CHINA EDITION ISSUE 186, 2016
The Australian Chamber of Commerce Hong Kong and Macau 香港及澳門澳洲商會
Take the fast track to business into China through Cross-border E-Commerce
Australia Focus: Economic diplomats focus on the good news to innovate China-Australia partnerships
Hong Kong Focus: What’s on China Market Trends – Case studies from Hong Kong
Industry Insights: Managing China Procurement Risk for SME’s – A Case Study P.14
austcham news issue 186 03 Chamber Chatter 05 Events Update 7 Dec - Christmas Mix 06 Cover Story
Published By: The Australian Chamber of Commerce in Hong Kong and Macau Room 301-302, 3/F, Lucky Building 39 Wellington Street, Central, Hong Kong Tel: +852 2522 5054 Email: firstname.lastname@example.org
Take the fast track to business into China through Cross-border E-Commerce
10 Australia Focus Economic diplomats focus on the good news
Editorial Committee: Drew Waters Karen Wu
to innovate China-Australia partnerships
Advertising: Karen Wu Email: email@example.com
Managing China Procurement Risk for SME’s – A Case Study
CONNEC T • ENGAGE • REPRESENT
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The Australian Chamber of Commerce in Hong Kong and Macau has more than 1,500 members from some 500 companies doing business here. It’s the largest Australian business grouping outside the country and the second largest of 28 International Chambers of Commerce in Hong Kong. The AustCham mission is: To promote & represent Australian business & values while enabling members to connect, engage & grow bilateral relationships.
12 Hong Kong Focus What’s on China Market Trends – Case studies from Hong Kong 14 Industry Insights
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23 On The Scene
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The views expressed in this publication are not necessarily those of the Australian Chamber of Commerce in Hong Kong and Macau, its members or officers. The Australian Chamber of Commerce in Hong Kong and Macau takes no responsibility for the contents of any article or advertisement, makes no representation as to its accuracy or completeness, and expressly disclaims and liability for any loss however arising from or in reliance upon the whole or any part of this publication. Copyright © 2016 The Australian Chamber of Commerce in Hong Kong and Macau
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Chairman's Column Mainland China is the focus of this monthâ€™s AustCham News. The Australian Government has been actively pushing to provide greater access to the markets of the AsiaPacific region, including China, for Australian companies and industries. Much progress has been made and more is likely to follow. However, access from a trade and investment standpoint is just the starting point for truly accessing regional markets. Historically, Australia has preferred to emphasise multilateral trade agreements rather than bilateral agreements. The main reason is that since it is not part of a natural economic grouping, except with New Zealand, Australia has had more to potentially gain through multilateral agreements than through bilateral ones. However, given that the WTO process has slowed, bilateral and regional agreements seem to be the only path open for trade liberalisation for now. Australia should continue to pursue trade liberalisation under the China Australia Free Trade Agreement with Mainland China for several reasons. The obvious reason is that better access to growing markets could be a substantial benefit to Australian companies and industries. Another is that Australia is already relatively open and therefore does not have to give up too much in the quest for freer trade. Another is that the existence of a free trade agreement will tend to focus the minds of Australian business people on the relevant markets. Mere access, however, will not be sufficient for most Australian companies to succeed in Mainland China. There will be needs for consular support and the types of information provision and access to key officials and counterparties that only formal government representation can provide. Thus, Australia should significantly expand its consular presence and trade offices in China to support the growth of trade and investment. Further, Mainland China will only become more accessible to Australian companies and industries when they have sufficient understanding of markets, business practices, social norms, economic systems, and sources of further information upon which to build business plans and strategies. Governments, analysts, academics, the press, and others all have an important role to play in making Mainland China more accessible. And even if all of these actors make Mainland China more accessible, it will be for naught if Australian companies and industries do not take up the challenges, build their own capabilities, and make their own investments. Many AustCham members are shining examples of how to successfully do business in Mainland China. There is much that other companies in Australia (and elsewhere) could usefully learn from them. The Australian Government goes to enormous effort to talk up the Asian Century and what it means for Australia as a nation. It would be well served to spend even more time meeting with Australians and Australian companies who are Chamber members, including many SMEs, who understand the obstacles and opportunities of doing business in Mainland China and are winning so that the right lessons are taught and the right advice given to others who also wish to succeed in Mainland China. I hope that you will connect with the Chamber this month in some way, and that you will continue to share your views on how best the Chamber can serve you. Richard Petty firstname.lastname@example.org
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e seem to have skipped autumn and preceded straight to winter, without passing go. It is nice to be able to walk from appointment to appointment all the same, and I will continue to enjoy the experience. Much warmer was the first of our ACCESS China events for the year. We have split the previous single day format of the forum into three separate and shorter sessions, each concentrating on a significant, and topical, part of the cross-border business. Our E-Commerce session featured some terrific insight from experts in the field, and highlighted some significant touch points when accessing this rapidly increasing method of international trade, from legal implications, marketing, and logistics. Immediately following the highly successful Singles Day, the forum outlined the massive growth in the market, and extended some pointers on how to best approach the business. Thanks to our speakers Sam Guthrie, Fong Lau, Martyn Huckerby, and Kara Cheung. We continue to look for sponsors for the remainder of the series, and welcome your enquiries. It was a pleasure to be involved in the judging process for the Telstra Business Women’s Awards last month, and I would like to offer my hearty congratulations to the winner Rituparna Chakraborty, and all of the finalists from around the region including Hong Kong’s Kimberley Cole. This is a mammoth recognition of diversity in action, and I applaud Telstra for their effort.
