China has attracts a large amount of attention, and is perceived by many in government, business and the broader society as synonymous with Asia. The Asian Century that we often hear discussed, could very well be replaced with the “Chinese Century” in the eyes of many business and government leaders.
But how much of this sentiment is based in reality? Can we distil the Asian Century into a story about China?
As I have written about in earlier opinion pieces, strategic business leaders will explore markets that are the best fit for their product or service mix. This may well be China, but it may be alternative markets in Asia, North America or Europe. Its important not to be blinded by the overwhelming size of the population in China. Population is not necessarily the most important factor for market attractiveness, and in many cases cultural and environmental factors will play an overwhelmingly more important role in determining whether your product meets the needs of the market.
China is a large market of opportunity, however, I would suggest that the market does not provide the best opportunity for every product or services for a variety of reasons including:
- Tariff barriers
- Non-Tariff barriers
o Stringent Certification Standards
o Food and Health Safety Standards
o Non-harmonised regulations and standards with other countries
- Dis-integrated distribution channels
- Cultural factors
Countries such as Australia, New Zealand and Chile whom have ratified Free Trade Agreements with China have preferential tariff relief for many products, however its important to note that these agreements do not cover every product category. It is often more important to look at what has not been included in a FTA, rather than what has been included. The recently ratified China – Australia Free Trade Agreement for example did not seek to provide preferential access for the rapidly emerging health products and technology sector in China. This is in my view a lost opportunity as the “rules” for international exporters of health and medical goods (products and technologies) was changed in 2013, making it substantially more difficult for new exporters of health and medical products to China.
There are legal specialists who can provide more detailed overview of the challenges now faced by international exporters of health and medical products to China, however in simplistic terms China changed the way it certifies the safety of health and medical products in China. Prior to 2013, as a general rule, China accepted health and medical certifications and approvals that were awarded by medical and health goods certification bodies in Australia, North America, and Europe. However this changed and Chinese authorities de-harmonised health and medical goods certification, which has the effect of creating inhibiting international companies from introducing new health and medical goods to the Chinese market without bearing significant compliance costs. There are similar issues for a variety of food products coming into the Chinese market.
Earlier this year the Chinese Government closed a loophole of sorts which provided a get around for the certification standards if goods were sold on online platforms. Companies have been provided with an effective 12 month period to get their certification in order otherwise the product would be illegal (or at least not certified).
The past two years have seen a large focus upon promotion of the opportunities for exporting to China, with large national, state and even some local government delegations encouraging SME exporters to explore the potential of the Chinese market. Some companies have invested tens of thousands of dollars, without effective knowledge of the impending shutdown of the some market segments. Many business and government leaders seem to have taken the view that China is Asia, and the Asian Century is really about the Chinese Century. This approach has the potential to cause problems for many businesses.
My concern is the risk to companies looking to establish new consumer markets in China, within segments effected by the changing certification requirements. There is a risk that in the rush to tap into the huge potential of the Chinese market, that we overlook some of the important business risks, threats and challenges facing exporters. To do so, could have dire consequences for companies who may not have the financial and time resources to pursue certification in the Chinese market. This is particularly problematic when there are neighbouring markets where certification is still harmonised (at least to a large extent) with international certification and approval bodies. If we invest all of our financial resources in a single market, there will be no resources left to explore other potentially more attractive markets.
The consumer refrain – “Buyer Beware” is an apt adage for companies exploring international markets and in this case “Exporters Beware”.
Dr Nathan Gray is Managing Partner of AsiaAustralis – a strategic management advisory firm that specialises in markets throughout Asia. Over the past three decades our consultants have assisted companies achieve their market objectives in Asia.