Tripartite Summit: Innovation from cross-pollination

  • Cross-pollination between Auckland, Los Angeles, and Guangzhou brings the prospect of exciting innovation.
  • Erez Morag believes when culture, expertise, insights, and ranks come together and are cross-pollinated, it is then that truly successful innovation can happen.

“Cross-pollination between these three cities will bring exciting innovation,” said Dr Erez Morag, former Nike Innovation expert speaking at the Tripartite Economic Summit about Los Angeles, Auckland, and Guangzhou.

Morag studied bioinformatics at university because he liked the idea of solving human problems. Soon after presenting his PhD on the structure and function of the foot, he was recruited by Nike executives to join their team.

 

During Morag’s time at Nike, the company created the ‘Nike Maxims’ – 11 rules that all employees at Nike need to work to:

  1. It is in our nature to innovate
  2. Nike is a company
  3. Nike is a brand
  4. Simplify and go
  5. The consumer decides
  6. Be a sponge
  7. Evolve immediately
  8. Do the right thing
  9. Master the fundamentals
  10. We are on the offense – always
  11. Remember the man

Morag found eleven maxims difficult to remember, and decided to focus on just four:

  • It is our nature to innovate: Nike saw innovation as one of its core organisational competencies.
  • Simplify and go: Nike products have short life-cycles in terms of technology, and in fashion. The company believes that making quick, insightful decisions is the key to its success.
  • Do the right thing: Nike sees itself as a responsible global citizen and embraces the importance of corporate social responsibility.
  • Remember the man: The late Bill Bowerman – an Olympic track and field coach and co-founder of Nike – continues to be held in high regard at Nike for being a motivator, a dreamer, and an innovator. In 1962, Bowerman came to New Zealand to meet Arthur Lydiard, who is credited with inventing the concept of jogging. After meeting Lydiard, Bowerman published the book ‘Jogging’ in 1966 – popularising jogging in the United States. “Invented in New Zealand, commercialised in the United States, and a great example of cross-pollination,” said Morag.

During Morag’s keynote address, he shared his secrets to innovation success, and in particular focused on the importance of cross-pollination. “When culture, expertise, insights, and ranks come together and are cross-pollinated, that is when truly successful innovation can happen,” he said.

Good idea, act now

In general, life presents us with great ideas. They might be on the way to work, or when we’re going to sleep. Most often, it happens when we exercise. But Morag lamented that so many of us put those ideas out of our minds.

“We get a phone call, a text message, a tweet – and forget about the great idea,” he said. When Morag has a great idea, he forgets everything else until he has written it down.

Listen to everyone

Morag learnt this lesson from tennis great Roger Federer. He listens to everyone with the same level of attention – every opinion counts, and counts equally. This is true in science as well. Nike learnt that it is not just the major muscles that count in sport, but all muscles have a contribution to make to speed.

Morag has always given freedom to his employees to innovate. “So often,” he said, “the highest ranked officer speaks, and everyone else rephrases what was said.” Instead, Morag recommends that businesses encourage employees at all levels to share innovative ideas. When he is the highest ranked officer in the room but wants to get really great ideas, Morag speaks last. It is the cross-pollination of ideas across ranks that means that those teams who share the most ideas, produce the best results.

Control the ball – control the game

There is a ‘ball’ for every business, and for every individual. For Nike, the ball is running. Running is the biggest category that any sports and fitness business needs to protect.

Sulfur hexafluoride is an inorganic, colourless, odourless, non-flammable gas that was used extensively in the footwear industry for cushioning. In the 1990s it was recognised as a greenhouse gas. When this happened, Nike decided to control their ‘ball’ – remove sulfur hexafluoride from their product range, as well as change all their solvents to water-based.

Designers and biomechanics needed a cross-pollination of expertise to make sure the shoes would still function well without those harmful molecules. The work took five years to complete, but Nike has now become one of the global leaders in multinational sustainability due to the company’s ability to collaborate.

Chase the insights – not competition

Morag used the Cooper’s hawk as a metaphor. Most hawks hunt in open fields, but the Cooper’s hawk has carved out a market for itself, hunting in various types of mixed deciduous forests and woodlands. “In business, we need to follow our insights and not the competition,” said Morag. “Doing the same as everyone else isn’t necessarily the right thing to do – however hard that might be.”

Going into the 2006 Football World Cup, the two biggest football brands – Nike and Adidas – were facing their own battle. Nike was betting on speed and developed a 200-gram shoe that was considered to be faster than any other shoe available at the time. On the other hand, Adidas was developing shoes that were individually designed for players. Four years later, Adidas switched to lightweight football shoes, which proved to the industry that Nike was on the right track from the start.

Play bigger than your size

In 2008 Nike went through an organisational change and shifted from being operational-centric to consumer-centric. Morag was asked to join the football leadership team and was tasked with finding a way to cross the chasm and bring innovation to the mainstream consumer.

Morag and his team decided that instead of delivering a stand-alone product, they would create and deliver a product alongside a training programme. Bringing together digital marketing, brand, and product teams, he developed a shoe alongside a training programme – combining the physical world with the digital world. This meant that every consumer was able to buy shoes and receive a training programme from the best coaches in the world, free of charge.

Passing insights quickly and accurately from one person to another was the reason why Nike has succeeded where others have failed. During his time at Nike, Morag worked with over 80 of the world’s greatest athletes and is a true believer that the best innovation comes from cross-pollination.