Across My Desk Our FLT committee met with Kerry McGlynn for an informal chat about his long career within the Hong Kong government, with some very interesting observations made. Kerry was a significant senior member of the Patten administration, and I had the pleasure of meeting Lord Patten himself a few weeks later. It is interesting times in Hong Kong, and having a commentary from such players from previous management was insightful and entertaining, as were the views on the Trump effect and Brexit implications. Our Women in Business Network continue to promote some excellent and very topical conversations, and we recently hosted a discussion on Insights to Australia’s Boardrooms with AICD Chair Elizabeth Proust, and Chief Executive Women’s Nicola Wakefield Evans. The chat was hosted and moderated by ANZ Group Executive Farhan Faruqui. Thanks all who were involved in this great lunchtime chat. Please don’t forget the Christmas Mix at Six on the 7th and Australia Day on 20th January, with the exceptional Holly Ransom. Both are filling up quickly. I may not be the first to wish you all a very Merry Christmas, but I do seem to be doing so earlier and earlier each year. I look forward to seeing you at our events soon, and into 2017. STOP PRESS: Our own Jason Quinn, whom I am sure most of you have met, is the very proud (and a little tired) new father of James Vivion Quinn. I am sure he and wife Fiona would welcome your congratulations. Have a great Christmas everyone! Drew Waters, Chief Executive
elebrate the season of giving, our Christmas Mix at Six this year will be partnering with The Hub Hong Kong again this year. Please feel free to bring a small gift to place under the Christmas tree, all gifts will be distributed to the underprivileged children (for 6 – 12 years old).
Community Corner AustCham is a non-profit organisation and provides this space free of charge to other, selected non-profits or charities.
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ast year, 3.2 billion used the internet. Nearly nine in ten Australian households has an internet connection, and in the average three-month period, 10 million Australians will buy something online. For consumers, for business and for governments around the world, the internet has been a fundamental and radical transformation to what trade means. Part of the reason that the internet has been so transformational is because of its openness. The cost to set up an online business and begin trading with the world is next to nothing. Your customers are everywhere and they can find your business anywhere. But openness is a double-edged sword. The ever-expanding pool of customer data available online also represents an increasingly attractive target for cyber theft. It explains why new forms of malicious programs known as ‘malware’ have spread like wildfire, with reports increasing seven-fold since 2010. Incidents of “Ransomware”, which encrypts a target’s files and demands payment for their release, rose 30 per cent year on year in 2015, leading one security vendor to label it the year’s most problematic cyber threat. And by some estimates, one data breach revealed in 2016 saw more records of personal information stolen in one go than
A Letter from Canberra every data breach of 2015, combined. But if the threat is growing, so too is the opportunity. On average across the developed world, online commerce accounts for 6 per cent of GDP per year – and growing. The more valuable the world of online business becomes, the more important it will be to defend. Thankfully, most threats can be prevented with a little preparation, like backing up computers and servers offline, password-locking mapped network drives, regularly updating security and anti-virus software and updating operating systems to the latest patches. As a tool, the internet has changed the nature of doing business – but not the need to protect it. Gai Brodtmann MP, Federal Member for Canberra and Co-Convenor of Parliamentary Hong Kong Friendship Group
EVENTS UPDATE DECEMBER AT A GLANCE… Wed, 7 Dec, 6:00pm - 9:00pm Christmas Mix Yum Cha, 2/F, Nan Fung Place, 173 Des Voeux Central
JANUARY, 2017 AT A GLANCE… Tue, 17 Jan , 6:00pm – 9:00pm Mix at Six TBC Fri, 20 Jan, 12:00nn – 2:30pm The AustCham National Australia Bank Australia Day Lunch Ballroom, 5/F, Island Shangri-La Hong Kong, Pacific Place, Supreme Court Road Thur, 26 Jan, 11:50am – 2:00pm Joint Business Community Luncheon with Chief Executive of HKSAR, The Hon. CY Leung Grand Hall, Hong Kong Convention and Exhibition Centre issue 186 | austcham news
Take the fast track to business into China through Cross-border E-Commerce - Ingrid Piper
fter the $17.8 billion e-commerce frenzy of China’s annual Singles’ Day shopping extravaganza on November 11, AustCham Hong Kong & Macau’s 2016 ACCESS China Forum’s focus on Cross Border E-Commerce was highly topical and timely for those seeking to expand their businesses online. As China’s middle class grows, its demand for aspirational, safe and non-counterfeit foreign goods is increasing exponentially. In addition, online sales via mobile phones are on the rise across Asia, opening exciting opportunities for Australian businesses.
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Be very aware of your advertising in China. Any breach of advertising laws faces a fine typically equivalent to three times your advertising spend …
turnover of $AUD 2.93 billion, did particularly well online during Singles’ Day 2016. AustCham Chief Executive Drew Waters.
“Chemist Warehouse online sales on Singles Day reached RMB 100 million in a single day,” Lau says, clearly demonstrating Chinese consumer demand for health and beauty products. Statistics released by eMarketer indicates global retail e-commerce is expected to grow by 24 per cent to $U.S. 1.91 trillion worth of transactions this year. In China alone, it’s expected to increase by 36 per cent to $U.S. 899 billion1. Opening the 2016 forum on November 24, Sam Guthrie, Deputy Consul-General (Commercial) & Senior Trade Commissioner, Hong Kong & Macau says 80 per cent of companies approaching Austrade were keen to explore e-commerce opportunities with China, a market that had around 413 million online shoppers in 2015. “In the coming years, it may represent as much as 20 per cent of China’s foreign trade. You can see why this has enormous opportunities for Australian business. Sales online at this year’s Singles’ Day increased by 32 per cent on the previous year. “Cross border e-commerce is also a cost effective and efficient method to test the Chinese market,” Guthrie said. Expert analysis at the 2016 forum was provided by Shanghai-based lawyer Martyn Huckerby, International Partner, King & Wood Mallesons; Fong Lau, Senior Manager–Business Development, Marvel Sun Enterprises; and Kara Cheung, Managing Partner, KCW & Associates. Australian online trade currently ranks fourth, by sales volume, behind the U.S., Japan and Korea on Alibaba’s international online platform Tmall Global.2 More than 1,300 brands are listed on this platform. According to Fong Lau, who specialises in fast tracking one-stopsolutions to cross border e-commerce business in China, Chemist Warehouse, a company with a reported Australian annual
While two of the three platforms available for online – B2B and B2C - are conventional business practice, the third, C2C (Daigou shoppers), is surprisingly successful. A recent report estimates there may be as many as 40,000 of these shoppers trading in baby formula, beauty products, wine and clothes4. “Typically these are Chinese students in Australia who post on social media sites saying do you want to buy something? I can buy it for you and ship it into China, Daigou’s add perhaps 10 per cent to the price,” he said. “The B2B model ships products into China in bulk, via online ordering and payment. B2C models are delivered in small packages and individual orders and you don’t have to have a legal entity in China. Two years ago, the government moved to regulate it. Now the B2C model is rapidly replacing the C2C model,” he says. Lau advises those seeking to take advantage of opportunities in China to look beyond platforms e.g. Tmall Global, which he says doesn’t allow you to develop a relationship with customers. “You can look at other ways, such as free traffic via WeChat. 31 per cent of WeChat users use their mobiles for e-commerce and it’s doubling each year,” he says. Selecting a platform is also important when it comes to payments. Martyn Huckerby says websites often have policies that are difficult to comply with from a payment perspective. He says there are advantages to working with a number of platforms and websites, and then taking the time to work out which terms and conditions most suit your particular company and the products you want to sell.
