Stop flying blind in China

Chris Claridge, managing director of Carrickmore Nutrition, says New Zealand government departments and all exporters, including Fonterra, need to work more cooperatively. Without this, individual companies will get picked off to their detriment and the detriment of the whole country.

Claridge says New Zealand could well learn from the way the Europeans operate in the Chinese market.

“Look at the Danish. They go in with strong business links, a strong industry and they work co-operatively. They ‘gang tackle’ China whereas New Zealand’s strategy is complicated by Fonterra’s position. Fonterra being the dominate player doesn’t engage collaboratively. You understand why, because people on the periphery are small,  but Fonterra operates its own agenda. Its activities are separate from the New Zealand government in China. So the result is there is no articulation between Fonterra and the New Zealand government in China. There is no China plan.”

Claridge says each government agency involved – NZTE, MPI and MFAT – seems to have a China plan but they are not integrated. The situation is improving, he says, but the absence of Fonterra from the equation remains an issue.

“So in Shanghai for instance you have virtually zero communication between Fonterra and the New Zealand government. You can argue that this is fine, that there shouldn’t be any because Fonterra is a corporate operation and they shouldn’t work with the government. But the concept of NZ Inc doesn’t in fact operate because not everyone is sitting down together and talking.” It seems they talk only when they absolutely have to.

The biggest problem for New Zealand in China is the Europeans, Claridge says. Following the botulism incident in which Fonterra and the government didn’t fully mitigate the public relations problem, consumers and distributors started substituting European product for New Zealand product.

“New Zealand lost market share. The Danes and Irish overtook us and we moved from third to fifth place in infant formula exports to China.  It was obvious this was going to be a problem because of the botulism scare and our competitors in the Chinese market saw an opportunity to take advantage of the negative publicity about New Zealand branded products. It was basically a two pronged attack: a regulatory environment with the Chinese registering infant formula production facilities in New Zealand, which constrained production; then an attack by our competitors out of Europe who were able to compete with us on cost – in some cases 30% cheaper than us.”

Claridge says the Chinese market is difficult to operate in because of complex rules, cultural issues and the sheer competitive nature of country. 

Despite the machinations of the Chinese market, he believes there is a strong future for small niche companies such as his. He notes that in New Zealand the Chinese are buying canning plants as part of a strategy of achieving vertical integration and their own supply chain. He says he’s amazed at the lack of knowledge in New Zealand about the dairy industry and the international trends and forces that affect it. He acknowledges Fonterra operates cleverly in the market and employs smart people. He says the forces Fonterra is exposed to at a global level are phenomenal.

Despite this praise, he regards Fonterra as “the best truck drivers in the world” – still largely a commodity based producer adding little in value add, concentrating on commodities and ingredients but not venturing much into high value products as do Tatua and Westland  Dairy.