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Idealog—in the ideas business

Playing with the big boys

To be a world-class business, you have to do business with the world. Unfortunately, Kiwi businesses have too often been timid, flightless creatures, hiding from the bright lights and too comfortable building their own nests at home to venture far afield.

Brett Walters, national managing partner at BNZ, explains the mindset: “People think they lack the scale. Some have dipped their toe in, they may have gone to a conference and made a contact but got slightly burned. These guys have either placed it in the too-hard basket or got consolidators in the export markets to sell for them.”

This is not to say that we haven’t had any success. Fonterra now claims to be the world’s largest dairy exporter, based on New Zealand’s capacity to instill ‘clean, green’ brand values to basic commodities.

“You can grow kiwifruit and raise sheep in many parts of the world,” says Walters. “New Zealand’s brand provides the differentiation that is required. You are a long way from anywhere. If you can’t differentiate, and there is plenty of competition, you’d better stay home.

“We have got some things going for us—we are ingenious and we are very customer-orientated, which can give us a competitive edge. We can be nimble and react. Because of our relatively small scale we can do things like choose when we go to production in offshore factories.”

“When nobody thought New Zealand would ever export anything that wasn’t grass-fed, there was a government leaflet called ‘Are You Ready to Export?’”, says Jonathan Kirkpatrick, chief executive of AUT’s Business Innovation Centre. “I would have to tick ‘no’ for all of the companies we have incubated. That was the old-school, slowly-slowly approach: grow it in New Zealand, then try Australia, and so on. If you did that, you would find yourself in China offering pagers when everyone is on their third cellphone.”

Sopheon partner Jon Perry has however spotted the opposite phenomenon: overconfidence. “Most innovators think they'll be in Europe in year two and the world by year three,” he says. “I've had a few goes at it and I can tell you, it's tricky.”

Kirkpatrick gets his people offshore as soon as possible. This goes beyond just ‘exporting’ as if the rest of the world were a savage wasteland whose inhabitants wait at the shoreline to be dumbstruck by our bewildering technology. If you go with that mindset, don’t be surprised when you arrive in Taiwan to find everyone doing what you do, but faster, cheaper and better.

This is about your business having the potential to interact with offshore economies in all their gory glory. The money men in Saudi may want your product, and a slice of your business equity too. The smart guys in Bombay you have been selling to might reckon they can make and sell your product locally, and are willing to cut you in.

It’s only once you start seeing the rest of the world as more than just a shipping address that you will be able to spot the opportunities, and the potential pitfalls. And even in this digital age, the only way you can do that is by jumping on a plane.

Is your business model portable?

When The Hyperfactory decided to break into the US, co-founder Derek Handley found himself holding a ticket and a visa with 40 days to make something happen. “Getting on the plane wasn’t very hard,” he says. “But then getting off the plane and staying there—I think that scares the shit out of most New Zealanders.”

The first thing to pack is an open mind. Despite the saying, it’s not a small world: foreign countries are foreign, and things are done differently. In some ways globalisation has made adjustment harder: with one city looking like another from the window of the Marriott, it's easy to be lulled into a false sense of security and miss subtle, but vital, differences.

For example, you may have to tweak your brand to match local conditions. Grenville Main from design agency DNA explains. “When Trilogy skincare products are sold in Australia, it’s all a bit more Kath and Kim. You have to shout the products’ attributes a bit louder. And the company realised nobody would try their products unless they gave some away for free.”

Shaun Coffey, chief executive of Industrial Research Limited, points out that you also have to be careful to meet local rules. “Regulatory issues can be significant. The best example is the pharmaceutical industry, in which the cost of testing and trialling products for use on humans can be in the tens of millions.”

You can grow kiwifruit and raise sheep in many parts of the world. New Zealand’s brand provides the differentiation. If you can’t differentiate, you’d better stay home

—Brett Walters

Handley says the most nerve-wracking thing is wondering whether you can deliver. “We had never delivered to the US before, so we were effectively practising on our clients, which is probably not a good thing to do,” he says. “You have to be confident that your offshore business model will work.”

To prepare, you need to learn local employment, taxation and business law, as well as the art of schmoozing in a culture to which you do not belong. The object of the exercise is not to blend in, but to stand out for the right reasons. Being foreign, you have the potential to generate interest: you may have something good they haven’t seen yet. Whether you can hold that interest and start naming your price is another test of how innovative your idea really is.

“If you’re selling on other people’s terms, you’re at their mercy,” says Walters. “If you sell on your terms, then you’re in charge.”

It’s a good idea to tap into local business intelligence—anything that will help you spot opportunities or get early warning if economic, political or legal changes threaten your business. It’s also worth remembering that fluctuations in the exchange rate will be affecting more than just the number of pina coladas you can buy by the pool. It may speed a transaction to have a bank account in the country you are exporting to, but then currency fluctuations or government restrictions may mean you can’t get that money home when you need it.

Quite a few exporting companies only woke up to these potential complications during the recent international economic belly-flop.

“A wine seller may be used to sending wine to the UK on a 90-day payment term,” says Walters. “They never reviewed the buyer’s ability to pay, and the money just stops coming. Some UK buyers had been happy to pay 40 to 50 percent of the cost of imports up front—not now.”

You may be able to get help dealing with these risks from Export Credit Office and New Zealand Trade and Enterprise. Bank credits and debtor insurance can also help reduce the risks and keep your all important payments secure. Find out before you, or your products, leave the country.

But your best defence is to stay in close contact with the pipelines you create, regularly checking each connection for products going out and money coming in. “It comes down to two things: control of goods and control of money,” says Walters. “You need to establish exactly when you are losing control of your goods and when you have control of the money. And then you can decide how much of that gap you wish to ‘self insure’ and how much you will get insurance for.”

Our nation comes from a blend of colonial and seafaring traditions. We should be old hands.

The AUT Business Innovation Centre export checklist

  • Ensure you have the right technology, and that it really works
  • Get the right people on board
  • Confirm that there is a market for what you have where you are going
  • Confirm there are no insurmountable barriers such as overwhelming competition or legal issues
  • Work through trade commissions
  • Connect to other commercial companies working in the overseas market
  • Network, network, network—build the relationships you need

The risks

Concentration risk
It’s difficult to imagine the scale of some overseas markets if you haven’t gone out and experienced them. As an extremely minor player, someone could suddenly order most of your current production run. It’s important to remember that you want to be exporting to buyers, not effectively working for them. If they pulled out equally as rapidly, what would be the effect on your business plan?

Country risk
If the country you are sending goods to is in the middle of a war, riddled with corruption, or subject to a stifling dictatorship, you may want to know about it. There are also less obvious risks, like differing legal systems, that could be just as dangerous to your business.

Bank risk
Breaking the bank has taken on new meaning since the banks were allowed to develop a gambling habit. If your export cash is whizzing through one of these suckers when it goes bust, you could find yourself out in the gutter alongside it.

Debtor risk
You are in the business of making a product and selling it, not becoming an international financier of other people’s businesses. Keep a sharp eye on the payment.

Originally published in Idealog #26, page 58

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