“This Tripartite Economic Alliance can be a great tool to allow cross-pollination to occur, and bring exciting innovation to these three cities – if you take advantage of it,” said Morag.

Tripartite Summit: Māori economy – becoming a significant economic powerhouse

  • Several decades ago, there was a common perception that all Māori were factory workers, truck drivers, or cleaners – Maori success in business was only ever seen as the exception.
  • Māori are quickly becoming significant economic powerhouses, owning an estimated NZ$40 billion of assets in New Zealand.
  • Māori are spiritual people, and their motivation in business reflects their world view: that long-term sustainability is more important than profit.

“Māori are a people of the land, and everything we do relates to the environment around us. Though that said, we also have a significant interest in digital, IT, education, and tourism.” – Te Ururoa Flavell

“It is only several decades since there was a common perception that all Māori are factory workers, labourers, truck drivers, or cleaners,” said Paul Majurey, senior law partner and of Ngati Maru/Marutuahu descent at the Tripartite Economic Summit. “Success in Māori business was only ever seen as an exception.”

But for many centuries, Majurey explained, Māori flourished in New Zealand. In the 1850s, Māori still owned the majority of land in New Zealand. All of this changed in the 1860’s, and yet they continue to have the skills and the integrity to flourish in the industrial age.

Despite adversity, Māori are again becoming significant economic powerhouses. Majurey predicts that in another decade, Māori will be one of the cornerstones of the New Zealand economy.

Auckland Māori own more than $23 billion of assets, contributing more than NZ$4 billion to Auckland’s GDP. New Zealand Māori assets account for an estimated NZ$40 billion, including 40% of New Zealand’s export forest land, 40% of our fishing quota, 10% of kiwifruit, and a high percentage of land production. “As further settlements occur, the value of the combined Iwi asset portfolio is expected to grow significantly,” said Majurey.

Te Ururoa Flavell, co-leader of New Zealand’s Māori Party, spoke at the Summit about the legend of Māui fishing up the North Island with the jawbone of his grandmother.

“The fish that was pulled out of the ocean was a traveler and an entrepreneur. He may have made it to China and Los Angeles before his final destination of Auckland,” he said.

Flavell explained that to Māori, economic development translates to jobs, enterprise, land development, and infrastructure in cities and towns. While private enterprise is required to answer to shareholders, Māori business has to answer to Iwi and they must balance economic returns with social and environmental concerns, to ensure it remains in place for future generations.

Māori are not new to international markets, innovation, and enterprise, Flavell told attendees. “Māori can trace their DNA back to China over 6,000 years ago. This demonstrates that Māori people have historically been resourceful, resilient, and adaptable.”

“On the other side of the Pacific, some of our ancestors spread to the Americas. We have strong links to groups in North America, and Māori people are now seeking partners to unlock land productivity in that market,” he said.

Māori businesses have a strong desire to move up the value chain, participate in international markets, and use the tradition of storytelling to carve out a point of difference to global markets. The future will look different for Māori business as they differentiate into new sectors.

“Māori are a people of the land, and everything we do relates to the environment around us,” said Flavell. “Though that said, we also have a significant interest in digital, IT, education, and tourism.”

“Māori will never lose interest in the primary sector, but they are looking to diversity and form partnerships with government, private companies, and foreign investors all over the world in order to grow their asset base in New Zealand.” -Paul Majurey

Majurey agreed with Flavell – “Māori will never lose interest in the primary sector, but they are looking to diversity and form partnerships with government, private companies, and foreign investors all over the world in order to grow their asset base in New Zealand.”

Both Flavell and Majurey emphasised how important relationships are. For Māori, relationships are about mana, and of significant importance. Māori are spiritual people, and agreements are based on trust. Their motivation in business reflects their world view: that long-term sustainability is more important than profit.

“Māori want to hear your heart, not just slick words,” Flavell said. “If there is no connection to your heart, then there can be no deal – because it will be doomed from the start.”

Tripartite Summit: Liveable Cities – Britomart as a common ground

  • Until the early 1900s, rail in Auckland came right into the bottom of Queen Street. It has recently returned to Britomart – albeit underground – and has been integral to the evolution and revitalisation of Auckland’s CBD.
  • Britomart has become a gateway for Auckland and is helping to remove barriers and hurdles between cultures.

“Britomart creates bigger opportunities every day in front of our eyes… so don’t blink.” – Daijiang Tai

Jeremy Salmond, from Salmond Reed Architects provided context at the Tripartite Economic Summit on the history of Auckland’s Britomart precinct. Up until the early 1900s, rail in Auckland came right to the bottom of Queen Street, until the reclamation of land drove rail out of the city centre.

“The manner in which a community deals with historical remnants varies considerably,” he said. In Auckland, this has largely been an accident of timing. Britomart is one of a number of well-preserved precincts in New Zealand that has found a new use, and is now widely regarded as a historical asset with significant commercial potential.

The return of rail to Queen Street – albeit underground – could be seen as a virtuous circle. Britomart represents a remarkable tale of survival in Auckland. The structural and geopolitical history of Auckland’s streets and buildings remain relevant and integral to the evolving city of the future.

Daijiang Tai, from Cheshire Architects, spoke about the current function of Britomart in Auckland, and used its development as a case study about Auckland’s engagement not only with businesses and the local community, but with the world.

The values that New Zealand has been known for historically have been strongly recognised recently with Chinese audiences: clean water, fresh air, quality products, friendly people. The Chinese market is a recognised pathway for New Zealand businesses to grow, largely due to the sheer size of the market and ongoing growth and rapid urbanization in China.

