The Kiwi Business Guide to Thriving in China

For New Zealand business owners aspiring to enter the Chinese market, a strategic approach is essential. Recent research by Dr Antje Fiedler and Dr Benjamin Fath, Senior Lecturers at the University of Auckland Business School, provides valuable insights into navigating the complexities of the Chinese market.

Their study underscores the importance of understanding regional variations within China, recognising that each city possesses unique characteristics and consumer behaviours. Tailoring business strategies to align with these local nuances can significantly enhance the likelihood of success.

Playbooks and Cities

When considering the Chinese market, it is natural to associate its vast potential with significant profit opportunities. However, approaching it solely with this expectation can lead to overlooked opportunities and potential setbacks.

"The problem in [navigating] the Chinese market is its complexity. So, from the perspective of a small firm – complexity is ultimately a huge barrier to business," said Fath.

The intricacy of the Chinese market can result in information overload and confusion, making it difficult for businesses to identify genuine opportunities. Moreover, the sheer scale of the market can create "false positives," where initial demand may not translate into sustainable or profitable growth.

To mitigate these challenges, it is essential for businesses to adopt and implement well-established strategies tailored to the nuances of the Chinese market. This requires focusing on specific cities to understand their unique offerings and determining how a business can remain relevant to Chinese consumers.

Fiedler elaborated, “Cities in China are often specialised, and we would say they are city-level ecosystems. And the ecosystem can be a really nice place to embed themselves, to get access to resources and knowledge available specific to that industry."

Playbooks: “Fast Follower” and “First Mover”

Fiedler and Fath identified two critical playbooks in their research: the “Fast Follower” and the “First Mover.” The “Fast Follower” strategy involves observing and learning from competitors, while the “First Mover” focuses on exploring untapped opportunities.

The “Fast Follower” strategy is characterised by companies that enter the Chinese market by adopting a deliberate approach of following the competition.

By studying competitors’ successes and failures, businesses can gain valuable insights into market dynamics. Shanghai, a leading first-tier city, is particularly well-suited to this strategy. As a hub for Western companies, it offers abundant opportunities for benchmarking and learning from established players. In the New Zealand context, Shanghai has become a stronghold for established Kiwi firms.

Given Shanghai’s westernised nature, many foreign companies thrive in this city by targeting expatriates as their primary audience. This approach concentrates their consumer base, while simultaneously exposing local residents to foreign goods and services, which they increasingly adopt.

However, relying heavily on expatriates as a primary audience is not a sustainable long-term strategy in top-tier cities like Shanghai. Companies operating in this environment must remain agile and continuously innovate, as local competitors in China are quick to adapt and improve upon successful foreign products and services. This makes the competitive stakes exceptionally high.

"[In top-tier cities] you will also very quickly have local competitors jumping on that idea, and they have a much deeper understanding of the local consumers, and they would improve that idea,” Fiedler emphasised.

By following the competition, businesses can acquire significant knowledge on the “do’s and don’ts” of operating in the Chinese market. However, operating in top-tier cities comes with challenges. The highly competitive and demanding nature of these markets can be a disadvantage, making the “Fast Follower” strategy a double-edged sword for companies pursuing this playbook.

On the other hand, the “First Mover” refers to firms that explore China’s untapped markets due to their less competitive environment. This approach is particularly feasible in new Tier 1 cities, such as Chengdu, or Tier 2 and Tier 3 cities. However, the primary challenge of this strategy lies in the fact that these markets are evolving fast.

“If you are a very early mover into a new market, there’s plenty of research not only on China that tells us that the first mover doesn’t always win – it’s often the opposite,” Fath said.

In fast-evolving markets, sources of knowledge and technology are often limited or hard to tap into. These gaps present significant hurdles for businesses attempting to establish an early presence. As Fath explained, it may be wiser to wait for the market to settle: “And that’s what some domestic competitors would do. Chinese domestic companies are waiting for  a market to pop up or some technology to become more dominant.”

