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AICC(WA)'s China Business Series featuring John Poynton AM CitWA, Chairman Azure Capital Limited speaking on "Cross cultural in deal execution: Doing deals with China"

Concept Paper:  China Business Series

Executive Summary

This paper provides a summary of the launch of the AICC(WA)’s China Business Series held on 2 April 2014 and explores the strategic context surrounding the stimulation of the Israel-China-Western Australia triangle through the AICC(WA)’s business network. 

The new prototype is of global markets led by strategically defined trade relationships.  Israel’s relationship with China not only delivers a contemporary and evolving case study of note, but it also opens up new opportunities for the Australian market.  In particular Western Australia as the gateway to Asia represents a mutually beneficial conduit for both brokering and adding value to both Israel and China, offering stability, security, service and objectivity to China’s economy of scale production and Israel’s product of innovation and invention.   

Israel and China are two ancient nations dating back to antiquity, with strong and highly resilient economies.   Australia is a modern nation with drive, motivation, resource and prosperity.  An economic axis of three modern and growing nations, Israel, China and Australia provides formidable potential for true global competitiveness in emerging industries, by leveraging the traditional strengths of each respective country.

Introduction

The Australia-Israel Chamber of Commerce “AICC(WA)” has successfully been facilitating bilateral trade for more than forty years.  Across this time many new markets have emerged whilst individual product life cycles have come and gone.  The explosion of Israeli innovation, the exponential development of technology, the deregulation of markets, and globalisation has greatly altered the identification and commercialisation of new business development over an extended period.

The new prototype is of global markets led by strategically defined trade relationships.  Israel’s relationship with China not only delivers a contemporary and evolving case study of note, but it also opens up new opportunities for the Australian market.  In particular Western Australia as the Australian gateway to Asia represents a mutually beneficial conduit for both brokering and adding value to both Israel and China, offering stability, security, service and objectivity to China’s economy of scale production and Israel’s product of innovation and invention.    

Since China established diplomatic relations with Israel in 1992, it has been following Israel’s example of rapid new industry development.  Many Israeli inventions are not only manufactured in China, and backed by Chinese financing, but also find eager buyers in the vast Chinese commercial and consumer markets.  China’s strength is manufacturing while it faces challenges with innovation.  Israel’s situation is the opposite.  By pursuing longer-term business development in China, Israel is discovering diversified and high volume market opportunities.  Israel’s technology is currently desired across a range of industries.  Beijing is determined to build a new Chinese economy that relies on innovation rather than imitation, hence its favourable embrace of Israel’s “Start-up Nation” business culture.

AICC(WA) Launch the China Business Series

The inaugural presentation of the AICC(WA) China Business Series, hosted in partnership with the Australia China Business Council (WA) revealed how the scale and speed of global trade development represents new opportunity for Australian business. 

Cross country sourcing has matured significantly in recent years however the structure within which a bilateral relationship is transformed into a trilateral relationship still evolves.  The very concept of deploying a triangular strategy, exploiting and combining the strengths of three modern and growing economies is one that could not have occurred with such pragmatism and aspiration, even just a few years ago.  What started by default is now being accelerated by design, and the reality of the Israel-Australia-China trade axis is now a text-book case study of a global economic paradigm.  As the distinguished audience at the launch of the AICC(WA) China Business Series discovered, it is also just the start of a relationship that could rapidly transform into a global trade revolution.  

China is now Israel’s third-largest trading partner globally, and its biggest trading partner in Asia.  The two-way trade volume increased by almost 200 times, from only a little more than $US50 million in 1992 to more than $US10 billion in 2013.  In a relationship that commenced with the trade of military and defensive supplies, the diversified range of Israeli exports to China now also focus on agricultural, medical, water, energy and hi-tech products. 

Similarly, Australia’s reliance on China as a buyer of exports continues to intensify.   Last year a third of Australian exports were receipts to China, more than double the ratio from five years ago.  Having suffered from a slow-down of mining revenue and a currency that is relatively stronger than necessary, new agricultural, livestock, cotton and oil seed markets have rapidly emerged.