Auckland – like many cities – has seen these two cultures living side-by-side for a long time. But the two worlds have only recently started to collide. It is important that Auckland curates the collision as it takes place, in order to ensure it comes together in the best possible way, maximising the opportunity.

Britomart was used as a good example of a ‘common ground’. Tai explains that hospitality is something that everyone can appreciate – regardless of their culture or the language they speak. When hospitality is delivered to the highest standard, it brings people together, and provides a solid base for engagement. “This is the foundation for Britomart, and was at the core of its transformation from a commercial wasteland to one of the city’s most successful precincts,” he said.

Tai hopes that people think of the Britomart precinct as a gateway – “it is an access point for the best resources and professionals in the city,” he said. “Britomart can help remove barriers and hurdles between cultures, which is critically important, as we must engage with the wider world and improve ourselves through healthy competition.”

On a higher level, Tai emphasised that we must deconstruct and rebuild our perceptions. China is growing at a massive speed, and so fast, that it is very hard to get a grasp on it. We have to look at the Chinese market with fresh eyes. It is changing so quickly, that we need to do that every day.

For the first time, said Tai, we can say the same thing about Auckland. The city provides much more than just clean water, fresh air, and quality products. Britomart is the most successful precinct in the city – because it is adaptive. It is ready to change and becomes something new every minute, constantly creating space for more to happen through old businesses and new courtyards. This mentality is shared by council, architects, and operators, and gives the precinct the speed and ability to collaborate across all disciplines and sectors.

As Auckland is so small, and at the same time culturally, technologically and socially adaptive, it can react and change faster than almost everywhere else. It is the perfect global test tube for urban change.

Britomart created a common ground before anyone realised it. The injection of different cultures will open opportunities the city never knew existed, which in turn allows us to become a complex and vibrant city. New spaces will create new forms of cultural entertainment and allow the cross-pollination of ideas to take place.

Tai’s closing statement to the Summit summed this notion up: “Britomart creates bigger opportunities every day in front of our eyes… so don’t blink.”

Tripartite Summit: Liveable Cities – good for the environment, good for business

  • Green buildings in Los Angeles are demonstrating a higher average occupancy level, increased occupant satisfaction over the general market, as well as higher rental rates.
  • Watt Companies was one of the first major property companies in Los Angeles to introduce sustainable practices in its properties.

“Ultimately, green buildings demonstrate a higher average occupancy level, and increased occupant satisfaction over the general market. They also show higher rental rates.” -Nadine Watt

Nadine Watt, President of Watt Companies, oversees the company’s commercial investment activities. This includes acquisitions, development, and asset management for a 6 million square-foot portfolio of industrial, office, and retail properties.

Through Watt’s 15 years at Watt Companies, one of her most notable achievements has been to transition the company to become a leader in sustainability. Watt persuaded her grandfather that if Watt Companies do sustainability – and do it well, by creating livable cities that leave the city better than how they were found, other companies would be forced to follow their lead.

This formed the basis for her talk at the Tripartite Economic Summit in Auckland – managing a successful business, without compromising the future of the environment.

Watt was responsible for a multi-million-dollar renovation program at Watt Plaza – a 920,000 square foot, Class-A office building in Century City Los Angeles, that was instrumental in securing the building’s Platinum LEED certification in 2013 and a TOBY (The Outstanding Building of the Year) award in 2011.

Some of the sustainable practices Watt Companies have implemented in its properties include:

  • Building management and contractors are continually tracking sustainable practices to ensure the best management practices are being maintained.
  • Integrated pest management programmes are being followed, where less toxic pesticides are used as a first line of prevention. When more toxic products must be used to maintain the health and safety of occupants, proper measures are taken to ensure chemicals have limited contact with building occupants.
  • Nearly 40% of occupants utilize an alternate mode of transportation (including carpooling, public transportation, green cars). To encourage the use of alternate fuels, Watt Plaza has installed four electric charging stations, and plans to install six dual charging stations over the next year.
  • Over 90% of car parking is under cover, which limits the amount of asphalt surfaces and lowers the ‘heat island’ effect in the surrounding area.
  • The roof is coated with a white polyurethane topcoat in order to limit the amount of heat gain, which lowers the urban ‘heat island’ effect and increases roof efficiency.
  • Watt Plaza uses a combination of 3M window film to prevent light emission from interior spaces and avoid up-lights on the exterior of the building to reduce light pollution that can cause human health and ecological problems.
  • Ongoing consumable waste inside Watt Plaza is separated on-site for recycling and disposal. By implementing a tenant and janitorial staff training programme, the building saw a 72% reduction in recyclable material being sent to landfill.
  • Electronics and durable goods are collected on a quarterly basis through qualified vendors, for proper disposal.

Watt explained that from energy savings alone, the average payback time for a green building is six years. The volatility of energy prices and the long-term trend of rising demand for finite and depleting fossil fuels means that creating green buildings has become a cost-effective risk-reduction strategy for the company. Green design not only reduces carbon dioxide emissions, at the same time it creates jobs, strengthens property values, and increases the health of those communities that live close by. Given the reality and severity of climate change, a national shift to green design is both financially and environmentally wise.

“Sustainability has been important in reducing the impact on the environment to ensure livable cities in the future and increase investment value,” said Watt. She concluded her address to the Summit by saying that “ultimately, green buildings demonstrate a higher average occupancy level, and increased occupant satisfaction over the general market. They also show higher rental rates.”

