The China Market

Speakers:

Will Dalton, Manager of Pathways to Export program

Ian Thompson, In-market specialist for Southeast Asia

Emma Page, In-market specialist for the Middle East and North Africa

Davis Tao Xu, In-market specialist for China

Nick Henderson, Victorian Deputy Commissioner to Greater China

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Will D Dalton (DJPR)

Pathways to Export works in either assisting Victorian businesses to export more, which is where we're coming from, or if you're a business yourself and interested in exploring new market opportunities. Before I take you through the structure of the session and future sessions that we have planned, I'd like to just provide a bit more context.

Exports underpin the sector. I think somewhere between 60 and 70% of what's produced in Victoria is exported and we are the national leader of agri-food exports. The Victorian Government recognises this, and in December 2020 released an Agriculture Strategy that mapped out the government's vision for a thriving sector and particularly its role in a COVID recovery. So look, amongst other things, in that strategy around agtech, climate change, traceability initiatives, is the support for the $5 million Pathways to Export program to essentially support farmers and agri-food businesses build their export capability, grow existing markets and move into new markets. The government also has a target to reach $20 billion worth of exports by 2030. So there’s the context.

I'm sure most of you understand the importance of exports, but I just wanted to reiterate that.

We have an exciting program in Pathways to Export to deliver. You'll learn more about the program today and over this three part educational series that we have planned.

We're focusing on China because obviously China is our most important market,so that kind of goes without saying. But, we also have recently invested in a state of the art facility there called Victoria House and that presents significant opportunities for businesses as well, so we will take you through that. The objective of today really is to gain a better understanding of the support that's available through the Pathways program and you will gain a deeper understanding of China’s market dynamics if you participate in sessions two and three. And also, understand the opportunity to trial, validate and showcase products and connect with qualified Chinese buyers through Vic House.

So, part one today is where you'll hear a little bit more about the program and what we're doing in terms of Pathways to Export. But you'll also be introduced to our

in-market specialists and will give you an introductory overview of Vic House. So, you'll hear from myself about the Pathways program. You'll also hear from Davis Xu, who's our in-market specialist, and you'll hear from Nick Henderson, who's the Deputy Commissioner in our China office who will take you through the facility and what it's got

to offer. And then in future sessions you'll get much of a deeper dive into the China opportunity in terms of the market overview and the dynamics there with a specialist panel discussing, you know, consumer demand and the online retail environment. But also, in the third session in May, you'll really get a feel for how best to position your products for export success through an interactive session with Vic House.

So, if we can move on to the next slide, I'll take everyone through the actual program. I mentioned it's a four year program supporting businesses with export and diversification into new markets. Obviously China is the most important market, but there's also a recognition that we need to diversify as well with our China Plus One strategy. So the program offers tailored one-on-one support to new exporters in particular and it compliments Global Victoria's existing programs. So, some of you may have worked with Global Victoria's trade team. Our work complements that by focusing on new and emerging categories, on new exporters, and a diversification mandate. So, we work really closely with Global Victoria but as I mentioned we have that sort of focus on niche, emerging, smaller-scale, and we have the resources to be able to, I guess, handhold businesses on their pathway to export.

So, in terms of what services we will have available, well we have business matching services with distributors in certain markets. We'll have country checklists available for, say, entry into China. We’ll have webinars on topics such as international business rules and we’ll have e-commerce toolkits as well. So, this information and these services will be made available through our Agri-food Exports Hub which we're developing. And we also have the facility in Vic House in Shanghai which you'll hear about in a second. But probably the most important component of our program is our in-market specialists, our people in-market, and that's the next slide.

So, we have three in-market specialists that we're really excited about. These are a dedicated resource to support exporters and provide tailored assistance. So, the first person is Ian Thompson who is based in Kuala Lumpur and covers Southeast Asia. Ian, are you on the call and able just to perhaps turn your camera on if you can and just say hi to everyone and give a very brief intro to yourself and your work program and where you're located, etc?

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Ian Thompson (DJPR)

Yes, good morning or afternoon everybody. I’m Ian Thompson, I'm the in-market specialist based in Kuala Lumpur in Malaysia with the scope of the entire Southeast Asia, looking at the opportunity in food and agriculture exports to these markets.

Absolutely huge opportunity that we have within Southeast Asia. Uhm, you know, we're looking at a population of 650 million in the region, 2.3 trillion in GDP, really growing disposable income within the market. And, we've got a history of really top quality produce coming into the region which we can leverage new opportunities for. So, really great opportunities in Southeast Asia. I'm here to work with new entrants to market, existing businesses wanting to diversify, working closely on market access issues and real one-on-one business engagement, business to business, matching with the right importers. So, we've got those relationships already in-market. As Will has mentioned,

we work with our VGTIs in Global Vic and the Trade Managers, and we have existing relationships in-market and we can support, as much as we can, to grow Victorian agri-food exports.

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Will D Dalton (DJPR)

Great, thanks Ian. And Emma Page is our specialist based in Dubai and she covers the Middle East, North Africa region. And here she is, it’s early over there so, hi Emma.

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Emma Page (DJPR)

Hi Will, it's great to be here and to be able to talk to everyone. So I'm in Dubai in the United Arab Emirates and so similar to Ian's region in terms of opportunity and population size. We’re about 100 million below Southeast Asia so we've got around 500 million people across 20 countries. But what's a little bit different is that the region imports 90% of their food. So food security is top priority for all the countries across the region and like Southeast Asia, brand Australia is very well known. We have great recognition for our quality produce coming in and so in terms of the opportunity there, there's great opportunity. There's the rising middle class across a number of countries and the new generation, the millennials coming and changing food trends. So, where Australia was a few years ago in terms of healthy buying habits, like the rest of the world after COVID this region has really taken that and there's a lot of opportunity for innovative products, but also just hearing great produce coming out of Australia to enter into this market. So, that's what I'm working on and will start travelling extensively throughout the region because there are so many countries I am focused on. Some key ones are the UAE, Saudi Arabia, massive opportunity, huge population there. Qatar, so they’ve got the Qatar World Cup happening later this year, as well as Egypt. The middle class is really growing there and some great opportunities in some grains there, so a few key sectors that I'm focusing on ,including premium packaged products, which is really growing here as people want a more convenient way of shopping but still eating healthy. Dairy, grains, meat has been huge. The meat industry has been here, it’s what kind of started brand Australia but is now moving to a higher end cuts. So, a lot of opportunities and really excited to work with anybody on the call that wants to explore this market and learn more about how their products or sector might, there might be new opportunities. So, looking forward to speaking to people in the future.

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Will D Dalton (DJPR)

Great. Thanks, Emma. I should also mention that so they way we’re going to structure this is, I’ve nearly completed the Pathways introduction and we will go to Davis Xu next, who's on the screen, but he'll talk in more detail about what's happening in China. And then we'll hear from Nick Henderson who's the Deputy Commissioner about the Vic House facility in particular. But if there's some questions that you want answered then pop them in the chat and we will get to those at the end of the session. We have about 15 minutes or so where we can have a chat, so no doubt there's things on your mind that you're wanting to know more about. Feel free to just drop them into the chat and we'll get to them in due course. And then our third in-market specialist is Davis, so I won’t go into too much more detail because you’ll hear from Davis shortly but just to the next slide please.

So, how to stay connected with our program. So, we have a monthly newsletter which covers a broad range of topics and some of you have already signed up and registered and will no doubt be aware of it. But for those who haven't, we encourage you to sign up and that's the best way for you to receive information on events, on opportunities around missions or market intelligence, policy changes in China, for instance on Decree and things like that. Just wanted to put that up to remind you all to stay connected with us. And look, that's really it from me. The intention now is to hand over to Davis to give an update on what's happening in China and how he can support you. And then as I said Nick will present on the Vic House facility, the wonderful new facility we have in Shanghai and then we will close out with a bit of a Q&A session and go from there.

Thanks everyone for that intro. Over to you, Davis.

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Davis Xu (DJPR)

Thanks Will. Now, let me just introduce myself. My name is Davis Xu and I'm the

in-market specialist based in Beijing, China. Before I talk about what my role is, I will have a little chat about my background, so you get more of an understanding about myself. First, I studied in Melbourne from high school all the way to a Masters qualification, with a focus on China’s foreign relations. I have worked in China for 10 plus years, beginning with a cheese and wine start-up in Shanghai and then moved onto NGO work with an Australian and Beijing industry trade promotion agency. And then, I spent three years as a senior international purchasing manager for a Chinese fresh food e-commerce company based in Beijing. Now I'm a part of a wider team within the Victorian government based in China with officers across five major Chinese cities and I'm actually situated in the political centre, which is Beijing. Next slide please.

Now that you know a little bit about me, let me talk about the China market. As you may know, recently Australia and China have entered a Regional Comprehensive Economic Partnership agreement early this year, which builds on an existing free trade agreement between the two countries. This means more and more products can be traded to China with lower tariffs as China's markets become more mature and its consumer’s knowledge of international varieties becomes more sustained. They will be more keen to try and taste new varieties across the board. Furthermore, the Chinese economy has remained strong despite the COVID crisis and has achieved growth of 8.1% in 2021, one of the very few economies in the world to have achieved a positive growth rate during that period. However, China is also implementing a very strict zero-COVID case policy domestically, which means the eradication of any COVID cases being found. This means restrictions in domestic travel, and often shutdown of ports, entire neighbourhoods, just for one single case. That means international travel is very much restricted and tighter visa conditions are being placed. A mandatory 14-days quarantine means that any international travellers arriving in China need to sit through a substantial wait before being allowed to go out. So, this means a direct impact to international businesses trying to visit and promote their products in China. Also, a change in the way in which foreign food enters China. From the first of January this year, all international food producers and storage facilities need to register with Chinese Customs, or GACC for short. Without this mandatory registration, you can no longer trade with China. So it's very important if you want to trade with China, you need to register your business with GACC. Next slide.

Now, with the China update, and I'll tell you a bit more about what I can do, especially for the first time exporters, I'll focus on three things here: market intel, GACC registration, and logistics. Now, I personally feel that market intel is very important in the Chinese market because it's very different to other international markets. Consumer behaviour and trends are very different to that of the United States or Europe. Let me give you a case in point. Take wine and spirits for example. More and more canned varieties are appearing in Chinese supermarkets, including red wines and mixed spirits, currently sold as a single serve like a Coca Cola can. The reason is very simple. It reduces the barrier to entry for new consumers and allows them to try the product at a much lower cost. There is a visible trend moving from large bottles to small cans in wine and spirit markets in China. As a winemaker back in Australia you need to know of these kinds of shifts in market preferences for your product.

Now secondly, I am talking about GACC registration. This is mandatory if you are a food producer and you want to export to China, you must register. However, it is a very complex system and you need to know which category that you belong to when registering. My job as an in-market specialist is to guide you during this process and to help you on any policy interpretations so you can understand the regulations and get yourself complying with the law and regulations. For details on GACC registration I will have a more detailed presentation during the second session which is on April 28th. I recommend everyone here, if you want to know more about it, please join our session next month. Now lastly, I want to talk about logistics. Here, we're not talking about logistics in a general sense, like shipping companies or which air freight to use. Above all, what we're talking about is China’s COVID policy and how it will impact on your logistics, especially the ports in China. Now, because China is following a zero case policy,that means if you have a single case in your neighbourhood, or in this case a workplace, that means the entire area needs to be quarantined and disinfected. In 2021, several cases appeared in airports and seaports around China. And of course, because of the policy, they had a mandatory 14-day shutdown, which clearly had an impact on international logistics. Despite the fact that China's working partners have been improving and changing, adapting to the new risks, it's still very much an issue for international traders to be aware of. And, as part of my job I monitor all the major international ports and airports around China, so I'm a source of intel and can give you early warning so you can change the flight or port destination in a timely manner to avoid any potential delays. Next slide please.

For established exporters, we offer diversification opportunities, promotion and legal compliance. Now the China market is very huge, but it's also very segmented, which means different opportunities in different locations. China is actually divided into several tier systems, the cities. Of course you know the major cities like Beijing, Shanghai, Guangzhou, those are considered tier one and they are actually quite affluent. And then we have a dozen or so major population centres regarded as the second tier cities. But what's often forgotten is that there's hundreds of third and fourth tier cities which would contain a large percentage of the Chinese population, and their preferences and consumer behaviour is very different to their countrymen in the first and second tier cities. Now, my experience in this country means I can support businesses to diversify their operations into different parts of China and different tiers of cities, offering different product offerings and diversifying their products according to regional needs.

Now also for in-country promotion. Now this is where our Vic House in Shanghai comes in, our Deputy Commissioner Nick Henderson will talk through it in greater detail in the upcoming slides. What I’d like to focus on here is, this platform is very useful under the current COVID travel restrictions, especially for businesses who want to trial, test and validate that product in a relatively risk-free environment. Now lastly, I’ll talk about the dual laws and regulations that appear in the China market regularly. Some of them are affecting the ways you do business in China, from labelling changes to health requirements. My job is to monitor any changes related to agri-food business and give my interpretation to the policy. This way you are updated on any latest Chinese regulation changes and you can continue to discover opportunities and support from the Chinese government, if you may wish to use this to your advantage. Next slide. So those are my main offerings as the in-country specialist in China. Here's my contact details, and feel free to reach out to me if you want to know more about the Chinese market. I'm more than happy to answer any questions here or in emails. Now, I'll pass on to our Deputy Commissioner, Nick Henderson, to talk about Vic House in detail.

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Nick Henderson (DJPR)

Good afternoon, everybody. Thank you Davis for the introduction and greetings from Chengdu in mainland China. My name is Nick Henderson. I'm the Deputy Commissioner to Greater China for the Victorian state government and just before I get into an introduction about Vic House, I thought I'd just perhaps provide some additional context to the actual footprint that the Victorian state government has here in Greater China.

Global Victoria operates as an international trade promotion arm of DJPR, Department of Jobs, Precincts and Regions, and we have 23 officers around the globe and five offices in Greater China, those being in Beijing, Shanghai, Nanjing, Hong Kong and Chengdu. In each of these officers, we have our team members focused on trade promotion, investment attraction and international education. And its important to know that whilst I'm going to introduce Vic house in a second, that Vic House is located in Shanghai, but it's part of a broader network which enables us to engage with buyers, distributors and the market in general around the country. And as part of my role as the Deputy Commissioner, I also oversee our trade function within the Greater China market. So I'm working very closely with Will and the Ag Vic team and working on a day-to-day basis with Davis as well.

Vic House itself, this program, and if we can go to the next slide please, ties in seamlessly with what you’ve heard about the Pathways to Export program, about our in-country specialists network and is an incredibly relevant program and platform at this particular point in time. Now actually, outside of COVID environments, having a

dedicated trade facility for food and beverage products is a fantastic thing to have, but in particular, given that we are in an environment where we have the inability to travel, where borders are closed, where it's really challenging for business owners to engage with existing distributors, existing customers in-market, whether they be online platforms or whether they be retail supermarkets, potential partners or just to start exploring what opportunities there are within a market like China. This environment, basically, there are a number of really large impediments to entering a market, to maintaining, or to growing business. And the nature of premium food products, the nature of the products that a lot of you are involved in manufacturing, it's a very tactile product and you do need that really close engagement with the key stakeholders in-market. Your potential customers, whether they be the retail customer, the end customer, with your channel partners, etc., you need to be able to not only taste, engage, try the product, but that face-to-face engagement when it comes to developing business, to discussing plans, to putting in market expansion strategies, and that sort of thing. Having that face-to-face and in-market engagement is important.

So, this is why we have these natural impediments but we have decided, through Ag Vic and the Pathways to Export program, we have established Vic House to really address a lot of those challenges that exist for a different range of exporters engaging with the China market. Now, when I talk about a different range of exporters, I'm predominantly talking about three categories. The first is existing exporters that perhaps have people on the ground, they have established distribution channels and networks, they have established business, have probably been in-market for a number of years, that's the first category. Second would be those that have relatively recently, in the last few years, entered the market and are going through a market growth phase in their export business. And then the final category, which is more relevant I suppose to a lot of the people that are on today's webinar, is the new-to-market and exploratory category where there are some very unique premium products where the China market presents market opportunities. But in order to validate and engage and to test, having the ability to have some means without travelling to China, because we can't travel to China, to actually start to explore and to realise some of those opportunities.

So, Vic House is a 920 m², three-storey building designed to facilitate market engagement for Victorian food and beverage exporters across those three categories and if we can go to the next slide, please. The facility is located in Shanghai, which many of you will be aware is one of the largest cities in China. Certainly from a market perspective, from an import food perspective, it's one of the most mature markets.

There is a large population of around 20 million people and it is the hub for a lot of food import and distribution. So for example in a number of Tier 2 and Tier 3 cities, for example Chengdu, a number of the distributors that will be servicing, say, supermarkets in Chengdu, will actually be based in Shanghai.Or they may then be, the importer will be in Shanghai, and a sub-distributor will be in a second or third tier market. So, Shanghai does possess natural qualities for us to select it as a market to have Vic House. The other thing is for us to utilise Vic House as a platform to then engage in those other markets as well. So, recognition that Shanghai in itself, and surrounding regions of Zhejiang and Jiangsu provinces. But we have utilised, and we plan to continue to utilise, Vic House and the activities that we are undertaking in Vic House to unlock opportunities in other markets. And, recently we launched a new fruit variety of nectarine, white nectarine variety called Topa, where we did exactly that and we did the launch in Shanghai and then we unlocked a number of commercial opportunities around the country for that particular fruit. So the location is really in the heart of Shanghai.

Many of you who have been to Shanghai will know the Bund very well. Well, this location is just south of the Bund. If we can go to the next slide please.

So, I'm going to walk through floor by floor and then really talk about how the platform can be utilised. This picture here is showing the entrance. And it just so happens because we've got flowers there, this was taken on the opening on the 18th of October. And you'll notice on the right hand side we have a coffee machine. So we have a fantastic coffee machine. We have beautifully brewed or roasted Victorian beans and also some specialist coffee milk, MILKLAB and others that we use. And we welcome our visitors by giving them a taste of Melbourne coffee right off the bat. And then the design of the first floor really is all about engagement. So we have two dedicated meeting rooms with video conference technology which enables our Vic House companies that are involved in the program to be able to have meetings with potential partners to have those partners come across to Vic House, to sit in the meeting room and to engage, utilising our facilities. And it might well be that it's an initial discussion about a distribution arrangement or discussing, you know, getting to know each other, about a retailer that might be interested in a product and we can have our team members at Vic House to support those discussions if required for those who are involved in Vic House. So we do have that on-premise team support, which is a really part of the platform because this facility can't operate in isolation, it needs that support from our side.