1 Source: www.bloomberg.com/news/articles/2016-11-10/alibaba-posts-1-billion-in-sales-in-5-minutes-on-singles-day 2 Source: 2016 Australian Trade and Investment Commission 3 Source: www.afr.com/street-talk/chemist-warehouse-in-focus-tinkers-with-structure-20161012-gs14kd 4 Source: www.bbc.com/news/business-3758473024, October 2016
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Sam Guthrie, Deputy Consul-General (Commercial) & Senior Trade Commissioner - Hong Kong & Macau.
Fong Lau, Senior Manager - Business Development, Marvel Sun Enterprises Limited.
Changing rules adds risk In April 2016, China announced new charges for goods traded via e-commerce including import taxes and tariffs, a value-added tax and a consumer tax. Uncertainty created by sudden government decisions like this, are one of the hazards of doing business in the PRC. “China loves laws and regulations, I’ve often described China as a lawyers paradise,” Huckerby says. “We’re seeing increasing regulation of health products, particularly if the product has health claims and infant formula is still very sensitive. Be very aware of your advertising in China. Any breach of
Martyn Huckerby, International Partner, Registered Foreign Lawyer, King & Wood Mallesons.
Kara Cheung Managing Partner, KCW & Associates.
advertising laws faces a fine typically equivalent to three times your advertising spend. We’re advising clients to break up the value of their advertising spend,” he says. Kara Cheung believes the new tax regime will put business and consumers in a better position but it’s left a lot of uncertainty about what will happen after 2017, when it’s implemented. She says another logistical risk is the location of warehouses. She warned new businesses to be aware of the dangers of shipping on trust and advises clients to check trade compliance before shipping to prevent goods, especially perishable goods, being held up by red tape.
2020, half of China’s digital
shoppers will buy foreign products China’s cross-border e-commerce to reach $U.S.85.76 billion in 2016, up from $U.S.57.13 billion last year. 40 per cent of the PRC’s online consumers buy foreign products.
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online, worth an estimated
$U.S.157.7 billion… Statistics: eMarketer
Protect your interests So how can Australian companies protect themselves with the regulations surrounding e-commerce in China? Martyn Huckerby says those planning to expand into cross border e-commerce need to consider three essential steps. • Have a clear strategy around plans for China • Take advice from a range of partners when devising and implementing a strategy to ensure legal and regulatory issues are taken into account right from the start • Monitor developments closely, as the position in China continually changes. Companies wanting to protect their interests should ensure they have a bi-lingual contract that provides for dispute resolution through arbitration in Hong Kong or Shanghai. And Huckerby also suggests doing your homework online.
It’s very easy to protect your trademark and your rights by taking some basic steps up front but very difficult and costly if you don’t …
Joining forces for business opportunities On a national level, the Australian government welcomes Chinese e-commerce seeing it as an opportunity for SME to leverage their products into a potentially massive market. In September 2016, Prime Minister Malcolm Turnbull and Jack Ma, Executive Chairman, Alibaba signed a two-year agreement at a ceremony in Hangzhou, to promote fresh local exports to the PRC.
“There’s a lot of information on government websites like Austrade, as well as others like AustCham Hong Kong & Macau, and of course our website. Feel free to reach out to us, we’re always happy to help,” he says.
Currently the most popular Australian goods sold to online buyers are vitamins, supplements, baby and dairy products, breakfast cereals and beauty products.
Protect your Trademark
Austrade also views this agreement as expanding online markets to potentially millions of Chinese buyers also seeking health and financial services.
Failing to protecting your trademark can have far reaching implications internationally. For example, the Icelandic government recently announced it was taking legal action against a U.K. company that owns the European rights to the name, saying Icelandic businesses are unable to promote their product’s origin across the EU5. “It’s very easy to protect your trademark and your rights by taking some basic steps up front but very difficult and costly if you don’t take those steps and you find somebody else has already filed an application for a similar mark and therefore, you are too late to the party,” Huckerby says. Huckerby says common mistakes include not having a Chinese as well as English trademark, failing to register a trademark in the right, or broad enough set of classes, and not having a coordinated IP strategy. The Federal government has stepped up its IP assistance for Australian businesses with Austrade and IP Australia recently announcing the appointment of David Bennett as the first Intellectual Property Counsellor to China. He’ll be based at the Australian Embassy in Beijing, helping Australian companies protect their IP and providing advice about IP registration and enforcement.
Proceed with caution While e-commerce is a growing force in business, analysts are concerned about figures being inflated, and a slowing in the rate of online expansion. National Australia Bank Group Chief Economist, Alan Oster says NAB puts out the only information about online retail in Australia. “We had this data for around about 5 years. What we found initially was that it was growing. What we’re now seeing is a fight back, so if you go into a normal store, it’s now price matching. It’s great that you have more access but it can go both ways,” he says. And while Singles’ Day sales in 2015 grew by 60 per cent, this year the rate of growth was only around half of that,6 potentially signalling that this market may slow in the future. The successful 2016 ACCESS China Forum was also an InterCham event supported by the Canadian, BelgiumLuxembourg, Danish, Dutch, Finnish, French and Norwegian Chambers of Commerce.
