US president Donald Trump’s protectionist economic policy on global trade may actually present better trade opportunities between Australia and China, according to Brad Chan, founder of government-backed non-for-profit startup incubator Haymarket HQ.
At the Born Global: NSW Gazelles tackling the Asian opportunity forum hosted by Jobs for NSW on Thursday, Chan joked that Trump might be good for something after all. The president’s focus on “putting America first” — even if it means cutting valuable ties with other nations — presents an opportunity for Australia to strengthen its relationship with China and other Asian markets.
At the forum, Jobs for NSW urged startups and small to medium-sized enterprises (SMEs) in the state to actively pursue the trade, investment, and market opportunities that exist in international markets, particularly Asia, which will generate economic benefits for the state.
While startups seem to be onto this already, with the third annual Startup Muster report showing that 92 percent of startups are already generating export revenue, former Telstra CEO and Jobs for NSW chair David Thodey said Australia is not thinking globally enough.
NSW Deputy Premier and Minister for Small Business John Barilaro said there is no such thing as a domestic market anymore — businesses are operating in a global market — and that startups and SMEs in Australia are in a “perfect position” to offer their products and services to Asian markets
“Trade exposure can unlock a cycle of productivity, income, and jobs growth, and help businesses of any size meet the challenge of overseas competition,” Barilaro said. “Rising incomes, rapid urbanisation, and changing lifestyles are driving consumption changes across Asia and over the past 10 years Australia has entered into free trade agreements which have reduced tariffs and opened market access across Asia.”
While cultural affinities make the tried-and-tested US and UK markets more appealing for startups and SMEs in Australia, Chan stressed that Asia is the fastest-growing economic region in the world, accommodating about 60 percent of the world’s population, and that Asian markets are displaying a growing appetite for and commitment to investing in new innovative products and services.
China, in particular, is number one in terms of purchasing power, Chan said, and it’s already Australia’s largest trading partner.
It recently dethroned the US as the world’s largest market in mobile payments with a transaction volume of $235 billion; at the current growth rate, China is expected to process $6.3 trillion in mobile payments by 2020.
“There is still a rapidly growing middle class driving consumer spending. The Chinese love shopping,” Chan said. “There are tourists coming to Australia during Chinese New Year and going back home with suitcases filled with Australian consumer goods like milk powder, cosmetics, even pillows and quilts.”
He added that Australia’s reputation as “clean and green” is a distinct advantage in the Chinese market.
“[The Chinese] middle class have shown willingness to pay premium for our level of quality,” Chan said. “We can’t compete on price with China, so our competitive advantage will be the trust in our quality, our brand, and our reputation.”
“I’m fascinated by the recent success of Sanitarium whose Weet-Bix can sometimes sell for AU$50 a box in China. One of the local distributors suggested [they do] a product placement in a TV show in China, and since then, sales have soared.”
Chan said China’s 400 million-strong population of millennials is one of the most active and aware groups of customers in the world. Whereas before we’d refer to the big Chinese social media platforms as the “Chinese Facebook” or the “Chinese Twitter”, those platforms have evolved far beyond their American counterparts, becoming deeply integrated into the lives of China’s millennials.
“These Chinese millennials increasingly use online channels to buy everything and often use social media platforms to tell family and friends about a particular brand,” he said. “Chinese millennials are spending big and they have access to probably the best bank in the world — the bank of mum and dad.”
Chan, Barilaro, and Thodey all acknowledged the diversity and complexity of Asian markets — moreover, China is not just one market, it’s a range of markets that can be segmented geographically and socioeconomically.
The best way for startup and SME teams to understand the nuances of Asian markets is by immersing themselves in them, Thodey said.
“Whether you’re doing business in Cambodia, Vietnam, the Philippines … you’ve got to go spend time there,” Thodey said. “Don’t sit here. Yes, the internet will give you access to new markets but you’ve got to think about how you’re going to get into those markets. You’ve got to go visit them, build relationships, and build trust.”
