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 – 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.

http://nzh.tw/11613716 

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.”

Vladivostok to St. Petersburg by Car (Russia Insider)

Danielle Ryan

Ever wanted to pack a bag and travel across Russia by car? Here’s how to do it the Russian way

Travelling from one side of the world’s largest country to the other by car is a dream that has no doubt been jotted down on many a bucket list — but how many people actually set out to make the daunting journey?

Tim McCready, a business development expert from New Zealand is one of them. Using the hashtag #TimInRussia, he has been documenting his journey with two friends. The trip, with the odd deviation from the route plan, will span five weeks across July and August, and McCready’s updates are a fascinating insight into its highs and occasional lows.​

So far, the three friends have taken in Vladivostok, Khabarovsk, Blagoveshchensk, Chita, Ulan-Ude, Lake Baikal, Irkutsk, Krasnoyarsk, Tomsk Novosibirsk and Omsk — and that’s just the first half. From Omsk, the journey will take them to ​Tobolsk, Yekaterinburg, Perm, Kazan, Nizhny Novgorod, Samara, Saratov, Volgograd, Moscow, a few of the Golden Ring towns to its north, Novgorod and finally, St. Petersburg.

Russia Insider caught up with Tim at the halfway point of his journey — the city of Omsk, roughly 7,500 kilometres from where he started.

What inspired you to get in a car and travel across Russia?

After my first visit to Russia [for a business trip], I became increasingly fascinated with the history, the culture, the food, and the people, and wanted to learn more about the country that was previously completely unknown to me. Over the last year I have been planning this trip with a Russian friend, Igor.

I had initially considered the trans-Siberian railway, but I felt like traveling by car would be a better way to experience ‘real Russia’ and would allow us more freedom to choose our own path and stop where we wanted.

How do you split up all that driving time?

We are dividing the driving roughly into thirds, taking turns where one drives, one entertains the driver, and the other sleeps in the back. So far we have insisted that Igor do all of the city driving. The roads and the drivers within cities seemed terrifying to begin with, but I think we are adapting well to the Russian driving style.

There are a huge number of trucks to constantly pass, and as most highways are only two lanes, it requires an intense level of concentration. Highways between cities occasionally have long stretches of road that are made up of gravel, rocks, and large potholes, but are mostly in surprisingly good shape.

How thoroughly did you plan your route beforehand? Is there any leeway for detours?

Fairly thoroughly. Over the course of a year I read a lot of books on Russian history, and watched several documentaries about cities across the country. I made a rough itinerary which we were all able to work on together to finalise which cities to visit, and how long to spend in each. We’ve kept the document as a live Google document and made constant alterations, even during the trip — so we do have a little bit of leeway for detours.

What’s been the most enjoyable aspect so far?

The most enjoyable aspect has been getting to know some Russian people. They have been incredibly hospitable – even when language has been a challenge, and made me feel extremely welcome.

Igor’s brother and his parents looked after me incredibly well in Vladivostok, baking us traditional Russian food, taking us to their dacha, and driving us around the city. We also stayed with Igor’s aunt and uncle in a small Siberian village who didn’t speak a word of English. Despite the language barrier, they spent a huge amount of time with us, taking us through the Siberian forest, showing us old family photos and videos, and over-feeding us with amazing meals and homemade vodka.

In terms of sights in Russia, seeing the incredibly diverse Russian geography, and how warm and green Russia is during summer has been a huge surprise. The amount of time we have spent in a car has really emphasised to me just how enormous this country is – particularly since I come from New Zealand, which is comparatively tiny.

And what about the most annoying thing so far?

Booking accommodation has been a frustrating challenge. We have opted to mostly stay in apartments. They’ve been cheaper than hotel rooms, provide more space for three people, and allow us to do washing and a bit of home cooking.

But booking accommodation in Russia has been less predictable than I have experienced in other countries. Even when using websites like booking.com, we have had the accommodation provider phone us on the day of check-in to tell us the apartment is no longer available, or the current guests want to stay on longer. There have been a fair few days when we have had to scramble to find accommodation for the night.

What’s the weirdest or best thing you’ve seen on your travels?