If we go to the next slide please, this is our showroom area and we have 17 freestanding shelving units that have space for quite a lot of samples. We currently have around 60 companies with samples in the facility. We want to have upwards towards

100. We certainly have the room for that and it's a fantastic showcase facility because when we have visitors coming through, whether they be coming as part of an event, or they are specifically invited to attend, related to specific product areas, it's a great way for us to showcase not only the Victorian brands that are involved, but the breadth of the product offering across all of the different category areas. What we can see there is ambient fruit food products. Down the back end of that picture and that room we have freezers and chillers. So we have frozen product, we have chilled product, we have meat, we have seafood, and we can bring in horticulture products on a seasonal basis. We have, in this particular facility on the second floor, we have a full range of ambient products from cereals, to grains, to snacks, to non-alcoholic beverages. And the one thing, even though there may be multiples in each category, so, for example, we do have a number of UHT dairy brands, or we have a number of cereal brands, we spread them out on that floor. But the thing about the products that we have, just the nature of Victorian premium food products, is that the whole messaging of quality, the positioning of premium, is all self-reinforcing by the fact that we have such a broad range of quality food products in that second floor facility. The feedback we are getting from buyers, from retailers, is that it just really shows the full breadth of quality that’s coming out of Victoria. So, that’s what we’ve tried to achieve with the look and feel of the facility, and particularly for the second floor. If we can go to the next slide, please.

And this really is the third level where there is a lot of engagement and this floor is around about 300m². What you don’t necessarily see in this picture there is actually a full, display kitchen like you would probably see in a television program, a cooking program, with commercial grade oven, sous vide, and a whole heap of kitchen equipment which is all commercial grade. And we have cameras that actually will show and demonstrate what’s going on in the cook top and in that front bench top, and very large monitors which then, there are two rows of seating, which you can see in the floorplan there, where people can be seated and see very very clearly any cooking demonstrations that are taking place. In addition to the kitchen facility, we have dedicated spirits tasting and also wine tasting areas, which are the two benches which you can see in the picture on the right hand side. So, the third floor enables the stakeholders that we have coming into the facility the ability to display, to showcase, to taste, to try, and to really have that engagement with key stakeholders.

So we've held a really broad range of events from product launches, to education programs to private dinners with select stakeholders, where we have used that kitchen facility to a broad range of purposes, mainly to highlight the Victorian produce that is being used. And for example, if we are looking at dairy or horticulture as two examples, how those products have been incorporated into different dishes and to inspire the people that we have coming through the facility to understand not only the taste, the quality, the breadth of the product, but then the inspiration of how you use those products in different culinary applications. So this is really a multifunctional space that is designed to be used by all that are engaged in the Vic House facility. By us, by industry associations and of course the most important element is companies, and we frequently have companies come to us and say we'd like to use the facility for half a day, we’d like to do a product launch, we’d like to do a Key Opinion Leaders (KOL) live stream shooting and so on and so forth. And that facility is available. And I'll explain in a little bit exactly how that works. If we can go to the next slide, please.

How Victorian companies can participate, and I think it's really important, as companies are going through the stage of exploring the market, of testing, is the market opportunity right, and if the market opportunity is right for you, then how do you then start to enter the market? How do you then start to scope the opportunities? How do you, how do you identify the distributors? How do you actually start to get some of those initial interests from if your product is a food service product from hotels or whomever it might be, if it's a consumer product, then it might be getting interest from retailers.

The facility offers 3 core elements and the first of these is product showcase. So, the ability for you to have, on permanent display in the facility, a range of your stock-keeping units (SKUs). And also, a range, or a suitable quantity, for sampling. So, a couple of weeks ago I spent quite a bit of time taking a number of retailers through the entire facility and as part of that process there was specific interest in a number of products and by having them go through the product showcase and having a look at the shelves, being able to give them products to sample, it really facilitated very quickly feedback either positive or negative on levels of interest and even you know, “OK, this is a great product, but you know the packaging size is too big,” or, “This is a great product, but we're looking for something sweeter,” or, “we're looking for something actually with less sugar.” So it gives that ability for not only showcasing the product on a shelf, but we have the right quantity, we're able to give it to those people who really are interested in the product. We also actively introduce all of the products. So, we have a trade team in Shanghai. We frequently have distributors, potential distributors, retailers, all range of different stakeholders coming through the facility and we are constantly introducing all of the products on the 2nd floor and on the 3rd floor and resulting from that is a lot of interest. So, just by having the products on that product showcase, it's a natural ability for us to be able to talk about the products. And also, if we know what individual companies are looking for then we'll also be able to have the relevant, and much more targeted conversations. The other thing is that the facility is available for distributors. So for example, if I am a Victorian brand owner and I have a distributor based in Shanghai and I need to actually, you know, do some promotion, then my distributor, as the representative of the Victorian company, my brand, can also use the facility itself as a showcase. So, that might mean even just having five or six products up on the 3rd floor and doing a training session and doing some tasting. That's all about the products showcased.

The second is focused promotion. So, this has a couple of elements actually. It's very much linked to events, but it’s all about driving new business and existing business through utilising that video conference facility, as I mentioned. But also, we have a planned calendar and a forward calendar of events that might be focused on running a mini type trade show in Vic House or having a spirits event, or having a dairy event, and those sort of things we're inviting key stakeholders to come to learn more and to engage hopefully in a commercial way with the products that we have in Victoria, that really enables a degree of focus promotion.

The other element of focus promotion is we're able to do things like product launches or product introductions. This picture on the right hand side is the example of the Topa white nectarine that I mentioned, where we basically had a dedicated event to launch that particular product. We had media, we had a range of potential buyers and importers, we had a chef that provided a lunch with tastings of a sweet and savoury dish using the product, so that also enables us to use that facility in a very focused way. So, the facility is available to be used by those that sign up and are approved as part of the Vic House program at no charge. So, there is no catch. Use of the facilities is based on a ‘first come first serve’ basis, on a booking basis. If there is, for example you plan to do some, you had a chef and do some catering, then that would be an actual cost. And you know, obviously for us we want the facility to be leveraged by Victorian companies as much as possible. In order to be involved in the Vic House in the Vic House program there is an application process in which we like to learn more about your business, to understand what the product is, to understand your interest in the China market so we understand if there is the right match there, we do a small internal review and come back and if you're successful then we talk to you about the next steps, which are sending across a modest volume of samples, which are used for sampling process to put on the shelving as well.

So, that's pretty much an overview of Vic House. It's a fantastic platform for companies across those three categories of companies. So established exporters, those in growth phase, and then also for those that are looking to enter the market. So we can go to the next slide please.

I just wanted to have a little bit of a call to action here, as a result of this. So, if you are interested in learning more about Vic House, there is the email address that you can write to (pathwaystoexport@agriculture.vic.gov.au). Happy to arrange time for a call.

We’re able to talk to you through the different elements of Vic House if you have any further questions. We encourage you to register for our sessions two and sessions three of the Webinar series, which is about information and, we think, building a little bit of knowledge and insight into the Chinese market. Just wanted to mention to you what is going to be included in session two very, very quickly. We will be providing an overview of the China market to give a bit of insight into consumer, into retail environment, into the marketing, the digital marketing landscape, which is very different to that of Australia, and indeed of our lot of other export markets around the region and the world. And then the second element of this particular webinar is about operations. Looking at intellectual property protection, looking at the logistics landscape and also regulatory and labelling. And then the third webinar is about, I guess, taking your China opportunity to working with a partner. How to best engage with potential partners and retailers, what information should be provided and what are the expectations? How do you, once you have got a partner in place, how do you engage with them? How do you operate with them? How do you manage that engagement? What is expected and what constitutes a successful partnership? So, we're aiming to have a distributor representative join that session to give you insights from a distributor point of view as well. So look, I think I’ve overspent my quota of time and I will go now to a couple of questions, but I'll pass across to Will and that concludes my section Will.

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Will D Dalton (DJPR)

Thanks Nick, fantastic. I'm mindful that we've done a lot of talking and I'm keen, in the remaining 10 minutes or so, to have a conversation with people. If we don't get to your question, or there’s things you might not want to discuss now you can always just get in contact with us through the email listed there. But should we go to a few, and by all means if people can use the ‘hands up’ function and we’ll come to you for any questions there. But there's a couple in the chat Nick, which I think you’re probably best placed to answer. One is from a participant who has asked what is the current traffic to Vic House? How many prospective buyers visit there per month on average, if that's possible? And also a follow up question from Jin around premium drinks being bottled in

glass and whether there's an opportunity to pack product in PET or cans for export to China. So, Nick, any thoughts, or Davis?

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Nick Henderson (DJPR)

Uh, sorry Davis, I might quickly go to the first question about the traffic. Firstly, it's a B to B closed center, so it pretty much is upon invitation, or if we have inbound inquiry we have people through the facility. So, look we're having sort of multiple people through a day, sometimes it might be 20-30, sometimes it's less. Sort of in the first three months of operation we've had over 800 people through the facility, that includes people who have been attending some of our events, so it really does vary, but we try not to go for huge numbers. We're all about trying to get the right people through the door and that's really been our focus in terms of getting the right people in and covering distributors, end users in terms of food service, and then also retailers.

00:48:17.790 --> 00:48:24.580

Will D Dalton (DJPR)

Thanks Nick, and Davis did you want to add to that? Perhaps addressing the second part of the question or?

00:48:23.070 --> 00:50:28.420

Davis Xu (DJPR)

Yeah, I think the second question is very interesting because while I was the purchasing manager for the E-commerce platform in Beijing, I had something, a very similar case. So what happened is we were trying to source a product that's similar to a Perrier, which of course is a better margin. So we were looking at different varieties of premium sparkling water sodas from across the world and what we learnt is that if this product is being perceived as a premium drink of course glass is a better option. So, in this case this question is, you know, very specific, but for a general sense you need to first find out how your product is being perceived in China. Whether it's a premium product or whether this product is going for volume, you know if it's a premium product with a higher margin and there's certain requirements for packaging. So, yes definitely glass would be a better option because people actually prefer glass because it shows a certain level of, you know, premium-ness I guess. But if your product is not to be perceived as a premium product in China, then it's most likely to be as volume. In that way Chinese businesses will be looking at a better margin, a better cost for the product itself. In that case, they're looking for a cheaper option because of course glass adds weight into any shipments and that is actually a cost for the business itself. So, it's very much dependent on how the Chinese side interprets your products. And then they will have their interpretation and suggestion of the packaging. So it's stressing that you need, doing business with a Chinese company, you need to find out how your product is being perceived. That's very important. Then you can decide what kind of packaging is, you know, best suited for your product in China.

00:50:32.030 --> 00:50:53.020

Will D Dalton (DJPR)

Great. Thanks Nick and Davis. I think we've answered those quite well.

Thomas has a question. Could our common daily products like laundry liquid be shown in Vic House?

I think I know the answer to that, but I'll hand it over to you Nick.

00:50:56.230 --> 00:50:56.760

Nick Henderson (DJPR)

So Vic House is primarily designed as a food and beverage facility. That being said, we are able to look on a case-by-case basis at some non-food and beverage products and so Thomas, I would encourage you just to reach out to us and we can sort of continue that conversation with you.

00:51:26.280 --> 00:51:47.380

Will D Dalton (DJPR)

Okay, right. Do we have any other questions? I'm sure there's something on people's minds that they might like to pop into the chat, or you could put your hand up and we can seek to answer. (New question from participant) Any space for veggies?

00:51:49.390 --> 00:53:26.450

Nick Henderson (DJPR)

Yes and it really depends. I guess there are, and this is where tying into our in-market specialists is so critical, is that there are any certain types of vegetables that there are export protocols for, and so that's first. If it's a yes, then absolutely, we've got the ability to have those vegetables to be brought in as display, we’ve got the fridge space. But what we prefer, and we've done this with fruit before, is if we're linking it to a particular event, now whether that be something that we're hosting and we can utilise those, those vegetables and something to showcase your product, or whether there's going to be something that's specifically designed to show that product because of the shelf life concerns. So in short, yes, but we need to check about the export protocol. (New question) Can a startup join the program? I think we really need to have a conversation with you. I think, ideally there needs to be a certain capability to be able to service those market opportunities in China. And I I think there's no necessarily “no” answer. I think it's more about having that engagement to understand what the product is, where you are as a startup, what the potential market demand is and all of those sorts of things and to be able to have a conversation that can work towards whether you're suitable to Vic house or not.

00:53:27.560 --> 00:53:44.420

Will D Dalton (DJPR)

It might be that the pathways program is able to offer you a more fundamental service, Jin, when it comes to you know, your export aspirations and journey. And, in terms of some of our more basic services, if you're a startup presumably you won't have exported and are looking to and perhaps start that conversation with us and the

in-market specialists, and then potentially look at the opportunity such as Vic House or perhaps other markets. But I'm mindful of the time and want to get to some of the other questions. A participant has asked about a selection of pastes and sauces and so on that could be shown in Vic House. I think that absolutely that sounds like the sort of product that we'd be supporting, so that's a yes Servani and happy to continue the conversation with you on that. And then someone asked about promotional materials translated in Australia or in China. Any comments there from Nick or Davis?

Speakers:

Will Dalton, Manager of Pathways to Export program

Nick Henderson, Victorian Deputy Commissioner to Greater China Scott Ni, Senior Director, Alibaba Group Australia and New Zealand Ryan Molloy, CEO, RedFern Digital

Charlotte Trihn, IP Counsellor to China, Australian Embassy

Sandra Gong, Founder, Shanghai Empire Trading

Davis Tao Xu, In-market specialist for China

00:00:00.000 --> 00:05:39.580

Will D Dalton (DJPR)

I would like to begin by acknowledging the Traditional Owners of the lands on which we meet today. I'm coming to you from the land of the Wurundjeripeople and I pay my respects to their elders past and present.

So, welcome everybody. My name is Will Dalton. I am the manager of the Pathways to Export program and it gives me great pleasure to welcome you all today to this second part of our three-part China Series. In the first session we talked about the Pathways program more broadly and we also introduced Victoria House, which is the fantastic new facility we have up and running in Shanghai. Today we delve into the China market a bit more deeply. We have a very impressive panel of speakers really, covering all the important topics. You’ll hear from industry experts across marketing, IP law, logistics and consumer insights in China e-commerce. You'll also hear from our Victorian government and offices in China through Nick Henderson, the Deputy Trade Commissioner, and Davis Xu, the In-market Specialist. And so really, the objective of today is to inform and to inspire you. You know, China is a complex market with significant upside and today you’ll hear more about those opportunities but also some of the risks as well and just some of the things that you need to be mindful of.

The session’s being recorded and will be made available on our website in due course. And please feel free to use the chat function as we go along, noting that the agenda does have some time toward the end for an interactive Q&A session, so we won't seek to answer any questions as we go through, but if you wanna put them in the chat there so that you don't lose sight of them then that's OK. So I'll just quickly run through the Pathways to Export program again before I hand it over to Nick Henderson, our Deputy Trade Commissioner.

Just as a reminder, the Pathways program is a four-year program that is essentially, you know, supporting new exporters in the agri-food sector but also supporting existing exporters in terms of their diversification opportunities.There is a real focus on SMEs and supporting emerging categories, things that in the past may not have been high on their agenda but are increasingly becoming more so like alternative proteins, pasture seeds, dairy genetics. These types of categories, native foods, that in the past, you know we're not necessarily front and centre when it comes to exports, but increasingly the government's interested in supporting just due to the opportunities they present in terms of jobs growth back in Victoria should export markets open up for these categories. So, our program’s about assisting exporters in that area and new exporters. Next slide. I think the centrepiece of the program is the fact that we have people in-market. So Davis, who you'll hear from today is our

China specialist and he'll talk more about what's happening in China in due course. But we also have people covering South East Asia and the Middle East and North Africa which are Ian based in Kuala Lumpur and Emma in Dubai. Next slide.

I think the best way to stay connected with the program is through our monthly newsletter so I encourage you all to sign up to that and we can put the link in the chat. You’ll learn about in-market activation events, you’ll learn about what's happening on the ground in, in different markets. And yeah, it's just a great place to keep up to date. Next slide. So that's it for the moment. I'll come back in again later on at the end, but I just really wanted to welcome you all. Feel free to ask plenty of questions and it’s great that everyone's here participating, we very much appreciate it. And look, thanks in advance to all of our wonderful guest speakers too who, you know, are putting aside a lot of their time to assist you I'll hand over to you now, Nick, to give an overview of the Victorian Government Trade and Investment offices in China and then if you come back to me and I'll introduce the panelists. Thanks Nick.

00:05:40.950 --> 00:08:47.520

Nick Henderson (DJPR)

Thank you Will and good afternoon to everybody attending today's session. I think as Will has highlighted in the introduction, having this kind of a session with such a broad overview of the market is really important to build an understanding of the different elements that go into doing business in China. The nuances of the market, the differences of the market and the complexities of the market. So, we've all heard about the opportunities that the market possesses and those opportunities are real, but so are also the complexities. And the way that the market operates, whether it be from how the consumer behaves, to how the retail channels are structured, to how the marketing ecosystem is structured, to the intellectual property environment and so on is really very, very different to Australia. So for those that are looking to enter the Chinese market or to grow within the market, having as much information and insight and learning from experts like those that we have on this session, I think it's really valuable. So, I encourage you to intently listen, to ask questions as you go through and to reach out at the end of the session if you have any questions for us and we'd be really happy to engage with you.

What I'll do briefly now is just to introduce the Victorian Government Trade and Investment network and we are a very strong network globally, with 23 offices representative in most of the geographic areas around the world. One of the strongest presences out of any of the states around Australia, really aimed at trying to proactively develop trade, investment in education opportunities for Victoria within the global economic context. Within the Greater China market we have a very strong presence. We have five offices and if we're looking at our trade team, we have 7 trade team members including our Ag Vic In-country Specialist, Davis Xu, who you'll hear from in a moment, across offices in Beijing, Shanghai, Nanjing, Hong Kong and Chengdu. And Vic House, as Will has mentioned, is a really core element to our food and fibre engagement with the market. But we also work with businesses on a

one-on-one basis and also using trade missions and the like to support trade facilitation type activities. So, I'll come back after our speakers are given their presentations and provide just a little bit more context just before the Q&A. So what I'll do now is just pass back to Will. Thank you.

00:08:49.940 --> 00:09:38.020

Will D Dalton (DJPR)

Thanks Nick. So, we have a VIP panel for you all and the first speaker I would like to introduce is Scott Ni, who is the Senior Director of the Alibaba Group Australia and New Zealand, Scott's a veteran with the Alibaba Group having joined a company in April 2000, has held several leadership roles, sales, marketing and and marketplace operations. And yeah, he's a great asset to us here to be able to talk about all the opportunities that he sees are in China and particularly from the consumer side of things and e-commerce and new retail. So I'll hand over to you Scott, thank you.

