Summary
China is full of opportunities for the Australian red meat industry, with a growing middle class who are increasingly willing and able to pay for premium imported products, whether for an aspirational need to maintain face, or for the more practical need of addressing food safety concerns. This is evidenced by the growth of Australian agricultural exports to Mainland China, in particular red meat, which has grown at 92.6% and 22.2% p.a. over the last 5 years for beef and sheepmeat respectively, to total AU$1.25bn in 2015. Given existing trade relationships and geographic proximity, Australia is well positioned to tap into China's growing red meat demand. Yet the success stories coming out of China are limited, and the growth in export volumes does not appear to have translated into growing returns for the Australian red meat industry.
What many foreign organisations underestimate in the Chinese market is the importance of some fundamental non-negotiable success factors – that is a localised approach, mindset and smarts; strong relationships; and a long term commitment to (and investment in) the market. Without these fundamentals in place, any investment in innovation is highly likely to fail due to the risks of doing business across China's complex and fragmented value chains. The importance of these fundamentals are emphasised in light of China's underdeveloped domestic cold chain logistics capability and the real risks that bribery and corruption present to foreign companies exporting to China. Successful companies have managed to mitigate and minimise these issues and risks.
This research into China Value Chain and Business Model highlights both challenges and opportunities for maximising the value of Australian red meat in China:Australian red meat needs a differentiated, premium value proposition, without one Australian players will struggle to maximise value in a competitive market where Australian red meat doesn't stand out.Counterfeit, grey import, bribery and corruption along the value chain pose real risks to foreign imports.Mobile / e-commerce platforms as channels are competing for survival and innovating to provide richer offline consumer experiences, however differentiation is needed to manage channel conflict, engage connected consumers and extract true value.Domestic Chinese companies are to be taken seriously as they are becoming more sophisticated, are quick to move and are investing in world class capabilities with advantaged access to local market insights to win in the market.Technology is playing an increasing role in driving product innovation, targeted marketing, value chain compliance and supply chain efficiency – but is no substitution for a localised approach, and strong relationships for market access.Strategic Chinese outbound investment can facilitate trade access and navigate political dilemmas which are often costly.
In response to these insights, a Channel Differentiated Premium Strategy is recommended to Australian red meat industry participants looking to enter China.
The strategy specifically focuses on developing a unique premium value proposition in order to maximise Australian red meat's share of the Chinese consumers' wallets as they become more affluent and develop a taste for Westernised offerings such as red meat. Underpinning the strategy, consistent value chain standards and intelligent in-market supply chain capability and infrastructure are critical to ensuring the delivery of the desired premium value proposition through the right channels.
The four key elements of the strategy – tiered propositions and offerings; localised in-China marketing execution; consistent channel experience; smart e-commerce engagement – combine to deliver the objective of the strategy which is to demonstrate the commercial value of a premium proposition and enable Australian red meat industry players maximise the value capture from the immense opportunity for red meat in China.
It is critical to note that the Channel Differentiated Premium Strategy prioritises the Price lever for generating value, in isolation of the other value levers – scale and cost. In reality generating true value will require activation of all the value levers, but the weighting of these levers will vary considerably between industry players who will naturally have their own strategic priorities.
Underpinning the strategy, are 7 design considerations that together help to deliver consistent value chain standards and intelligent in-market supply chain capability and infrastructure to support sustainable outcomes.Value Chain Partner SelectionStructured Programme to Support Processing and Retail PartnersIndustry Standards to Safeguard against Bribery and Corruption RiskSurveillance Mechanism to Report and Respond to Product IssuesData visibility throughout the Supply ChainCollaboration on Cold Chain Logistics DevelopmentInvestment in Local Resource Employment / Training
Critical to the successful execution of the recommended strategy and its underpinning design considerations, Australian red meat industry stakeholders will need to consider four key enabling factors to maximise success in the Chinese market.Focusing on value added product to secure sustainable growthInvestment in technology to deliver efficienciesRelationships building to facilitate customer securityAttracting new investment to grow cattle supply and access the market opportunity
These enabling key success factors are applicable not only to the Australian red meat industry, but also to other sectors looking to capture the potential value of the China market.