The best thing I have seen is definitely the architecture. The churches, and the buildings – particularly some of the traditional wooden buildings in Tomsk are incredibly impressive.

Some of the more unusual things would have to be the sheer number of unexpected and unusual monuments located across Russia. Tomsk has the monument to happiness, a cabbage monument outside a maternity hospital, a monument to a state traffic inspector, and a monument to football fans. Novosibirsk has a traffic light monument, a monument to electricians, and a monument to lab rats that have given their lives to medical research. This last one required us to detour for almost an hour to see, but given my background in biotechnology was one I was particularly keen to visit.

Is there any place or city that really surprised you?

Siberia surprised me a lot. I think generally Siberia is thought of as a region of the world where nothing much happens, and not much exists. What I discovered is that there’s a lot of great cities in Siberia, they are all quite different from one another, and there is a lot to see and do. Ulan-Ude stood out as an incredibly different city to the rest. The Buryat people, culture, and food all felt quite different from other parts of Russia.

There is still of course a lot of forest, and long stretches of highway with nothing much in between them besides a few gas stations.

How are your Russian language skills? Has not being a fluent speaker hindered you a lot?

I’ve been learning Russian recently, but my language skills could be described as beginner, at best. I had no problem getting by in Vladivostok, which is reasonably well set up for tourists, but navigating some of the other more remote cities we have stayed in would be extremely difficult without having Igor traveling with us.

He has made the trip feel seamless, although I know at times some of the unexpected complications have been stressful for him. He is doing a really great job at showing us the best of his country.

Okay, if you had one piece of advice for someone setting out on the same journey, what would it be?

If you are able to convince a Russian friend of yours to travel with you, you absolutely should. Not only do you have a handy translator — for both language and culture — but you also get to explore Russia a little more off the beaten track than I think would be achievable as a foreigner.

Also, make sure you allow yourself enough time to get between cities. The longest drive we have done was between Blagoveshchensk and Chita, which was 1600km (990 miles). We initially thought this journey would take just over 16 hours, but by the time you factor in the unpredictability of the roads, extremely long stretches of roadworks, and brief bathroom and food stops, it ended up taking much longer.

Korean reunification – Bonanza or Bust? (NZ INC)

Tim McCready

This year marks the 70th anniversary of the end of World War II, and also the 70th anniversary of Korea’s division into North and South. Last month the World Journalists Conference was held throughout South Korea under the theme ‘the 70th anniversary of the division of Korea: Thinking about unification on the Korean Peninsula’.

Na Kyung-won, Chairperson of the Foreign Affairs and Unification Committee of the National Assembly, posed the question: What is North Korea for South Korea? Her response – “On the one hand, a serious security threat, but on the other hand, a partner with which we have to work together on the way leading to the unification of Korea.” This stance isn’t surprising – the requirement to seek peaceful unification is included in the South Korean Constitution.

South Korea established a Ministry of Reunification in 1998, which works to establish North Korean policy, coordinate inter-Korean dialogue, pursue inter-Korean cooperation, and educate the public on unification. In Korea there is an old saying, ‘ten years can change even the rivers and the mountains.’ However any progress on reunification to date has been largely non-existent.

From 2000 until 2008 liberal governments in South Korea put in place the Sunshine Policy under the leadership of President Kim Dae Jung. The policy resulted in greater political contact between the two countries, two Korean summit meetings in Pyongyang, several business ventures and brief meetings of some Korean families separated by the Korean War.

Kim Dae Jung was awarded the Nobel Peace Prize in 2000 for his successful implementation of the Sunshine Policy. However, following nuclear and missile tests and the shooting of a South Korean tourist at the Mount Kumgang Tourist Region, the Sunshine Policy was deemed a failure and wound up in 2010. The Sunshine Policy is dead, and so are the key players on both sides.

Sadly there are an estimated 6,700 people from separated families living in South Korea. The tragedy of the division is most prominently seen through those people who have not seen, spoken to, or even sent letters to their family members. Those people with the closest ties to the North are getting very old. Koreans, who are extremely family-centric, are very conscious of the fact that there is not much time left. The older generation passionately long for reunification, and believe it is imminent. Younger Korean’s seem to be agnostic about the prospect and worry about the economic cost.

