ChAFTA: Look to China for growth

ChAFTA: Look to China for growth

On 17 June 2015 in Canberra, Australia's Trade & Investment Minister Andrew Robb and Chinese Commerce Minister Gao Hucheng formally signed the Australia China Free Trade Agreement (ChaFTA) which was first announced last November. Both sides will now commence domestic processes to bring the FTA into force as soon as possible. ChAFTA lays an historic foundation for the next phase of Australia’s economic relationship with China.

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Minister Robb has argued, based on the modelling by the Centre for International Economics that services are where the greatest growth potential will be found, with a projected growth of 13.9 percent or $2.2 billion larger by 2035.

Growth drivers

Key drivers include the genuine desire by the Chinese Government for assistance with the modernisation and professionalisation of all aspects of China's economy, internet consumer driven demand, a booming outsourcing, technology and R&D development market and, the need to regionally service our Australian and multinational clients who are increasingly heading to China themselves.

The opportunities for providing professional services to China are enormous, but the journey is challenging, requires a long term commitment and a deep understanding of Chinese business and culture that is not presently abundant within most Australian service firms.

Brand Australia strong

Over many years, Australian firms have delivered many high profile projects in China. ‘Brand Australia’ is generally well respected and in demand in China, with a common view that many Australian professional services firms (including in architecture and design) are punching well above their weight when compared to larger international firms from USA and Europe.

Australian accounting, legal, consulting and financial service firms, while well represented in Hong Kong, have much work to do in Mainland China.

Competition

To date China’s regulatory environment and very competitive domestic and international landscape have been significant impediments, requiring patience and niche strategic focus.

This FTA promises to open up the services sectors and hopefully remove many of the major obstacles, however a niche strategy remains imperative and we must all be aware that Chinese regulators will remain very supportive of the growth of strong domestic professional services companies. Competition will be intense.

Cultural challenges

Both countries have major cultural differences and are at fundamentally different stages of economic development and social aspirations.

The Chinese don’t have a long history of professional services advisers, with introductions to new opportunities and important people often considered more important than advisors and the technical advice provided. Willingness to pay fees for the Chinese is less about the contract than the sense of value added and the warmth of relationships with key decision makers.

Relationships matter

Even more so than in Australia, in China, professional services is a personal relationship driven business. Guanxi goes to the very core of Chinese business and social behaviours. Guanxi is a complex web of network relationships across family, friends, alumni, work colleagues, clients and government, with unspoken rules of asking and receiving favours and repaying debts over a very long term. We need to understand, for the Chinese, there are no boundaries and life is a pursuit of building important networks.

People-first strategy

Australian firms will need to have the right senior representatives on the ground in China to develop strong relationships over the long term. To be competitive, business must have the right face and the skills to communicate locally. With clients that are Chinese, Australian professional service firms must think, understand and act within their host’s cultural context.

Australian professional service providers need to look honestly at themselves, their skills and attitudes, and be prepared to view China with a fresh perspective and through Chinese eyes.

China is rapidly developing, producing far more highly qualified professionals, with English and Chinese capabilities suitable for the Chinese market, than us. There is, however, very serious competition for talent with a shallow talent pool, rising labour costs and employee loyalty problems.

Suggested game changers

  • Focus on building a China capable work force – with strong and culturally aware leaders who are on the ground and building long term relationships
  • Strong Government support is still very important – companies must work constructively with governments to facilitate a better understanding of professional services in China and enforce market access
  • Clear strategic focus is imperative – concentrate on designing and rigorously implementing niche 'best in class' strategies which specifically address China’s policy and business needs
  • Structuring the operation properly – legally and according to current and future needs
  • Branding and marketing – utilising the internet and social media to think and talk big.

For more information visit the official DFAT site.

Our Australia China Business Practice assists Chinese companies investing in Australia and supports Australian companies investing in China.

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