Watt was able to prove her hypothesis to her grandfather, that “doing good for the environment has been a great business decision.”

Tripartite Summit: tying it all together: timing, location, and people

  • The Chinese government is heavily promoting entrepreneurship and there is a natural drive towards innovation as the country’s economy moves into a new phase.
  • China is quickly becoming known for high-quality innovation, and the creation of new ideas and technology out of what already exists.
  • China’s history as a manufacturer of the world’s goods has allowed the country to expand on its history as a producer of low quality products made with cheap labour towards more specialised high-value products.

“It is easier to find skilled talent in China than anywhere else in the world. The quality of software engineers is equal to anywhere else, but the cost is one-third the price in China, compared to hiring staff in Silicon Valley.” – Derrick Xiong

Derrick Xiong from Ehang Inc. began his presentation at the Tripartite Economic Summit with an old Chinese saying – “timing, location, and people”.

Ehang Inc. launched the world’s first autonomous air vehicle earlier this year. The mega-drone can carry an individual for about 30 kilometres. Recently Ehang Inc. made an announcement with US company United Therapeutic – a public company with a US$5 billion valuation. The two companies are working together to develop a new system that will transport human organs for transplant patients.

Xiong referred back to the Chinese saying. “It is lucky,” he said, “that China has managed to tie all these things together.” Seemingly by sheer luck, China has got the mix of timing, location, and people right, which has allowed companies like Ehang Inc. to be part of the rapidly growing drone industry in China – the “new era of made in China”.

Timing

There is a national drive towards innovation in China and the Chinese government is heavily promoting entrepreneurship as the country’s economy moves into a new phase.

There are many startups emerging in China every day, and plenty of capital flowing around the China market to fund them. “It is very common now to see graduates exploring innovation as an opportunity,” said Xiong. “The most exciting part is that it’s no longer the best option for graduates to go and work in a big cooperation. Choosing an alternative route and working in a start-up or founding a company has become a great opportunity.”

Xiong admitted that when people think of ‘made in China’, they tend to think of low-quality products made with cheap labour. However, things are changing rapidly. The history of ‘made in China’ has given China a strong base to grow from, and allowed them to expand on their existing manufacturing facilities and skills.

Location

Xiong estimates that the amount of time his company spent prototyping their drones would be only one-third of the time spent by other drone companies based outside China.

“This is China’s big advantage,” he said. Companies in France and the United States are announcing they will shut down their consumer drone business, which Xiong attributes to how hard it has become to catch up and compete with the rapid pace of development in China.

People

Over the past decade, mobile internet has changed the way people live, work, connect, and trade. This hasn’t been ignored by China, and along with the many apps being created and launched from there, a huge pool and demand for talented software creators has been established.

Although hardware companies like Ehang Inc. focus on hardware, they also need to utilise the skills of software engineers. “It is easier to find skilled talent in China than anywhere else in the world,” said Xiong. “The quality of software engineers is equal to anywhere else, but the cost is one-third the price in China, compared to hiring staff in Silicon Valley.”

In the end, Xiong said, there will be a new definition for ‘made in China’. It will be about high-quality innovation, and the creation of new ideas and technology out of what already exists. “China’s combination of timing, location, and people will transform the way we all live in the world.”

Tripartite Summit: Sharing Culture through Animation

  • Cartoon and animation has proven to be an excellent medium to successfully integrate culture and characters with a global audience.
  • The Chinese animation and comic industry is worth US$15 billion, the Chinese gaming industry is worth over US$21 billion.
  • Collaborative productions such as KungFu Panda (created by a joint venture with Dreamworks Animation) are finding global success.

“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator.” – Tuo Zuhai

Tuo Zuhai from the China Animation Comic Game Group begun his presentation at the Tripartite Economic Summit by asking the audience what they think of when they think of China. He has noticed that since the 2008 Summer Olympics, many people think of the five mascots that were associated with the Beijing Olympic games.

“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator,” he said.

Cartoon is a great medium to tell Chinese stories, said Zuhai. Chinese history dates back thousands of years, and the Chinese government is now beginning to commission people to tell Chinese stories and share that history through the use of animation and cartoons.

Zuhai’s presentation gave three examples of how animation is helping to bring international cultures closer together: integrating Asian characters with world audiences, combining traditional culture with an innovative spirit, and local production combined with world production.

Integrating Asian characters with world audiences

Havoc in Heaven is a Chinese animated feature film that was created in the 1960s the height of the Chinese animation industry. The animation style, and drums and percussion soundtrack used in the film are heavily influenced by Peking opera traditions. Havoc in Heaven received many awards, and was warmly received by Chinese audiences, and also recognised internationally.

Gangham Style, a K-pop single by the South Korean musician Psy went viral worldwide in 2012. It became the first ever YouTube video to reach one billion views, and almost instantly became a household song around the world. The South Korean Ministry of Culture, Sports and Tourism commended Psy for “increasing the world’s interest in Korea.”

Zuhai gave Disneyland as an example of an American business integrating into China. With Disneyland opening in Shanghai in June, they have incorporated Chinese culture into their brand. The typical Disney characters that have come to be expected at Disneyland will be there – including Cinderella, Ariel, Mickey and Minnie Mouse.

But in addition to these, Shanghai Disneyland also includes a giant glass peony blossom, representing nobility and good fortune at the center of the famous fountain, the “lucky” cloud patterns have been painted on some spires of the iconic Disneyland castle, and a traditional dim sum restaurant is present in the Disneytown nightlife area.

