NZ Herald, Wednesday April 4 2012
Rising demand, available investment funding and strong Government support are just some of the opportunities for cleantech New Zealand companies looking to do business in China.
News the world’s second largest economy will pour £1.1 trillion (10 trillion yuan) into developing its cleantech industries could inject millions into the Kiwi economy.
“With cleantech a big, big component of China’s immediate future, if New Zealand can secure even a small slice of that business, it will be big news for local firms and the wider economy,” says New Zealand Trade and Enterprise Guangzhou trade commissioner John Cochrane.
China is New Zealand’s second-largest market, taking more than 12 per cent of exports and providing 16 per cent of imports. The trade relationship has a very strong commodity base – primary products, dominated by milk powder and logs, account for 91 per cent of New Zealand’s earnings from exports to China. But with the cleantech focus from China’s 12th five-year plan, this is well positioned to expand.
That plan includes new targets for renewable energy and Chinese officials say overseas firms will have access to contracts in targeted sectors including alternative energy, biotechnology, new-generation information technology, high-end equipment manufacturing, advanced materials, alternative-fuel cars and energy-saving and environmentally friendly technologies.
Even before the plan was released, Ernst & Young’s annual Renewable Energy Country Attractiveness Index maintained China’s prominence in the field but noted that while domestic market growth plateaus, Chinese corporates are increasingly looking to Europe to acquire stakes in relatively low-priced targets. That shows investment is available and presents a challenge for New Zealand to channel some of those funds into supporting and developing Kiwi technology and initiatives.
NZTE has identified cleantech as a priority area (saying the country’s strongest offerings are in renewable energy, energy efficiency, waste and wastewater management, nanotechnologies, transportation and sustainable agriculture) but details are sketchy on how many firms are taking up the challenge.
LanzaTech – which has partnerships with Chinese steel giants using its technology that turns industrial waste gas into biofuels – is the poster child and while chatter suggests others are interested, pinning down just who is no easy task.
And a major attitude shift is needed before Kiwi success is likely, says a man at the heart of New Zealand involvement in China’s cleantech advances. Dr Sean Simpson, founder of LanzaTech, says the key to exploiting the opportunity China presents is changing our attitude to commercialising cleantech. “Internationally New Zealand does market itself from a clean environmental perspective very effectively. From a technology perspective, I haven’t noticed that, are we even known for clean technology within New Zealand?
“I find that we’re very proud of having cows standing on grass and we can knock milk out whether people want it or not. But it’s about having that level of enthusiasm and pride about the technology we can produce. Not simply being good at fixing things at low cost, the No 8 wire approach, but actually producing very sophisticated, globally relevant technology.”
If this attitude can be reset, Dr Simpson says the window of opportunity is wide open and Kiwi firms can break into the Chinese cleantech market as the technology talent is here.
“There’s a window of opportunity now that we really need to be looking to exploit. China has the money, the motivation and the opportunity because they’re still building their own infrastructure.”
Countries globally will be trying to find opportunities but New Zealand has particular advantages – the free trade agreement and the advantage of its small size which means he can personally know high ranking New Zealand officials and diplomats which is a huge bonus in opening Chinese business doors.
“If I was an American company would I know the American ambassador to China? No way. But in New Zealand I have met Carl Worker many times as we started doing things in China at the same time,” he says. “There’s nothing special about me, I’m just a company CEO but it’s enormously helpful because he brings with him a whole lot of influence. So we as a small nation, more of our small companies can get that kind of leverage and that gives us a very big advantage.”
One local group working to promote and increase New Zealand’s cleantech image and commercialisation of the sector is business lobby group Pure Advantage which has two pieces of research in the pipeline: a broad-brush “defining of the sandpit” followed by a more in-depth study of low carbon economics in New Zealand. Current indications suggest there are around 100 firms active in the sector with the goal of having 1000 in five years.
“There are a lot of large markets on our doorstep with our Asian neighbours but we have to first build capability in the domestic economy before we can hope to start trying to export,” manager Duncan Stewart says.
He says New Zealand firms are good at finding efficiencies in production process and produce good monitoring technology, especially for electricity and water. That said, the innovation value chain in this country is “dysfunctional” with good knowledge in Crown Research Institutes, for example, not being used or commercialised, he said.