Adopting this playbook can be particularly risky for new firms entering the Chinese market, as it may not offer a sustainable growth model, especially as Fath noted, “where Tier 1 and Tier 2 cities go, the Tier 3 and Tier 4 cities follow.” This highlights how trends and developments in lower-tier cities often lag behind those of larger, more established ones.

Fiedler recommended that before entering the Chinese market and choosing a playbook, businesses must address a fundamental question: should they compete in established markets where competition, knowledge, resources, and potential customers are already concentrated? Or should they venture into untapped markets where competition is minimal, but the market is less developed and fraught with uncertainties?

Niche Markets and Beyond Trade

China’s vastness can be both a blessing and a challenge. However, the key to navigate it, according to the two experts, lies in thinking small—identifying and targeting niche markets within specific cities or consumer segments.

Fath underscored this point, stating, “If you start thinking, ‘oh, it’s big, and that’s why I got to China,’ that’s the wrong rationale. The rationale needs to be, ‘okay, it’s a big place, but there are some really tiny little pockets in this huge place where I can mean something to some people.’”

By focusing on these “niches within niches,” businesses can establish a strong foothold in manageable markets before scaling up.

While New Zealand’s economic relationship with China has traditionally revolved around trade, the country offers much more than just a lucrative export market.

China’s resources, talent, and technological advancements are invaluable assets that businesses can tap into for innovation and growth.

Fiedler pointed out that “China has so much more to offer than just being a market for your products or services. It can really give you access to much better resources that might not be equally available in New Zealand or elsewhere.”

For instance, Kiwi firms can collaborate with Chinese universities and tech hubs to access specialised knowledge and resources that are scarce at home. Another example shared during the discussion highlighted a Western entrepreneur who partnered with Chinese suppliers to source unique, eco-friendly materials for swimwear. This partnership enabled them to combine foreign design expertise with China’s manufacturing capabilities.

In addition to manufacturing, China’s highly skilled workforce is another untapped advantage. “China is hungry for new technology,” said Fath, explaining that many industries in China have either caught up to or surpassed global standards. By leveraging the expertise available in China, New Zealand businesses can enhance their own competitive edge.

Building Relationships

China’s business culture is deeply relational, and building trust through meaningful connections is often the cornerstone of success. Relationships play a critical role in everything from navigating regulatory environments to securing partnerships and understanding local markets.

Fath emphasised, “China is not just about what you sell, but also who you are. It’s still a deeply relational market.”

For New Zealand businesses, leveraging local networks is a powerful way to establish these connections. International students, for example, often serve as bridges, bringing their cultural knowledge and family networks to the table. “They understand the Kiwi culture and mindset but also have strong ties back home,” said Fiedler, highlighting the value of engaging with these communities.

Additionally, talking with competitors who are already operating in China can be surprisingly beneficial. “The first person to talk to is someone else in China who does something very similar,” Fath suggested. This openness can lead to valuable insights, factory tours, and introductions, creating a foundation for future growth.

Ultimately, building relationships requires a proactive and localised approach. Entrepreneurs should consider joining expatriate networks like the Kiwi Expat Association (KEA), Asia New Zealand Foundation’s Leadership Network programmes, and the New Zealand China Council, among others, to connect with key stakeholders and gain a deeper understanding of the market.

“It’s all about the network. If you do have people introducing you, it makes all the difference,” Fiedler said.

Navigating the Chinese market requires a strategic and adaptable mindset. By understanding the regional nuances, targeting niche markets, and prioritising relationship-building, New Zealand businesses can unlock the immense potential of this dynamic economy. As Fath and Fiedler aptly summarised, success lies not in trying to dominate China as a whole, but in finding meaningful opportunities within its vast market.

For Kiwi businesses willing to think small, act strategically, and cultivate strong networks, China can be more than just a trading partner—it can be a gateway to transformative growth and innovation.

-Asia Media Centre