Combining traditional culture with an innovative spirit

Monkey King, a film released in 2014, was based on a traditional Chinese classic novel ‘Journey to the West’, and tells the story of how the Monkey King rebels against the Jade Emperor of Heaven – a story about victory against hardships. The reason for the films box office success is because it created a new definition of the relationship between two leading characters. It demonstrated that in traditional Chinese culture, respect is essential – but it did this with a modern spin.

Local production combined with world production

Zuhai encouraged collaborative production. Dreamworks from the United States have a joint production with China on KungFu Panda.

“In 2012, DreamWorks Animation took a gamble and launched Oriental DreamWorks, a US$330 million joint venture that was the first of its kind,” said Zuhai. “What started with the launch of the original Kung Fu Panda film is paying off significantly, with the release of Kung Fu Panda 3 this year.”

The Chinese animation and comic industry is worth US$15 billion. The Chinese game industry is worth over US$21 billion. Every year, China produces more than 200 animation TV series, 50 animated films, and thousands of internet animation and comic products. Creative connections between Hollywood and China are growing, helping to spread culture internationally, and growing the economy of both nations.

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Tax and other changes have been made, but greater affluence and the rapid rise of e-commerce create more opportunities for New Zealand exporters to China, writes Tim McCready.

It used to be said that the biggest challenges to doing business in China were language, culture, and the sheer scale of the market. Now, throw in the rapid pace of change.

Over the past month, a raft of changes to regulations and tax have been introduced by the Chinese government. E-commerce is also evolving at a pace never seen before, and New Zealand’s access to online channels have never been easier.

Though some of these changes are likely to cause price increases, the premium customers New Zealand exporters target tend to make shopping decisions far less based on price and are prepared to pay for the safety and reassurance that comes with the New Zealand brand.

Research by The Boston Consulting Group and AliResearch, the research arm of Chinese e-commerce giant Alibaba, found the increasingly powerful role of e-commerce is rapidly reshaping China’s economy and consumer market.

China has now overtaken the United States to become the world’s largest e-commerce market. In 2010, online transactions made up only 3 per cent of Chinese private consumption. Since then, the number of online shoppers has nearly tripled, with online transactions now accounting for 9 per cent of private consumption.

This growth is expected to continue. China’s Ministry of Commerce expects the country’s cross border e-commerce trade to reach 6.5 trillion yuan (about NZ$1.5 trillion) this year.

Coupled with an increasing demand from Chinese consumers for quality and safe products, it is no surprise this transformation presents an enormous opportunity to New Zealand exporters.

The evolution of e-commerce products in China means that it has never been easier than now for exporters to take advantage of the platform.

This was highlighted last month during Prime Minister John Key’s visit to China. New Zealand Trade & Enterprise and Alibaba signed a memorandum of understanding aimed at developing opportunities for New Zealand businesses to enter China’s consumer market through e-commerce channels and potentially providing access to millions of new customers.

In 2014 New Zealand Post launched an online store for New Zealand products on Alibaba’s Tmall Global. Chinese banks operating in New Zealand also see the importance of e-commerce, and are beginning to introduce their own online shopping malls.

ICBC New Zealand, China Construction Bank, and Bank of China are all actively promoting their own e-platforms and e-commerce consulting services to their clients.

In the wake of the explosive growth of online shopping, China’s Ministry of Finance, the General Administration of Customs and the State Administration of Taxation introduced new tariffs on cross-border e-commerce, effective April 8, 2016.

Online purchases will no longer be eligible for the lower personal tax rate of 10 per cent on parcels worth less than 1000 yuan (NZ$224), or no tax on parcels worth less than 50 yuan (NZ$11.20). Instead, imported products purchased online will be treated as imported goods, and are required to include an 11.9 per cent tax.

Under the current system, many products have been entering China with minimal tax. Although some have reported this tax as a crackdown, others consider it the closing of a loophole in regulation.

Eliminating the tax advantage offshore sellers have over locals helps level the playing field, and makes up part of a pledge by the Chinese Government to protect domestic retailers.

On April 7 all major government bodies in China involved in food and drug control, customs and tax, and business trading, jointly published a cross-border e-commerce retail list of imported goods.

This so-called “positive list” outlines products that are allowed to enter the country via free trade zones. Running to 23 pages, the list initially included wine and infant formula, but omitted adult milk powder and long-life UHT milk – though it has since been revised to allow both.

In addition to the list of prescribed products, China has begun imposing tougher regulations on infant formula products sold online.

Forming part of China’s revision on food safety laws, all foreign infant formula companies will be required to apply for new product registration with the China Food and Drug Administration if they want to continue to sell through cross-border e-commerce platforms.

Companies have until January 1, 2018 to comply, but in the meantime can continue to sell without certification.

Speaking at The Global Food Forum held in Australia last month, Gary Helou, former managing director of Murray Goulburn (Australia’s largest processor of milk and largest exporter of processed food), said that although he is surprised at the “clunky way” regulatory changes are occurring in China, food companies must prepare themselves for more sudden regulatory changes.

Helou’s comments were made in light of media, stock market analysts and investors reacting quickly to the changes in China.

Company valuations – particularly those in the dairy or natural health sector – have recently climbed to new highs. This has been dubbed the “Blackmores effect” after its stock soared more than 500 per cent last year in response to the opportunity in China.

However, confusion over the impact regulatory changes on the bottom line of businesses has resulted in a sell-off in stocks.