00:09:38.620 --> 00:39:32.560

Scott Ni (Alibaba Group Australia and New Zealand)

Thank you very much Will and a big thank you to Agriculture Victoria and Global Victoria to having us in this wonderful online event. In the next 20 minutes I'll be talking through some of the characteristics of China's e-commerce kind of landscape, some consumer insights. And I understand that some of the attendees today are looking at pathways to export to China in the kind of beginner phase, so I'll also be touching on two kind of a lightweight model solutions that we launched to the market to help beginner kinds of exporters for the market access. I'll start to share my screen.

First of all, I would like to give all of you a bit of an overview on Alibaba Group and then the different kind of platforms, and then the different opportunities that we present. So, Alibaba has been operating some of the world's largest e-commerce platforms. You probably are aware of platforms like Tmall, Taobao, which are the largest B2C or C2C marketplaces in China. And then also over time, we do develop some vertical apps for lower tier cities like Taobao Special and then second-hand products like Idle Fish so all in all, there are quite a number of different online marketplaces that we are operating to serve the China online shopping. Over time we also delved into a bit of new retail, so the concept is really combining the on and offline experience making it even more convenient as the consumer wants it, and when they want it. So over there you will see a number of our new retail and then the online retail businesses including Tmall global, Hema Fresh, which is a kind of on and offline integrated super kind of grocery store. And then we do also operate a number of wholesale marketplaces for wholesalers and then the manufacturers in China and worldwide. In the second block you will see a number of international marketplaces that we built or acquired over the last 10 years. This includes AliExpress, that are selling cross border to over 200 countries from China, and also regional or local players like Lazada in South Asia, Trendyol or in Turkey, and then Daraz in South Asia.

So that's kind of where we got started as kind of a core e-commerce business of Alibaba Group and then we kind of ventured into a few new avenues of online services. This includes the local consumer kind of a service for example food delivery, online travel kind of agent and then also navigation and map services. And then also into digital media and entertainment, these are the kind of YouTube-likes or the news feeds services for general Chinese internet users. So this pretty much describes the kinds of different business verticals that we're into at the moment.

More importantly, if you look at the kind of the, we do have two very strong foundation or underlying kinds of infrastructure enabler, including our logistics arm Cainiao, I will explain how it works in the later kind of slides. And also cloud computing providing that robust and strong kind of support to our platforms and then to all the merchants and partners working in our ecosystem.

So, as you may hear here many times, Tmall or Tmall Global, I want this slide to explain a bit of the difference between cross border imports and then general trade imports so that you can kind of understand which model would fit you better.

Basically Tmall, there are many global brands who have already built their China presence, China entity or have an exclusive distributor partner in China, that's where they kind of on-board to Tmall, China's largest B2C online marketplace. Definitely everything is existing in China including their bank account, their receipt of payments, their trademark is registered in mainland China. So basically they have their inventory warehouse operating in China so they're China-ready to explore the growth opportunities over Tmall.

Tmall Global is kind of a new platform that we launched back in 2015 when China opens up the cross-border e-commerce trade model. So, unlike Tmall where you have pretty much everything ready in China, Tmall Global suits better the global merchants or Australian, New Zealand merchants who are kind of operating outside mainland China, they don't have any kind of legal entity within the country.

Everything is designed for them to kind of remotely test in-market, build their brand, build their business from offshore. So all the kinds of accommodations including payments, trademark registration, warehouse location and then also the kind of product delivery, can be managed in the home country. But definitely through

cross-border trade there is a bonded warehouse facility that you can use once you test the market, seeing there is a stable demand for the product on the sales side, that you can ship your products in bulk to the designated bonded warehouse within China in free trade zones. From there our logistics partner will do the pick and pack and fulfillment through the bonded warehouse. So I hope this can give you some overview of the difference between Tmall and Tmall Global and also the two different kind of trade models of general trade and then cross border export.

Now I would like to give you some updates or insights on the China consumer market and then also the e-commerce landscape. Since its inception in 2015, cross border e-commerce, as you can see on my left-hand side chart, is really seeing a very fast growth trajectory, over 49% annual compound growth rate from 2015 to last year. This is contrasted by the growth of total imports, which is at a CAGR of 14% and then a growth of total consumption in China of 8% in the same period of time.

Definitely, this high kind of growth rate is also due to the smaller kind of base as cross border e-commerce started just in 2015. And then now if you look at it kind of the entire penetration because of cross-border imports versus the kind of general consumer goods imports is only 6%, so out of the almost 1.7 trillion RMB total consumer goods imports of last year by China. This means good and bad. The good side definitely is the government is still encouraging and setting a very stable kind of a policy framework to encourage cross-border input and then we, as marketplace operator, and as the kind of a leading platform of cross-border e-commerce in China, we're seeing a huge growth opportunity. We believe there is a big headroom for many years to come. Partly because the observation we see that really the pandemic has shaped the shopping behaviors of Chinese consumers, particularly in the imported products kind of space. As you can imagine, the global travel restriction really made all the consumption of imported products, luxury goods, mainly onshore. People are not able to kind of travel globally and then just buy products from overseas. And then we believe that this pattern will stay, that the Chinese online shoppers will keep that habit of either discovering or shopping for imported products through cross-border e-commerce platforms like ours.

Now, I move on a bit on the kind of a consumer insights side, I understand this is a very busy slide. This is meant to give you a sense of who are those typical kinds of consumer segments who are buying imported food, health products, baby products on our platform and effectively in China. Traditionally, if you look at the upper part, these are the very typical kinds of consumer segments who started early on the journey of using cross-border e-commerce platforms to find and then purchase imported products. So this includes your professionals, your white callers in Tier 1 or Tier 2 cities, definitely the wealthy mid-class is kind of the mainstream online shopper where they travel globally, they understand the power of quality and the kind of global brands of different countries. These people are the mainstream kind of online shopper in cross-border e-commerce. The next two segments are also very interesting. There are also the mainstream online shoppers for imported products.

Super Moms are working moms in Tier 1 or Tier 2 cities in China. They kind of dominate the purchasing plan of the entire family. They have kids or young kids where they buy anything when it comes to their family needs and their kids needs. They're the kind of early adopters of cross border consumption and they’re like the high spenders as well. And very interestingly, the Gen Z kind of segment is also spending a lot online as you can publicly imagine they spend 40% of a total kind of consumption online and then many are born with the Internet, which means they're super connected with what's trending in Asia, what's trending in US or here in Australia and New Zealand. And then they have kind of zero resistance to follow a KOL and then make purchasing decisions for things as they like. So these are the four segments of the traditional kind of a buying power in Tier 1 and Tier 2 cities. But very interestingly over time, we're seeing a penetration of cross-border e-commerce into Tier 3 and Tier 4 cities in China, meaning really that demand has kind of penetrated a wider group of consumers in China. I'm not going into details, but I just want to mention that these kinds of consumer segments are having over 40%

year-on-year growth on our platform. Like a Tier 4 city kind of youngster, they are also super connected through social apps. They understand the lifestyles in Tier 1 cities or overseas countries, they really want to keep up to it and then they start kind of appreciating the imported products, the brand and their quality. And then as China turns into an aging kind of a society, many of the kind of Urban Gray Hairs, they are paying a lot more attention to imported products for its quality, for its function, for its health benefits. For example, if they're from a developed market, so this group is also having significant growth at the time and then even lower income segments, like the Small-Town Mature Crowd and then the Urban Blue Collars, we're seeing a very interesting trend where they start to pick up global brands and imported products as well.

This slide, I want to give you a bit of an overview on some of the new consumption trends under the impact of the pandemic. We’re seeing very much these new trends are leading the way in terms of how people are choosing products, how they're kind of spending more in certain categories over kind of global brands and global products. So definitely there are three clear trends that we're seeing. One is home-centric. We’re all spending much more time at home at the moment, so there are certain new normals. Under this trend we’re seeing a lot of consumption in the Mum&Baby, in the 3C electronics category, products like coffee machine, which we won't kind of expect a huge growth but right now it is the kind of the norm that a lot of Chinese families they're buying coffee making machines into their homes because simply they spend more home and then they want to enjoy a much better quality cups of coffee. And then more time at home, either with your family or with your pets. The pet food and the pet products category are booming at the moment. We're very excited to work with some Australia and New Zealand pet food brands and that they're seeing significant growth on our platform over the last two or three years. The second trend is definitely impacted by global travel restrictions. Not that they can travel globally, but they have to find some substitute for fun, for outdoors, in China.

Hence, you will see a lot of the kind of niche categories, a lot of the adult sports equipment like surfing, camping becomes, definitely, the buzzword for younger generations in China. That's how they spend their leisure time when they cannot travel to overseas destinations. And then with social media and that kind of younger generations becoming the kind of mainstream online shoppers, we're definitely seeing emerging individualism. That means the young people, the youngsters, they want something different, they’re not influenced by TV campaigns anymore, they follow KOLs. They understand the latest consumption trends in Tokyo, in Seoul, in New York, in Milan and then they want that difference. They want to have, they want to wear, for example, a very niche brand of perfume and then tell people how it is different from those traditional kinds of luxury brands. And then they probably will also appreciate a Victorian whiskey and share in their kind of social media posts how this will kind of develop their own taste. So I think under these three new trends we're definitely seeing an emerging kind of category of opportunities for Australia and New Zealand.

We have been focusing on these categories for the last three years and then very, kind of, proud to share with you that some categories that we incubated are undergoing tremendous growth at the moment. So again, I will talk to much details of each of the categories and then what kind of opportunities are there. But I just want to highlight a few, for example in supplements we're seeing more, kind of, function-based categories like probiotics, NMN are growing very fast versus the traditional kind of leading category of liver care or fish oil. They were the kind of category leader, and sub-category leader at the time. Many of you would understand that with cross-border e-commerce, over-the-counter medicine can be, kind of, sold to Chinese consumers under a cross-border kind of e-commerce policy. So that's where we're seeing a huge growth of over-the-counter medicines to the China market and people start to realize that these are the kind of, almost become their, in their weekly or monthly shopping lists. Again in Australia and New Zealand we're seeing a very strong country brand of King high quality ring. So when it comes to like clean beauty, maternity products, maternity, cosmetics, they're very well sought after by the Chinese consumers because we have that strong country image or country brand of clean, high quality, green, so when it comes to like clean beauty, maternity products, maternity cosmetics, they’re very well sought after by the Chinese consumers because we have that strong, country image, or country brand. In terms of food and beverage, we're seeing a very good, very promising kind of a growth opportunity for a few categories. As I listed over here, coffee and tea. Basically, people can consume at home for mind refreshing. Super foods are healthy snacks and super foods that can kind of give a fourth meal to the Chinese consumer with a lot of health consciousness. Liquor, basically whiskey, gin, vodka are seeing very good opportunities following the success of Japanese whiskey, and this is a category we have a strong push at the moment as well. And then also plant based milk, soy milk, oat milk. We’re also seeing there's a kind of a growth opportunity over there as well.

Next up I'll share with you some of the newest solutions for beginner exporters when you want to tap the market we design these services by understanding your kind of concerns, your needs and then the status of your business. Before that, we're very, very proud to be in the market for the last five years, so Alibaba’s Australia and New Zealand office was launched in February 2017. And then over the course of the last five years we’re extremely grateful and proud to work with over 2700 brands in Australia and over 1000 brands in New Zealand. Basically, on the screen you can see we work with most of the household brands from Australia and New Zealand, helping them to tackle the China market. Now with five years in the market, our mission is really to help and enable the smaller guys or SME brands, to help them and then navigate them through their China journey. From last year our focus has been shifted a bit on 2 new solutions. They are designed really to lower the entry barrier for any merchants or brands who wanted to tap into the China market with definitely less investment, and better risk control. So, the two solutions are Tmall Global Mini-store and also the other is our Import Overseas Fulfillment which is IOF. I have a couple of slides later, some bunch of details, but just for you to kind of easily understand, Mini-store is a bonded warehouse model, where you have your product shipped to a bonded warehouse in China, and then you open almost like a store

in-store or on the Tmall Global platform. We do the operation, basically, you can participate in the kind of brand marketing on the platform, but it requires almost a minimum kind of investment compared to you finding a partner or distributor to open a flagship store on Tmart Global. So this is really a lightweight model for a bonded warehouse kind of model. The Import Overseas Fulfilment is trying to make the entry barrier even lower, so that's the model we launched to help merchants say you don't have any China presence at all, and that you're pure a local brand and then you wanted to start your China journey. And then there could be a risk of shipping your products to a bonded warehouse, and then at the end of the day, it it doesn't move right. So, Import Overseas Fulfillment is basically we kind of launch a product into our own store, and then we do direct shipping from Australia or New Zealand to our partnered warehouse in the consignment model. So many of the smaller brands or merchants are extremely kind of excited when they see this new model, that they can test the China market even without moving the inventory through to a bonded warehouse.

I have a couple of slides on this, but I decided not to go into very detail. The concepts are very similar, so basically we manage everything. The creation of the mini store, we upload to our catalog and then translate them into Chinese. We, with our third party provider, do kind of a marketing traffic and also customer service and then fulfillment for brands. The only requirement is your product is somewhere in a bonded warehouse in China and that you are also working with us on different marketing and promotion programs. The Import Overseas Fulfillment, as I explained, is even a kind of a simplified version for beginner exporters, so products are either in our partner warehouse, or you can connect your warehouse through our IT system, so we can kind of share your inventory and then you can ship the products to our partner warehouse once the order is placed. We are looking at helping smaller brands, beginner exporters to test the market, to understand the early kind of response of Chinese consumers over your products, over your brand, and over time then you can start other efforts or other avenues to kind of expand your presence into China through our other platform services. Right now, we're working with over 20, kind of, suppliers that’re featuring hundreds of brands and over 5000 products in this Import Overseas Fulfillment model. We have three warehouses, one in Sydney, one in Melbourne, and then one in Auckland, so very flexible, partner, and then in payment terms, with our warehouse partner. So this, I believe, will be a really lightweight and easy-to-start kind of trial.

Again, this is our team. They're based in Sydney and then each of them have +5 years experience in the cross border e-commerce space. They’re the kind of early, they're very early on in terms of starting working with Alibaba in the cross-border

e-commerce space, and they’re very experienced in working with Australian brands and helping them to access the China market as well. So that's all, I hope the session gives you some kind of idea of the China market, of the consumer, and of the e-commerce platforms, particularly our new solutions to help you start your journey. Thank you very much.

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Will D Dalton (DJPR)

Thank you, Scott. That was very, very interesting indeed so thanks for that. Our next presenter is Ryan Molloy. Ryan is CEO at RedFern Digital, full-service digital marketing and e-commerce agency, has lived in China for more than 20 years and is responsible for the strategic direction, growth and performance of some of the biggest brands across a range of categories. So, he's got a passion for growing brands in the China market and yeah, he's here to talk to us about the marketing ecosystem. So over to you, Ryan.

00:40:20.370 --> 01:09:29.830

Ryan Molloy (RedFern Digital)

Brilliant. Thanks Will. Well, thanks for having me today. I'll try and keep the time on this one. There's quite a few slides. So yeah, today I'll be talking about basically the different options brands have when they're trying to come into the market, decisions in terms of what's most important when choosing where to put budget, platforms to focus on, models of entry, and then finally looking at budgeting, and I'll also touch on the ecosystem. I think it's a major issue a lot of brands have is trying to understand all the different platforms in marketing and which ones should they be focusing on.

So, just quickly RedFern, we’re a full-service digital e-commerce agency headquartered up in Shanghai working mostly with FMCG brands, that would probably be our area, but we're not necessarily limited to that category.

If we look at, I think some of the key trends in e-commerce were previously highlighted by Scott in the last presentation. The major one for me is, as he highlighted, the Gen-Z opportunity. So if we look at the Gen Z opportunity, the amount that is purchased online by this particular demographic is much larger than other demographics, and with every year that passes, they’re having an increasing purchasing power. So, not for all of our brands does this fit. But we've seen even in Mother&Baby, in different categories, there's been recently a very big push, especially by domestic brands, into trying to focus on Gen Z and Millennials. So this is something that we tell all brands you need to take into consideration, and as highlighted in the previous presentation, the major things that they focus on is individualism and this sense of, kind of, the brand relation to them. So, creating an emotional connection becomes more important than talking about benefits of the brand, where it comes from and the ingredients. Rise of consumption in lower tier cities. This is something that I think is probably most important for brands, especially for any of them looking for offline distribution. If we look at Shanghai, Shenzhen, Beijing, all of these kind of major Tier 1 cities, they're very saturated with foreign products and a lot of brands that we've worked that have done very well, I think a beer one off the top of my head, actually a couple in alcohol, have actually focused on new Tier 1, Tier 2 and Tier 3 and had great success in that market. Obviously, price point is something to take into consideration. And a desire for healthy living continues to be a key priority for all generations, but in particular Gen-Z and Millennial.

And I'll quickly just, I think we covered most of this, but in line was previously discussed mother and baby, beauty and skin care, personal care, and food and beverage, are categories that are bouncing back very strong across a number of different platforms but mostly online. So, if brands fall within these categories then there's opportunity in the market. I think another point that I always say when looking at these categories is to just be a touch careful, because these categories are bouncing back very strong, but there's also a lot of players in these categories. So, trying to make sure that your brand has a unique selling point or something that differentiates itself from others within the category before entering is really important. And just looking through Tmall can give you a really good indication of what kind of brands are out there, what they're putting on their landing pages and how they're differentiating themselves up until this point.

And so when you decide okay, we're going to start exporting to the Chinese market, the first, after trademarks and the other elements, the first part is really then what model will I go through? There's two main models as discussed by Scott. The first one would be the cross-border e-commerce model, which is a very popular model for brands because it allows them to own their own store, it allows them to have that first step into the market. For some categories in personal care, nutritional health, it's the only, I wouldn't say only, but really the only option for an end to sell into the market unless they want to go through 2-3 years of very strict product registration. And even for that I think it makes sense to start with cross-border for those categories just to see how the market goes. And then obviously, there's bonded warehouse and direct shipping models. Bonded warehouses is what we would suggest brands focus on.

That means that there can be 24~48 hour delivery within the China market. And yeah, I think the major elements would be lower initial investment in cross-border e-commerce, no need for a Chinese entity, VAT benefits and it's a really good test to market opportunity. There are some categories where we try and suggest a dual approach to assure you can set up your cross border store but then be looking for partners at the same time that can then take on the domestic market.

