KPMG ITS seminar 3 march full slide pack

INTERNATIONAL TRADE SERVICES March 2015

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SPEAKERS Paul O’Brien – Business Manager Nutraceuticals, Douglas Pharmaceuticals. Paul has experience in the pharmaceutical, natural health and FMCG sectors in New Zealand, Australia and China. His current role at Douglas Pharmaceuticals has him leading the Nutraceutical team with a focus on China and natural health export opportunities. Prior to this, Paul was the CEO of Easiyo where he worked with NZT&E to develop new markets in China where New Zealand dairy probiotics are highly sought after.

Nathan Penny – ASB Rural Economist.

Nathan’s expertise lies in commodity markets, trade economics and economic forecasting; in particular, he’s a leading global dairy trade commentator.

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By Paul O’Brien

Summary: 1. No contracts

6. Consumer research

2. Saving face

7. Multiple distributors

3. CoD, NZ$, LC

8. Make premium

4. Rebates

9. On line important

5. Just one city

10. NZ Inc. necessary

No Contracts  They won’t honour them.  The negotiation starts when the contract is signed!!  Contracts my be valid for that day….not in a few months  Almost impossible to enforce in Mainland China  Threaten Government investigation if swindled  MoU more useful “ you do this, we do that”

Saving Face  Don’t believe anything from China, especially docs/certs  Family take precedence before Kiwi businessman  Relationships are important, but still family first  Lies are not really lies, just saving face  Protocol and etiquette still important, let them save face

Cash in Advance  NZ $ transactions preferred over RMB or US if possible  L/C’s are preferred as safer, TT ok too  Never give credit…..the Chinese don't.  If they can’t afford to pay up front be careful  When travelling to China apply for an APEC card

Retro Rebates  Give retrospective rebates instead of discounts, say 5%  Link them to marketing spend  Watch receipts closely ( get them translated )  OK to give rebate in stock, say 7.5% to 10%  When visiting the distributor, check on their marketing

spend and go to their warehouse.  Always visit your retailers when in market.

Just One City  Just one city is big enough eg Wuxi, Nanjing, Tianjin,    

Shenzhen, Qingdao, Hangzhou, Dalian.

Many cities over 10 million people Tier 2 and 3 have great spending potential The further away from Beijing the more affluent Distributors are mostly regional focused (China = Eu)

Consumer Research  Consumer research very important (this is not NZ)  Route to market critical  Sensory testing may be needed if F&B  Packaging changes may be needed  Do quant and qualitative ideally ( NZTE may co fund?)  Tier 2 & 3 cities too  Use social media to understand consumer needs

Multiple Distributors  Get multiple distributors with some exclusivity, NOT ONE     

DISTRIBUTOR. Many will ask for whole China exclusive Beijing and Shanghai are just so different Keep the relationships competitive Promote the best ones, stop supplying the worst ones Review 6 monthly

Make Premium  Make your product or service PREMIUM ‘We are

expensive!’  Chinese love showing off brands ( conspicuous consumption) e.g. phones, cars, handbags, clothes etc.  The most expensive product in a sector is desired  Don’t discount, better to rebate later

On Line  On line can be better than retail e.g. Taobao  Get flagship on line mall for authenticity  Courier transportation is cheap and efficient  Watch web site stealing and non approved sites  Blogging sites can be inexpensive PR e.g. 11/11 sales  Auckland University Masters IB Dept. can help ( email

Susan: s.sum@auckland.ac.nz

NZ Inc.  NZ Inc. is critical particularly F&B  Build it around your USP.  Use NZT&E where possible, e.g. video links, photo’s ( NZ

Story is essential to use, “open hearts, mind, spaces”)  Subsidise distributor trips back to NZ to breathe culture  See NZTE and Export NZ export ready survey?  Join Export NZ and get mentor assistance

Conclusion  Thanks for attending.  If you get stuck in China call me.  Paul O’Brien phone 027 591 7061  Questions/ comments??

Looking back to look forward Nathan Penny – ASB Rural Economist KPMG Exporter Seminar February 2016

Disclaimer This document is a private communication and is not intended for public circulation or for the use of any third party, without the approval of ASB. The information contained in this document is given with an express disclaimer of responsibility. No right of action shall arise against ASB or its employees either directly or indirectly as a result of this information. Those acting upon this information do so entirely at their own risk. This information does not purport to make any recommendation upon which you may reasonably rely without taking further and more specific advice.

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Outline • Look back at 2015 • What have we learned?

• What can we take heading into 2016?

• FX forecasts • ASB Kiwi Dollar Barometer

– Next time!