Australian health supplements producer Blackmores fell as much as 19 per cent in one day. NZX-listed premium dairy and infant formula marketer, a2 Milk, fell 6.3 per cent.

“Daigou” is the Chinese term given to buying items overseas on behalf of others. Products are purchased by Chinese tourists, smuggled into the country through professional “personal shoppers” or bought through online channels – with international students often acting as the intermediary.

With prices of manuka honey running as high as 1789 renminbi (NZ$400) for a 500g jar in Shanghai, it is often much cheaper to buy products directly out of New Zealand.

Furthermore, there is still a deep concern in China about the safety of products – something that was already in place when the country experienced its melamine scandal a few years ago.

Instead, Chinese consumers seek out products directly from somewhere or somebody they trust.

The grey market is a multibillion-dollar business. It can be argued that daigou can help put innovative new products on the radar.

Some brands estimate daigou is responsible for a significant percentage of sales into China. Imported products can be personally promoted to friends and families, which is undeniably an excellent marketing method – particularly in China.

Recent changes, however, have seen authorities tighten up on the practice. A maximum value of 2000 yuan (NZ$450) per single cross-border transaction has been introduced, as well as an annual cap of 20,000 yuan (NZ$4500) per customer before paying an import duty.

To ensure this is monitored, logistics companies are requiring consumers to register online before they will deliver products.

Furthermore, Chinese authorities are tightening up on inspections of goods entering China through airports.

There have been reports of two-hour delays in Shanghai’s largest airport – and products being dumped at the border – as customs officials inspect luggage and charge tax on items worth more than 5000 yuan (NZ$1120).

China is evolving on a daily basis. Managing that, as well as the more traditional challenge of doing business in China is not easy. But greater affluence and the rapid rise of e-commerce is creating more opportunity than ever.

Assuming New Zealand companies continue to have patience, comply with changes as they occur, and get their products across the border, the opportunities in China for New Zealand businesses continue to be almost limitless.

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Tim McCready

Three Chinese banks are now registered and trading in New Zealand.

When the NZ dollar became the sixth currency to be directly traded with the renminbi in 2014, China’s biggest banks looked more closely at the market here. They wanted to boost bilateral economic relationships and support trade, people and capital flows in and out of New Zealand and China.

So far, three Chinese banking corporations — Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China — have made the move. They are identifying New Zealand investment opportunities for their existing Chinese clients, as well as working with New Zealand businesses to expand into the Chinese market.

Their positioning in the New Zealand market has been smoothed by the appointment of former National MPs to chair their local boards: Dame Jenny Shipley (CCNZB); Don Brash (ICBC NZ) and Chris Tremain (BOCNZ).

Trading directly with the Chinese renminbi removed the requirement and associated cost of conversion through the US dollar — a significant benefit for importers and exporters.

ICBC, the largest bank in the world by total assets and market capitalisation, was the first to set up in Auckland in 2014, followed by China Construction Bank and Bank of China. All three are among the largest four global public companies as ranked by Forbes. Agricultural Bank of China, which is third on Forbes’ list, is presently not in New Zealand, although it does have a footprint in Australasia, having opened a branch in Sydney in late 2014.

Here’s how the three Chinese banks are positioned in New Zealand.

Industrial and Commercial Bank of China (Registered November 19, 2013)

In the year ending December 2015, ICBC NZ had assets of $742 million, $70 million in issued bonds, and more than $100 million in mortgages.

Although the bank’s capital base here is small compared with the Australian-owned trading banks, in its first two years ICBC’s focus has been on increasing its profile and establishing itself as a recognised bank here. ICBC NZ has 37 staff in New Zealand, with plans to increase that significantly over the next year, and is the only Chinese bank in New Zealand with a retail banking presence.

Don Brash, chairman of ICBC NZ, says: “During ICBC’s start-up phase, the investment required in people, systems, profile and marketing has been significant. It’s not surprising that we’re not in profit yet, but we aim to as soon as possible.”
ICBC introduced its e-commerce platform to the New Zealand market late last year and has had over 4500 transactions since its launch. The “E-mall” allows reputable New Zealand companies to sell directly into the Chinese market through a secure sales channel. ICBC NZ chief executive Karen Hou says, “New Zealand is an innovative country. The bank wants to learn more from this market, so that we can adapt and launch products and technology here that will be of value to our customers.”

China Construction Bank (Registered July 15, 2014)

The launch of China Construction Bank New Zealand (CCBNZ) took place during Chinese President Xi Jinping’s visit to New Zealand in November 2014. CCB is the largest infrastructure lender in China, and wants to bring this expertise to New Zealand. Its local chairman Dame Jenny Shipley has also served on the parent company’s board.

CCBNZ’s total assets reached more than $400 million at the end of December 2015, with around $300 million coming from loans and advances, 75 per cent of which are to local blue chip companies and small and medium enterprises. At March 31, 2016, the total value of mortgages issued reached $100 million for more than 60 clients.

CCBNZ employs 35 staff, with one-quarter seconded from CCB Group and the remainder locally employed. Last year the bank launched the CCB Enjoy NZ QDII Scheme, providing a one-stop solution for migrant investment applicants, offering foreign exchange, funds transfer and bond investment.

CCBNZ’s total value of issued bonds is currently $120 million, including $90 million issued to local institutional investors in 2015 and more than $30 million worth of immigration bonds. CCBNZ doesn’t plan to operate any retail branches here. Instead the bank does a significant amount of marketing through Chinese social media and New Zealand’s most popular Chinese website, Skykiwi.