The importance of founders not being overconfident about their assumptions was also highlighted by Chan. He said startups and SMEs looking to develop an Asian export strategy need to understand the various country-to-country and customer-to-customer differences and not try to cover all of Asia at once.
“I feel that many Australian businesses still have a poor understanding of China and how to extract value from it. There are many examples of large multinational companies adopting the wrong approach,” Chan said. “This includes Pepsi [marketing] in China with the slogan ‘Pepsi brings you back to life’, which ended up being translated as ‘Pepsi brings you back from the grave’. KFC’s slogan of ‘finger licking good’ [was understood] as ‘eat your fingers off’.”
“Then I look at the story of Home Depot, the US version of our Bunnings, who entered the China market back in 2006 after seeing the enormous potential of the DIY market in China. If they conducted their research, they would have discovered that in China, it’s a do-it-for-me market — which means paying others to do the work — rather than a do-it-yourself one.
In fact, Chinese culture frowns upon doing work yourself because it’s a sign of poverty.”
It’s also important to note that customer preferences can change swiftly in China, Chan added.
Moving forward, he urged startups and SMEs to start targeting Chinese tourists — about 19,000 Chinese tourists visit Australia every week and spend almost AU$8,000 per person — as well as Chinese students living in Australia.
“Over 1 million tourists that come here each year don’t just come for the sightseeing. Under the guise of a holiday, there are also sophisticated business opportunities, researching education for their kids, meeting migration agents, looking up properties, shopping and eating, as well as visiting vineyards, golf courses, and roulette tables,” Chan said.
“[There are] roughly 2 million Australia-based Chinese consumers right in our backyard. Across all the tourists, residents, and students, there’s an opportunity … to validate your research and test your products with a sample market that’s already here.
“I really think Australian companies are missing out by not marketing directly to this growing market segment.”
The growing population of people of Chinese background in Australia means startups and SMEs actually have access to the talent needed for successful expansion into China, according to Chan.
Yes , it’s important to train our workforce to be China or Asia-ready, but we could do a hell of a lot better by utilising one of our competitive strengths and something already in our backyard and that is utilising an already Asia-capable, Asia-literate, and Asia-ready workforce,” he said.
“We have a talent pool of over 1 million people from the Chinese-Australian community … these are people who can contribute in a more meaningful way in overseeing the strategic direction for our growth and trade with Asia.
Chan lamented the lack of senior representation of Asians across most industries — in politics, in corporations, on boards, in the startup industry, and on television.
“Other than those competing on MasterChef, you don’t see nearly enough representation of Asians in order to capitalise on our country’s potential,” he said. “I think this is a huge lost opportunity particularly as China transitions from a commodities to a services industry where face-to-face engagement is needed to win work.”
For startups and SMEs in NSW to succeed overseas and generate economic benefits for the state, Thodey said the government, in partnership with the private sector, needs to build “clusters of capability” that businesses can then launch from.
“Government’s role is to facilitate an environment for you to be successful, not about handouts. We’re about creating new industry, we’re about helping people to get up, and that’s what we want to do as we go forward,” he added.
In August 2016, the Australian government facilitated the visit of four local startups to Chengdu, China, aiming to build a trade and innovation exchange between both countries as part of the Chengdu Innovate initiative, which is a recipient of an Australia-China Council grant.
Overseen by the Department of Foreign Affairs and Trade, the Australia-China Council is the Australian government’s advisory and funding body dedicated to strengthening culture, education, business, and people-to-people relations between Australia and China.
The federal government also announced six new Joint Research Centres in April 2016 to address challenges both countries face in the marine science, food and agribusiness, and mining equipment technology and services sectors.
At a cost of AU$5.95 million, the six virtual centres will be funded for three years under the Australia-China Science and Research Fund, which supports strategic science, technology, and innovation collaboration considered of mutual benefit to both countries.
The federal government also chose China to host one of its five startup landing pads, with former Minister for Industry, Innovation and Science Christopher Pyne saying in February 2016 that Shanghai was being positioned by the Chinese government as a global centre for technology, innovation, and entrepreneurship.