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looking at 2015 in the rear-view mirror Total exports By top 30 categories Year ended December Commodity / service

Milk pow der, butter, and cheese Business and other personal travel services Meat and edible offal Logs, w ood, and w ood articles Education travel services Fruit Air transport Mechanical machinery and equipment Wine Fish, crustaceans, and molluscs Casein and caseinates Confidential items (3) Electrical machinery and equipment Miscellaneous edible preparations Aluminium and aluminium articles Preparations of cereals, flour, and starch Telecommunications, computer, and information services Optical, medical, and measuring equipment Wool Precious metals, jew ellery, and coins Wood pulp and w aste paper Crude oil Financial services Iron and steel, and articles Textiles and textile articles Management fees Sea transport Other animal originated products Raw hides, skins, and leather Plastic and plastic articles

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1. Dairy 2. Oil 3. Forestry 4. Iron & Steel 5. Textiles 6. Hides, skins & leather 7. That’s it!!!

2015 export stars

 Total, $1.9bn (3%)  Tourism, $2.3bn (31%)  Meat (beef), $900m (15%)  Fruit, $500m (31%)  Education, $300m (11%)  Confidential items???

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2015 export stories

 NZ Dollar - Dairy’s influence NZD/USD AND NZ USD COMMODITY PRICE INDEX

Index 1997=100

USD

300

1.00 Dairy Prices in USD (LHS)

250

0.90

200

0.80

150

0.70 NZD/USD (RHS)

100

0.60 Sources: ASB, Datastream

50

0.50 06

22

07

08

09

10

11

12

13

14

15

16

2015 export stories

ď‚Ť Mix of exports/markets SHARE OF NZ EXPORT VALUES 30%

30% Source: Stats NZ

Australia

20%

20% Asia (excluding China, Japan and Australia) China

US

Japan

10%

10% Europe

UK 0%

0% 99

23

01

03

05

07

09

11

13

15

Top 25 exports By commodity/service and destination country/econo Year ended December Commodity/service

Destination

Milk pow der, butter, and cheese

China, People's Republic of

Other personal travel

Australia

Meat and edible offal

United States of America

Other personal travel

European Union

Meat and edible offal

European Union

Logs, w ood, and w ood articles

China, People's Republic of

Other personal travel

China, People's Republic of

Meat and edible offal

China, People's Republic of

Other personal travel

United States of America

Other business services

Australia

Precious metals, jew ellery, and coins

Australia

Transportation services

Australia

Education travel services

China, People's Republic of

Crude oil

Australia

Milk pow der, butter, and cheese

United Arab Emirates

Fruit

European Union

Education travel services

India

Mechanical machinery and equipment

Australia

Milk pow der, butter, and cheese

United States of America

Milk pow der, butter, and cheese

Malaysia

Wine

European Union

Transportation services

United States of America

Aluminium and aluminium articles

Japan

Milk pow der, butter, and cheese

Algeria

Business travel services

Australia

2015 export stories

 China’s mix of growth vs. level of growth CHINA GDP & INDUSTRIAL PRODUCTION

y oy

yoy

16

30

y oy

CHINA RETAIL TRADE & INDUSTRIAL PRODUCTION

yoy

30

30

Source: Bloomberg

Source: Bloomberg

14

25

25

25 Retail Trade (LHS)

GDP

12

20

20

20

10

15

15

15

8

10

10

10

6

5

5

5 Industrial Production (RHS)

Industrial Production (rhs) 4

0 94

24

96

98

00

02

04

06

08

10

12

14

16

0

0 00

02

04

06

08

10

12

14

16

2016: what can we learn from 2015?

NZD/USD AND NZ USD COMMODITY PRICE INDEX

Index 1997=100

USD

OCR FORECASTS

%

(ASB vs pricing of overnight index swaps) %

1.00

4.0

4.0

250

0.90

3.5

3.5

200

0.80

3.0

300 Dairy Prices in USD (LHS)

3.0 Current market pricing

150

0.70

2.5

0.60

2.0

2.5

NZD/USD (RHS) 100 Sources: ASB, Datastream

Source: ASB

50

0.50 06

25

07

08

09

10

11

12

13

14

15

2.0

16

ASB Economics Forecast (peak of 3.5% in 2020)

1.5 1.5 Sep -13 Jun-14 Mar-15 Dec-15 Sep -16 Jun-17 Mar-18

FX forecasts ASB forei gn excha nge foreca s ts (end of quarter)

USD per NZD GBP per NZD AUD per NZD JPY per NZD EUR per NZD CNY per NZD TWI - 17 country

26

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

0.64 0.44 0.93 74 0.58 4.10 69.2

0.65 0.43 0.93 73 0.58 4.10 69.1

Mar-17 Mar-18

<< actual forecast >>

0.685 0.462 0.940 82.5 0.626 4.444 74.4

0.62 0.43 0.95 71 0.59 4.06 69.4

0.63 0.44 0.94 74 0.58 4.10 69.4

0.66 0.43 0.93 73 0.57 4.09 68.9

0.70 0.44 0.88 83 0.56 4.13 68.6

NZD has adjusted lower, slightly more to come USD

NZD/USD and NZD/AUD

AUD

1.00

EUR

JPY

NZD/EUR and NZD/JPY

1.00

120

NZD/USD (LHS) 0.90

0.95

NZD/EUR (lhs)