And then, so if we look at choosing the right channel, where do I start? I'll talk about all of these in more detail in one moment. But I think depending on the budget of the brand, it really then affects on what should be the focus. So if we look at SME, looking at in-market, that means they're gonna sell domestically, the main thing that we would suggest is looking for that kind of distribution partner to have in place. If you're not gonna look at cross border, just because you need to have enough sales channels online and moving when you are in the market domestically to support any kind of marketing and investment. So, whether that be Tmall Flagship would obviously be a great place to start domestic, Douyin store, we've seen that Douyin has taken huge amounts of revenue from other platforms in the last year and so and can be a great starting point for SMEs in the market. So that's something you can't do cross border but you could do in-market. Working with vertical platforms, I mean if you’re in Mother & Baby there is Mama.cn, Babytree, Kids Want, there's tons of them and that kind of is usually a first step into then selling through offline distribution and retail stores. So, that's kind of where we're starting. And then from a marketing perspective really you wanna just focus on in-app marketing, so any marketing within the Tmall platform. And then a paid media launch budget that would be an allocated amount to launch the brand, to build in your first say 5,000 to 10,000 customers. The most important thing that I would recommend for all brands in China is that you can spend millions and millions of dollars and not hit, necessarily, your sales KPIs. But what you can do is try and use every dollar to, especially in the beginning, to acquire new customers, because it's a word-of-mouth market. If you can get to your first 10,000 customers, then what we find is there's a natural growth month-on-month.

So, if it's on your Tmall store, if it's on your JD store, if it's your offline retail. Obviously offline retail it's more difficult to acquire new customers because you're a new product on the shelf and when there's a comparison, it's quite difficult unless there's a price difference. So, really online is where you can try and bring in that first 10,000 customers and that's by making sure every part of your media spend is pushed towards that, rather than working too much loosely around KOLs. If we're looking at larger brands, then it's a little bit different because you can then afford to have that, I guess, investment in official account media and pushing more out in terms of on your WeChat account, Little Red Book account, Weibo account and then also having kind of, you know, more channels, Tmall, JD, etc., that are here as well. And then if we look at cross border, it's more or less the same with large, I think you know working with Daigou, it's either something that's already there, or in my opinion nowadays you don't necessarily need to have the Diagou channel in place. It's changed a lot. There are brands that are now coming to China that don't have a Daigou channel in place and are selling very well. So actually, you can see that it can be a more inexpensive way, I would say, of trying to get sales for brands coming in with a lower budget. But for larger brands I would just skip it completely and really start to focus on the flagships you have in-market and then building out, sorry the flagships that you have on cross border platforms, and also other retail distribution.

And then for SMEs, obviously as mentioned before, there's now the Tmall Mini-Store. So the cross border, this is a great opportunity as well.

And so, just very quickly. The stages of market entry starting with IP protection, I can't say how important this is, and I believe we'll be talking about a bit later in the webinar. So that's something that needs to be put in place first, whether it's cross border or in-market. Then understanding your strategy, your localization. We still do see the majority of searches in China go through the Chinese name, so you need to have a Chinese name in place, also locking in that IP. Then building out your CBEC development, increasing your sales, getting yourself to that first 10,000 customers through paid media. Then opening your owned media channels, expanding across CBEC merchants, expanding across other CBEC platforms. Here I put [inaudible] because you can use Tian Mao Alibaba logistics to basically service Tmall and Suning and [inaudible]. Then finally looking at, okay I've built up this credibility online cross border, then looking at distributors that can help you with launching offline and EC. There's even now functions where you can link cross border to in-market logistics. So, I think this is kind of the path through and what we've seen is 8 years ago you could turn up in China and there would be lots of distributors saying we'd be interested in taking on the product. Those distributors are still here and they still do take on brands, but they're less likely to take on a brand that hasn't had any kind of prior investment into the market. It's more a case of okay, show us how invested you are in this market by carrying out marketing, by setting up cross border stores and then we can talk. So, that's why I guess the stages of market entry have changed a little bit.

And if we look at the platform, there's lots of different platforms to choose from. And I think this is the most difficult part. It's okay, I now have my team of flagship stores, I have found my optimal in-app marketing spend, so the amount that I spend within Tmall, and then, so now I need to understand what do I do outside of Tmall, for example, to help this. And so there's a number of different platforms. Weibo is often pushed because it can connect to Tmall. But the reality is that although it has that connection, we find that there's very little ROI. It's very hard to measure. Even though the CPM is very low and you can have some amazing numbers on Weibo, it's, in terms of an FMCG conversion platform, really dropped. And so we often call it the old horse. It's kind of, its run its day it now needs to go out to pasture and it's not really adding a lot of value, we find, for new brands unless you're working with celebrities and your Nike, Adidas, and really built up a very large following in this area. It doesn't help brands get off the ground. And WeChat is a super app, so I think it's less viewing it as a social media platform, and looking at it as this kind of closed ecosystem that everyone in China is using on a daily basis many, many, many times. If we look at usership, then it's by far one of the highest. But, if we look at the effects that it can have in terms of own-media marketing, working with moments advertising, it does have limitations because of how closed it is. Usually for WeChat, we say it's something you need to have, it's like a website. But looking at one to two posts a month is enough for brands when they first start off, just so there's some content there for consumers to go and have a look, right. We actually find consumers now will scroll through a WeChat account, have a bit of a look and then they'll go into purchase if they kind of have that connection with the brand. Little Red Book has seen a lot of investment in recent years. You know, two or three years ago we could work with, say, 30 KOCs a month and we actually would have a kind of spill-off into Tmall sales. It has become much more saturated as Little Red Book and it becomes harder for brands. But, I think brands need to look at a Little Red Book a little bit differently. It's more about foundational marketing because by nature it's a review platform. So the majority of consumers will go to Little Red Book, they will open it up, they'll put in the brand name they've just seen on Tmall or they've just seen on another one of the platforms, and then they'll look at the different reviews that are in place. So if there's no reviews then that's not very good for the brand. If there's positive reviews and there's enough, then that usually is enough to suggest that this is a product they should buy. So that's the way to look at Little Red Book. owned media on this platform can be quite strong and it's more about, you know, creating an initial awareness. Obviously it's a platform with over 80% of its users being female, so it's very good in personal care and nutritional health categories. Zhihu, obviously if we look at search in China and FMCG, most users will go directly to Alibaba or JD platforms. They don't search through Baidu, which would be the Google equivalent, like they would outside of China, because there isn't a linkage to Alibaba and a lot of search, and there's no index. So, basically what you can do is work with Zhihu to come up with different discussion topics of KOLs that when people do search on Baidu there are some discussions around your brand. But again, it wouldn't necessarily be a priority for a new brand. Douyin is the entertainment hub, if you have a Douyin store obviously running Douyin content, video content and live
streaming is really important. It is an expensive platform, that is one thing, because you have to create quite a large amount of video content. It's something brands have to take into consideration. And the other thing with Douyin is the Entertainment Hub, so everything you're doing has to create more of an entertainment and the connection, and for that it can be very useful for Gen Z, but also it can be very good for broadening the current consumer base that you have. So, it's usually something we bring in as a part two. Kuaishou has shortly recently stopped a lot of the live streaming connection that it had before. So it's not as powerful, but for many years Kuaishou was actually the second largest live streaming platform outside of the Alibaba system, so it's quite interesting what they've done recently.

(continued from first half)

Ryan Molloy (RedFern Digital)

So it's less of a focus, it's more on tier 2, tier 3, but yeah, let's see what happens with that in the coming months, but live streaming is really it's focus. And then Bilibili, again, is something I wouldn't necessarily suggest to brands unless they really have 100% focus on Gen Z. It is a Gen Z platform, it's kind of the Gen Z YouTube of China. It's all about young subcultures and creating different types of content that feature into that category. And it's also the quality of video is very high on this platform, so it's something again that brands need to consider, whether it's really worth that first step. So, the first step would be more around simple setups on WeChat, Little Red Book building that community, and then enjoying, you know, depending on if you have a store or if you're cross border, it can fit in, but that's something to evaluate based on budget.

So out-of-app and in-app marketing, I mentioned these a couple of times now. So, in-app marketing is obviously everything that's spent within your e-commerce platform. So it's on Tmall. There's lots of different things you can do, like SEO and

you know, Diamond Booth display and different ads that you can put in place. This is very important because this will start to grow up your store, but there's usually a certain amount where over that amount it just doesn't make sense to invest too much more. So there needs to be an investment when the first two and three months of test-and-learn to understand what is the perfect amount we need to be investing in Tmall to get us a good ROI and then the remainder of that budget can then be put in out-of-app marketing where you have a lower CPM, you can reach more people, and you can start to create some awareness around your brand. There's also a number of programs that are offered where you can work with KOCs, we work with the clients and move these as well. It can all be about acquiring their first consumers as well. So there’s a lot of power and out-of-app marketing or media marketing in the Chinese market. And then if we look at media marketing out of marketing as a whole, there's then your official accounts and your paid media marketings. Paid media marketing would be KOLs, KOCs, promotional tool, advertising. Owned media marketing would be more your own official accounts and push outs. They're both important, but you can't set up a WeChat or a Weibo account and then expect to have all these sales. It's basically a long term approach. It's something where you're building up your fans, you're building up your influence in the market. Paid media marketing like KOLs and live streaming, et cetera, this is all very kind of immediate in terms of the impacts it can have.

So, how do we start right, if we look at marketing? The first thing that I would suggest is if we look at China, it's gone from a kind of celebrity, to livestreaming, to KOLs to KOC. It's now a KOC market, right. Key opinion consumers have the largest ability to help brands go from zero to 1 on a lower budget. And so, there's lots of things you can do in word of mouth (WOM) marketing to bring on ambassadors, to bring on

people that can help you get to that first 10,000 customers so that you have a decent organic base of sales. Then what comes with the brand is really the strength of the brand, the pricing and the repeat purchase. So, WOM marketing is what gets brands started and then we can look at, OK, as I mentioned before, on Tmall what is a certain amount of investment that's needed on the different tools to help me have month on month growth in sales? And then we come back and once that's been done, we can start to set up owned media marketing. As I mentioned before, with official accounts marketing in China, it's not a case of I need to set up all of them. It's also not a case of, I'll often hear, I just wanted to set up one and focus on that one and get very good at that one platform and then move on to the others. It doesn't work like that because the platforms have completely different functions. And so if you just focus on one, you're only tapping into one function of the market. If you open them all, you're spreading your investment too wide. So what we suggest is to try and understand which platforms make the most sense for you. It might be three, it might be four, but then don't push out as much as you can on those platforms. Push out to what makes sense. So WeChat, for example, maybe only one or two times a month. With Weibo, you might find that it's good to have something there in every month, or then there's a promotion, you can put something up with a bit of a promotional tool. Little Red Book, it might be more frequent and Douyin, you might set up and just do a video a month. Because they all have different focuses, but firstly you need to understand what is the purpose, what is the demographic and does it fit the category that you're in?

And then so, if we move on to live streaming, there's a lot of discussion around live streaming. Unfortunately, the ROI on live streaming has dropped considerably over the years. That being said, it's still a very important part of doing business online in China and there's different ways that you can do that. You can work with you know, larger live streamers, celebrity live streamers, or you can work with lots of smaller ones. On Douyin we find that it's a combination of a very large one and lots of smaller ones but it really, really depends. I think the best thing is to try and find live streamers where you can create an echo chamber among, say, seven or eight, quite influential ones, and build up your brand through their followers. And then if we look at converging to sales, social marketing programs are something that's really important at the moment. They give guaranteed ROI and GMV and they can really help brands go from zero to 1. You know, ROIs are never necessarily fantastic, but there's something where, you know, it gets product into consumers hands. And I think for China that is the most important thing. The first six months should be all about, how do I get my first 10,000 customers? And then so if we look at different types of collaborations, we have KOLs and celebrities. I think the time of the celebrity for market entry is now kind of coming to an end. There's IP opportunity in collaboration there. But really, I would focus more on kind of your mid-level KOLs.

Brand collaborations are really popular right now. For brands, we're usually doing them once a month trying to find different brands we can have some formal collaboration with. It helps you kind of touch into different consumer pools that you might not necessarily have contact with. And if we look at IP's and organizations as well, that's also associations are something that we found a lot of benefit. Especially through WeChat associations for products that would be say more niche. And if we look at KOLs and KOCs, I would probably go for say a 25/75 split, that would be 25% KOLs, 75% KOCs. I think the important thing with KOCs is don't just look at the numbers. You need to look at what is a high quality KOC, you need an agency will

handpick instead of giving you just a very long list. There's lots of cases out there that aren't very high quality, so you want to go for that larger KOC, handpicked and look for a certain amount per month.

And if we look at different platforms, whether we work with KOCs or KOLs is different again. Little Red Book is a review platform so it's very, very heavily focused on small to mid-tier KOLs. Douyin, mid-tier KOLs is pretty much how the platform works.

There are actually opportunities for a KOC marketing and we do run a program for Douyin, but again a little bit less than, say Little Red Book. Weibo, I wouldn't work with KOLs and KOCs at this point. It's just for market entry it doesn't make much sense. And then WeChat, mid-tier can be very useful. The CPM with WeChat KOLs is really low, but we find conversions to be very high because people that follow like city-based KOLs or associations, they're very loyal followers and they will purchase. We've had purchase rates as high as 30% of follower bases which is huge and returns of sometimes 10 times working with one WeChat KOL.

So consumer digital journey. So, KOL plus KOC product seeding across platforms, this is at the foundational parts of marketing. Official brand account’s been set up, understanding what you'll be doing but keeping it concise, then building in your purchase, and then finally going back to understanding what is your loyalty. So if we look at a campaign, right, a lot of what brands in China do is they all look at key

e-commerce festivals in their first year, big ones would be 618, which is coming up shortly in June. And then you have Double 11 in November, Double 12 in December and then there's lots of other category ones throughout the year. But usually we say pick three or four and then you can look at when I'm building into these months, how do I work with different platforms? This is the most important thing. So for example, creating that foundational buzz on Little Red Book, we know that Little Red Book content lasts for up to six weeks, so this is the first part where you start to create KOL and owned media buzz around the brand. You then can move on to creating excitement, so that's working with video content on Douyin. It's working with niche WeChat KOLs where we're getting conversion, but we're also creating a campaign full of excitement. And then finally, as you come to the highest level, that's when you can really start to work with Tmall live streamers to have that conversion, because what brands need to understand is when people go into a live stream, they don't just see something and necessarily buy it because it makes sense. They go there with a shopping list. And so if you can create awareness prior to the streaming event, this is really important. And then we come back to the other platforms where it's all about, okay, we bring in our first batch of customers. Now we want to show them who we are and what we stand for.

And so if we look at key insights and media updates, e-commerce is continuing to take increasing retail share. It's still the most important part for any brands coming into the market and really offline will follow to that. Word-of-mouth marketing continues to rise, so the power of KOCs and trying to build your initial fan base.

Diminishing Taobao live streaming returns, but we have seen an increase in Douyin live streaming returns and sales through Douyin platform. KOL inflation is a big problem especially on Douyin videos, we found that KOLs had become more expensive. This doesn't mean KOLs are bad and you can't work with them, it just means we need to be more selective in terms of the level and type of KOL you work

with. Saturated seeding, so seeding as I mentioned before, you could work with say 30 a month, now it's gone much higher. The problem is, if you build your seeding out to be too high we then find that a lot of them get blocked because the platform will pick up on, there's lots of seeds around the brand spontaneously in one month. So again, being selective and trying to understand the influence of WeChat is waning, but WeChat Moments advertising is back and the CPM was recently dropped. We have increasing Tmall in-app costs, so brands can no longer just set up on Tmall and sell well, they need to look to other platforms to support that. Celebrity effect is diminished, but there's still potential in IP usage, that means, working with celebrities through their official accounts doesn't work as it used to due to regulations last year. But you can still build on their IP. And then in terms of, I guess, reduced power of “Brand” campaigns, the word-of-mouth element is really, really important.

And so if we look at the budgeting snapshot for the market entry, this is kind of like a first year for a market entry brand. And so, the importance of what I'm trying to show here is firstly, if we look at research, China is an ever-changing market. What you learn in the first month will then affect the second month. You can't come with the strategy in the first month and say that's what we're doing and we're just gonna follow this out for 12 months. We usually do monthly and quarterly updates. You can do AB testing Tmall, you can work with different media clients. We actually had a client in T few years ago that you know we're doing a couple $1000 a month on Tmall and really kind of struggling along. We started doing AB testing and we started working with different types of KOLs, different types of platforms to understand, where was that niche and where was that opportunity for them? And that really month-on-month, changing what we were doing to try and really kind of, you know, focus all of our efforts and spend, we were able to bring that brand to over, you know, a $1 million RMB sales within a few months. And so, what we knew in the first month was very different from what we did in the third month, so our consumer research is important. You need to have localization, branding and creative design. These are the foundational parts of what you will do and especially the name once it's there, it's there. But then after that, you need to understand that what you're doing in e-commerce and media retainer, there will be ongoing changes, there will be ongoing learnings. And then if we look at the spend, and as we move into year-two media out-of-app spend, even I would say into Q2 and Q3, sorry Q3 and Q4, media out-of-app spend will start to take a higher proportion of investment into the market. But initially you want to really be understanding the tools in Tmall and making sure there's enough of an investment in Tmall to get yourself to a certain level. And then once that's understood and you've done AB testing, you can then start to build out marketing.

So, thanks everyone. Hopefully I didn't go over time too long and yeah, any questions, feel free to reach out and I'll hand back to the team. Thank you.

01:09:32.280 → 01:10:50.892

Will D Dalton (DJPR)

Thanks Ryan, very interesting. Thanks for your presentation, really fascinating stuff. And people, hold those questions. We'll get to a session at the end where we can have an interactive discussion. I'm just mindful of the time, we've gone a bit over so we're going to have to sort of race through the last few presentations a bit quicker than we planned. So apologies to Charlotte, Sandra and Davis but if you can sort of

aim to maybe slice 5 minutes or so off your presentation, that'll help us get a bit more time back.

But look, Charlotte Trinh is the Australian IP Counsellor to China, so it's a great pleasure to have you join us. Charlotte commenced her term at the Australian Embassy in Beijing in March 2021 and she essentially helps companies make the most of their IP in China. And as we've heard from Ryan, in particular, a very important part of the journey is to get your IP right. So, I'll hand over to Charlotte to take us through her presentation, just noting that timeline Charlotte. Thank you.

01:10:51.290 → 01:26:41.059

Charlotte Trinh (Australian Embassy)

Thanks Will and hi everyone. I'll do my best to zip through as efficiently as I can, but thanks for the introduction and thanks to those who have hung around for the IP part of the presentation. It's great to see people interested, especially this week, which is international IP week. So Happy International IP Week to everybody. What I'm gonna do is just give you a really quick overview of the China IP landscape and also just some practical tips on how you might want to go about managing your assets

in-market. It's obviously not a deep dive, so for those of you who have questions or you might have some confidential things that you'd like to discuss with me, I'm more than happy to make time. I always frequently have one-on-ones with exporters just to talk through their portfolios and questions they might have about the market. So, just get in touch with me after the presentation and we can line up some time.

