Lessons learned in Asian exporting
Peter Enderwick, Professor of International Business at the AUT Business School, gets his red pen out to mark Fonterra’s Asian export papers
You could say it seems unfair to single out Fonterra for criticism in its recent Asian export problems. The major contamination scandal in 2008 involved a now-defunct Chinese company in which it had a large share, but not overall control, and the most recent botulism scare turned out to be a false alarm caused by incorrect results from AgResearch. The co-operative is also a victim of its own success, in that its size means its failures are widely publicised and assessed on a national and international level.
But looking at our failures is one of the most important ways in which we innovate and the problems in Fonterra’s supply chain, along with other recent issues in meat and kiwifruit exports, contain lessons for any company, large or small, looking to do business in the Asian export market.
Peter Enderwick, Professor of International Business at the AUT Business School, points out the challenges posed by business models and styles, differences in culture and history, as well as the difficulties of following complex and changing bureaucratic processes that may also be influenced by diplomacy and politics. Ultimately, many of these problems come down to one thing.
“The key message here is that you must commit the resources,” Enderwick says. “Fonterra, the meat industry and Zespri – all the issues seem to be about core governance of what’s happening in the overseas markets. It needs closer management. I think the key message is that if you want to go into these markets, it changes the nature of the firm. It’s not about just sending stuff to these markets, it’s starting from the overseas market and working from that. This is where things are going, and this is where the commitment needs to be made.
“If you look at Fonterra and their Chinese partner Sanlu, Sanlu was clearly not in a position to manage the value chain effectively and Fonterra wasn’t able to do that and ran into problems. And some of the problems Zespri had with false invoicing also seem to illustrate that.
“The number of executives Fonterra had in China managing these relationships was woefully inadequate. You have got to make a commitment to these markets in terms of the number of people, the type of people on the ground and what they do. I think we have a lot to learn from that.”
It’s also worth remembering
‘The key message here is that you must commit the resources. Fonterra, the meat industry and Zespri – all the issues seem to be about core governance of what’s happening in the overseas markets.
It needs closer management’
that Chinese middle-class consumers are particularly well organised to respond rapidly to problems like this. There are a number of very powerful non-government organisations in China monitoring these issues and they have a lot of experience, because there are a lot of low quality goods being delivered in the domestic market.
“There are something like 50,000 public/private conflicts every year on land grabs, corruption and environmental pollution,” says Enderwick. “They are very organised to respond to that, probably more so than here.”
This illustrates a wider point that is now true of most markets around the world – if your company outsources activities then it is under increasing pressure to take responsibility for those activities.
This pressure is understandably coming from some of the smaller subsidiaries that are unwilling to take on risk on other companies’ behalf, but also from the consumers themselves.
“They have to take responsibility right across the value chain and many New Zealand companies have a very narrow view of the value chain. We cut the trees down, send them overseas and that’s the end of it. We take milk, turn it into whey and that’s the end of it. That’s not the case any longer. You couple that with growing consumer awareness and their increasing ability to respond quickly and it highlights the importance of effective crisis management.”