Cross Cultural Challenges in Deal Execution

The AICC(WA) China Business Series launch was hosted by Minter Ellison Lawyers.

Keynote presenter, John Poynton AM citWA, Chairman of Azure Capital, reinforced that China’s trade with Australia is no longer just a resources story.  He drew a number of lessons learned from the Israeli experience, including the extent to which venture capital funds from China were being invested into Israeli research and development.  China is gaining unprecedented access to Israeli technology and know-how. 

It was however the stellar pace of growth that Mr Poynton used to underpin his support for the co-operation of the AICC(WA) with the Australia China Business Council (WA).  Citing the consistent economic growth of China in excess of 7.5%, he confirmed the world’s largest economy was also the world’s fastest growing economy. 

Mr Poynton challenged that the visibility of Chinese investment in Australia is not sufficiently recognised, again citing the investment relationship of China into Israel for the purposes of securing commercialisation.  Quoting Foreign Minister Julie Bishop, 123 countries count China as their major business partner.  To compete as intermediaries Australian businesses need to be more creative and package project value.  

This view was confirmed by Adam Handly, Partner of Minter Eillison and co-chair of the China Interest Group.  Noting the track record and recent flow of inbound mergers and acquisitions he highlighted the importance of both established industry and challenger brands in the pursuit of business growth. 

The presentation concluded by exploring the future of food production, tourism, and other growth industry development targeted at the Chinese market.  Mr Poynton particularly noted the role of business in supporting the visibility of Chinese companies within the Australian market, and relationally within the Australian culture.  He cited sponsorship examples and encouraged philanthropic support through academic institutions as examples.    

Diplomatic Support

So important is the Chinese interest in Israel, an ongoing stream of senior political visits, including a tour of China by Israel’s President Shimon Peres, continues with increasing intensity.  The diplomatic connections are supported at a grass roots level, for example an Israeli college has established a dedicated media centre to support the exposure and understanding of the Israeli economy by Chinese journalists.

The People’s Republic of China’s ambassador to the State of Israel, His Excellency Geo Yanping writes in the Jerusalem Post newspaper his projection that in the coming five years, China’s imports will reach some $US10 trillion, its outbound investment $US500 billion, and the number of its outbound tourists may well exceed 400 million annually, 50 times Israel’s total population.

The AICC(WA) China Business Series launch incorporated discussion regarding the modernisation of Chinese industry, and quality improvements to manufacturing and construction.  The same discussion evolved to address the historical political climate of uncertainty and suspicion surrounding trade with China, and its governance ramifications.  It is evident that the change in business culture has been led from the highest diplomatic ranks.  Reflecting on this Mr Poynton encouraged greater investment through intergovernmental relationships and remarked that “Politics is not just local, it’s personal.  Business is the same.”  

Relations between China and Israel have been boosted over the past year.  High-level diplomatic leadership in 2013 was enhanced by a visit to China by Israel’s Prime Minister, Benjamin Netanyahu.  Chinese-Israeli relations and economic cooperation has since rapidly developed, with specific advancements in the areas of water management, health, agriculture, sustainable energy infrastructure, and even academia and the arts.   

In welcoming Chinese Foreign Minister Wang Yi to Israel in December 2013 Netanyahu remarked “Our strengths, I believe, complement one another. China has massive industrial and global reach, Israel has expertise in every area of high technology and I think the combination could be very, very beneficial to China and of course to Israel." 

Delivering the Australia- Israel Strategic Alliance to China

The value of Australia-Israel bilateral trade in 1970 was $10 million. This relationship has since grown exponentially, and according to the Israel Ministry of Industry and Trade, stood at over $800 million last year.  It is however the imbalance of trade that is notable, with approximately $600 million worth of Israeli exports to Australia and approximately $200 million of exports from Australia to Israel.  Given that the overall value of imported goods to Israel is $US80 billion there is an evident opportunity for Australian industry to increase sales receipts to the Israeli market. 

