major international and local food companies in China.

At the same time we are Fonterra’s biggest employer off-shore with close to 1700 people in the greater China region (mainland China, Hong Kong and Taiwan).

Tanne Andrew: We’ve been an export business into China for about five years, and have had a functional office in China for about the past 18 months.

Chinese consumers increasingly want to try things from the West and there is massive growth in breakfast cereal in China. We are building trust in Sanitarium’s brand, which we want to expand on. Light ‘n’ Tasty will likely be the next product we bring to the China market.

Peter Osborne: We’ve been here since 2012. We have a wholly-owned foreign enterprise in Beijing, our head office is in Shanghai, and a team of 50 in China — spread across Beijing, Shanghai, Guangzhou and Chengdu. We have an A$250m business in China, with over 3000 points of retail presence across China and an extensive presence on e-commerce — both domestic and cross-border.

What are the challenges you have noticed specific to China compared to New Zealand or other parts of the world?

Zhu: The Chinese consumer is unique and like all markets we operate in, it’s essential to appeal to local tastes and trends. Chinese consumers are very discerning and companies work tirelessly to meet their ever-increasing expectations.

This is both a challenge and opportunity — to capture the opportunity we need to have innovation at the heart of everything that we do. That can mean new packaging, taste profiles, or the way you engage with consumers. The market is evolving so quickly, businesses need to run fast just to stay where they are. Only by running faster though will they ever move ahead.

One area where we have really captured the essence of innovation is through our foodservice business — Anchor Food Professionals. The dairy beverage category is rapidly expanding and we’ve been able to capitalise on this trend by working with our customers to create innovative taste sensations, such as the tea macchiato. This is made using a blend of flavoured Chinese tea with a creamy cap of whipped cream and cream cheese.

Thanks to innovations like this, we are now selling around 80 million drinks per year and this is growing rapidly.

Andrews: While the opportunities in China are big, the challenges are also big. China is not the easiest place in the world to do business — complicated sales channels, language barriers, different consumer laws, professional shoppers — these are just a few of the challenges you face that you don’t have to worry about in your own domestic market.

China is very different to Australia and New Zealand — it’s the antithesis really, when you look at lifestyle. And it is extremely fast-paced. Everything changes so quickly, it’s like a different planet and you have to keep up.

As an ex-pat, if you can’t speak Chinese, you don’t have an interpreter, you don’t have a driver — you will find it very difficult. I found it surprising how little English is spoken.

We used to put a lot of emphasis on using Chinese agencies that could speak English. But now we have a local team in China we’re using some very good local agencies. That might mean they don’t necessarily speak English, but we’re finding we get a far better result.

Osborne: As a health product company, we’re used to highly regulated environments, so that’s not the biggest challenge. Keeping up with the speed of consumer evolution is.

This includes changes in the regulatory environment, how to engage with consumers online, and customer preferences and demand.

In a category like ours, preferences can shift rapidly based on key opinion leaders and influencers. Our category has a long supply chain which means it can take months to get a product to market. That’s a big challenge for any foreign brand in food or fast-moving consumer goods (FMCG).

How are you currently using e-commerce in China?

Zhu: E-commerce in China is such an important platform and it’s moving at a rapid pace.

We’re really capturing this opportunity — over half of our consumer business is online and Anchor is the number one imported dairy brand both on and offline in China.

Our strategic partnership with Alibaba is helping us deliver significant growth. Alibaba has created a huge digital ecosystem in China encompassing all online channels and we’re working in partnership with them to get more and more of our products to consumers across China. For example, Tmall.com, Alibaba’s online retail market place, is an extremely important channel for us, and enables retailers to sell Anchor, Anlene and Anmum to consumers.

A key development in the China e-commerce landscape has been the growing integration of online and offline channels — or what people are calling ‘new retail’. This year we launched a partnership with Hema — Alibaba’s supermarket chain — where we will sell our current product range, launch new products and offer cooking classes to engage our consumers. The signature product is daily fresh milk, an unprecedented development in China. This milk comes from our farms in China, which shows how our integrated business model is coming to life. We have also signed a memorandum of understanding with Alibaba on blockchain.

Andrews: This is what is difficult for people to get their head round in Australia or New Zealand. The majority of our target buy their groceries on line, over 80 per cent of our purchases are made on a mobile device. For the consumer it’s convenient and delivery is both quick and inexpensive.

If you work in FMCG in New Zealand, the majority of your goods are sold through large supermarket chains. Think how much your strategy would have to change if suddenly your goods were now sold predominantly online.

Osborne: We’ve had a long relationship with Alibaba and entered China in 2012 with a flagship store on Tmall — we were the first brand in our category to have a Tmall store.

We sell on various Alibaba platforms — Tmall, Tmall Choice, AliHealth, Taobao — and we also work with them on big strategic projects including a blockchain project for food safety and a Global Healthcare Initiative with Tmall. We have a deep relationship with them, which has really helped drive our business in China.

