How to invest in China and succeed
China remains a prime investment opportunity for Australian companies
despite the ongoing US-China trade stoush adding another layer of
complexity to an already challenging market.
While the opportunity is large, there is also a long list of businesses –
including global corporations – whose China ambitions have stumbled over
cultural and regulatory differences.
Icon Group's Group CEO & Executive Director, Mark Middleton, said it
had taken 3½ years and 38 visits for the healthcare business to set the
foundations for its push into China. In the early days, potential partners
would falsely claim they owned hospitals.
"Some of those people I was meeting were actually going off and saying, 'I
met with Icon' and that's how they would raise funds to invest in
hospitals. So, like all things, you want to find legitimate partners,
people who have the experience, the backing and the resources to actually
make things happen."
That long road led to a formal
with China’s Sanbo Brain Hospital Management Group (Sanbo) in early-2019,
with Icon set to treat its first cancer patients in October. China faces a
healthcare epidemic with a lack of top-notch care for the estimated four
million people diagnosed with cancer each year.
"The reality is if we don't do that, cancer incidents in China are going to
increase by 70%. In the next two decades, we're facing a public health
Fashion company Brand Collective, which has manufactured its own brands in
China for two decades, is also now expanding into the retail market after a
local celebrity was photographed wearing Brand Collective's Volley shoes
three years ago, spiking local demand.
"The reality is that every single Chinese province has an economy larger
than Australia's economy and there's enormous diversity, expertise, and
relationships," Brand Collective CEO, Martin Matthews, said. "It isn't as
simple as finding the one business that knows how to do retail in China."
Brand Collective partnered with an Australian-based Daigou company as its
master distributor and online partner. It has mitigated risk by initially
setting up arrangements where it is paid on supply rather than sale of the
product through brick and mortar retailers.
SB China Venture Capital Managing Partner & CFO, Kathy Chen, said the
interests of Australian companies and local partners have to be
complimentary. A recent trend is for greater cooperation between partners
as Chinese firms look for help exporting their own products.
"It has to be a win-win situation," she said.
Adapting to different ways of doing business
While Icon runs comprehensive cancer centres in Australia, its foray into
China is initially focused on radiation therapy, which presents a high-cost
barrier to entry. The technology can be run and managed remotely, allowing
it to turn off access if its intellectual property (IP) is breached.
Middleton also said companies in China tended to operate with a more
hierarchical structure, which he calls the "theatre of leadership",
underpinned by the strength of personal relationships.
"You will go through meetings and meetings and you wonder why haven't we
got a decision? And you won't have got a decision because there may be a
group of leaders who aren't ready to take that decision to the absolute
decision maker. And that takes some time. Just when you think you've got
all the answers, they change the questions."
Matthews said Brand Collective’s international partnerships were governed
by formal contracts but they acted more as "bookends of the relationship
that you hope you never have to enforce".
"There's a lot less defined commercially in our relationship in China than
it is in other markets and so a lot more room for flexibility and
adaptability. That creates greater risk as well."
Brand Collective faced its own IP issues as local firms produced
counterfeit Volleys early into its China expansion, but its local partners
and government quickly cracked down on the issue.
Chen said the healthcare sector was more hierarchical than fast-moving
sectors such as fashion and there were often fewer regulations compared to
western countries, but the country's court system was now more transparent.
"I do have confidence in that," she said.
US trade dispute creates challenges
Matthews said the China-US trade stand-off had created new challenges for
Brand Collective. US companies are quickly shifting manufacturing to
countries such as Vietnam and Indonesia and, with the bulk of Volley shoes
manufactured in China, those factories are choosing to close down.
"It creates a significant operational challenge there for us to resource
The US has so far
on more than US$360 billion of Chinese goods, prompting China to retaliate
with tariffs on more than US$110 billion of US products.
The trade dispute is also a key factor behind China's slowing economic
growth, which dipped to 6.2% in the
. While growth is expected to decline further, Matthews remains undeterred.
"I think the opportunity for Australia is to hopefully see through that and
continue to invest in building our businesses in China," he said. "Because
no matter what the outcome of this trade war is, China is going to be the
world's largest economy."
China easily ranks as Australia's largest trading partner with the value of
goods and services traded between the two countries rising almost 17% to
$214.6 billion last year, according to the
Department of Foreign Affairs and Trade
Chen said global investment activity into China had reduced over the last
year as large US corporates such as Microsoft withdrew, although the
activity of local Chinese technology companies such as Huawei was picking
Middleton said Chinese businesses remain very receptive to Australian
businesses, which tend to be more agile than some other western nations.
"Certainly, in healthcare we don't go and tell people what to do. We go
with a collaborative approach and I think that's what sets Australians