0.70

NZD/JPY (rhs)

0.80

0.90

0.70

0.85

100 (f)

0.60 80

0.60

0.80

0.50

0.75

0.50

60

(f) 0.40

0.70 NZD/AUD (RHS)

0.30 0.65 Mar-93 Mar-98 Mar-03 Mar-08 Mar-13 Mar-18

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0.40 Mar-93

40 Mar-98

Mar-03

Mar-08

Mar-13

Global picture & Volatility

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Inflation (and wages) %

NZ CPI INFLATION

%

6 Source: Stats NZ, ASB

6

Annual %

5 5

NON-TRADABLE INFLATION & WAGE INFLATION Non-tradable inflation

% 4.5 f /c

4.0 3.5

4 4

3.0

3

2.5 3

2

2.0

1.0 0.5

quarterly change

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LCI all sectors inflation (rhs)

1

0 -1 Jun-00

1.5

2

1

Jun-03

Jun-06

Jun-09

Jun-12

Source: Stats NZ, ASB estimates Jun-15

0 Jun-97

0.0 Jun-01

Jun-05

Jun-09

Jun-13

Jun-17

Interest rates low for a long time OCR FORECASTS

%

(ASB vs pricing of overnight index swaps) %

4.0

4.0

%

SWAP RATE FORECASTS

6.0 Source: ASB

5.5 3.5

3.5

3.0

3.0

10-year average

5.0 4.5

Current market pricing 2.5

2.5

4.0 3.5

Dec 2017 Current

3.0 2.0

2.0 Source: ASB

ASB Economics Forecast (peak of 3.5% in 2020)

1.5 1.5 Sep -13 Jun-14 Mar-15 Dec-15 Sep -16 Jun-17 Mar-18

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2.5 Dec 2016

2.0 1.5 OCR

901235710day yea r yea r yea r yea r yea r yea r

Broad global outlook aapc

NZ TRADING PARTNER ANNUAL GDP GROWTH

8

NZ TRADING PARTNER GDP GROWTH

aapc

10

2016 & 2017: Forecasts

Asia ex-Japan 8

6 Av erage

6 Australia 4

4

2 US

2

0 -2

0

Euro area -4

-2

Source: Consensus Inc, Stats NZ, ASB

2015 - Estimate

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Source: Consensus Inc, Stats NZ, ASB

-6 Dec-00

Dec-04

Dec-08

Dec-12

Dec-16

China: trend slowing of growth y oy

CHINA GDP & INDUSTRIAL PRODUCTION

16

CHINA RETAIL TRADE yoy 30

y oy

yoy

25

Source: Bloomberg

25

14

20 12

GDP

20

15 10

15

8

10

6

5

10

Industrial Production (rhs) 4 0 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15

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5 Source: BloomberG

0 Jan-99

Jan-02

Jan-05

Jan-08

Jan-11

Jan-14

Economic forecasts ASB economi c foreca s ts

Jun-15

Sep-15 Dec-15 Mar-16 << actual forecast >>

Sep-16

Dec-16

Mar-17 Mar-18

2.9 2.4 7.8 4.9 7.5 5.7 2.3 0.9

2.3 2.3 5.7 2.0 7.1 3.5 1.7 0.4

2.2 2.3 5.9 1.9 6.2 1.6 2.2

2.2 2.2 6.5 1.9 5.0 -0.3 2.5

2.2 2.2 7.1 1.3 3.0 -0.3 2.4

2.5 2.3 6.9 2.6 1.8 0.4 2.7

2.7 2.6 6.7 2.5 1.4 1.5 3.0

3.5 3.5 4.4 5.9 2.7 4.1 3.5

Q%

3.3 2.7 8.6 7.4 5.7 6.6 2.4 0.3

NZ CPI

A%

0.4

0.4

0.1

0.5

0.5

0.9

1.6

1.7

1.7

NZ hous e pri ces (QV i ndex)

A%

10.5

14.2

11.2

8.8

5.8

1.4

2.2

1.9

1.4

5.9 1.8

6.0 1.7

5.3 1.6

5.8 1.8

6.0 1.7

6.0 1.8

6.1 1.8

6.1 1.8

5.6 1.9

-8.3 -3.4

-8.1 -3.3

-7.8 -3.2

-7.4 -3.0

-7.4 -3.0

-7.3 -2.9

-7.0 -2.8

-6.7 -2.6

-6.6 -2.4

NZ GDP real pri va te cons umpti on dwel l i ng cons tructi on other i nves tment exports i mports NZ GDP rea l NZ GDP rea l

NZ unempl oyment (s a %) NZ pri va te s ector wa ges (LCI) NZ current a ccount ($b) a s a % of GDP

AA% AA% AA% AA% AA% AA% A%

Qtr A% Yr Yr

A% = percentage change since same quarter the previous year AA% = percentage change for year ending quarter since the previous year

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Jun-16

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