OK, so let's just start by addressing the elephant in the room, and that is essentially a sentiment that some of you may have heard, you may be thinking it yourself at the moment, that is along the lines of the legal system and the IP system in China is either nonexistent or not very good. That foreigners tend to get the short end of the stick and in essence that there's really no point in investing in things like IP and contracts and due diligence and all the good things in China because it's just not worthwhile. I want to address this because firstly, I don't think it's a very accurate reflection of the reality of what we're seeing on the ground here. Prior to this role I was practicing as a lawyer in China for five or six years, so I have a sense for how things have come along in that period of time. So I definitely think it is not an accurate reflection of what's happening. But I think secondly, there is this effect that we kind of describe as leaving your brain on the plane. And that basically means that we find Australians do things in China that they just wouldn't do in other countries, or the flip side is they don't do things in China that they would think would be

best-practice in any other market. So they don't invest in their IP, they don't look at doing appropriate due diligence. They don't have contracts in place or if they do, they haven't had those contracts reviewed by their own advisors. And they do all of these things because they think the alternative is pointless and they've got great relationships and that's all that matters. What I really want to get across to you is that I’m very aware that the system is far from perfect and it's a work in progress, but it does offer plenty of support and tools and protection for foreign businesses. The key is that you really have to help yourself, so you really have to take advantage of those options. The worst thing that we see companies doing is just deciding that there's no point and failing to engage because that then very much creates a self fulfilling prophecy. So, at the end of the day, please just help yourselves. We'll go through some of the tools that are available, take advantage of them.

So what does self-help look like? As a starting point, it's by doing exactly what you're doing today. So informing yourself, engaging with the issues, engaging with the IP landscape. We know that estalian exporters do really tend to lack IP readiness when they enter the China market. And when we say IP readiness, we're not just talking about spending money on rights which are not always necessary. Now, it's not always necessary to be registering rights, reporting rights, spending money on your portfolio. What I mean by IP readiness is having some deliberate planning. You know, putting some thought into what assets you have, which ones are truly valuable to the core of your business and how you manage those assets. And this is crucial because our economic research tells us that a lack of IP readiness is very highly correlated to things like all the market share for our exporters, increased costs of doing business, a lack of resiliency when it comes to things like currency fluctuations, and in some worst case scenarios which we've dealt with here at the Embassy, a failed market entry. So it's really not a peripheral issue, it's business critical and it's really important to act early. So acting early, thinking from the outset about what kind of assets you have, is crucial. And it's also important to take a really proactive approach rather than a passive one. I hear, often, people say things like oh, we'll cross that bridge when we get there when it comes to IP, we've got other things to deal with, we've got supply chain marketing, we've got to find a local partner. And the issue with that approach is that when it comes to IP in China, particularly in China, by the time an IP issue becomes known to you, it's really too late. It's too late to avoid costs, it's too late to avoid things like significant business disruption, you might have to look at a re-brand, you might not be able to launch a particular product in-market. So, doing things like conducting some freedom to use and operate searches, having the right agreements in place, assuming that if you do well you will have fast followers and you will have counterfeiters and being prepared for what you want to do when that situation arises. And then beyond that really understanding the landscape. What are the market conditions, particularly when it comes to IP and also your particular sector? So, those are the sort of high level issues that we're talking about when we mean self help.

Okay, so which assets are we talking about? I'm just going to briefly touch on the kinds of intangible assets that you should be keeping in mind when your project planning, and also when you're negotiating with your partners in-market, service providers, counterparties. At its very core, in that dark circle there is intellectual property. So those are rights that are administered by our agency, IP Australia, and also by our counterpart agency in China, the CNIPA. They’re ideas that the law specially recognizes and protects. But that’s really just one part of all the assets that you're sitting on. If we take a step back, we can see that there's actually a much broader group of tools and assets that add a lot of value to your business, but they're not necessarily recognized as a special class of asset or protectable in some special way. So that includes things like all your datasets and includes things that sound kind of banal and every day, but all the systems and processes and SOP's that keep your business running day-to-day. Your methods of procurement and outsourcing, how you go about project managing things, protocols around that. How you hire, train and retain your staff and then all things in between. How you go about product development, your pricing models, your marketing strategy, your marketing plan, how you go about generating reviews for your product listing. These are all things that you may document or at least have a system for doing internally, and they're all

valuable. And also a key item in this class would be your trade secrets. So your trade secrets are commercially valuable pieces of information and they enjoy special protection under the law, even though they're not registered. But they only know that protection if you keep them secret. And if you have a system and a process in place to do that. And that doesn't necessarily mean key card scanning and technological systems. It could just mean a process, limiting who accesses certain shared drives, limiting how and when pieces of information are accessible. Things like that to show that you have actively managed this asset and you have taken steps to keep it secret. So this is kind of an overall snapshot. An abstract of the kinds of assets that your business is probably already sitting on.

So how do we identify some of these IP assets? We’re going to take a quick bird's eye view of an example of a Chinese IP portfolio. So we've got the product here, which is, you know, just a basic sort of F&B product, but from that product actually stems a number of registered IP rights and other kinds of intangible assets. So you've got your patents, that protects the technology and inventions that you might own and in this particular case, it relates to the way in which cocoa beans and chocolate is processed. So it's a processing method. For many of you, also brand is going to be a huge part of your value proposition. So, trademarks are your go to there and trademarks can protect all kinds of brand assets. So it includes your core mark, but it also includes your logo, the overall lockup that you might be using, some mottos and logos, straplines things along those lines as well. You've also got copyright and copyright protects creative works. And so you might be thinking, well, I don't really have anything that is necessarily creative, but just keep in mind that many things are considered to be sufficiently creative to enjoy the protection. So that might include things like the product manuals, which depending on the product, can actually take a lot of energy and resources to produce. In the e-comm space, it also includes things like your product images. Product images are probably one of the most frequently copied items that we hear about, and that's just because a high quality product shot is super important to generate click through, and so you will find rather than produce one of their own other listings might actually just use the image that you've got in your product listing. There are also designs, so visual appearance, and that includes your packaging as well as the actual labelling as well, in some instances. And then of course there's trade secrets which I mentioned just now, and also another category to keep in mind is data. If data is a key business asset for you then you need to keep in mind the entire suite of privacy, cybersecurity, and data security regulations that have been released in China and the last few years. They will have a significant impact on how you process and transfer your data and also potentially your entire business model. So it's something to keep in mind.

And I'll just touch quickly on the First to File rule, because this is by far the number one issue that tends to come to us here at the Embassy. The First of File rule is what it says. It means that the particular brand is owned by the person who manages to go and register it first. It is not owned by the person who either originates the brand or uses it first. And this particular rule in China has led to a pretty significant issue around bad faith filings. So you will find third parties registering brands that have been originated by other companies, other parties. And they'll do this either to sell it back to you but at an extortionate price when you do decide to enter the China market, or the alternative is it's just easier to launch a product with a pre-existing brand rather than put the effort into developing your own brand. In either of these

cases, it's a pretty tough situation for the company that originated the brand and wants to use it in China, and there are some examples here of major multinationals that have run into this issue. Nike, Apple, New Balance. For all of these companies it has taken them years and a lot of money to try and claw back the brands that they developed. So I think the message there is that if you are a small company, you need to get in quick, stake your territory, file a trademark registration for your core brand. It's not that expensive, $AU400~700 and that would be the cheapest option for the future and insurance policy that you can get. So, if China is a possibility for you at this point in time, you're still just thinking about it and mulling it over, definitely consider looking at a trademark registration.

And then just lastly, I'll touch on e-commerce enforcement and over the years that I've been in China, the user interfaces and the tools that the e-comm platforms have provided for IP protection have become increasingly user-friendly, increasingly easy to use and with increased functionality. And so I encourage all of you to take advantage of these tools. They're freely available, and there's usually a business development / customer service team who are on hand to help you with that if there's something about the platform that doesn't make sense. But we come back to that point about self help, because the platforms will generally not intervene if you do not have rights. So make sure that you're prepared. You've got to have either the trademark registration ready to go, you've got to have evidence of your copyright, you've got to have something to show that you are the rightful owner. Otherwise it will be very difficult for you to make use of these tools.

So I might leave it there. If there's any questions or anyone has some specific issues that they want to speak to me about, please just get in touch. I've got an email address which I think the details will be circulated after this, but don't hesitate to reach out. So that's it for me. Thanks.

01:26:38.640 → 01:26:57.810

Will D Dalton (DJPR)

Thanks Charlotte. Fantastic, great job also in reducing the length of your presentation. Appreciate it. So without further ado, I will move on to Sandra, who's going to talk to us about logistics and Sandra is the founder of Shanghai Empire Trading.

And yes, I think without further ado, I'll hand it over to Sandra. And Sandra, just mindful of the time. If you're able to keep your presentation to no longer than 10 minutes, that will allow us just to be able to squeeze in Davis at the end. And look if we do end up getting to the point where we've run out of time, people can put any questions they have in the chat and we will provide a response to each of those questions, but if you can try and aim for 10 minutes, Sandra, that'd be much appreciated. Alright, thanks Sandra.

01:27:36.790 → 01:40:14.880

Sandra (Shanghai Empire Trading)

OK, I'll try. Hello everyone. So thank you for the chance for me to share some of my observations and experience on trade compliance and the customs process in China with you online. I'm located in Shanghai, China, that is in lockdown currently due to COVID. So I have to do this presentation from home. Let me share my screen. OK, so let me get it started.

OK, so according to the statistics by the Customs of China, China’s import and export volume with Australia increased in the last year 2021 compared with 2020. The growth of imports was 30.6% bigger than the growth of Chinese exports. So according to the data, the potential of trading between two countries is still very huge. However, it's necessary to be aware of the risks in the process of customs. We collect some information from the customs website. There were totally 405 items of food and beverage that were rejected, returned or scrapped by the customs of China in the end from other countries in this January and February. Among them, there were nine shipments from Australia. And when you look at the column of reason, you can find some of them were just caused by a failure to comply with the customs regulations or the national standard of food. So be very careful.

When we talk about the risks, we have to mention the case of anti-dumping Australian wine. When China announced to do anti-dumping in vestigation on Australian wine in August 2020, we had a shipment in the process of customs clearance from Australia. So people were totally at a loss and in the end we changed the way to declare to avoid the anti-dumping tax at that time for that shipment. But we had to take about three months for a test result. So that shipment was stuck in customs for a long time, and then now we all know the answers to this anti-dumping investigation that was finally imposed.

So did you get a bad experience or a headache with the shipment to China before? Sometimes it's very easy for a shipment to export from Australia, but can be stuck in the customs of China for a long time, or even be scrapped in the end. No matter if it's a small shipment or a big one, there are some rules you need to follow before you send out a shipment. How to declare the description of goods, the value, the address code, the shipping terms, what particular certificates to be required. I would like to suggest you be very careful with all these details that look very simple when you trade in domestic, but can be a reason to stop your shipment into China. I think the customs regulations offered by every country are not simple and it can be especially complicated in China. There are many customs in China and the different customs may have different practices. For example, in Shanghai you only need [inaudible], a scanned copy of customs power of attorney. But in Shenzhen, a city in southern China, you must do an electronic customs power of attorney on an official customs website.

So basically, there are four models for import declaration. Personal goods, KJ3 samples, general normal trading, repair and replacement. Different models of import have different regulations and baselines. For example KJ3, this is the fastest and simplest way to do customs declaration, but there are limitations. Generally speaking, the weight should be below 30 kilograms, valued below 5000 RMB and without cash flowing out of China. It sounds easy, but it will be determined only by the customs of China, case-by-case. The shipment should be declared properly on arrival within 14 days, otherwise the importer will be punished by the customs. So it is very important to protect all the shipping documents and the certificate before

shipment leaves Australia. Once it departs, we are not able to revise from China. Some discrepancy on documents may cause suspicion of the customs of China, which may lead to inspection. And if discrepancies are found during onsite cargo inspection, the shipment will be stuck for a long time and then you will need to pay the additional warehouse storage fee, terminal fee, probably container demurrage fee and in worst cases your shipment may be returned or destroyed. In our experience, we often found issues such as improper description of goods, much lower value below market price, lack of quarantine certificate, wrong content or ingredients declared, and raw packing information, etc. Sometimes it's not easy to realize the discrepancy by shoppers, but I have to emphasize it cannot be more important to do documents pre-check. The target used to choose a proper model of customs declaration, declare proper content of your shipment, get the customs cleared smoothly, avoiding trouble, avoiding suspicion, avoiding additional cost, even the failure of delivery. In the [inaudible], we should do things correctly before the shipment leaves Australia.

This page is about some different scenarios of declarations for samples for beginners of trading to China, classified by different purposes. I won't go into those details, it's quite complex.

And then how to prepare ahead to avoid risks of customs compliance? Again, it's wise to communicate sufficiently with your Chinese importer and ask them to do documents pre-check, as I just mentioned. We should make sure all the information are correct and prepare all the documents to be required by the customs of China based on address code. Secondly, import permit pre-check. For some goods the importer should have a particular permit from the Chinese government before importation. We also need to know the ingredients of the food and sometimes the certificate of analysis to check compliance with the GB standard, the national standard of China. Sometimes an ingredient is allowed in other countries but forbidden in China, like hemp.

I thought today we should check if the price looks likely to be challenged by the customs. Price is the most sensitive element during the custom process because it is related to tariff and tax. The customs always have the last word remember. Last but not least, sometimes if you don't have a proper importer in China, you need to find one in advance who has the certification to import your goods because sometimes [inaudible] don't touch those complicated goods and then you will need a broker like us. Yes, we can do that job.

OK so here I would like to summarize some simple principles for you to check before you plan to send a shipment. If it's a normal general trading, it means your shipment is for sales purposes in China so every document on the customs supervision requirements are necessary. If it's a free sample, the KJ3 process can be easy, but there are some criteria to determine if your shipment can be declared in this way, but the customs of China has the right to deny. Be careful, even if it's a free shipment, you cannot declare it at zero value. It must be at the market price level of China.

Secondly, you need to determine a correct address code in China based on your product information. Different address codes have different customs supervision requirements in the tariff across. Sometimes their products may not be allowed to import into China. With all this information and requirements you will review if your documents are in place. And if there are any defects on your shipment, may be challenged by the customs of China. Again, please bear in mind small parcels should

be checked case by case if they can go for KJ3 free sample clearance. And last, these principles look simple, but the real world is much more complicated.

So, I believe it can take a whole day to talk about trade compliance and the customs process, it involves huge details. However, if we can be aware of the supervision requirements of the customs of China, do it ahead, prepare ahead and make all paperwork correct, your shipment can go through easily. In this process, professional knowledge and experience of how to handle the customs challenge is the key. So, I would like to take the last 30 seconds to introduce our service scope to cover customs clearance, transportation, warehouse and order fulfillment on behalf of you in China. We have worked for some Australian companies for many years and then if you have some specific inquiries about customs clearance and the supply chain management in China, we can customize our solution for you. You are very welcome to send emails to me. Here is my email address. Thank you.

01:40:17.080 --> 01:40:39.580

Will D Dalton (DJPR)

Thanks Sandra and well done and thanks for working through that a bit quicker. So we have on the agenda Davis Xu next. Davis is our in-market specialist and is going to talk to you about a very important topic being the recent policy changes in relation to the decree laws.

We've actually decided to skip over Nick's session on support from the Victorian government, but Davis, if you can try and wind up, you know, sort of just after 3:50, 3:51, 3:52, that would allow us to have an interactive conversation and possibly also hear from Nick. So over to you, Davis.

01:41:05.580 --> 01:53:41.520

Davis Xu (DJPR)

Yep, thank you Will. Let’s see, do I have the slides up?

Let me start with saying that I am Davis and I'm actually based in Beijing, the political heart of China, and it's a great place to keep ourselves updated to all the Chinese regulatory changes. And after we've been listening to all the Chinese consumer behavior, the marketing strategy, IP knowledges and logistic solutions, if you're still interested in the China market one of the first things you need to do is to actually get your company registered with the Chinese customs. Now we're just waiting on the slides.

So, since January 1st this year, China has rolled out a new policy by the General Administration of Customs China, or short for GACC. GACC is the head of the old customs in China so it monitors the customs of the country. And it has two new decrees called Decree 248 and 249. Now the GACC’s new decrees are trying to shift the burden of regulatory responsibilities to the respective national governments and tighten up on regulating food importation into China. Furthermore, GACC is intended to hold those foreign regulatory agencies and businesses accountable for any breach or food safety issues from the nation, and cancel any import license for a country or region that the Chinese customs deems unsafe.

So first up, let's talk about Decree 248. Now 248 is aimed to register and administer all food production, processing, and storage facilities for international businesses exporting into China. Now, GACC is the official governing body and is responsible for the registration and administration. And this is actually a sign of maturity for the

Chinese market and the other emerging markets are also doing the same. For example, the United Arab Emirates and Indonesia are also having their own labeling laws they introduced into their region. So this is very much a trend globally for emerging markets, a shift towards a more regulated training environment and to protect their, you know, consumers safety effectively. Next slide please.

OK, so before we actually start registering with GACC, we need to first decide what kind of category you belong to as for your business. There's two types of categories, Article 7 category and Article 9 category. Now if you are Article 7, that means you are producing food on this list here. Now from Victoria’s point of view, it usually includes meat, dairy, seafood and oil, grain, nuts and health food. Next slide please. For Article 7 businesses, you need to contact the Federal Department of Agriculture, Water Environment (DAWE) and here is a link to contact them. You need to email them and ask them what is the next submission day and what type of documentation is needed to send to them. Please do remember only DAWE can help you because the Chinese government has nominated DAWE as the official governing body in Australia to nominate your business to the Chinese customs. So if you're an Article 7 business, you can't actually do it itself, you have to ask DAEW to do it for you. Also if you register your product with Therapeutic Goods of Australia (TGA) then you need to work with TGA and DAWE together to submit your application to the Chinese customs. Next page please.

OK, so if you wonder what is Article 9, it's very easy. It's pretty much everything that's not included in Article 7. Usually it's pre-packaged and processed food. Now, for businesses falling under this Article 9, you can do it yourself, but it is recommended to find an entrusted agent who has experience in the submission of this kind of registration to GACC because this system is quite complex and the fact that even though they have an English website version for application, they'll translation between the two languages is not perfect. So it is always recommended you ask for a professional agency to provide you assistance and so you will not waste valuable time correcting mistakes, especially if you already have a kind of agreement with a Chinese party that you will deliver in time. That would be large risk for the business. So it's better to hire a professional. Next page. This is the link that if you choose to do it yourself, that's the link you can go to. On the bottom left corner is the selection and you have to choose between Chinese and English. Next page.