Further analysis highlights the profile of Israel as a knowledge and service economy.  Israel has traditionally exported technology, professional expertise and proprietary innovation.  Australia has returned primary and manufactured goods. 

Major new opportunities in Israel’s emerging energy market will now see substantial growth in bilateral trade with Australia.  It is not lost on economic observers that Asia has emerged as a preferred export destination for the recently created Israel energy industry. 

Since China established diplomatic relations with Israel in 1992, it has been following Israel’s example of rapid new industry development.  As reported by Israel21c, the China business community has embraced Israel’s innovation culture.  “They believe the Israeli people are very wise and successful since we have done amazing things in just 66 years,” says Dr. Amnon Amit, an Israeli gynecological oncology surgeon who led medical training sessions in a rural Chinese hospital.  “They went for many years without any connection to the Western world, and now they want to follow our example of quick success.” 

The AICC(WA) has engaged in strategic discussions within the Western Australian business community.  The Chamber has also facilitated dialogue with Israeli agencies and companies to further explore the desire of both Australia and Israel to enhance exports into China.  Western Australia is more than a fortuitous geographic gateway to China.  The collaboration of Australian and Israeli companies can enhance business and proposal development, particularly when the technology and expertise from both countries can combine to create new productivity efficiency. 

 Collaboration between the AICC(WA), and the Australian China Business Council will yield a new and unique style of business opportunity.  Both entities have a strong track record in supporting WA business to build its knowledge economy on top of its successful resources base.  In addition to promoting the role of innovation within Western Australian business, the ability to shape the WA economy through creating productive and smart futures is a strong motivating force towards exploring a new style of business alliance.  Entire new industries can emerge.

Globalisation requires economy of scale production.  More than ever successful businesses are dependent on internationally leveraged supply chains.  Herein lies the strategic opportunity for Australia, and even more-so for Western Australia, to facilitate and escalate Israel’s commercial ties with China.  The stability and security associated with the governance of Australian business coupled with the Australian reputation for robust project management, quality service and security of supply allows Australian companies to sit at the front end of Israeli innovation.  Whether under the structure of license, joint venture, franchise or outright purchase, Australian businesses can partner with Israeli counterparts, adding Israeli innovation and technology to the products and services they represent to the Chinese market.  By also commissioning the manufacturing and production of commodities through Chinese industry, new global opportunities await.

The concept extends beyond the production of consumables.  Australian industry boasts maturity with project and infrastructure based exports, entailing architectural design, engineering, and civil construction.  Israel brings systems and technology to add process control for offshore development. 

 The Israel contribution can serve as an antidote to the fallibility of Australian business competing in a global market by creating a strategic niche for Australian companies, adding science and technology to the quality of Australian product and service deliverables. 

Following the successful launch of the AICC(WA) China Business Series (CBS), further developments are eagerly anticipated.  The program will continue to enhance the traditional role of the Chamber; to connect people to ideas and ideas to people.  It will also touch new horizons, setting the scene for business in Western Australia to consult, enter agency arrangements, and to develop a strategic niche so that local industry can facilitate the delivery of innovation of Israel into China.  In particular, the online market in China is both the biggest and fastest growing market in the world.  Our presence in this market is further enhanced by the recent negotiations by the Australian Government towards closer economic ties and a Free Trade Agreement.  Greater Government and industry association support is forthcoming for Australian business seeking Chinese trade opportunities. 

Israel and China are two ancient nations dating back to antiquity, with strong and highly resilient economies.   Australia is a modern nation with drive, motivation, resource and prosperity.  An economic axis of three modern and growing nations, Israel, China and Australia provides formidable potential for true global competitiveness in emerging industries, by leveraging the traditional strengths of each respective country.

Andrew Blitz
Special Projects
 

Australia-Israel Chamber of Commerce (WA) Inc

PO Box 44 Claremont West Australia 6910

 

andrew@aicc.org.au

www.aicc.org.au
Mob  0417 187 695  

 

Concept Paper: China Business Series