5 Source: http://www.bbc.com/news/uk-wales-38096058 6 Source: //www.bloomberg.com/news/articles/2016-11-10/alibaba-posts-1-billion-in-sales-in-5-minutes-on-singles-day
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Economic diplomats focus on the good news to innovate China-Australia partnerships - By Mukund Narayanamurti, CEO, Asialink Business
t has been a busy period in Australia-China relations. Over the past few weeks we’ve had the release of the Australia-China Joint Economic Report, the G20 and B20 in China, research by the Australia China Business Council highlighting opportunities for our services sector, and the latest round of grants announced by the Australia–China Council. So there is a lot of “good news” despite the negativity and hysteria around foreign investment, tensions in the South China Sea, and the spat between the swimming teams from both countries at the Olympics. That’s not to say Australia’s differences with China are mere hiccups. But much of the negative news in the foreground is taking place against a very positive backdrop of innovative ideas and constructive developments across the country. Take the example of local governments leading on China engagement. Economic diplomacy has always been the domain of federal departments. More recently state departments have been active. While local governments can never replace the weight of state and federal governments, certainly in the small and medium sized business sector, which represents more than 99% of all businesses and 70% of all employment, they can play a critical role in the nation’s growth. The City of Melbourne, the City of Sydney, Brisbane City Council, Warrnambool City Council, and the Toowoomba Surat Basin Enterprise are all driving significant business to business engagement with the Chinese market. In fact, Toowoomba Surat Basin Enterprise
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will soon take 200 local businesses to Shanghai in a bid to leverage opportunities in China in the areas of agriculture, health and aged care, tourism, education and manufacturing. In the age of cities, many local governments have strong leadership. Indeed, mayors are just as important as premiers and prime ministers. Admirably, Prime Minister Malcom Turnbull has effectively given his imprimatur to the lead taken by local governments by repeatedly highlighting the importance of their role to the nation. Support for local government initiatives, in particular missions to China to support sister city relationships, trade, and cultural exchange is crucial. Good news comes in many forms. There are great advantages for Australia to develop its e-commerce with China so that it serves as a platform for e-commerce with the world. A few weeks ago Alibaba, the Chinese e-commerce giant, launched its Australian office as part of its global go-to-market strategy targeting two billion businesses worldwide. It suggests that in the long term, Australian businesses should not consider Alibaba as merely part of their China strategy, but potentially part of their global strategy. Alibaba has acquired a strategic stake in Paytm, the largest mobile e-commerce player in India, and in Lazada, the largest e-commerce player in South East Asia. With these global structures in place Alibaba could serve as a channel to the world for Australian businesses.
While local governments can never replace the weight of state and federal governments, certainly in the small and medium sized business sector, which represents more than 99% of all businesses and 70% of all employment, they can play a critical role in the nation’s growth.
Beyond ‘business’? In the resources sector as sales slowdown and companies like BHP take a hit, who is likely to emerge as the next “Big Australian”? Could it be an institution in another sector? Perhaps the University of Melbourne, or the University of Sydney. Or perhaps even an innovation driven university such as UNSW, which has attracted the first Torch Innovation Precinct outside of China with a potential $100 million commitment from Chinese industry and government. If the label of “Big Australian” that we have always attached to BHP were to be reassigned to an institution of higher learning it has the potential to completely reframe how Australia is viewed by the region. It would certainly put to rest any idea that Australia is “rich white trash” as Singapore’s first Prime Minister Lee Kuan Yew once described us. Through top-class education and research, our universities have the potential to not just make us richer, but help us become a more strategically relevant nation to China and the wider region. And what better way to create and nurture ‘China-ready’ Australian leaders than to have our best and brightest educated by China’s preeminent university? There are many millionaires in Australia who have attained wealth on the back of trade with China. What if we could persuade them to give back to our nation, and our relationship with China, by creating an endowment that would support scholars to undertake study at, say, Tsinghua University in China?
Stephen A. Schwarzman, a co-founder of Global Private Equity firm Blackstone has done something similar with his $100 million contribution to support US scholars to study at Tsinghua. An Australian Tsinghua focussed endowment could work in much the same way that the Rhodes Scholarship has enabled Australians to attend Oxford University. Finally, while the corporate elites on Melbourne’s Collins Street and Sydney’s George Street have been speaking about China for a long time, actual trade with China has been happening out of the Pilbara (iron ore), Toowoomba (beef), the Barossa Valley (wine), Goulburn Valley (fruit), our universities (student recruitment), and through our airlines and airports (tourism). But these regions and institutions have some work to do before they are truly ‘China-ready’. They must foster language and cultural competencies, and develop a more nuanced understanding of the role of government in China, and of the political, economic and regulatory system. Being China capable is not just a ‘nice-to-have’ but essential to organisational success. These good news stories highlight that, ultimately, it is grass-roots engagement and the pockets of innovation across the country that will provide the ideas to fuel our long-term bilateral future with China. About the author: Mukund Narayanamurti is the CEO of Asialink Business, Australia’s National Centre for Asia Capability.
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Hong Kong Focus
What’s on China Market Trends – Case studies from Hong Kong Digital Marketing Helps Two-way Cross-border E-commerce Interview with AsiaPac
he advantages of Hong Kong being a free economy and an international city are fully reflected in the business model of AsiaPac, a cross-platform digital marketing solution provider based in Hong Kong. Noticing the rapid growth of cross-border e-commerce, Daniel Chan, a co-founder of AsiaPac, seized the opportunity to provide integrated digital marketing in Greater China. As one of the early authorised resellers in Hong Kong for Google and Yahoo, AsiaPac has helped many Hong Kong and overseas brands such as SaSa and AUSupreme tap into the mainland market through online advertising campaigns and cross-platform digital marketing. “Mainland consumers are pleased to be able to gain access to quality products via a trusted online platform,” said Chan. AsiaPac also helps mainland online merchants expand across the Chinese border into Hong Kong and overseas markets. “There are many advantages of setting up a company in Hong Kong to work with overseas advertising partners – the absence of valuedadded tax is only one of them,” said Chan. “With our years of experience in different markets and our strong local network, we are able to help clients identify relevant advertising channels, be it global or local platforms, for their advertising campaigns. We also help overcome language and cultural barriers, which are major challenges posed by cross-border e-commerce.”