So now we’re done with Decree 248, let's have a look at 249. Now, 249 is more focused on the labeling requirements and packaging and all the smaller details that exporters need to know. Next page. So, 249 has introduced quite a few rules, both general guidelines and some very specific rules for certain industries. Now, all those labelings have to comply with Chinese law and the Chinese Food Safety Center.

Let's first look at some of the general rules. Rule number one is that you need to include the GACC registration number. So as we said before previously in the 248, once you registered with GACC or the Chinese customs then we issue a GACC registration number and you’re required to print that number on your product. Now, you don't actually need to print it on your physical English version of your original labeling. You can create a Chinese language sticker and print your GACC registration number beneath it. Now of course that is assuming you are not selling health food because health food requires something different, which I’ll talk about later. Rule number two is when there is a situation that requires a menu, you have to

have an English version, it doesn't mean a paper menu, it can be also added onto the Chinese sticker label. And well, I think it's pretty straightforward because if a product that you're selling is complex enough that you require an English menu to use properly, for example, you know, pancake mixture, and teaching people how to make a pancake correctly, then there’s a reason that you need to provide a Chinese version as well just for the sake of helping the Chinese consumer to use your product correctly. And rule number three is that if there is a special identification logo on any of your inner or outer packaging, then the previously relevant Chinese law will still apply, and in that case we are talking about, you know, like organic labeling, green labeling. And if you do have an organic label, you need to make sure that you also apply in China, otherwise you actually can't use that organic label in your product and it has to be covered up basically, otherwise you'll be rejected through your shipments.Next page.

Now, when we’re talking about, you know, the inner and outer packaging, usually the inner packaging, internal packaging is the smallest retail unit. So that's the product the consumer usually buys from the shops. Now, external packaging is usually the cardboard box that you use during transportation. Now both need Chinese labeling on it, but it doesn't need to be the original in English translated completely to Chinese. You can have the Chinese sticker label over, so that does save you a bit of a cost of changing your product labeling or the time, depends on the country you're going to. So you know that is one benefit. But unfortunately for health food that's quite different. The Chinese have been very specific about health food and that's that the packaging in the health food has to be completely Chinese. So that means your original label for your product has to be edited into a Chinese version. In case you're wondering whether your product is considered as a health food in China or not, it's quite simple. If you register your products in Australia under the Therapeutic Goods Administration, then China will recognize your product as a health food, and therefore you have to have your original label completely translated into Chinese.

Next page please.

So if your business only focuses on cross-border e-commerce then Article 75 of Decree 249 is very specific about this and they say that you don't need to worry about Decree 249 and you can still follow your current Chinese cross-border

e-commerce regulations, but a recent regulatory shift in China has shown that the Chinese Government is slowly favoring cross-border e-commerce being conducted out of their free trade zones. What we think is there are more and more products being listed as only to be allowed to be sold from a free trade zone. So while currently none of the major Victorian commodities are being affected, we do see this as a trend and so all businesses need to pay attention to the changes for cross border e-commerce in the years to come, and so you won't be caught out by the changes that are affecting your cross border e-commerce. Next page please.

Well, that is the very short version and that is it for me. And if you have more questions you can ask me and I have a longer version of my slides which I’ll ask the team to supply to anyone who's interested and there will be more detail. And if you have anything that you want to know about feel free to email me and well I’ll pass back to you Will.

01:53:43.000 → 01:54:53.850

Will D Dalton (DJPR)

Thanks Davis and well done on wrapping up ahead of time. I might just, we've only got a few minutes left, so apologies for not keeping track of time as well as I should have. But are there any burning questions that people have that they might want to ask any of our panel? And feel free to put anything in the chat and given we'll probably run out of time, I'm happy to, you know, coordinate a response back to people. So is there anything that anyone wants to ask at this stage? I think we may have had a question in relation to your presentation Scott. With the second model, was that the IOF, a question about whether consumers are happy with the potentially longer wait for international freight? Or do you have good systems in place to manage the occasional long delays in international logistics?

01:54:54.830 --> 01:55:50.890

Scott Ni (Alibaba Group Australia and New Zealand)

Yeah, so that's a very good question. Under the challenge of pandemic, we're aiming to do a complete kind of a shipping lead time within two weeks. Our target was within 10 days, but now it was managed at about 2 weeks. We’re a bit careful with the kind of consumer expectation and then we did kind of reinforce the communication with our consumers that it will take as long as two weeks in most cases. But so far the two weeks kind of shipping lead time is being accepted. We hope that with a better logistic capacity in the future that we can keep that ten day promise.

01:55:50.810 --> 01:56:10.680

Will D Dalton (DJPR)

Yep okay, thanks Scott. If there are any other thoughts or questions for the panel. Yep, we've got a hand up there, which is great.

01:56:13.480 --> 01:56:51.550

Anonymous

So, you talked a lot about the different social media options. Would you suggest that from Australia someone just jumps on and starts having a look and trying to explore? Or is it really better for someone in-market I suppose to start that process. It’s not necessarily to start a full program but to just kind of get a sense for what sort of happens in each of the areas. Obviously languages we going to be a big barrier unless you're competent, but just because there's a lot of, I suppose, social media platforms that we might not be familiar with in Australia.

01:56:57.550 --> 01:58:34.390

Ryan Molloy (RedFern Digital)

Brilliant, I'm happy to take this one if that works. So I think all preparation is really important, especially as the first step, and so looking on the different platforms and doing search around competitors that you know are here in the market, or other brands to try and see what they're doing is really, really useful. And it's a good starting point to see what they're highlighting as a brand. And I guess the other thing also is to check if there are any current discussions around your brand that you stumble across online through [inaudible] channels or different channels as well. So I think that's an important step. With regards to then trying to understand what you should do on social media, I think it's better to work that through with someone

in-market just because there's so many options and it would be a lot of work I think to do that from outside of China. The main thing that I always suggest for brands to start doing is to jump on Tmall because on Tmall you can get monthly sales figures, they're actually all on listings. You can look at your competitors, you can see their landing pages, you can see what exactly they're claiming, and also it gives you a

Speakers:

Shank Somers, Senior Policy Officer, Export Development and Investment Strategy

Nick Henderson, Victorian Deputy Commissioner to Greater China

Kristy Chen, Buying Director, ALDI China

Frank Li, Managing Director, 31Jiu (Shanghai) Co Ltd

Davis Tao Xu, In-market specialist for China

00:00:00.000 --> 00:03:16.680

Shank A Somers (DJPR)

Good afternoon everyone, thank you for joining today's session. Let me start by acknowledging the traditional elders of the lands that we're all meeting on today here in Australia. My name Shank Somers, I'm meeting with you on the lands of the Wadawarrung people coming to you from Geelong. I pay my respects to elders past, present and those emerging. Thank you again for all participants who've signed up as well as those who've reached out to be part of today's session. So, today's session is the last Pathways to Export Edu series component with a focus on doing business in China. Today, we'll be hearing from some VIPs brought in by our Deputy Commissioner Nick Henderson, who will come through in a moment. And the focus of today's session will be about doing business with your Chinese partners, predominantly looking at retail opportunities and distribution in-market. As mentioned, this is Pathways to Export, a key component of Agriculture Victoria's export arm and I'm a Senior Policy Officer within the team. So we look forward to working with you today, but also moving forward.

Just as a reminder, I think I'd like to just refresh everyone on the Pathways to Export program. So it's a $5 million four-year program, which essentially looks at supporting emerging and SME exporters get into market, but also look at diversification and expansion opportunities. We provide a number of tailored one-on-one support mechanisms which complements Global Victoria, the state government's traditional export arm, in helping to promote opportunities to business. A key component of Pathways to Export is Vic House, so our food and fibre trade pavilion based in Shanghai, which a lot of people would be aware of. And this again complements our 23, but soon to be 24 global offices. So we look to provide a number of key elements for businesses and practical tools such as checklists, e-Learns, webinars and dissemination events like today. Underpinning the Pathways to Export program are our three In-market Specialists so, Davis Xu who you'll hear from today, Ian Thompson and Emma Page. So we are concentrating on the markets at this stage of China, South East Asia and the Middle East and North Africa.

So this brings me to the end of my small component and I'll check in with everyone a little later but I'd like to introduce Nick Henderson, who's the Deputy Commissioner for Greater China. Nick will introduce our VIP panel members and then take us through this interactive session. So over to you, Nick, and thanks.

00:03:18.710 --> 00:12:41.660

Nick Henderson (DJPR)

Thanks Shank and good afternoon to everybody. Through this series of webinars, we

have looked at some of the key elements of engaging with China as a new exporter. We've looked at the Chinese consumer market. We've looked at the Chinese consumer. We've had some introduction to retail and ecommerce environments. We've had speakers on the digital marketing ecosystem and how best to navigate that ecosystem as a new exporter. We've had the IP Counsellor from the Australian Government talking about IP protection and trademarks. We've looked at logistics and shipping, and we've also looked at food exports and the regulatory environment.

Engaging with key stakeholders in the market, such as buyers, whether they be retailers or food service buyers and key channel partners like distributors are central for entering and growing in the China marketplace. These engagements are areas where often misunderstandings of the commercial environment, customer expectations, culture and the like can lead to less than optimal business outcomes. So today we're going to look at these two areas separately and we're gonna do it in a little bit of a different way. So I'm gonna talk about some key key considerations in relation to engaging with buyers.

And then we've got our experts who've joined us. We're really pleased to have Kristy Chen, who is the Buying Director of ALDI China, who's worked with ALDI for over 12 years, four of those with ALDI China, eight of those with ALDI Australia. So has a really, really good understanding not only of the Australian purchasing environment, but the China purchasing environment as it pertains to a new retailer within an emerging area, emerging market. And she oversees all of the buying strategies within international sourcing for ALDI in China, pricing, promotions, et cetera. So we're going to hear from her. It's gonna be in conversation, so I'm gonna ask her a number of questions and then as we go through and we're talking about this particular topic, which will be sort of for businesses to engage with buyers, I encourage you in the chat function to also ask your questions. And I can try and incorporate those into the questions that I ask Kristy. And then we'll be looking at how to select, how to engage with distributors. Which is obviously a critical element for most businesses when they're trying to sell their products into China. And we're really fortunate to have Frank Li, who's the Managing Director and Founder of a specialist beverage distributor called 31Jiu, who has 30 years food and beverage experience, 15 of those are hands-on experience with F&B in China. He is the head of the Australian Chamber of Commerce Food and Beverage committee. He is behind the real success of Bundaberg brewed beverage sales in China, but also represents brands like VB, Pure blonde and more recently Remedy Kombucha and will have some fantastic insights as well. So we're really, really lucky to have Kristy and Frank with us and that will add a really interesting dynamic and hopefully we'll be of value to everyone who is on our webinar today. We can go to the next slide please.

Frank, please Shank. Frank and Shank, I'm getting a little bit confused.

So this is really looking at what are some of the considerations when you're engaging with Chinese purchasers and I think the first thing to recognize is that it's a very, very competitive marketplace. Now, the marketplace in Australia's competitive in different parts of the world. I would probably say that China more so than others because of the range of imported products that's available in the marketplace, and the growing range of domestic products that are emerging as really strong contenders even for a number of the imported products. So it's really important that as you are selling and introducing a proposition to a buyer, that you really are thinking of, how am I going to distinguish myself and get cut-through in a very competitive marketplace? So that's the first thing really to be very mindful of from the beginning. The second thing is that consumer demand is strong. That's a very generic statement. But on the whole, we are seeing that consumer demand for imported food and premium products is strong, relatively strong to strong, but consumer expectations are high and they are growing. So the perception still remains that on the whole, imported products are of higher quality because of quality production standards, although there is a growing exception to this rule where we've got more and more local products and brands that are really being produced in very, very high quality manner. And then the other thing is that consumers who can afford to pay for these food products is growing as well. And it's not just in the first tier cities, it’s in the second and third. These are highly educated consumers, well researched, they’re on the channels. They're looking offline, they're purchasing online. So they're basically very, very educated about the products they're buying. So therefore, you need to understand that you're in a very savvy marketplace.

Our current operational environment is highly challenging. I think that's a bit of an understatement. Zero COVID, lockdown of cities, impacts on ports and logistics chains, customs clearance delays, import logistics are being impacted by COVID testing, in particular for cold chain. There are specific handling requirements for cold and frozen products within retail stores now that is adding to the cost and complexity of managing imported chilled and frozen product. And up to 30% of imported products have come off the shelves in a lot of retailers for a number of reasons, because of COVID, but also because of new food regulations and a lack of compliance to those food regulations that we implemented on the 1st of January. All of these operational elements need to be managed and are at the front of mind of the buyers, of the distributors that you're going to be engaged with. So, having a knowledge of all of those factors is going to be important.

Purchasing practices differ. So for a number of reasons, the purchasing drivers, processes, speed, all of those elements are different in Australia and China. Now there are some instances where they're going to be the same, but there are a number of instances where that is the case. And Chinese buyers are very well researched about the general imported product offering and if they have proactively reached out to you, they will have done their research and they all have a really good solid base knowledge of the products that they are interested in. Therefore you need to be really aware of the differences and how you need to engage in the right way, how much preparation you need to do and we'll talk about that in a moment.

Purchasing drivers, now this is also quite generic. So, there are obviously different purchasing drivers for different retailers, different retail purchasers, so we're only making here, a few generalizations to give you the example. So, the first is basically purchasing based on current trends so what has been successful in other retail outlets, where there is an opportunity to introduce into my retail store where I can take away some market share? So that is one of the considerations. The second is to anticipate trends where I'm identifying new products in emerging consumer areas like low sugar or functional snacking, and these products may have been very, very successful in Australia and therefore based on the market need and consumer trends, this could be an opportunity to anticipate future trends and try and ride that trend before it becomes popular to basically get some market share. And then the final one obviously to extend range and margin for products that are maybe existing hero products or high volume products where the retailer may be looking to gain additional margin or additional feature sets at the same price. So if we go to the next slide, I'm going to pass across to my colleague, Davis, and we're going to look at the complexities of when are the right times to be engaging in conversations with retailers about certain products. That's taking into consideration things like shopping festivals and so on. So Davis is gonna give you an overview with the aid of a diagram which will help you to understand when the festivals are and then when you should be engaging. Davis.

00:13:05.830 --> 00:20:22.870

Davis Xu (DJPR)

Thank you, Nick. So let's go to the calendar page. First of all, we need to understand about Chinese holidays that is one of the key selling dates, period in China. For example, Chinese New Year in February, Qingming Festival in April, the 618 that is JD’s 618 online sales event. Then we have the Mid Autumn festival and the Double Eleven from the Alibaba Group that of course is online. So we're looking at two types of sales events. One is holiday-based and the other one is very much driven by the online platforms. So let's look at the seasonal period first.

Now, for example, if your product is selling beverages like beers or ciders for the summer period, you usually should be looking at studying your kind of approach to the Chinese buyers from November or even earlier. For example, when I was in [inaudible], it happened to be in the World Cup season, so we are actually importing Polish beer for the event. So, the things we are looking at when we were trying to import those products were, we had to anticipate the day when the event starts and then we also have to consider the lead up time for the advertisement for the product, because it's a new product. If it's a new product, we need some certain amount or period of leading time for the promotion. Then we have to consider the transportation. I think back in 2018, the usual transportation time from Europe to China was about 40 days by sea, roughly. So we had to anticipate that in our forecast. So we're really looking at about three or four, even five months ahead when we're planning to purchase something for the summer season. Then for the winter season. Winter season you're looking at products, usually lamb and beef and wine. Those during May.

And then we’re looking at the holidays. One of the biggest holidays I think is Chinese New Year and the reason why Chinese New Year has such a long lead up time is because the Chinese New Year is not just best selling products, it's also about packaging your product into give-backs. So most of the time we are actually not just talking about collaboration with a business trying to import the product into the country. We’re also talking to them about designing gift bags in all sorts of Chinese New Year themes and special deals especially designed for that period of time. So that is one of the key things you need to look out for if you're trying to sell your product during the Chinese New Year. That is special deals, that is packaging. Usually we are talking to suppliers and we were looking for suppliers to give us designs for the gift bags printed either in their country or in China. So that is why the Chinese New Year has an extra long leading time for that special event. Another major sales event is the Mid Autumn and it depends on your capacity. Some businesses offer Mid Autumn gift bags as well, some don't. If you are really stretching your capability, I would suggest Chinese New Year because Chinese New Year is the one with the biggest sales period compared to Mid Autumn.

And then we're looking at the 6.18 and Double 11 events. Those are driven by Alibaba and JD.com. Usually, during those times they are actually having a lot of special sales packages. One of the major themes that you need to look out for as a supplier is to make a kind of promotional deal that is feasible, while not damaging your current price structure. I think that's one of the very important things you need to look out for because you do not want to devalue your product too much during the period. One of the practices businesses often use is to have a limited amount of product, especially on sale during those times. Those kinds of things need to be in a long discussion between the business and Alibaba or JD.com. So this is why you need quite a long time to really hammer out all the contracts especially for those periods. They will have special contracts for those special sale dates. The lead up time is usually for the negotiation of the contract and that is one of the differences compared to just a normal Chinese holiday. Online platforms will have these special programs and you need to really negotiate the deal that you want. So that's why there's a long lead time.

Now when we're looking at fruit, fruit is very interesting. Usually the Chinese buyers know what type of fruit they want to buy already, probably a year in advance. You usually know, they will select the right type of fruit, the right variety, a year ahead. What they are waiting for really is to see just pretty much two or three months before the harvest season, the price. Because it depends on the weather conditions, it depends on the global pricing that we're going to make a decision on whether they're gonna purchase fruit from that country or from a different country, it depends on the pricing. So that's why despite the fact that they already know quite well in advance the type of fruit they want to buy, they will try to wait until the pricing structure is more clear on the ground before they place orders. Usually they already have very well established distributors and packages in-country already, as is the case for Australia. So they'll be very well connected and they are literally just waiting for the right price to start purchasing. So the lead up time is not that great, usually probably just one or two months before the fruits become harvested, that's usually the time. So that is the thinking, the patterns behind the Chinese buyers when you want to take advantage of that, you know all the dates and when you should approach them. So, now I'll pass back to Nick.