Aside from reuniting disrupted families, South Korean government officials frequently spoke about ‘hitting the jackpot’, or the ‘bonanza’ that would come with reunification. The Korean Peninsula would be thrust into the role of an Asian hub. China, the world’s second largest economy lies to the West. Japan to the East is the world’s third largest. The virtual island of South Korea that is so evident from nighttime satellite photos would become connected through rail, road, and pipelines through to Eurasia.

South Korea’s population of 50 million combined with 25 million in the North would develop an entirely new market. North Korea has 20% more space geographically than South Korea and an abundance of natural resources including coal, iron ore, gold, rare earths, hydroelectric and seafood. South Korea would suddenly become resource rich, and South Korean companies would gain access to a pool of hardworking, inexpensive North Korean labour.

On the flipside, Andrew Salmon, an author and high-profile journalist based in Seoul had a more pessimistic stance. He noted that if you look at North Korea through only the lens of the leadership, nothing much has changed. His view is that the most exciting and underreported story in Asia is that North Korea is becoming a de facto capitalist state.

During the 1990s North Korea suffered from horrific famine. The State distribution system imploded and North Korea had no choice but to go across the border to China, start trading, and run primitive markets. These markets have not gone away and have instead expanded nationwide to the extent that you can now buy almost anything – food, consumer goods, even electronics. Instead of North Korean currency the traders use international currencies and communicate with each other to set exchange rates. While it may be primitive and unofficial, for the first time in history change is coming from the bottom up.

Salmon believes there are rewards just ahead. Under Kim Jong-un, we have seen incentives and autonomy for factories, agricultural and fishing industries. A real estate market is becoming established in Pyongyang and even a venture capital market is becoming established.

The Kaesong Industrial Zone was established and is run by the South Koreans. While it has been open for ten years, there are only 123 small South Korean companies operating there and is unlikely to get any bigger. The original plan was for this to be the first step for South Korea’s economic recolonisation.

On the flipside, North Korea are establishing additional special economic zones. They are seeking foreign trade and investment, with China moving in very aggressively. The Rason special economic zone is in the far northeast bordering Russia and China and serves as a warm-water port for both countries. Foreign currency is permitted, and there are no poor people there.

Salmon’s view is that there is some hope in the future. But it doesn’t lie in the hands of the generals, the politicians, or the diplomats. It is up to business leaders. The Sunshine Policy wasn’t instigated by a politician, but by Chung Ju-yung – the founder of Hyundai conglomerate. Salmon argued that South Korea needs to get rid of sanctions that prevent any trade or investment in the North outside the artificial Kaesong Industrial Zone and stop the incessant focus on denuclearization – because it won’t happen. He argued that we should instead separate business from politics so that we can all have a stake in the North Korean economy.

As a country that assisted in the Korean War, I was invited to take part in a panel discussion on reunification, and share lessons that could be learnt from a New Zealand perspective. With speakers from powerful economies of Russia, China, the UK and South Korea, this was formidable, but the Korean’s were interested in hearing about New Zealand’s much admired strong relationships with nations around the world.

Reflecting on Korean reunification from a New Zealand perspective, our close partnership with Australia in particular offers a number of lessons instructive to prospects for such a future partnership between North and South Korea.

Despite our entwined history and combined military efforts, it would be fair to say that our relationship with Australia has remained strong due to our successful economic and trading partnership. Although the countries have their differences – cultural, political, nuclear, and commercial – they both represent an important trading partner to the other, supported by what is often referred to as “the world’s most comprehensive, effective, and mutually compatible free trade agreement”.

New Zealand’s close relationship has endured with Australia because we are stronger together. If New Zealand can share something with the world, it is that careful navigation of trade issues is something that can strengthen relationships, and over time build trust.

Word from the officials is that unification will be a jackpot not only in Korea, but for the rest of the world. Whether that is right or wrong, a divided Korea is a very sad reality. Progress has been slow, but ultimately the key to resolving conflict and division on the Korean Peninsula will come down to demonstrating that the interest in reunification is mutual and that benefits long term will extend the potential – for both economies.