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Apart from search engine marketing (SEM) and display network advertising, Chan believes it is also important for a digital marketing solution provider to help cross-border e-commerce players maximise their social-media power, as good use of social media can attract traffic to websites, facilitate interaction with customers and, ultimately, convert traffic to sales. “In China, home-grown social media such as WeChat, Sina Weibo, Tencent QQ and Youku are flourishing,” said Chan. “Mainland consumers enthusiastically share opinions, discuss brands and offer advice on social media. More than half of Chinese netizens have actively participated in online discussions about companies or brands. Engagement of social media in China is among the most intense in the world, and it has become deeply integrated into people’s lives, more than in many other countries. Enterprises intending to enter the e-commerce market in mainland China should learn about its unique digital landscape and have a socialmedia strategy in place. “It would be a big mistake to regard China as one market. Cultural and language gaps exist even in Chinese-speaking areas, especially in the use of internet catchphrases, in-jokes and slang on social media. When engaging a digital-marketing agency for the Greater China market, the client has to make sure that the agency has a local team which understands the local culture and language in different markets. To serve clients operating in different regions, we hire employees speaking local languages to ensure delivery of marketing messages in the most localised way.”
Hong Kong: One-Stop Electronic Payment Solution for Cross-border E-commerce - Interview with mPay One of the Hong Kong pioneers of electronic payment solutions for online merchants that conduct local and cross-border e-commerce and m-commerce is Sam Lam, who founded mPay eight years ago. Lam identified online payment as a niche market while working in the field of self-service & electronic payment service applications in the early 90’s. With his knowledge and know-how, Lam and his team successfully built a transaction-processing infrastructure that links suppliers, retailers, enterprises, mobile operators, and financial institutions in a secure end-to-end network. In collaboration with Visa and MasterCard (through the relevant banks), China UnionPay (CUP), Alipay, WeChat Pay, Octopus Online and PPS, Lam’s company enables online merchants to accept transactions from consumers in Hong Kong, mainland China, and countries worldwide. mPay charges customers a low set-up and annual fees, but its core revenue stream comes from taking a small percentage of each online transaction. The beauty of this business model is that mPay’s growth is geared to the success of its customers. With mPay’s one-stop secure online payment service (which supports multi-delivery channels and multi-currencies), e-commerce websites or mobile apps worldwide can open for business without the hassle of dealing with multiple financial institutions and a variety of payment methods. Furthermore, its customers can get a reasonable rate from the financial institutions that have partnered with mPay. The payment system also provides customers with detailed online reports of all their transactions. “Our service is especially valuable to SMEs that cannot afford their own IT teams to manage the online transaction process and deal with multiple payment methods,” said Lam. “Even large
corporations are deploying our service because it saves them a lot of daily hassle and manpower for a minimal service fee and a commission based on the transaction value. Our balanced ratio of SMEs and large corporations adds up to a solid customer base for our future expansion.” Today, 70% of mPay’s business comes from cross-border e-commerce and only 30% from local e-commerce. Its revenue has doubled in the past three years, and Lam expects the sales momentum to continue in the near term, with further significant development likely. “At present, the majority of mPay’s customers are merchants based in Hong Kong, but our one-stop online payment solution can easily support merchants with operations overseas or on the Chinese mainland,” he said. “The only requirement is that these merchants should have a company registered in Hong Kong. Hong Kong is well-positioned to serve both the overseas and the mainland markets. We are proud to announce that we can serve Hong Kong merchants with UnionPay and Apple Pay from the fourth quarter this year.” Apart from his prime focus on electronic payments, Lam provides other innovative services to his customers. One of his latest products is the “MetroLink” service that utilises virtual reality (VR) technology and is specially designed to demonstrate luxury products to online consumers. By downloading the merchant’s app onto their smartphones, consumers can see how different items look on their wrists and purchase items without leaving their homes. Lam said: “Previously, VR technology has mainly been applied in the fields of engineering, entertainment, education and design. In the future, I anticipate VR applications will be widely used in the e-commerce and m-commerce environment to enable users to interact with all kinds of products in a context similar to a real life situation. When this happens, it will take the user experience to the next level.”
Source: HKTDC. For more information on this topic or more, please visit http://research.hktdc.com
issue 186 | austcham news
Managing China Procurement Risk for SME’s – A Case Study - Paul Belcher This case study presents the issues associated with the purchase of building equipment from China by an Australian Buyer and discusses the lessons learnt to; provide a guide for companies importing from China and to highlight the importance of developing a sound procurement strategy.
he names of the buyer and supplier have not been used to protect both of their interests. However, the case study includes an Australasian Company (the Buyer) that had been buying product (the Building Equipment) from China through an Australasian Agent (the Agent) for several years. The agent was buying the equipment from a Chinese manufacturer (The Manufacturer) and this was the fifth order for the Equipment with the same Agent. The previous four orders had been delivered satisfactorily with only minor problems. The Buyer followed the same process for the fifth order, which included paying the Agent a 30% deposit with the purchase order and a 70% final payment apon completion of manufacture and prior to the goods leaving the factory. The Buyer contacted the Agent several times after making the final payment and was re-assured that the Equipment would be delivered per the schedule. A week after the due delivery date, the Buyer contacted the Agent to find out why the Equipment was late, but the Agent was not answering phone calls or emails. The Buyer persisted with further enquiries and discovered that the Agent had gone out of business and was uncontactable. The Buyer was getting nervous since he was subject to liquated damages for late supply of the Equipment. He eventually managed to contact the Manufacturer and explained that the Agent had bankrupted and he would be dealing direct with the Manufacturer. He asked for an update on the progress on the manufacture and delivery of his Equipment and was devastated to discover that not only had the Agent not placed an order for the Equipment with the Manufacturer, the Agent had not paid the Deposit or the Final Payment to the Manufacturer. The Buyer did not have time to find another suitable manufacturer and placed an order with the same Manufacturer to ensure that the Equipment were delivered in time and avoid the liquidated damages for late delivery. After paying the 30% deposit, the Buyer received an email from the Manufacturer to advise that they were having difficulties with their bank and could he transfer the money to a different bank account. That’s when the Buyer contacted MadePartners (The Representative). By ringing the Manufacturer, the Representative discovered that the email requesting the banking details was not in fact sent by the Manufacturer. Smelling a scam was involved, closer investigation of the email address revealed a slightly different email address to the original Manufacturers email address.
