Australian multi-national corporations still struggling to operate in Chinese markets

Australian corporations struggling in China

Less than 2 percent of Australian business are strategically focused on China.

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Australian multi-national corporations (MNCs) looking to enter or expand operations in the Chinese market are still struggling to deal with multiple operating factors including complex regulatory requirements, varying and unfamiliar consumer preferences and consideration of different Chinese markets according to a ‘Succeeding in China’ report launched by KPMG Australia today.

With over 1,000 Australian business delegates currently in China for Australia Week in China, led by The Hon. Steve Ciobo, Federal Minister for Trade and Investment, focus is also on how to take advantage of the China-Australia Free Trade Agreement (ChAFTA) which came into force in December 2015.

The ChAFTA presents Australian businesses with a unique opportunity to create a competitive advantage and outperform other markets which have yet to establish similar trade access agreements with China, in order to capitalise on the 1.4 billion prospective consumers and 10.6 million enterprises.

Peter Liddell, Head of KPMG’s Asia Pacific’s Operations Advisory practice, said: “While Australian trade with China continues to increase, the actual number of Australian businesses exporting to China or strategically focused on China is surprisingly low - less than 2 percent.”

“Historically, China has been the prime market for many MNCs to establish their operations and then directly manufacture and source goods and industrial products at a very low cost. But today, the primary reason for these same MNCs to maintain operations in China is to serve the China market - to be ‘in China for China’,” he said.

The report identifies five critical elements that businesses need to consider to execute a successful market entry or expansion in China:

  1. More than 50 percent of the Chinese population will be middle income earners by 2020 and the future of China’s domestic market will be driven by these people with a propensity to spend. Australian businesses must be ready to compete in a dynamic and fast-paced environment and interact with new consumers through various channels.

  2. Selling into or sourcing from China’s many markets is not easy – Australian companies must view China as a number of markets and plan how to interact with each market separately, tailoring product specifications and delivery mechanisms to meet the needs of local customers within distinct markets.

  3. Think about the successful marriage and exit options upfront, not just the honeymoon. Plan an approach that aligns to long-term objectives – businesses expecting to set-up as they have back in Australia and achieve overnight success have usually departed from China quicker than they arrived.

  4. Finding and incentivising the right JV partners is critical – understand who you are dealing with and what motivates them to achieve the outcomes that you both desire.

  5. Understand the non-trade barriers relating to product, supply chain and chosen markets so that you can navigate local customs and regulations effectively.

“Turning a China investment into a profitable business venture takes careful planning and a disciplined approach. The companies which have been successful have been able to truly understand local consumer trends, align their brand for Chinese consumers and navigate the regulatory challenges,” commented Mr. Liddell.

For further information, contact:

Kristin Silva
Head of Communications, KPMG Australia
T: +61 411 110 953
E: ksilva@kpmg.com.au
 

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

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