No mate, no! What Aussies Don't Get about China Market Entry (Part 1)

A Case Study into the Australian Wine Market in China from the Perspective of South China

This is the first in a series about the Australia-China business relationship from the perspective of the Guangdong-Macau-Hong Kong Greater Bay Area from true blue China legal & tax advisor Peter Fenton.

Dear Top Aussie Business Blokes & Sheilas,

You know it all, you don't need any help, right? You're the big pineapple, the big prawn, the big Merino of Australian business, aren't you mate?

Being a big fish in a small pond (Australia), doesn't prepare you for being a small fish in a big pond (China). Does it? So let's get fair dinkum.

Watch my interview, "Meet the Free Traders: Tall Trees Stands Tall", with "Heino" from AWE Wine Group (Tall Trees) for some champaign advice on doing business in China. South Australian, Heinrich "Heino" Hinricksen has vintage insights as he has been coming to China's premier wine fair, Interwine (Canton Universal Fair Group) since 2003.

"We were here before the curve by a few years and it has grown ever since. And as we all know, China is absolutely booming a present. When Australia said it was going to do the Free Trade Agreement, we all jump up and jumped for joy, because it is fantastic," said Heino from AWE.

Heino has the largest booth space area of any foreign company at Interwine with a long term deal with the wine trade fair. Heino was ahead of the curve, but are you ahead of the curve in your market mate?

He continued, "The prices have come down and some of that has had to be reflected in the prices that are passed down to the distributors. But it makes it a lot more competitive, it gives us a bit more of an edge on some of the others. Don't work on the assumption that you are going to capture the whole market."

(L to R: Heino Hinricksen (AWE), Rita Jia (Interwine), Peter Fenton (Kingbridge Law Firm), Michael Choi (President of Austcham - South China) & Justin Fischer (Board member of Austcham - South China))

However, Chile and New Zealand had a free trade agreement prior to Australia (and New Zealand just renegotiated their agreement with China). Are Chilean and New Zealand winemakers not ahead of the curve?

"The Rise of the Free Traders," also features Fernando Silva from Chile who was also at Interwine. Mr Silva said, "We pay zero tax ... it is very good for us and of course it helps as customers think wow they have zero tax... it is a good thing for us."

What Aussie's don't get is they don't live in a vacuum, they have blinkers on. There are other horses in the race. The Melbourne Cup is a big field and so as "the race that stops the nation" isn't a one-horse race then neither is China.

Why I think Aussies have the wrong perception that they look at the relationship between Australia and China in a one-dimensional way. Yes, Australia has a free trade agreement with China that includes a "most favoured trading nation clause," however they are competing against many other countries too, including countries with free trade agreements.

It's a multi-dimensional playing field with the home team (China) competing for the flag/cup against a league table of nations for the almighty Chinese dollar.

Australia had a near-monopoly on coal and resources exports to China over the last 20 years, however, other industries have serious competitors from other nations. Other industries conflate Australia's resource sector success with their own industry - this is an inept comparison.

Chile makes great wines, so does New Zealand and they have free trade agreements too. French, Italian, Spanish and Californian (though they have taken a hit in the trade war) are well respected in China. France sells more wine to China than Australia.

In Shaun Rein’s book, "The War for China's Wallet," he makes the insightful point that foreign companies underestimate the abilities of Chinese domestic companies to compete against them in the Chinese market.

Your average Aussie wine snob doesn't understand China's northwest province, Ningxia has all the climatic properties required for viniculture and there is Chinese investment into the region. (If you haven't read Rein's books, also check out his other titles, "The End of Cheap China" and the "The End of Copycat China")

Chinese consumers are open to the concept of wine that is "Made in China" and as Shaun Rein notes that despite a love of luxury goods, Chinese consumers have loyalty to homegrown brands. Rein points to numerous examples the Chinese brand Mengniu outwitting Nestle. Mengniu recently bought out Australian infant formula company Bellamy for A$600 million.

It is simply hubris?to think that Chinese consumers are merely going to fall over themselves because Australia has a Free Trade Agreement and won't consider Chinese brands, without a serious brand investment in China.