Bank of China (Registered 21 November 2014)

BOCNZ was launched here in November 2014, with former National Party minister Chris Tremain as chairman. The bank employs 35 staff in New Zealand, and at the end of December 2015 it had total assets of $208 million. BOCNZ’s clients include major Chinese companies Haier, which bought Fisher & Paykel Appliances in 2012, and telecommunications giant Huawei. BOCNZ hasn’t issued bonds in New Zealand, and doesn’t provide mortgages — but intends to do so in the future.

BOCNZ provides full commercial services to New Zealand companies seeking access to China’s e-commerce market. Last year the bank held a cross-border e-commerce seminar with more than 30 Chinese e-commerce operators, and had 200 New Zealand companies attend.

During the Prime Minister’s official visit to China last month, Immigration New Zealand and Bank of China signed a deal that will help simplify the visa application process for the bank’s high net worth customers wishing to study, visit or invest in New Zealand.

BOCNZ will hold a China-New Zealand Agribusiness Investment and Trade Conference in Auckland later this month to introduce New Zealand agricultural technology, products and services to a Chinese delegation interested in investing in New Zealand.

“China presents great opportunities for New Zealand agribusiness to produce and export more, but companies here need the right partner to support them in making that first step,” says David Lei Wang, BOCNZ chief executive. “By hosting 70 Chinese agricultural companies here, we aim to introduce local agribusinesses to people who can potentially help them access the Chinese market and grow their business,” he says.

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Tim McCready

Chief executive says hiring local talent part of ambitious plans to help develop bilateral trade relationship.

It has been two years since the Industrial and Commercial Bank of China, the world’s largest bank by total assets, officially opened its New Zealand subsidiary in Auckland.

ICBC was the first Chinese bank to gain New Zealand banking registration, and since then has made significant progress in the New Zealand market.

Karen Hou, chief executive of ICBC New Zealand, says: “In the past two years, ICBC has worked hard to become integrated into New Zealand. We have grown our understanding of the market and the regulations, and introduced new products. We are still the only Chinese bank in New Zealand with a retail banking branch.”

Total assets of ICBC NZ grew to $742 million in the year to last December 31. Although the bank’s capital base in New Zealand is small compared with Australian-owned trading banks, ICBC’s current priority is on establishing itself in the New Zealand market.

Don Brash, chairman of ICBC NZ, says: “During ICBC’s start-up phase in New Zealand, the investment required in people, systems, profile and marketing has been significant. It’s not surprising that we’re not in profit yet, but we aim to be in profit as soon as possible.”

In the same year that ICBC NZ was established, the New Zealand dollar became the sixth currency to be directly traded with the renminbi.

The deal removed the requirement and associated cost of conversion through the US dollar when exchanging renminbi for the New Zealand dollar.

ICBC NZ aims to make transactions between China and New Zealand cheaper and more efficient. Along with traditional banking services, the bank has introduced new products to market with that in mind – including an e-platform to sell New Zealand products into China, a dual currency credit card, and overseas renminbi-related products.

ICBC NZ considers itself a bridge that can encourage bilateral trade and economic co-operation. ICBC hopes to bring more investment to New Zealand from China, bringing the strengths and expertise of both countries together.

In 2014, ICBC NZ and its parent bank provided $100 million of the $800 million banking syndication for the 27km Transmission Gully motorway from MacKays to Linden. In 2015, the bank joined a funding facility for the telecommunications company Two Degrees.

The bank works at strengthening both sides, by helping Chinese investors understand the New Zealand market, and New Zealand businesses understand how to operate in China.

“Chinese companies are increasingly interested in investment opportunities in the New Zealand market. Helping to build a good relationship between the two countries provides great opportunities for ICBC New Zealand. We can help investors understand the market and how to be successful here,” Hou says.

ICBC group established its own e-commerce platform, “E-mall”, in January 2014. Since then, the number of globally registered customers has increased to over 31 million, turnover has reached more than $200 billion and transaction volumes place it among China’s top two e-commerce platforms by the end of last year.

The NZ pavilion of the E-mall was launched in November and allows reputable New Zealand companies to sell directly into the Chinese market through a secure sales channel.

Since the NZ pavilion of the E-mall went live in New Zealand, ICBC NZ has facilitated more than 4000 transactions on the platform.

Leveraging the increasing demand from Chinese consumers for high quality, safe products, the majority of items on the New Zealand pavilion are New Zealand food, personal healthcare products, cosmetic products and snacks. More and more quality New Zealand-made products will be boarding in the E-mall soon.

The ICBC E-mall has a well-established network in China, which can take care of customs requirements, warehousing, sorting and packing and domestic logistics. Products can be purchased in renminbi in China, while the seller receives New Zealand dollars – with immediate and direct NZD/RMB settlement.

This innovation opens New Zealand manufacturers up to a potentially enormous customer demand, especially now that China has overtaken the US to become the world’s largest e-commerce market. This is expected to continue with China’s strong domestic consumption and rapid urbanisation.

One of ICBC NZ’s key retail growth areas is its mortgage business. Over the two years in which the bank has been operating in New Zealand, customer numbers have grown substantially, and the value of home loans has also grown substantially.

ICBC is known internationally for its innovation and use of technology in banking products. Although the bank demonstrates its retail commitment through its branch in the heart of Auckland’s Britomart precinct, it is preparing to enhance the customer experience by launching a complete online direct banking solution.

