Australian firms upbeat on Chinese trade

| April 20, 2018

The 2018 Westpac Australia-China Business Sentiment Survey offers an insight into the current health of the Australia-China trade relationship, and features case studies from leading Australian brands in the China market including Blackmores, Metcash, Sanitarium and Woods Bagot.

The Survey includes feedback from 161 businesses of varying sizes across 21 different industry sectors, including Australian businesses distributing products or providing services to China, Chinese entities with over 50% Australian ownership, Federal, State or Local Australian Government entities and AustCham Shanghai members.

Respondents were generally optimistic about their trade links with China.  78% reported positive sentiment for their China operations over the next 12 months and 83% were optimistic about their Chinese operations over the next 5 years.  79% forecast profitability for 2018, compared to 66% in 2017 and 51% forecast an increase in their China investment for 2018, compared to 45% in 2017.

Australian businesses attribute this success to the quality of their product, brand reputation and established client relationships. It was also found that the larger a business was and the longer they had been operating in China, the more profit they accrued—indicating that reputation and market familiarity are key to profitability in China.

In terms of E-commerce, the main trend for the next 3-5 years is “Innovations in Technology, Media and Communications”.  58% regard China to be leading or more advanced in technology compared to other global markets, but only 16% have a detailed China e-commerce strategy in place.  Businesses with a detailed China e-commerce strategy were found to be 12% more profitable than the average firm.

Despite businesses possessing a generally-quite-positive outlook, challenges continue to exist for Australian businesses in maintaining a competitive-edge in an ever-changing and dynamic Chinese market. Unfamiliarity with e-commerce and Chinese regulation pose two of the biggest challenges to Australian businesses in China. Other challenges include retaining top talent and increasing domestic and foreign competition.

Australian businesses navigating the Chinese regulatory framework report that doing business in China is becoming increasingly complex and businesses are finding it hard to keep up with the constant changes to regulation.

36% regard the regulatory environment to have hindered their organisation’s growth in China.  58% regard China’s regulatory environment as not transparent, and 27% reported that this lack of ransparency hinders business.

Although it may not seem directly related to many Australian businesses, 42.9% of respondents reported that the Belt and Road Initiative is a positive driver for their strategy in China. This was primarily attributed to market opportunities and the reduction of tariffs.

>Sectors that were most positive about the Belt and Road Initiative were Energy & Environment, IT & Communications and Recruitment & HR.  In total 43% of the companies surveyed report China’s Belt and Road Initiative to be a positive driver for their China strategy.

However, many Australian businesses are falling behind their Chinese counterparts in terms of digital technology and e-commerce capabilities. The results also show that there are information gaps when it comes to understanding consumers, branding and product positioning in China.

Despite over 80% of Australian businesses claiming that their China technology is on par or more advanced than in other markets, only 16% actually have a detailed digital and e-commerce strategy in place.

Australian businesses adopting an effective digital strategy have also indicated they are more likely to be profitable, and more optimistic about their business outlook—signifying that adopting such a strategy is key to success in China.

Just over half of Australian businesses in China consider themselves to have benefited from the China-Australia Free Trade Agreement. However, of these businesses, only half consider themselves to have directly benefited from ChAFTA, with the other half only indicating to have experienced an indirect benefit.

Key reasons for this include improved access to Australian service providers in China, a better relationship with Chinese stakeholders, reductions in tariffs and new market access.

The report offers solace for firms who have yet to enter the Chinese market.  Firms which are well-prepared, and have sufficient resources and processes in place to remain flexible to changes in the local regulatory environment and digital technology landscape, retain strong prospects of success.