I also spoke to Alexa Camus, from the French family-run cognac label, Camus at Interwine. She said, "Volume is booming and it will be growing like that, it but without marketing support ... without constant brand building, it is very difficult to succeed. The future is very promising, as long as you have some marketing budget and are willing to invest into brand building "

Camus operates from Shanghai with a full team, yet in South China, I see Camus in-store brand promotions everywhere from the waiting room on the Guangzhou East - Kowloon train station to Guangzhou's Baiyun airport. Camus is ahead of the curve.

I want to pay tribute to one of our clients, Trifon Wine Estate in Victoria. The Kenos family-run company places its China strategy at the forefront of its business. China is not a second-order issue for Trifon. Trifon's forward-thinking CEO, John Sautner has a "hands-on" China strategy and he is across the detail of every aspect of Trifon's China strategy.

It's not only John, but Trifon's Kenso family who is also actively engaged with their China strategy and it is a "whole-of-business" approach. Trifon takes no half-hearted steps to secure its brand in China and develop its business.

The President of Interwine, Ms Rita Jia, continually makes the point, that 50% of all wine imported into China is imported through the Greater Bay Area (the "GBA"). The "9+1+1" initiative, with the coordination of nine Guangdong cities, Macau and Hong Kong is a major opportunity for Australians. The start of the 21st Century Maritime Silk Road is where China first got rich during the "Opening & Reform" period.

China has many markets, just as in Australia northern States follow the rugby codes and southern States follow Aussie Rules. The GBA should be of primary focus for Australian businesses. Brisbane is Shenzhen's sister city, Sydney is Guangzhou's (Canton), NSW has a State-Province relationship with Guangdong and Hong Kong has a new free trade deal with Australia.

Beijing or Shanghai is one top-tier city each. However, the GBA has three top-tier cities and seven other top-shelf second-tier cities in Guangdong all within a 100km radius of each other. It should be all the way with the GBA.

Perhaps due to the Bombay-Mumbai, name change problem, Guangzhou is neither identified nor pronounceable to the average Aussie. It took me years to train my mother how to say the city I have lived in for the last 10 years (to pronounce it in "Strayan" say "Gwong-Joe"). However, bogan-ism (willful ignorance) won't win the day, as Australia has competitors both international and domestic.

Look at this "Made Our Way," Wine Australia marketing campaign that I saw at the 2018 Vinexpo Hong Kong. This campaign may perhaps work in Australia or even Hong Kong, but it does not translate to the mainland.

"Made Our Way"? No, it needs to be made their way. It breaks the cardinal rule of western business, "the customer is always right." It fails to meet the Chinese consumer's expectations.

Australian brands need to linguistically and culturally translate their brands to fit the Chinese market. McDonald's and KFC are legendary in China for being able to crossover to the Chinese consumer. When was the last time you ordered rice or congee at Maccas in OZ?

Watch my "Power of Brands: Be Universally Known" seminar to understand what numerous Austrade and other government agencies have demonstrated that Australian companies are poor a protecting their intellectual property. In the video, I discuss how to create value in cross-border intellectual property transactions.

Come on Aussie, come on... We have to do better as a nation to take the game into the fourth quarter (not miskick for a behind) or we got to break the line for a try (not knock-on) - as there are competitors both local and foreign working hard on their China strategy.

In subsequent articles on the "No, mate no! What Aussies Get Wrong about China Market Entry," I will expand upon why the coach (the Australian Government, namely Austrade) isn't the player. Therefore, Aussie businesses need to make the on-field call.

It is up to Aussie businesses to execute the play and stand up in a "clutch" match situation. You are the team leader, you are the star player, don't look at the coach, they already gave you the playbook (the Free Trade Agreement).

Peter Fenton is a lawyer from Brisbane with a decade of experience in China. He is the opening ceremony host of Interwine and runs Interwine's IP Protection, Overseas Investment + Branding & Marketing desk at Interwine.

The 24th Interwine (Spring 2020) will be held from May 20-23 @ the Pazhou (Canton Fair) Complex in Guangzhou, China. For trademark, import licence, china business setup and details about the "Aussie" price for Interwine, contact Peter on +86 137 2419 5559 (Whatsapp or Wechat) or at [email protected] (Also see Peter's blog: China Legal Eagle and/or follow it on Wechat (CHN Legal Eagle) or on Youtube and Twitter.

A special thank you to Michael Harding from The China Collective | MBH Consulting for assisting with the production of the various media in this article.