This may not require the customers to visit the bank, instead replicating the traditional banking experience online – right through to opening a bank account. In addition, the online banking system is able to do cross-border remittance all over the world.

“Creativity and innovation are both very important to ICBC,” Hou says. “New Zealand is an innovative country. The bank wants to learn more from this market, so that we can adapt and launch products and technology here that will be of value to our customers.”

ICBC NZ was the first bank in the Southern Hemisphere to offer the UnionPay credit card. UnionPay is the second largest payment network (by the value of transactions processed) behind Visa, and can be used for transactions in New Zealand by NZD and renminbi in China, lowering the cost of transactions when travelling in China.

ICBC NZ has 37 staff currently. “Last year, more experienced local staff joined us and they are playing very important roles in our business and helping us to understand local regulations and the local market,” Hou says.

As ICBC New Zealand moves past the start-up phase, it has ambitious plans for the next two years. To manage growth, the bank will need more experienced staff. Reaffirming ICBC’s commitment to New Zealand, Hou aims to recruit new staff locally.

“We are very excited about the next phase of growth for ICBC NZ,” Brash says. “Although ICBC NZ has only been here two years, we can already see the opportunities ahead of us are very substantial.”

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Law change means companies need to check their insurance policies, writes Tim McCready.

Company directors and senior executives should think twice before adopting a “she’ll be right” attitude under the new health and safety in the workplace regime, cautions NZI’s Ryan Clark.

“Businesses, directors and those in managerial positions will become more accountable and responsible for their actions and non-actions in providing a safe working environment for their staff, and for people that visit their workplace,” he says.

Clark – who is NZI’s National Manager Liability – points out that changes in health and safety legislation consistently rate as one of the top three concerns for boards.

The new Health and Safety at Work Act imposes a broader scope of liability on directors, chief executives, and other officers of the PCBU – “person conducting a business or undertaking” – who can be held personally liable if they breach their due diligence duty.

Clark hopes the new Act will address New Zealand’s poor workplace health and safety record compared to other developed economies.

“NZI takes health and safety responsibility seriously,” he says. “From our perspective, the new Health and Safety Act will hopefully achieve a significant reduction in these types of claims.

“To reduce any incidents at the workplace is a good thing.”

An obvious challenge in introducing the new Act is getting people used to the new terminology. But one of the most significant challenges is changing the mind-set of some New Zealand companies.

Clark believes there needs to be a change away from a “she’ll be right” attitude, towards an understanding that directors and companies must provide a safe environment for their employees, and that the new Act has consequences.

While many larger companies have brought in consultants to review their health and safety processes, Clark notes that changing the attitude of small- to medium-sized businesses will be particularly important.

“The most important thing for New Zealand companies or boards to appreciate is that health and safety can no longer be about putting safety signs in the workplace and a dusty manual on the shelf,” he says. “Companies of all sizes must be significantly more proactive about managing their exposure.”

To prepare for the new legislation, NZI has been undertaking internal underwriting training and educating its brokers and clients about the new law.

Statutory liability insurance insures individuals and businesses against an unintentional breach of numerous statutory acts.

It covers legal defence costs to deal with WorkSafe investigations and prosecutions, and in the case of conviction, sentences of reparation to those who are injured.

While statutory liability insurance has always provided cover for health and safety investigations, and will continue to provide cover under the new Act, cover for legal defence costs will be more important, as more people become vulnerable to prosecution, with higher penalties.

Insurance against any fines remains uninsurable under current New Zealand law.

Unlike ACC, statutory liability insurance covers the legal costs arising out of an investigation, such as the cost of defending an allegation made against a business.

ACC is capped at 80 per cent of lost earnings, and the Sentencing Amendment Act 2014 means the Courts are now able to enforce reparation orders to top up this shortfall, as well as recover medical bills and loss of benefits.

Unlike ACC, an insurance policy is capped only at the level of insurance a business purchases.

“Many New Zealand companies already have statutory liability insurance, but it is often only considered a bolt-on, with not much thought put into it,” says Clark.

“As the policy covers not only companies, but directors as well, I am sure the new Act will thrust this insurance to the forefront of directors’ minds.”

Clark notes that statutory liability has historically been underinsured. Companies may take $250,000 or $500,000 limits, but when taking the new Act into consideration, this would probably be significant underinsurance.

Clark encourages companies to give careful consideration as to whether they have the right insurance policies in place. Defending a prosecution for a workplace injury can be expensive and time consuming, and has the potential to adversely affect the ongoing viability of a business.

Statutory insurance can provide access to specialists, which may include health and safety legal experts. These experts can work to get the best possible outcome for the company or the individual, including protecting their brand and reputation.

Insurance gives access to those specialists – as well as paying for them. “If you have a claim against a company, managers will typically get involved and take their eye off the ball of running their company,” Clark says.

“Insurance allows a business to not only get access to those specialists, but to transfer the financial expenditure to the insurer’s balance sheet – not theirs. Management can get on with running the business, and minimise the time they are distracted.”

The changes are not expected to result in an immediate jump in insurance premiums. Any future increases will likely be reactive rather than proactive.

It will depend on how the regulators use their new authority and regulatory tools, and how much of an example they make of New Zealand companies.

Healthy work

  • The Health and Safety at Work Act will come into force on April 4th as part of the Government’s reform of New Zealand’s health and safety system.
  • The Act introduces a new legal concept of a “person conducting a business or undertaking” (PCBU). This will usually be a business entity, such as a company, rather than an individual.