00:20:22.010 --> 00:27:41.090

Nick Henderson (DJPR)

Thanks Davis. This information is really relevant because there are some retailers, for example, that will only do an intake of new products three or four times a year that are linked to some of these festivals. So, it's important to understand the cycles of the business that you're engaging with. And the next thing if we can go to the next slide, is how do you put your best foot forward when you are engaging with buyers to communicate about the offering. Now, I know a lot of you really are experts in what you do, there's no question you all are. But these are just some things to really pay extra attention to which are going to create that additional cut through within the Chinese market and the first of these is really to make sure that the product information you provide is as detailed as possible. You know, by having detailed PowerPoints or documents that you're not giving away your formulation of a product, you’re arming your potential buyer with as much information as they need to help them to assess and to make a decision. So that is what are the specs of the product, what are the standards that you produce to? How many SKUs are there in that range? What is the extended range? How many SKUs in that extended range? What's the minimum order quantity, etc. Ideally, this information is in Chinese. It's just going to help the buyer and their teams to be able to access and be accessible to that information. A clear articulation of your point of difference. Going back to that first slide that I showed you is, you know, you're in a competitive marketplace, what is your unique selling point? Is it your brand story, is it the product story, is it the product itself, is it the production method? Is it the ingredients that you're using, is it the design of the packaging? All of those things need to be very clearly articulated, because that's what buyers are really obviously looking for. Once you capture initial interest from the buyer, it's really important that you follow through quickly with samples. Now getting samples to China can be a little bit tricky, but it's important to do so and not just, for example, if we're looking at natural flavor, you know, sending a range of different flavours which are linked to the product of interest is also a way to scope future interest and making sure that you have not just one sample, a number of samples so that they can test and try internally and also externally.

Building trust and credibility, this is a two way street. You're doing your commercial due diligence on them. They're doing their commercial due diligence on you. And you know it's important that you are putting your best foot forward by showing where your sales retail points are in Australia. Are you in Woolies? Are you in Coles, are you in Metcash, etc., whichever stores you're in, what's your market coverage? This will will give the buyer a sense of what sort of credibility, what sort of scale you have in the marketplace, what sort of history and heritage you have in the Australian market. Getting pictures and examples of your product on the shelf. Marketing campaigns, promotional activities, all of those sorts of things are really important to show that you're committed to not only having your product on the shelf, but you're committed to putting in some money to have promotions and that sort of thing.

Sales data. Now, we get asked a lot from some of the retailers here to facilitate a conversation with local companies about getting Australian companies, about getting sales data across to the Chinese retailer. It's important for them to understand in the context of the local market, what's your market position and what sort of potential there is within the Australian context so they can kind of relate that to what they could be in the Chinese context. Showing examples of digital collaterals, the breadth of your marketing assets, your campaign activity. Which also reinforces what are the key selling points that you are communicating within the local market or it might be another export market as well.And that leads to information on your export market key accounts. It might be a certain retailer that you're working with in Singapore, it might be you know, whatever it may be to show case studies and examples of how you're creating business and success in other markets, is all going to build that familiarity, that knowledge and that credibility of your product and your brand in the eyes of the buyer. And then if we can go to the next slide quickly before we move on.

The other thing that's just as critical is that as you're going through this process that you are maintaining a momentum with the communication. What we find in China is the communication, if there is interest, goes very fast. Very communicative, expecting answers very quickly. Don't write tons of emails and expect to get email responses.

WeChat is the tool to engage with Chinese buyers and stakeholders in the market, so you need to use those tools to be able to engage effectively with potential buyers. You need to be clear in your communication. You need to limit ambiguity, so if you feel anything is unsure, clarify. You are working between language contexts and you're working between cultural contexts. In those environments it's important to over communicate, now not to be assessed, but it is important that you are really communicating clearly to make sure that you are making that communication process as efficient as possible. And then obviously making sure that you are being on the front foot with your commercial discussions on price shipping terms. Are you gonna do a trial first before you look? All of those sorts of things, it's about having those conversations up early, so you're not getting down to one month in the discussion and then all of a sudden you're starting to talk about commercials and they don't meet your requirements, then everybody's wasting everyone's time.

So they're just a couple of considerations for you. And I think what the best thing to do is now to actually engage in a conversation with Kristy who deals with these sorts of issues on a daily basis. And when I've caught up with Kristy in the past, we've had a conversation on these topics of collaborating and working with international brands, and the differences in style between China and Australia for example. But I'd like to start off Kristy, if I can, by asking you a really practical question I think a lot of people on this webinar today are interested in. So can you just give us an update of what's the situation on the ground in Shanghai at the moment and for ALDI China the stores are still operational, but things are far from normal. Would you mind giving us an update?

00:27:41.200 --> 00:29:41.590

Kristy Chen (ALDI China)

Sorry, thanks Nick. Of course. So, obviously we are in a very strict lockdown mode at the moment and the lockdown is very different to what majority of Australians have experienced before when there was COVID in Australia. Our lockdown is pretty strict and we can't even step outside of our door set, so you can't even go into your own garden, which is really making life really, really difficult for everyone. So ALDI and ALDI China at this moment is actually supporting all the communities and the compounds for their daily lives. So our branding during the COVID situation has actually increased a lot and that's actually natural marketing during this period of time. So it's helpful, but there are a lot of challenges for the retail business at this stage. So if you imagine normally the online business contributes about 30% to 40% of the total business of the retailers at the moment it's all 100%. Sorry, I would say it's probably about 300 to 400% because all the businesses naturally has increased sales during the period and also everything would be delivered to people's households because no one can step outside of their door. So it's quite important for all retailers, not only just ALDI, to make sure that they are keeping themselves at this position so that they can do some deliveries. They will need to have a special license to be able to travel in the streets, they need to have special trucks, they need to have their suppliers who are also registered to be able to deliver during this special period inside Shanghai, outside of Shanghai, and sometimes also outside of China. So it is very difficult, but we are definitely doing our best to support everyone in Shanghai.

00:29:47.040 --> 00:30:35.380

Nick Henderson (DJPR)

Thanks, Kristy. That's a really interesting overview of what's actually going on in the ground. It's a very complex set of dynamics at play. I'm gonna go to another question now and if we've got time, I might come back to another question in relation to the current COVID situation. I talked before about the selection of imported product in the marketplace, so you know we've got product from Holland, Germany, UK, Australia and New Zealand, you name it. This is an international marketplace. How do you go about comparing and selecting new products to bring into the range at ALDI China? What is that process when there's so much choice?

00:30:37.050 --> 00:34:23.220

Kristy Chen (ALDI China)

Sure. I think first of all basically how we compare products is actually for the customers. So it's really about what the customers want/ The Chinese customers, they are actually, they are really dynamic and their thoughts, the thinking process, they change really fast. So it's whatever that's suiting the customers needs, that's where we would actually start our buying process. And in terms of the country of origin so it's obviously depending on the strengths of the country’s products. So for example, Australia and New Zealand, they are naturally very strong in dairy products and it's definitely an outstanding category that we would look into to compare the European dairy and European also has a very big dairy pool and it's actually bigger than Australia or New Zealand. And then in terms of the detailed comparison then obviously there are a lot of details in there. So that's including basically the quality first, the cost of the products and the easiness of being able to get the products into China, the import tax that's related to the countries.

As you know that Australia and New Zealand, we both have a special taxation rules to import dairy and some of the other categories into China. Obviously that's a big advantage especially during the current situation as everyone knows, logistic costs and also raw material cost in the European countries, it's gone up to the roof. The increase has been just really dramatic. So it's a very crucial period for the Australian dairy suppliers to understand what the situation is and as you said Nick, before, to present their competitive advantages during this special period. Obviously the buyers in China would look into the comparison of the changes and also the easiness of being able to get the products into China.

And also, so that's talking about some, you know, country of origins. It's also about the quality as well. So Chinese customers, as Davis just described before, they are after, especially on imported products, they're really chasing for the quality, especially for those that are able to pay for imported products, that is the number one importance. It's even higher than the pricing of the products themselves. So linking that and based on all those fundamentals, what ALDI speaking for is value offers to our customers, so we need to be competitive in the market, as the usual strategy of ALDI Global, we need to be able to offer the best price with the best quality and that's what we call value and that's our daily core range, day-to-day business is how we do it. And obviously to fulfill the Chinese customers' fast demand-changing, we also need to be able to offer some excitement to them and that's through the seasonal and specials and all those events that Davis just mentioned before as well.

We are after also the point of difference like the suppliers would have as well because we need to be different, we need to be outstanding in the market and we need to be able to offer our customers something that's special to make them feel special and it can be some trendy stuff, it can be unique, stuff, can be edgy and quirky stuff as well. So it is all coming down to product innovations and also capability and capacity of the suppliers.

00:34:27.430 --> 00:34:51.490

Nick Henderson (DJPR)

Thanks, Kristy. What are some of the key success factors that you could recommend to the Victorian exporters that are on today's webinar? How to put their best foot forward? When introducing their product range to buyers at ALDI and other retailers, what are some of the things that to you stand out as things that they must do?

00:34:53.360 --> 00:38:36.750

Kristy Chen (ALDI China)

I think you've mentioned a lot for this question in your conversation previously already so I might just quickly summarise it all. For the suppliers to understand their own competitive advantages is definitely the most important thing. How are they special? How can they do better than their own competitors in terms of the products themselves? Maybe you've got a very special formula in your products and maybe you've got vertical integration in your production, you can actually offer us the best cost and that is much better than the others. These are the things that you would need to understand yourself, because buyers don't naturally know how good you are. So we will need to know through the communications to understand what our supplies can offer us. That's definitely the most important part. And also I think Davis mentioned like, for example fruit, the buyers would naturally, they generally know what they want, and they will wait until the season is available. But if you have something that's different to normal, please let us know because Australian suppliers are really good at innovations agriculture wise and including other ambient products as well. So having a good presentation, being able to articulate the specialty on the products and being able to present those products through either samples with VIC House or posting them directly to China at a very fast speed, it's actually quite important. Also understanding the China regulations and the China trend is also a key to success as well. So for example, I mean very unfortunately it changes just too quickly. You know, wine was definitely one of the key categories that China would actually get products from Australia, but unfortunately was it the last year or the year before, obviously the anti dumping tax on the bottled wine policy has come along and that very quickly changed the whole story. So we haven't been able to import Australian bottled wines from then onwards anymore. But, what else can we do? Can we do bulk wine import and bottle them in China? It's just a very, very, very bad example probably, but that you know, changing your thinking process to be at the forefront of innovations and change with the policies is very, very important because without those, with the changes, would you actually just stop doing business with China? Or do you want to change your thinking process and do a bit of tweak to keep doing business with China. So, if you wanna be successful, these are required. And I think the last point to this question or this point is the value of a long term partnership, you’ve go to realise this. With ALDI we can support our supporters and we always do and if any of you have done business with ALDI Australia before you would understand this. ALDI is one of the easiest customer to work with in the retail world. It's a really simple relationship and that’s the same for ALDI China as well and we can grow together. So please understand this is a long term partnership and communicate with us if you are committed to doing export business with China.

00:38:39.500 --> 00:39:16.150

Nick Henderson (DJPR)

Thanks, Kristy. I think being innovative with your business models is really important and that bulk wine example I think is a very relevant one. OK. Last question, and if anyone has any questions before we finish up this section for Kristy, please do add them into the chat function on Teams. This is something we have talked about before Kristy and it's about how you like to or how ALDI likes to collaborate with brand owners. Are there any collaboration styles or principles that you like to adhere to?

00:39:17.390 --> 00:41:46.050

Kristy Chen

Yeah, so I'll just make it pretty quickly. There are generally, I would say, four main areas where I would even do an annual review at least with each of our suppliers. Number one is definitely quality. So with the ALDI products we've got a very strong QA and CR team and they've got a set of rules that the suppliers would have to be able to comply with to be able to get products into the supermarkets. So, that also applies and you need to make sure that the quality of the products, the products actually comply with all the requirements including regulations and also cooperate responsibility-side of processes as well. Number two, I think as I mentioned before, product innovation is something we would highly encourage our partners to put a lot of focus on because it is a key critical part and to make us have a win-win relationship. The third one is actually quite related also in the retail world as well. So it's actually pretty much do as what you say and it's delivering our products in full and on time. As you know the ALDI China store format is even smaller than the ALDI Australia ones and that's you know the stock turnover in stores and also in the DC the warehouse is one of the key importance for ALDI. So we can't afford having late deliveries or having products that's not according to our spec. So it's very, very important. And the last one is obviously the smooth communication with the suppliers. If you have any questions, ask us. We are always there to support, but we won't know if there are any problems if we don't get the right communications. I think what you described, the over communications through WeChat, is actually really working for the majority of the Chinese buyers because they would like to know more. They want to know, how can we actually market the products? What are the possibilities? Which sales channels can we actually do in China? Like the current situation, we can't do offline stores? What other possibilities are there? So yeah, those are basically the four main areas I would look into when we start the business with our partners.

00:41:48.530 --> 01:00:03.280

Nick Henderson (DJPR)

Thank you very much. I think they're really valuable insights and I think you know, we're really lucky to have Kristy to provide those to us today. And I hope that you found those valuable. So I'm gonna do a virtual applause and thank you very much Kristy, for joining this first section. And now I'm gonna move on to the next section, which is focusing on distributors.

So distributors are critical partners to enabling sales activity, marketing and product fulfilment in the market. There are benefits and challenges faced when working with any external partners when you're dealing in business and distributors are no exception. A few considerations as I sort of mentioned earlier for purchasing. The first is, it's a distributors market. There is a market of choice. And that choice is large and hence distributors can afford to be very picky if they do indeed want to take on new brands.

I've noticed this in my time engaging with China where, in the past 10 to 15 years ago there was, you know, distributors were really active in trying to seek as many new brands as possible. And then in the current context I'm speaking to distributors where distributors are taking days to assess even before having the first conversation, if they're gonna have that first conversation or just saying no. And because they know what the market needs, it's a challenging commercial environment. So, you know, taking all of those factors into consideration it's important to understand that context. And then there are many options. You know, there's a recognition that China is a vast market, so it's huge in its geographic size, there are categories of cities, there are different provinces with different levels of GDP and disposable income and different consumer bases, etc. There is not one generic China market. Therefore, we may not necessarily, you may, but it may not necessarily look at a distributor as one generic distributor. Now, for example, the options you know in many circumstances are that there are online distributors or there are TPs which are basically service providers running cross border e-commerce platforms. There might be specialised distributors that work on the fulfilment and the sales and marketing of products online to online channels. Then you may have some that focused specifically on offline, on physical bricks and mortar retail or do wholesale or do food service. There might be some that just focus on Northeast China, some that just focus on Southwest China, some are just focused on Shanghai. Or there might be a mix of the above. So it's important to understand what you're looking for in a phase perspective as you're growing. But you know what are the actual capabilities of that distributor? What is their focus and how that aligns with what you want to do with your growth within the market as well? And then recognition that China is just so large that maybe one distributor may not be the answer. It may be, but it may not be the answer if we can go to the next slide.

And so one of the challenges, I guess that we're all facing at the moment, and in an environment where borders are closed, we're not able to come from Australia across to China to meet with potential partners. How do you identify distributors? I think there's probably not one answer. I think it's a combination of utilising your own business networks, going to trade shows now, whether those trade shows be in a virtual realm, that is also possible and still meeting companies that way. Benchmarking by going online and doing desktop research and working out who's distributing your competitor or like product and identifying who those companies are. And assistance from government agencies like the Victorian Government Trade and Investment, and so on. And also professional firms to identify those potential distributors that might be into the mix. And then I guess one of the issues is, you know when borders are open or if borders are not open, is then how do you go about the process of screening those partners? Now I'm here just giving you a couple of things to consider. Of course, when you're screening partners, there are a large number of considerations. These are some of the things that are good to consider as part of a process that you may consider to put together for your business. And the sorts of things which are valuable to look into are things like the organisational elements. So what kind of distributor is the company? Are they just focused on cross border ecommerce? Are they a distributor that focuses just with key account retailers? What's the scope of their business? Are they just a sales and marketing business and they outsource the distribution? Are they a distribution and sales company? Do they actually operate and distribute their own brands as well, but what do they do? And how long has the business been in operation? We would be looking at the same thing as if it was Australia, what's the scale of their business? How many offices, how many employees, the size of the turnover, the locations of physical locations of offices? What sort of products are within the brand portfolio? And of those products, what is the target customer that those products are trying to address? So you can see if there's any likeness to what you're trying to focus on as well.

The next area is obviously critically important, and that's the personnel. In my past life I'd spent quite a lot of time on this particular category here and you know, who am I potentially working with? How can I work with them? Do I want to work with them? And then how best to work with them? So what is the profile, the attitudes, the capability of key people within that business? Are they? Are they a new business? Are they the younger generation that's looking to have very unique products? Are looking to build a business? Who will manage your accounts if you've got a lot, if you're in a distributor with a lot of products? What's their experience? What's their attitude? Can you get on? As business owners, you know, is there a commonality in the vision of what you want to achieve with your business and China, with the business and the distributor in China itself. What are their morals and ethics and ways of doing business? Now these require time and in particular in an online environment they require a lot of effort to get to know those things and spending time to get to know those people and those key elements.

But the time invested is part of the process and part of getting this mix correct.

The next element is experience. So what is their experience of all of those sorts of things, including their channel relationships, their capabilities, their marketing capabilities, their sales structure, their PR capabilities, etc. Can you look at some of their campaigns? Can you see what they're doing? How are they promoting? Going online and seeing how they're positioning the products online that they're distributing, and so on.

The next is more a company internal element, is do you have the bandwidth, and this is a more broad question about doing business in China, do you have the bandwidth to be able to engage with that partner? Do you have the people, do you have the resources, financial and also operational? Is that business is a brand builder? Do they wanna build your brand or do they just want to move a product? Are they just transactional? If they just want to leverage their relationships to channels and push products through, they're not interested in building your brand. Are they the ideal partner, the biggest distributor in your category, huge company listed on the Stock Exchange? Or are they a small sized business that's looking to grow and to expand with a very small suite of boutique brands from Australia for example? And then the validation piece of doing background checks, validation through the value chain. Speaking to retailers, if you can. Working with partners, working with government etc., to try and assisting that process. And then of course making sure that you are structuring your commercial agreements to protect your interests but to be fair. And the commercial agreements need to adequately incentivise the distributors and their channel partners, their sub distributors, if they're actually going to use sub distributors to make the business a success, that's critically important as well.

If we can go to the next slide, please. And one way is to take those categories, put them into a spreadsheet, mark out the categories and then take the different options you've got and start to fill in a matrix. And really working out how the different options balance out across all of those different criteria. And there might be company specific criteria that you want to add that are relevant for your business and if there are a couple of people who are doing the screening of a distributor, get everybody to do it independently, then come together and compare notes. It's a very valuable process as in my previous life, it’s something I've done before, which is quite a good way to really compare and contrast different partnership options.

