BRUCE BILLSON: Honourable Ken Smith, you for joining us today. You’re Victorian President of the Australian China Business Council, active in business in and with China, and also an honorary citizen in a couple of provinces. Tell me a bit about why you are so engaged with China.
KEN SMITH: Bruce, I went to China in 1994 not expecting very much– a country that was communist-run, but a country that had opened up its borders. And I thought, oh, there’s opportunities here. And I always a member of Parliament then. And I took across a delegation of parliamentarians for them to learn, as well as for me to learn what China was all about. And it was a shock to my system, because it was so advanced even back in 1994, to just see where it is now, to see where it had come from some years before.
BRUCE BILLSON: So we’re two decades on from that initial observation. Are those opportunities is real and as tantalising as you– since they were back in 1984?
KEN SMITH: Yeah, I think they are, but people have got to be careful. If they’re going to go into business, they’ve got to be able to understand that it’s a big market. There’s nearly 1.4 billion people in China. There’s about 600 million of those people that are middle class, middle income people that want to be able to spend their money, that want to be able enjoy the lives, that want to be able to travel. They want to be able to buy Australian product or product from any of 150 other countries that are trying to get into China. But they want to experiment and they want to be able to try things that are a little bit different.
BRUCE BILLSON: So what– with all of that opportunity, what’s going well for businesses that choose China as a new market opportunity?
KEN SMITH: Look, I think, obviously, a lot of service industries the accountancy side of things, the legal side of things– there’s a number of Australian companies that are set up in China, legal companies and accountancy companies. We’ve also got mining, which has always been– it’s always been there. The price has dropped off and the delivering the China wasn’t going as well as it should have been, but that’s picked up again. And the prices have picked up again, which is making things a lot better. But the Chinese are looking to get into some of the commodities of which I have an interest to be able to supply to them, but it’s not that easy.
BRUCE BILLSON: So for SMEs, are there particular areas of opportunity and success that give us an insight into where other SMEs might consider?
KEN SMITH: Yeah, look, one of the things I think SMEs have got to understand is don’t try and conquer all of China. You’re not going to do it. You’re going to go broke. You’re going to be unhappy. You won’t have enough money to do all of China. But there’s a number of provinces there that you can go into, that you can be successful in the province and then expand further and do your business into other provinces of China. But don’t be greedy. You’ve got cities there that– I’ve just been meeting with a delegation today from Shandong province. They’ve got a population of just over 100 million people. 100 million people– that’s four times of Australia’s recently achieved population.
Now, that’s a big enough market for any company to go into. And you don’t have to go into first tier cities like Shanghai or Jinan or Qingdao or any of those places. You can go into second tier cities and third and fourth tier cities, which are spread all over China. And you really have to research properly where the products that you’ve got that you want to be able to put on the market in China– you’ve, in fact, got to be able to go and look at people, talk to people, listen to people, experiment. Just what did the Chinese market want? They don’t all want what we want and what we like.
There’s other things that they like, but you’ve got to understand the market– go there, study it, talk to people.
BRUCE BILLSON: So a multitude of markets and many possible entry points but no substitute for doing your homework about where you’ve got a capacity to delight? Perhaps those middle class customers that you mentioned?
KEN SMITH: They’re our market. They’re our market.
BRUCE BILLSON: It’s also about being able to continue to delight them. Careful what you wish for. Something might come true. And all of a sudden, being overwhelmed by the market demand and not being able to meet it.
KEN SMITH: That’s something that you can’t afford to do is to underestimate how big the market is. If you’re happy selling one container of product into Thailand or somewhere like that, you’re going to have to supply 20 or 30 containers into China, because that’s what the people want. They don’t want to sort of have go in and try something else after they’ve become accustomed to some Australian product. Whether it’s pharmaceuticals, nutraceuticals, whether it’s honey, whether it’s wine, whatever it may be, they know what they like. You’ve just got to ensure that what you’re delivering is something they’re going to like.
