China Looks Good For Growth
Mary Teresa Bitti, Financial Post
Published: Monday, April 19, 2010
Several recent announcements have highlighted the need for Canadian businesses to focus outside the U.S. market and to train their sites on China and other emerging markets.
A Scotiabank report Liftoff Achieved, But the Flight Path Will be Turbulent, spells it out: Developed nations are locked on a low-growth trajectory, while China is driving growth. In 2009, the country's output grew 9%. Furthermore, trade flows among Asian countries are double NAFTA levels.
"Demand from China and other emerging markets has already helped push commodity exports to roughly half of Canada's foreign sales," the report notes. The message is clear: Go to where consumer spending is poised for growth.
Toronto-based Interfast Inc. is doing just that. Canada's largest provider of industrial fasteners and a Top 10 aerospace and industrial fastener distributor globally estimates it is in the Top 5 in China.
The fasteners -- nuts, bolts, screws, washers -- hold an aircraft together from wing to body bolts up to two inches in diameter to smaller fasteners that hold the skin on aircraft.
"We have been selling globally for years and into China since 1988," says Peter Oleck, Interfast's general manager. It started carefully, supplying Boeing Co. and Bombardier Inc.'s subcontractors. "That facilitated our contacts in China with the senior management of leading Chinese aircraft manufacturers," he says.
"The Chinese marketplace has been developing extremely rapidly. It got a huge boost from having this subcontract work from Boeing, Bombardier and now the Chinese are also manufacturing their own aircraft," Mr. Oleck says.
"Less than 10% of its population of 1.3 billion has flown on aircraft. As the economy grows, the development of airports and airlines will also grow. Airlines are going to need thousands of aircraft to service that market in the coming years. We are trying to be in on the ground floor of what is a huge opportunity."
In a similar move, PCI Geomatics, a Canadian software manufacturer for the geo-imaging industry recently signed a $1-million contract with Beijing Space Eye Innovation Technology Co. to supply an automated image-processing system to the China Centre for Resources Satellite Data and Application.
PCI established an office in China in 2008 to secure its place in the market. Since then, it has tripled revenue in China.
"We are trying to follow the rapid growth in China," says Brad Schmidt, vice-president of sales and marketing for PCI. "It's important to have a local presence.... They are your eyes and ears on the ground. You need to understand what's going on almost on a daily basis."
Here are some key strategies both companies used to help them sell into China:
Government trade missions
are critical in securing business for exporters. "When you go on a trade mission, be it federal or provincial, the governments work really hard to open doors that private companies cannot," says Trevor Taylor, director of business development for PCI.
"Hierarchies are still very much the norm. By having a high level VIP show up -- Premier Dalton McGuinty opened our office -- that shows that a high-profile elected official knows who PCI is and creates a level of integrity you wouldn't have otherwise." Build strong contacts "One of our successes getting into the Chinese market is Gavin Rao, our manager of Asian operations," Mr. Oleck says.
"Gavin worked in the aviation industry in China.... He has been able to direct our means into that market, as well as bridge the gap between cultural differences and language skills. He gave us instant [access to] his network and helped us capture more business and develop our relationships and contacts."
Firms want strong support from the senior management of the Chinese companies they deal with, says Mr. Rao, who travels to China three or four times a year. "That means spending time there. We could not develop in that market from our offices in Canada. We have agents on the ground who help us understand the true demand. Then we focus on our strengths and comparative advantages over our competition." Establish a presence "Unlike places in North America and Europe, where purchases are based more on technology comparisons, Chinese business leaders need to know who you are," Mr. Schmidt says.
"They want to see you in person and be confident they have a relationship with you so at any point they can call you and ask questions and feel comfortable doing so. That's where having Chinese staff can help. Having a physical presence there with people who speak Chinese has been instrumental."
That's not to say there aren't difficulties. "The Chinese have strict policies about foreign companies coming in," says Yubin Xin, general manager at PCI Beijing. "We followed all the rules. We also made good use of our well-established reputation and Chinese partnerships. This helped convince the Chinese government we are the right company to provide this technology and service to local consumers."
Be on top of your game Both Interfast and PCI were preceded by solid reputations in their respective industries. They each brought an expertise that was in demand.
"China is a market that is rapidly growing and there is a lot of opportunity for Canadian companies prepared to step out of their comfort zone and move in," Mr. Schmidt says. "For us, the gamble has paid off."