Saturday, September 12, 2009

doing business in developing countries

The latest issue in China with Mr Hu being arrested on "espionage" charges has generated a number of thoughts for me. Since 2006 I have been working with various people in the Australian cattle industry to generate markets for our marvellous cattle genetics and breeding knowledge. The important note here as background information (for blogs to be written later) is that the product is knowledge. To date, the success has been in the sale of physical seed stock both to China in the form of dairy seed stock and Russia in the form of beef seed stock. To call it a success is to have a very low hurdle for success but is made on the basis of the difficulties in opening up new markets in developing countries with more complex political systems.

I'm not sure about other countries but I have first hand experience of the two countries mentioned; China and Russia. These two countries are incredibly hard places to do business. The rules are so different to Australia that Australian businessmen can never confidently do business in these countries and are in constant peril of selling their souls to get the job done (as an example, IKEA has finally decided that it's best to stop investing in Russia....for now

The contradiction with all this is that both China and Russia are such beautiful countries and in terms of business have so much potential. I presented to the Russian Agricultural Minister in 2006 a proposal for Australia to export USD300m worth of Beef seedstock and USD300m worth of knowledge and infrastructure development. The research and planning that went into this proposal was massive and the strategy was snapped up by the Russian government. Within 3 months they had ordered massive amounts of seedstock breeders from Britain! Fortunately an outbreak of foot and mouth in Britain killed the deal, but why did Russia take our proposal and run to Britain with it. Since this time, I have seen versions of my proposal (even word for word) in a variety of different Russian business proposals to the Ministry for funding. However, support in Australia for doing business in Russia (and more particularly, on selling our cattle IP) is difficult to obtain. Elders have sold some shipments to Russia since my proposal but the on-sell of services hasn't occurred and the numbers of cattle are far short of what they could be. I do know that Rural Solutions in Adelaide are working on some great proposals for the Russian regions but again, little has come of it in terms of hard core investment by the Russian government.

The story is little different in China. The Australian beef cattle industry has been battling for years to get some traction in developing China's beef production with not a single sale to show for it. My experience and conversations I've had with others has given me first hand anecdotes of the frustrations businesses seem to have in operating in these countries. In Russia, corruption seems to significantly reduce the amount of investment and hence the growth that's possible. In China, the ever present oversight of government control makes it extremly difficult to utilise traditional marketing practices of differentiation and segmentation to make headway. It's more about connections and alignment to the current central plan. And yet, China continues to boom and with their switch from exports to internal infrastructure investment, looks like continuing to boom.

It seems that most people think that establishing operations in these great and populace countries is just too hard, and my suspicion is that the Hu case is only going to make this perception more entrenched, much to the disadvantage of all the world over.

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