Online and cross-border e-commerce is a big part of our business, and Double 11 Day is a big feature of the yearly calendar. We work up to it with a range of activations — it is about consumer engagement and brand awareness as much as it is about sales. For a long-term business in China this is important, because it allows you to keep engaging with your consumers.

We did a three-hour livestream prior to Double 11 Day. We used Chinese celebrities and Chinese pop-stars as part of a broader programme produced by Hunan Television [a satellite TV station]. At its peak we had 480,000 people online viewing our livestream and we added 13,000 fans to our flagship store.

Can you give an example of an online success you had in China?

Zhu: One example of our online performance is Double 11 Day — a very important festival that has expanded to become weeks of promotion. During Double 11 Day last year, our overall online business achieved RMB100 million (NZ$22m) in sales volume, 67 per cent higher than the previous year.

This year we ranked in the top 10 of all food and beverage companies on JD.com, another e-commerce giant and also a significant partner. That puts sales of Anchor milk up there with brands like Coca-Cola and the local giants Yili and Mengniu. This is a massive achievement and reinforces that Anchor is standing strong among the biggest food and beverage brands in China.

Andrews: Our Chinese distributor got Weet-Bix onto Ode to Joy [a Chinese television series]. It appeared for over one minute on screen with actress Liu Tao — one of China’s most famous actresses — and was seen by over 350 million people. Daigou in Australia and New Zealand rushed out to buy Weet-Bix to send to China. That was when Sanitarium realised the potential China offers.

Since then, due to a trademark battle, we have had to rebrand in China to Nutri-Brex.

But Nutri-Brex retains the Weet-Bix colours and branding. It is selling very well, and the bonus for us is that Daigou don’t have access to Nutri-Brex as it is exclusive to China.

This gives Sanitarium more control over the Chinese market and eliminates problems associated with parallel imports.

Osborne: We learnt a very good lesson in China from our vitamin E cream — a product we have been selling for 30 years.

There was some social media chatter two years ago that Fan Bingbing — a very famous Chinese actress — was using our vitamin E product. Our sales went from 3000 tubes a month to one million tubes a month.

This really had very little to do with us — but we had to crank up production rapidly to meet this demand we hadn’t anticipated, all because of social media which is so dynamic in China.

Although things have calmed down now from that peak, we are still selling considerably more vitamin E cream than we used to — up into the hundreds of thousands of tubes a month.

China Business: New Zealand products selling well on 11:11 (NZ Herald)

Alibaba’s 2017 11.11 Global Shopping Festival attracted a high demand for New Zealand brands.

The festival comes from Single’s Day in China (the date is 11.11 — four singles) and is also known as Double 11 Day.

Over the 24-hour sale period, Alibaba Group reported RMB168.2 billion (NZ$36.81b) of transactions through Alibaba’s retail marketplaces. As evidence for China’s phenomenal uptake of mobile devices, mobile sales accounted for 90 per cent of the total sales figure.

Alibaba now offers more than 400 New Zealand brands through its B2C platforms Tmall.com and Tmall Global.

Maggie Zhou, Alibaba’s Managing Director of Alibaba Group Australia & New Zealand, says there is a rapidly increasing demand from Chinese consumers to source the highest quality products from all over the world. Brands from Australia and New Zealand have seen excellent sales figures during the shopping festival.

“Australia and New Zealand products are perceived as high quality and continue to outperform in China.

“We are working closely with New Zealand merchants and partners to further encourage this growth.
“When we launched Alibaba Group’s Australia and New Zealand office earlier this year, one of our key goals was to show the outstanding performance of New Zealand brands in previous 11.11 Global Shopping Festivals,” she says.

“We are thrilled New Zealand brands have continued to see success on the world stage, adding further proof of the growing appetite for high-quality New Zealand goods among Chinese consumers.”

Zhou says Alibaba’s Chinese shoppers are drawn to products from Downunder, particularly skincare, health supplements, and high-quality organic goods such as fruit and wine. Rapid improvements in logistics mean that fresh items such as beef, seafood and dairy are also becoming more sought after.

Some of the highest performing brands on the Chinese e-commerce giant during the shopping festival were ecostore and Antipodes.

“The opportunity for ecostore to expand its consumer base is significantly increased through sale days such as 11.11,” says Pablo Kraus, managing director of ecostore.
“Chinese consumers are very sophisticated and their demand for an eco-friendly lifestyle continues to grow, so ecostore is honoured to be a brand that consumers choose for its reliability, authenticity, and being safe for all the family.”

CEO and founder of skincare company Antipodes, Elizabeth Barbalich, says: “11.11 presents and amazing opportunity for us to raise awareness of Antipodes in the China market.

“The Chinese market is key for us, with traditional plant remedies long considered an essential part of Chinese medicinal and beauty practices.”

Offshore companies that participate in the 11.11 Shopping Festival are required to store their products in Alibaba’s warehouses ahead of time, so customers receive their products as soon as possible after purchasing.

After midnight marked the start of Double 11 Day, the first package was in the hands of the buyer 12 minutes later. “This delivery speed makes for a far better shopping experience,” says Zhou.