Asia and Pacific

Cracking a Chinese niche market

Wednesday May 29, 2013 Dr Guang Yang

As widely publicised, the first quarter of 2013 saw China replace Australia as the main destination for New Zealand’s exports.  What is also worth noting is the speed of change that has occurred in getting to this position. This is notable as it indicates a momentum, and potential, for the future.  In particular, it may be helpful to assess how growth may evolve over the short-to-medium term - for example, the next 3-5 years.

In the last decade or so, China’s trade growth with New Zealand (both export and import) has been phenomenal compared to New Zealand’s other key trading partners. Trade growth with traditional trading partners such as EU and the United States has been sluggish, especially in the aftermath of the global financial crisis.  Indeed, exports and imports to the US (in value terms) have shrunk since the turn of the millennium, while exports to the EU and imports from Australia have barely moved.

 

Nevertheless, exports to Australia have more than doubled since 2000, equivalent to a more than respectable 4.3% annual rate of growth.  However, this expansion has been no match for the phenomenal double-digit annual growth in exports to and imports from China.  Indeed, the 18% average annual growth in receipts from exports to China is equivalent to a more than six-fold increase over the past dozen years.

It appears inescapable that China will be a primary contributor to the Government’s goal of doubling overall export revenue. 

 

 

 

 

Annual Average Rate of growth 2000-12 (%pa)

 

To keep this momentum going, it will be important for New Zealand businesses not to take the China market as a whole.  Rather, the identification of appropriate niche markets comprising selected Chinese consumer groups for our products is likely to be a central driver to overall success. The sheer market size difference between China and New Zealand means that it is sufficient for a New Zealand business to kick off its expansion by looking for just a small slice of China market.  This is not only a realistic ambition, but also helps bring about more comfort and clarity when devising and implementing China market business strategies. Often, the magnitude of the “one China market” and implied cultural nuances stop businesses from dealing with China or leave them not knowing where to start.

 

 

Consumer groups can be identified based on income and by region. A regional approach is likely to be as important as an income approach.  With a decentralised system, the wealthy consumers suitable for New Zealand’s high-value products are spread all over China. They do not just concentrate in several mega cities or regions such as Beijing, Shanghai or Guangdong Province, but rather are spread out across the country. Using Chinese cities as an example, the wealth of Chinese cities including those at Tiers 2 and 3 is enormous.  The figure below shows that there are 21 cities in China with a GDP over NZ$100 billion. These cities are spread across very prosperous coastal areas, and central and western parts of China with less prosperity.

 

 

 

 

Finding the right niche market requires working diligently to connect with the Chinese side. There is no need for a New Zealand business to start in a large city in China. Its access to the China market can happen anywhere in China. The most important thing is to start to develop contacts and get familiar with the market needs there. Correct market signals will help refine onshore product development and also reinforce business capability building needed for a potential take-off in market.