BRUCE BILLSON: And you mentioned a bit about product adaptation, that it’s not simply a matter of saying here’s an item or a service that we provide in our domestic economy, here it is for you, but actually know working more closely with the Chinese market to be precise on–
KEN SMITH: Look at the size of things that they have there, how they’re packed over there. Walk around the supermarkets over there and see what’s available, see what people have got in their shopping bags. If you’re into wanting to supply products they’re all things that you’ve got to do. We’ve just recently opened up the market into Dalian, which is in northern China, where we’re starting to put product on the shelves that can be sold over the cross-border, as it’s called, or they can buy it straight off the shelf. And we’re in a position where we’re going to be experimenting. We’ve been in. We’ve seen the market.
I’ve got partners that understand China, people that are from China 20, 30 years ago but have maintained very strong relationships. And that’s another thing, Bruce. If you want to work into China, if you want to develop business in China, you’ve got to set up some relationships and build on those relationships. You can’t go there once and just think that you can set the market on fire.
You’ve got to go 3, 4, 5 times a year to meet with people, to talk to people, check them out, see that they’re legit, just ensure that legally, if you’re going to work with them, that they are in a position that they can employ labour, that they’ve got the right accountants to be able to do work. And that’s where the Australian accountants over there talk to them. And when you’re over there doing your visits, building the relationships talk to these people.
BRUCE BILLSON: So immerse yourself in the market, understand it, build the relationships and some confidence and trust in your business partners, but also the advisors that are helping you through. What else would you advise people wanting to make a success of it, given that it’s quite a serious commitment?
KEN SMITH: Understand that you’ve got to have the money to be able to do it. That’s one of the big problems is that people who expect they’re going to spend a couple of million dollars in fact find they might be spending $5, $10, $15 million.
BRUCE BILLSON: So no shortcuts?
KEN SMITH: No shortcuts. There are not shortcuts. And people that are sending or want to take products over there to sell off the shelves– you’re competing with online. You’re competing with Tmall. You’re competing with JD. You can competing with Kaola. You’re competing with all of the onlines. So there are Chinese shoppers that wander around. And I think there’s some 900 million have got phones that they use, that they go in and they look and they will check the price of your product against what they can get it sent from Australia for. Now, that’s what you’re competing with.
BRUCE BILLSON: And even in country, online shopping is ingrained in the culture. I mean, of the businesses that the Australian-China business chambers work with, are there many that have chosen their entry into the Chinese market through one of those online channels?
KEN SMITH: Some of them have. I know from our point of view that we have. We’ve got a business in Guangzhou that’s online with Tmall and online with JD.com. We have a company doing some promotion work for us called Lego. But let me say, they are not cheap. They’re not cheap. And I was talking about money before. You’ve got to pay for this sort of service, if you want to get into the market.
BRUCE BILLSON: So a serious market opportunity requiring a serious strategy and a serious commitment to make it succeed?
KEN SMITH: Yeah, that’s what to note.
BRUCE BILLSON: What else have you learned? You’ve had, through the business chamber and your experience, plenty of insights. What have you gleaned? What would people who’ve been there, tried something, and have then thought, no, I need to do something different– what kind of insights can you share with our audience?
KEN SMITH: Can I say that there are a lot of people in China that want to do business with you? You’ve got to check out who you’re going to work with, who you want to work with, who you trust. And trust is going to be an important word in this whole exercise for anybody.
BRUCE BILLSON: So you’ve had decades of experience with business in China and with China. What’s the big three take home messages you’d share with someone contemplating China as a new market opportunity?
KEN SMITH: Understand the market. Research the market. Have enough money together before you go into the market. And when you get over into China, make sure you choose your partner carefully.
BRUCE BILLSON: Ken Smith, thank you so much. You’ve been generous with your time and your insights. We’re very grateful.
KEN SMITH: Pleasure, Bruce.