Creating alignment and common vision for the business cannot be understated. If we look at M&A, if we look at joint venture creation, if we look at distributor or partnership creation in the China market, a good majority of the reasons why things fall apart is because there hasn't been the up front or the timely development of an understanding of the vision, the objectives of what both want to achieve from the business, and then aligning a common vision so that you can really work together to develop it. Often what happens is that pre work is not necessarily done and it comes down to six months or 12 months in and it's starting to fall apart and you're realising too late that actually the distributor and the brand owner want two different things. So really trying to do that and what is that? Is that, we want to achieve a certain number of sales by 2025? We want to reach X number of markets by 2023? We want to have a number one within our category, or we want to create 15% per annum growth? You know, jointly developing those visions. I know it sounds really high level, but actually it's really practical and important and I will be interested to hear Frank's perspective on this in a moment. And again the time and the communication. You need to put in the time even though it's using Zoom or whatever, you still need to put in the time. And the more time you spend getting to know the business, the key stakeholders, the more important.

Then a big question, of course, is exclusive or non-exclusive? Now these are business to business decisions. Majority of distributors, of course, want exclusivity. There are a lot of considerations here. Some considerations for example could be to phase, have a testing period or review period, or having a contract that has assessment points to lead to a more permanent or a larger more exclusivity. Or having the range broken down by channel, geography, etc. China is a large market. Do you want exclusive or do you match your partnership with the growth, the phase growth of your business across a number of years? These are all questions that you need to assess and you need to discuss with potential partners as well, but it's something obviously that needs to be very carefully discussed. Putting into play trials and reviews, obviously when you do have the partnership, you know reviewing the partnership, reviewing outcomes, reviewing customer feedback, these frequent opportunities are there to jointly assess market dynamics because the market in China changes very quickly. And for you to be dynamic enough to also be able to slightly adjust your approach, work with your partner to be dynamic, early flagging of issues with the view of addressing those issues, is going to be really important. So that's another thing.

And then setting yourself up for success when you're dealing with the distributor is making sure that you have the right resources in place. You have a team, you have a number of key people who are going to be working very closely to support the distributor, with training with marketing, with operations, with products, with logistics. Having a proper market strategy and having financial commitment across both the brand owner and the distributor and making sure that that is adequate to enable the growth of your business, is something that's really important. Successful examples with marketing are that there is a commitment from both sides. Who does what in terms of the marketing and promotion? Some brand owners will do the master brand marketing themselves to an agency and then the product and campaign marketing, you start working with the distributor. Some actually do it all with the distributor and then work on media buyer whatever it might be as an additional investment. So all of those things need to be discussed.

The other thing is the communication structure. I talked before about communicating with purchasers and the importance of WeChat, but as you are in a business, having that GM to GM reporting with a distributor, having the working level reporting, you  know all of those sorts of things are really important so that if there are issues at this level, there's still that dynamic relationship at the GM level. You can have those discussions and hopefully work out issues. Preparing collectively for challenging environments and whether they be freight issues and an ability to get through customs clearance due to COVID outbreaks for example. There might be issues with production times due to delays in inputs, could be all sorts of dynamic issues within the business that it's important to be on the front foot with your partner because we are in such a highly dynamic and changing commercial environment, both in Australia and also internationally and in China. All of those things are critically important.

So they're just a couple of considerations. I know there's quite a lot there and we're happy to share the slide deck with you. But I think what would be fantastic now is to hear from Frank Lee, who is the Managing Director of 31Jiu. And if I can make an observation, Frank. I sort of spend quite a bit of time looking around for Australian and well particularly Victorian products, but this is a Queensland product as an example, but there's a really good marketplace coverage both in bricks and mortar retail. So supermarkets, cafes, food service of Bundaberg brewed drinks and the thing that really is interesting to me is that you would expect it, you know, to be the ginger beer that's up there on the shelf. But actually in most circumstances you can't even see the ginger beer. It's actually all of the other flavours, and that has, I understand, been part of a process over many years to understand the consumer and to develop product as well, which is a partnership between a great distributor and a brand willing to adapt. So I think that's a really good example. I might ask you the first question, Frank and for you, what do you look for when you are assessing new brands to take on? I know you've taken on, recently, Remedy. What are the sort of things that you look for, the boxes you need to tick to make sure that it's something you would consider?

01:00:06.110 --> 01:06:20.080

Frank (31Jiu)

Thanks, Nick. I think for all of the audience, I speak for myself when I say that your little piece there on distributors and what to look for and assessing distributors is pretty much a master class on how to do that. And I think you touched on a lot of good points in there which will be very pertinent to I guess everyone in the audience and including myself. There are some things that I thought well I never knew that so that's something that I've actually learned today myself rather than sharing with everyone. I've actually picked something up early on.

To your question, what do we look for in picking our products? I guess the first one, and first and foremost we always ask is, let us know the status via IP. And that's IP trademark in China, And by and large most people will give us an answer around about yes, we're there or we're about to or we've started or something along that along those lines, which sort of are a bit of an alarm bell in our minds already. Which means basically those companies, those brands haven’t done their homework or are not ready to leave Australian shores yet, or even worse, they probably got someone in China squatting on their brand. And most people say, well, I haven't actually got any products in China yet. We can give you examples where we've dealt with just last year an Australian company that was looking to bring their products to China. They approached us in a very sort of, this sort of fashion in terms of us asking a number of questions at the end. We identified in the space of two minutes where there were four instances where their brand has already been presented to a Chinese distributor or consumer or customer. So that is a major risk because someone can register that and that means that your brand is then pretty much locked out of China for the unforeseeable short term to medium term in China. So getting that done is paramount and that's something that we look for in terms of dealing with a brand. I can give you another example. More recently a brand that's been in China for a number of years, it's actually a Victorian company. They have their English brand trademark in China, but they don't have the Chinese name that they've been using by default and someone has already trademarked that. So that will mean for us dealing with that company and that brand is a no no until they get that fixed up. So that's the very first thing we look for, which to us that a go or no go sort of a environment and that's very important when it comes to dealing with the likes of retailers. Someone Like You know, ALDI for example. If you don't actually have a Chinese name for your brand, that they can actually call it, then what other Chinese people gonna call it? They can’t call it Bundaberg in English because that's an English name, they need to have a Chinese name. So if that brand name is actually not owned by you in Chinese, then the Chinese consumer cannot engage with you down the track. And in the case of, for example, say ALDI, they can’t actually put a sticker on it on the shelf to say this brand is “X” in Chinese so that's something that we look for as a first off.

Some of the other things I’ll just mention very quickly, three pertinent points but you've actually mentioned quite a few in your presentation beforehand. One is, why China?

And the other one is, is your product legal in China? Legal in the sense that does it fit into the right regulatory environment, and does it pass compliance? And the other one’s, are you willing to bring your A game to China? And this is related to the previous question around why China? If you're a mature business in Australia looking to grow your space, then obviously China will be the next evolution. As well as different parts of Asia. If you're just starting off in Victoria and your brand is 2 years old and you're looking to China as a next step, you're probably not right for China and China's probably not right for you. And you probably can't bring A game because you don't have all the marketing mix and sales mix and the whole paraphernalia for a successful brand launch or brand activation for the Chinese market. Because if you do hit it well in Shanghai, for example, that's already 26 million people. If it goes beyond Shanghai into some of the other larger cities, then you have a market space where it's much much bigger than what you can actually have in Australia. Then you know the immediate question would be, do you have the capacity? If you're a startup brand, you probably don't. If you're a mature brand, you probably don't either, because if you have that excess capacity, your business managers will be saying what is that excess capacity sitting there for?

Because you're not turning over assets efficiently. So, having all those questions answered is important. If you're honest to yourself and say, well, maybe we're in China just to sell a couple of containers of product then that already puts into the distributors selection that Nick you mentioned before in terms of, which type of distributor do you actually want? So in a nutshell you know we look for IP, we'll look at, we ask the brand why China? We look at you know in terms of compliance did you actually fit into that. And then we ask you know, are you willing to or do you have the ability to bring your A game rather than say OK let's sell a couple of containers to you and support you with a couple dollars per case in terms of marketing support. That the Chinese landscape is way beyond what it was 30 years ago. Distributors and customers look for and as Kristy said before, they look for innovation. They will check you out online and they will check you out online overseas as well as online in China. And if you don't have all those aspects ticked in terms of what you bring to the market then they will see see it for what it is and not engage you as you'll probably want. Which means you’ll probably not be successful.

01:06:23.580 --> 01:07:42.020

Nick Henderson (DJPR)

Thanks, that was a fantastic answer. I think the point of bringing your A game is particularly relevant and hence you know why we are spending time having Frank and Kristy and the Pathways program and trying to provide information is not to kind of overwhelm, but what are some of the things that need to be considered as part of that process? Because there are a lot of things to consider, but there's a lot at stake both positive and negative. These elements are important. We had a question from Will that I might like directly to go to, which is kind of a follow on from your comment Frank on IP and trademarks. And the question is what do you suggest for brands that have been taken to China by daigou and sold on ecommerce? And then there are trademarks that are being squatted on, including probably the creation of Chinese brand names as well. How does a brand, I guess the question is, how does a brand get around that and actually go to enter the market when that particular circumstance is present.

01:07:43.680 --> 01:09:24.600

Frank (31Jiu)

I think that the answer today is not so simple and a lot of it you know, to use a classic NBA sort of response, it depends. If your brand has a lot of brand equity, you probably want that back. And therefore you're probably going down the legal route and spend a bit of money with your lawyers to look at how you get that back and or, you know, even look at what it may mean in terms of getting it back. If your brand is not so important to you, but the product is or the product formulation is, or the category is important to you, then you may look at, not so much give up your branding, but look at alternate means of doing that. And I think Sanitarium in China, so Sanitarium being the breakfast cereal, had a good example of how they did that in terms of getting around the brand squatters and so forth. So it really depends on how important it is to you and whether the squatting is on the English name or Chinese name. And historically there's been a number of examples where both of those have happened and international brand owners have been successful in either navigating around that or getting that back. It's not easy, but it's possible. And it's a case of working with in-market experts and so in this particular case, I would say in-market lawyers. Not lawyers in Melbourne who have an office in China, but lawyers who are Chinese with the Chinese experience in terms of IP, legal cases and litigation to try and help you get that back.

01:09:28.840 --> 01:09:38.230

Nick Henderson (DJPR)

Thank you. A complex situation, but there is definitely precedence of ways around that.

01:09:36.420 --> 01:10:27.580

Frank (31Jiu)

Yeah, there's lots of precedents where brands have been able to get that back. I can think of a car, a car brand where it took them a number of years and they were able to get their brand back over legal court cases that went all the way up to the High Court in Beijing. Penfolds would be good one to look at in terms of beverage, I think they had a legal case around that where they eventually either got that back or changed their Chinese name a little bit to still have the same sound and meaning but change the Chinese characters a little bit. So there's a lot of good examples of that, and it's only by working with in-market experts around those sort of, you can actually look at what's the best strategy in terms of moving forward. And ultimately I guess business owners, you know, CEOs and so forth, need to make that decision. How do we go to China with the right name and right brand?

01:10:29.890 → 01:11:35.880

Nick Henderson (DJPR)

Thanks, Frank. So one of the things you know China is such a different commercial market. The way that distribution, the way that sales channels, the way of doing business is very, very different to Australia and also for those Australian exporters, Victorian exporters that are doing business in other Asian markets, still very, very different. One thing that would be good to get your insights into and I kind of hinted at it when I was talking about Bundaberg Brewed drinks, was your experience of the need for Australian brands to adapt the way they do things to be successful in the market. For example, to do with product localisation, to do with marketing approaches, to do with product pricing or whatever, that mean you need to think and you need to operate very differently.

01:11:38.600 --> 01:13:41.320

Frank (31Jiu)

I would say that China is very different. It's more so, in terms of doing business I think it's more around how you do business and not use the Australian experience and say this works for us in Australia, therefore we apply to Chin. Or even worse to say it works for us in other parts of Asia, therefore it should work in China. China's got its own very unique idiosyncrasies and particulars, so I think it's more so around having an open mind, but then also be true to your business requirements. And also be true to your brand values.

So, just to touch on the one point of brand localization. If your brand new product comes into the Chinese market for the first time, the consumer probably doesn't want you to have a localised product yet. Because they want to experience some aspects of Australia through your brand, or some aspect that you're putting in front of them about your brand without the Chinese aspects to it. Of course, when you become mass market, it's a different story because that's then more around potentially supply chain efficiencies or cost of goods competing at a different price point, in which case localisation becomes important. But initially, you probably want to bring the product as is from overseas into the Chinese market. Of course, if there are compliance issues around brand formulation where you can replace a certain ingredient with something else that then complies, of course do that. But be true to your brand and not aquiesce to what you think the market may want. Because you’re sort of moving the goal posts for yourself a little bit by doing that.

01:13:46.040 --> 01:13:55.430

Nick Henderson (DJPR)

01:13:57.190 --> 01:15:38.400

Frank (31Jiu)

Um, I'm not absolutely 100% on the move towards, you know, we have some learnings from the market and say OK, this is what we need to change. If you look at, for example, Apple iPhones as a good example. They move with the global market, not so much for the Chinese market per se. They may do some things a little bit particular for the Chinese market, but they're true to the Apple brand image, brand innovation and what they bring to it. But on the flip side, there's lots of cases where you can say well those brands you know changed their offerings to be more localised in that sense. I mean one good example would be KFC in Chengdu versus say KFC in Shanghai where Chengdu will have some more spicy offerings than say Shanghai. I think it depends on your China journey and your China evolution. To put that framework on a brand prior to coming to China will be a little bit too early because they're not left the front door yet. To use the Chinese saying [inaudible]. So you literally, you know cross the river by touching the stones underneath your feet. It's a bit hard to say. I'm gonna get across the river without actually taking the first step. So I would say for any brand looking to China that's a new brand, possibly take the first step first rather than get daunted by all the obstacles that might come in your face later on. Be mindful of them, but don't you don't necessarily have to have a strategy and a solution for it.

01:15:41.040 --> 01:15:59.850

Nick Henderson (DJPR)

I like the saying. I'll tell you, tell you a small story. You mentioned KFC and Chengdu. I live in Chengdu and I went to IKEA recently and in the IKEA cafe they have Sichuan [inaudible] which is basically spicy skewers, which is like a Sichuan street food.

01:15:59.560 --> 01:16:01.130

Frank (31Jiu)

Not very Swedish, is it?

01:16:01.320 --> 01:16:06.810

Nick Henderson (DJPR)

Not very Swedish, but very localised. I thought that was a really good thing.

01:16:04.680 --> 01:16:52.640

Frank (31Jiu)

And I think that that is a good example of where people have accepted their brand and what the brand means and what it offers. The brand doesn't bring Swedish food, but it offers a Swedish environment. In terms of shopping it offers good quality furniture at slightly more premium pricing and has a lot of innovation around it. And it's a bit more DIY to it, although most people who buy Swedish furniture or IKEA furniture don't actually do the DIY part. So it makes sense for them to have an augmented offering, but it's not a core offering. I would say you know that that's more a question of marketing and for the brand manager to look at in terms of what they want for the Chinese market, yeah. And that would be a good example where you know it makes sense right in that environment.

01:16:47.870 --> 01:18:01.140

Nick Henderson (DJPR)

Yeah, totally. I'm gonna just to maybe change to another topic and I know that your business has got quite a large footprint nationally in terms of offices. And that's obviously a recognition that tier 2, 3 cities and outside of Beijing, Shanghai, Guangzhou, Shenzhen, is where there's a lot of growth and I assume quite a bit of your business takes place. Now a number of distributors tend to use a centralised model where for example headquarters is in Shanghai and then all of their tier 2, 3 representation is sub distributors. What are the benefits of taking the, it's quite a bit of commitment from your side, of actually doing that and managing that yourself rather than having a much more complex but regionalized sub distributor network.

01:18:03.140 --> 01:18:08.840

Frank (31Jiu)

The driver for us having, so we actually have 12 office locations around China which includes Shanghai Home Office, that’s our HQ. That the biggest driver for that is looking at, it's more to support the local markets. So our go-to market model is working with distributors in the market. So for example in Chengdu, we will pick a Chengdu distributor that's quite strong and obviously over the years there's an evolution of different distributors we work with. To give you a very simple example, if you work with a distributor where your business size is 1 million, you work with someone you know potentially would be, our products would be 10% of their business. And when we get to say 10 million and we probably want to be looking at a different distributor because the scale and size operation is going to be a little bit different. Which goes back to your previous you know, points around you know, selecting distributors in terms of you know, even if just look at the metric size and number of staff and number of delivery drivers they have to service that, to go from 1 million to 10 million is gonna be very different.

But even just from one to say 5 is very different. So be aware of that and be open to having different distributors that you work with every couple of years as your business grows. This is where we realised very early on that if you want your business to grow with a distributor, you need to put a foot on the ground to help them to grow their business. And it's a commitment from us to the distributor. It's also for us to actually understand the market and actually look at where the opportunities are, because if we're only 10% of their business at most you'd be very, very lucky to get 10% of our focus from them. So whereas if we have our own people on the ground embedded in their business we're gonna get a lot more return for our dollar than if we didn't have those people. And a very lucky outcome of this is the current scenario, I think it depends on who you quote, there's somewhere between 45 to 65 cities across China that has some sort of COVID restriction or lockdown, which affects up to 370 million people. That's 370 million people, about 1/3 of China's population. If we actually were trying to service everyone out of Shanghai's sales team we will not have done any business for April and May. But because we actually have eleven other offices outside of Shanghai, we are still almost business as normal. Not quite, but we are still operating because we have those people in different areas across China. So that's a lucky outcome of the current situation we didn't plan for when we set out to have people in the different regions.

01:21:09.840 --> 01:21:27.360

Nick Henderson (DJPR)

Just a quick question and we're getting pretty tight on time, but how has that network grown, Frank? Was it something that's taken you 10 to 15 years or has it been within the last few years that that market presence has really started to grow?

01:21:28.290 --> 01:21:30.960

Frank (31Jiu)

Uh, you mean in terms of product into the market or in terms of people on the ground?

01:21:30.420 --> 01:21:34.300

Nick Henderson (DJPR)

Uh, your people on the ground in the 12 offices?

01:21:35.370 --> 01:21:38.810

Frank (31Jiu)

People on the grounds more, it's more over the last two years. We went from one office to two to four to almost 12 overnight during 2021. So that is also a recognition of how quickly our business has grown. Obviously there's a bit of a risk in terms of putting people on the ground because you have someone in that satellite office that you don't really know and you're trying to manage them remotely. There’s a lot of risks around that in Chin and also down in Australia because you don't actually have the full monitoring and supervision of staff. And so there's a lot of trust there as well. So for us it's as our business has grown we’ve then taken steps to add further satellite officers, but then also recognising for us to grow even more, we need to then possibly take a take, take an investment perspective and look at putting more people in areas that we want to grow. Rather than seeing the growth and then saying, let's put some people there.