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Although the transfer had been made to the Scamming Company’s (the Scammer) bank account, the Buyer was able to stop the payment of the deposit to the Scammer. In the meantime, the Representative visited the factory to make sure that the next payment went to the Manufacturer’s nominated bank account. Subsequently, the Representative was able explain the situation to the factory and facilitate the successful payment of the deposit. With sufficient empathy and pressure, the Representative was also able to negotiate a production slot with the Manufacturer that would allow for the Equipment to be manufactured and delivered in time to avoid liquidated damages. Whilst on site, the Representative carried out a brief audit of the Manufacturer’s facility. The audit identified issues such as; the Manufacturer did not carry out the electrical installation to any known standard, and there was no packing specification to ensure that the Equipment were packed to avoid damage during handling and shipping. The Buyer advised that he did not need the Representative to carry out in process inspection nor witness the testing and commissioning of the Equipment during production, but agreed that a final inspection should be carried out before final payment. Subsequently, the Representative carried out a final inspection and, in the absence of a packing specification, worked with the factory to get the packing quality improved prior to the final payment of 70% being released by the Buyer. The Equipment arrived at the Buyers premises on schedule and he avoided liquidated damages. The Buyer also commented that the packing quality was significantly improved over the packing from previous deliveries. Installation and testing of the Equipment was carried out in accordance with the Buyers original schedule. However, two faulty electrical panels were identified during commissioning that prevented the installation to be completed. The Buyer contacted the Manufacturer to urgently send replacement electrical panels. After two days with no response, the Buyer asked the Representative to contact the Manufacturer to speed up the supply of the replacement panels. The Representative learnt that the Manufacturer’s contact person was on a business trip and could not respond to emails. The Representative persuaded the Manufacturer to act quickly to get manufacture of the new panels underway. The replacement panels were air freighted and successfully installed and tested by the Buyer. Unfortunately, the delay in the supply of the replacement electrical panels led the Buyer to incur liquidated damages.
Lessons Learnt The lessons learnt presented below are based on the recommendations that were provided and implemented.
Payment to Manufacturers • China factories typically want 30% deposit and 70% by T/T ex factory • This regime is risky for the buyers as it is based on commercial credibility and not 3rd party guarantee. • A letter of credit provides better protection for the buyer and is considered a fair payment term for the buyer.
Dealing direct to manufacturers versus agents • Agents maybe OK if you need to consolidate your small order with a large order • Risks include, the agent goes out of business, the agent changes factories or the factory outsources their work to another factory, which can negatively impact quality. • Use a local partner if going direct to a factory. Qualifying Suppliers • Agents and suppliers should be qualified to make sure they can meet your requirements • If using an agent it is recommended to pre-qualify their suppliers. • If the agent is reluctant to provide the names of their suppliers, then maybe look for another agent as they should add more value than just knowing the Chinese factory.
Inspection, FAI, Testing and Surveillance • A final inspection before shipment is not enough for Specifications complex products. You might get lucky once, but that • Be very specific about your requirements does not guarantee success for the future. and how your product should perform. • Managing the delivery program is essential to keep the • Reference international standards where manufacturer on schedule. This is more significant if possible and applicable. you are responsible for the shipping. • Prepare specifications that include • Develop and agree an Inspection and Test Plan with material, testing and packing requirements. the manufacturer and have somebody check that the inspections and tests are being carried out correctly to reduce risk of non-compliance. • Review the test procedures to make sure they are Relationships adequate and appropriate. • Relationships in China are an important • Have critical inspections and tests witnessed and aspect of a good outcome. Invest time into verified. developing these relationships. • Verify that non-conformances have been closed out • It is difficult to develop meaningful China prior to making the final payment. relationships from foreign markets due to distance, cost, cultural and language barriers. Supply Chain Review • Use someone that speaks Chinese and • Identify and develop relationships understands your product and needs to with alternative suppliers to confirm represent you. quality and pricing are competitive and to provide a backup!
Importing from China is in most cases a complicated task. Before taking actions to source from China it is highly recommended to carry out a risk assessment and develop a clear procurement strategy.