Fully in favour of lightweight exporting (that is, exporting knowledge products rather than manufacturing or commodities), Stewart acknowledges IP protection has been a concern for some companies eyeing China deals. The best protection, over and above usual patents and legal controls, is to collaborate with local partners in China and have a clear understanding around who does what. He is wary of firms accepting too much direct investment, rather than partnerships, saying this could dilute the control and protection they had. He says China needs to be looked at as a number of different markets and the challenge for New Zealand cleantech firms was to “get their heads around what market they want to enter”.
NZTE’s John Cochrane’s advice, over and above the obvious importance of having local relationships, is to come to China with a brag book. Explaining that much of the Chinese green tech funding is intimately tied up in the country’s expanding infrastructure sector, he says if projects are going to last a generation of more, then New Zealand firms wanting to be part of that must come armed with references if they have no past Chinese experience and reputation.
“Big company names or at least big-name projects are extremely helpful,” Cochrane says, preferably from reputable countries including the Unites States, European countries and, to a lesser extent, Australia.
A year ago, local firm Flotech said it had signed a partnership, covering several provinces in China, with Hangzhou Energy & Environment Engineering Co to upgrade biogas to biomethane for use in natural gas pipelines and as vehicle fuel. Flotech said then that the partnership deal positioned its Greenlane Biogas “well for its entry into the Chinese market” but since then no updates have been made and no one from the company has been available to comment.
Eco-bulb developer Energy Mad listed on the NZX in October. The company, which holds a 20 per cent stake in a China-based production facility, has issued two profit warnings this year following problems with the manufacture of its Ecobulb Downlights in China.
Managing director Chris Mardon said the company is focused on New Zealand, Australia, the United States and Germany to sell its products. The Chinese market, while a good adopter of energy efficient lightbulbs, manufactures its own which are lower cost than Energy Mad’s more premium offering and this is important to Chinese consumers, he says.
The key for companies chasing cleantech success in China is “be aware, be fair, and be there,” according to a survey of Chinese cleantech market insiders by US cleantech research and advisory firm Kachan & Co.
Amid continued financial headwinds for cleantech companies globally, bilateral trade disputes in solar and wind and intellectual property concerns, China’s policy and spending targets on all technologies clean and green is increasingly attracting Western cleantech researchers, entrepreneurs and companies, the Californian-based consultancy said last month when releasing the survey. “Western companies need to be ready for the long haul, and that means carefully constructing win-win collaboration scenarios with capable Chinese partners seeking the same goals,” managing partner Dallas Kachan says.
Common challenges and mistakes Western companies face in China include building collaborative business relationships, managing intellectual property and competing in hyper-fast changing local markets, he says.
The last word is a collective and common one – do plenty of research, seek advice and build local networks. China is ready and willing to be wooed, but is definitely not up for a long-distance relationship.
PricewaterhouseCoopers offered the following advice to US firms wanting to enter the Chinese cleantech space – and it is just as applicable to Kiwi companies.
- Technology transfer: Striking the right balance: knowing what technology to share with a local partner – and even when to make that technology transfer – could have potentially enormous implications. Companies entering the Chinese market – and, indeed, some which have spent considerable time there – can encounter uncertainties surrounding policies and the business climate which can make long-term strategies difficult to forge.
- Understand China’s “microstructures”: US companies, for example, are looking beyond the traditional “first stop” cities of Beijing and Shanghai and to second-and even third-tier cities for their Chinese headquarters, manufacturing facilities and strategic partnerships.
- Tailor to China’s cleantech needs: [Again, citing the US, but equally relevant for NZ firms to consider.] The short and long term cleantech needs of the US and Chinese markets will, in many cases, differ. What may be ripe for adoption in the US may be premature for China – and vice versa.
- Approach China as a proving ground for new technology: Cleantech investors and companies entering the Chinese markets encounter the country’s accelerated productisation cycle.
- Build trusting relationships of mutual interest: As more foreign companies compete for a foothold in Chinese cleantech markets, it is becoming ever more crucial to establish relationships built on mutual trust and ones which support the motivations of both parties.
The global advisory firm said “while China has flexed its muscle as a powerhouse cleantech manufacturer in areas such as wind and solar energy, signs are clear that China is limbering up as a significant adopter of cleantech. As China strives to become more than a manufacturer of commoditised cleantech products to a developer and adopter of cleantech infrastructures within its borders, there are signs it will benefit from innovations from other markets.”
(Source: PwC’s The US-China cleantech connection)