Source: MadePartners. For more information on China Procurement Strategy, please contact Paul.Belcher@madepartners.com
issue 186 | austcham news
Hong Kong Lagging Behind on Gender Diversity? Think Again
n Australia, Telstra Business Women’s Awards are the longestrunning and most esteemed women’s awards program that champion women from diverse industries, and ensure their achievements are given the recognition they deserve. For the first time this year, the Award has been launched across Asia as Telstra is growing its presence in the region. AustCham member Kimberley Cole, Head of Sales Specialists & Business Development, Financial & Risk, Asia, at Thomson Reuters, and the founder of the Risky Women Trust Forum Asia, was among the finalists of the inaugural Telstra Business Woman in Asia Award. Prior to the award recipient’s announcement, Kimberley shares her leading views on the status of gender diversity and gives advice to other female business leaders in this city. As one of the seven finalists of Telstra Business Women’s first Asia award, can you give us some examples of your work on driving gender diversity? I love a good challenge, am results focus mixed with entrepreneurial spirit and love problem solving! Networks are crucial when you moved as I have. I have built many networks and several also spotlight my other passion around gender equality. In 2009, I cofounded Women in Finance Asia in Hong Kong, connecting women’s networks across financial institutions. This highly credible volunteer organization continues to thrive almost one decade later with 1500+ members. I remain involved as Chair Emeritus and an enthusiastic attendees. My latest network is the global Risky Women Network. A business generation and engagement network for women across risk, regulation and compliance- operating in seven cities and rapidly expanding. The value is in accelerating both the pace of change and also showcasing the many talented women we have in this region to drive aspiration and paint possibilities. What does it mean to you to be shortlisted for this Award? Becoming part of an amazing alumni who are all inspiring and have fascinating stories and histories that I can’t wait to learn more about when I get to Melbourne. Clearly, Telstra also does a brilliant job at raising the profile of all the finalists, which is great for us in a business context and for the other passions and pursuits from gender balance to stopping slavery that I am involved in! You are the founder of Women in Finance Asia, and you have experience working in three continents. How do you see the gender diversity in Hong Kong, comparing with other markets in Asia? What are the major challenges we still need to overcome? The main issues from my vantage, which is not necessarily one that everyone has, is a problem at the middle management level. Some policies and guidelines which are well established and accepted in other countries like flexible working are not understood or managers are not trained to support, in Hong Kong. There often remains a desire to be able to "see" workers and not manage on outputs and
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deliverable which also leads to a tighter less flexible regime. There are many differences with the accessibility of childcare and home support in Hong Kong which provide wonderful opportunities for families to allow both parents to work. However, I think we need to tackle more of the family challenges and improve parental leave and encourage or "allow" men to play the role they want in their children's lives. Increasingly they want more but flexibility for them is also seen as a step off the career ladder. There remain stereotypes everywhere that are difficult for both men and women in the workplace to do things differently. What advice would you give to female business leaders in Hong Kong? Do what you can to help other women on their career journey. Any suggestions to companies that wish to attract and retain senior female talents in the city/across Asia? There are some great initiatives now in place and many best practice ideas they could look at. The Australian Male Champions of change program with the "all roles flex" and panel pledge are two great ideas. Think about the culture and ensure you measure and track what is going on at all levels of the organisation so you can take action. Thomson Reuters has recently released a great D&I Index which ranks the top 100 publicly traded companies globally with the most diverse and inclusive workplaces, as measured by 24 metrics across four key categories: Diversity, Inclusion, People Development and News Controversies. The Index is then calculated by weighing each metric based on importance in the market and how each company compares with its peers. We see this as addressing an area of increased focused by companies who are looking beyond financial data to sustainability and to make "better" and socially responsible investment decisions. So for me you need to look at the metrics and maybe you need to set yourself targets if not quotas!
Very special thanks to Kimberley and Platinum Patron Telstra!
Mentor Programme Update
s we reach the half-way point for the AustCham Mentor Programme, we took the time to meet with all of our Mentees individually and hear about their journey so far. It was a great month of talking one on one and getting to know what a success the programme has been to date, and the impact it has been having on each individual. One of things identified was the desire to spend more time getting to know others in the programme, especially their ‘Mentor Circle’. With this in mind, we held our first Mentor Programme Mix Event on the 2nd of November at KPMG, who very kindly donated the use of their incredible space and more importantly - their bar. (And yes this was the day after Melbourne Cup - so thank you to those who managed to get there!)
The event was a combination of wine tasting, networking and structured discussions and activities in the ‘Mentor Circles’. It was a great night, which as usual, kicked on well past the scheduled finish time. A big shout out to the amazing Wine Brothers Team (whose Jim Bob is actually a Mentee in this years’ programme) for co-sponsoring the event, supplying the best small batch wine in Hong Kong, and educating us on all things wine. We are looking forward to our next event at Minter Ellison: “Young Executives - A Journey to the Boardroom” and “Leadership is not a title, but it’s a way of being” – See you there! - AustCham Mentor Programme Manager
rom Michael Lewis, the No.1 bestselling author of The Big Short and Flash Boys, this is the extraordinary story of the two men whose ideas changed the world.
Forty years ago, psychologists Daniel Kahneman and Amos Tversky published groundbreaking research that challenged our assumptions when it comes to making decisions. Their papers showed that when people are forced to make decisions in uncertain situations they tend to be irrational and make mistakes. Their work created the new field of behavioral economics, launched Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation and is responsible for the recent belief that it is better to mistrust human intuition and defer to algorithms. Most of us can access their work in the hugely best-selling book by Kahneman, Thinking Fast and Slow. Daniel Kahneman won the 2002 Nobel Prize in Economics (Mr. Tversky died in 1996.) Michael Lewis had explored similar ideas in his own best-sellers, Moneyball and The Big Short, both adapted into Oscar-nominated movies. Ironically, however, Lewis only became aware of this research when he came across a reference to them in a review of his own book, Moneyball, in 2003. This prompted a meeting between Lewis and Kahneman and what transpired from that meeting was hundreds of interviews between them and The Undoing Project. The Undoing Project is about the collaboration between these two masterminds, Kahneman and Tversky. Both men came from extraordinary life experiences: Amos Tversky was a brilliant, self-confident warrior and extrovert, the center of attention in any room; Kahneman, a fugitive from the Nazis in his childhood, was an introvert whose questing self-doubt was the seedbed of his ideas. They became one of the greatest partnerships in the history of science, working together so closely that they couldn’t remember whose brain originated which ideas, or who should claim credit. They flipped a coin to decide the lead authorship on the first paper they wrote, and simply alternated thereafter. Michael Lewis explores the workings of the human mind through the personalities of two fascinating individuals so fundamentally different from each other that they seem unlikely friends or colleagues. In the process, Lewis tells us how they have changed, forever, mankind’s view of its own mind.
The Undoing Project: A Friendship that Changed the World by Michael Lewis, HK$320 Available from Bookazine (release date: December 6, 2016)
www.bookazine.com.hk issue 186 | austcham news
Committees in Action
Finance, Legal and Tax Committee: A Conversation with Kerry McGlynn
erry McGlynn is special adviser to Swire and Cathay Pacific, following 28 years with the Government, during which time he was press secretary to the last British governor, Chris Patten. Kerry was born and educated in Sydney, where he worked as a journalist and editor before joining the Hong Kong Government in 1974. He also worked as a foreign correspondent in London between 1964 and 1968. AustCham Chief Executive Drew waters, Jacinta Reddan, Kerry McGlynn and Chair of FLT Committee Darren Bowdern.
The Committee hosted a briefing session with Kerry McGlynn on the eve of his return to Australia. Kerry shared his war stories and colourful anecdotes with members on the day.
Thanks to Jacinta Reddan for organising this conversation chat.
Construction, Property and Infrastructure Committee: Kai Tak Sports Park Project AustCham Chief Executive Drew Waters with guest speakers and CPI Committee Chair Paul Scott.
he new Kai Tak Sports Park KTSP heralds another exciting chapter in the transformation of our city, and the East Kowloon district. Representing the most important investment of the Government in sports infrastructure in recent decades The Sports Park will enhance Hong Kong’s reputation as a world class city and destination. Upon completion, the Kai Tak Sports Park will have a Main Stadium with 50,000 spectator capacity that will deliver an exceptional experience to sports fans. The stadium will incorporate state of the art technology and provide a wide range of seating and hospitality options. There will also be a Public Sports Ground, an Indoor Sports Centre, a sportsthemed destination shopping centre and a ‘dining cove’ of waterfront food and beverage and retail outlets. AustCham’s Construction, Property and Infrastructure Committee recently hosted a breakfast session with Michael Camerlengo, Director, Infrastructure Advisory from KPMG and Linda Law, Principal Assistant Secretary from Home Affairs Bureau, who went through the planning of KTSP and shared updates of the project with attendees.
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Finance, Legal and Tax Committee: Meeting Senator the Hon Mathias Cormann Senator the Hon Mathias Cormann, the Australian Federal Minister for Finance, briefed AustCham members during his visits to Hong Kong earlier in November.
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issue 186 | austcham news
Membership eCard Benefit AustCham Farmer's Kitchen is offering
ard AustCham members a 10% discount Membership eC in November. Farmer's Kitchen is a Premium Online Butcher selling farm fresh Australian meats flown up weekly fresh from the farms. All of their products are restaurant quality, traceable from one source for each product and home delivered across Hong Kong 5 days a week with no minimum spend. Order online at www.farmerskitchen.com.hk
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Avion Shipping Co., Ltd G/F – 2/F, Block A, Union Industrial Building, 27 Ko Fai Road, Yau Tong, Kowloon, Hong Kong. www.avionhkg.com.hk Avion Shipping is international freight forwarder and specialise logistics service solution provider. We are offering air freight, ocean forwarding & warehouse as well as logistics services. We have various professional teams and modern system facilities including 30,000 cube feet warehouse to provide diversify services and suitable solution. With our global networks, our services are covering round the world with major cities. What are the main skills of your job? Trough my professional work experiences, I lead different professional teams to meet various customer requirements, so that they can know more different solutions. What’s the most unusual thing you have had to do as part of your job? Remember once, a customer has special requested that we must deliver their exhibition samples and catalogs to foreign exhibition centre on tomorrow morning. So I immediate arranged my staff to bring this samples and catalogs by tonight flight and deliver to foreign exhibition on time. What does your company do really well? Avion is like a tailor to tailer-made the suitable logistic services solution to meet various customers’ requirements
Raymond Lee Managing Director What is the vision of your company in 10 years? The company’s fleet can drive to the round the world, providing domestically and internationally one-stop services and professional advices. What’s something most people don’t know about your company? In Greater China, we have own 4 branch offices and over 30 close partners in major cities. What’s your company’s connection to Australia? We believe that the direct communication is very important especial for logistics service provider, so we have own branch offices in both of Sydney and Melbourne. How would you describe your workplace and colleagues? The workplace is very harmony, all staffs are diligent and willing to upgrade themselves. What’s your favourite place to go on the week-end? In the heavy work, the exercise is an ideal weekend activities, whether in the sport field or park. Not only can limber up one’s muscles & joints and breathe fresh air, but also can enjoy family happiness.
AustCham Platinum Patrons
issue 186 | austcham news
Joint Dynamics Ltd. 5/F, Asia Standard Tower, 59-65 Queens Road Central, Hong Kong www.jointdynamics.com.hk
Joint Dynamics is Hong Kong’s first multidisciplinary studio combining physiotherapists, chiropractor, manual therapists and highly qualified personal trainers. We provide a bespoke approach to prevention and treatment of movement impairments and injury and professional guidance towards health and fitness goals. The approach to treatment and training has been developed to facilitate movement capability. By treating patients with strong assessment, state of the art interventions and the addition of restorative personal training, Joint Dynamics offers a complete musculoskeletal package for clients who suffer anything from chronic pain, to people in need of fine-tuning and those seeking to condition themselves in preparation for sports competitions. Joint Dynamics’ credo is “intelligent movement for life”. What are the main skills of your job? Business development and relationship management take up the majority of my time however this is mixed with training my own clients and overseeing development strategy for the business as a whole. What’s the most unusual thing you have had to do as part of your job? As a business owner I’ve done almost every job within the company, probably the most unusual though is running the Oxfam Trail Walker (endurance race) on three weeks preparation to fill in for an injured team member. What does your company do really well? Manage and integrate a client’s journey from injury to strength and from strength to performance. It does not matter where someone joins us there are team members who can professionally support all stages of progress.
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David Jacquier Director
What is the vision of your company in 10 years? Looking to expand our size and scope across multiple locations within Hong Kong and around Asia. We are aiming to be the premium provider of allied health services in the areas of rehabilitation through to high performance training. What’s something most people don’t know about your company? This year we’ve supported a solo trekker across the Mongolian desert, a world class MMA fighter, a trans Atlantic team rower, a Hong Kong Olympic swimmer and a group of brave runners from the “Free to Run” organisation. What’s your company’s connection to Australia? The majority of our board are Australian, and the remaining two are still struggling to understand us. How would you describe your workplace and colleagues? Passionate. Learning and teaching are an everyday part of our workplace, “everyday is a school day!” What’s your favourite place to go on the weekend? The Hong Kong Cricket Club
On The Scene
Hosted by AustCham and New Zealand Chamber, the 63rd InterCham Young Professionalsâ€™ Cocktail was held at PLAY Central in late November, attendees from near 30 international chambers joined the event on the night.
issue 186 | austcham news
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