Business Culture Differences between China and New Zealand
The international relationship between China and New Zealand started since December 1972. The relationship improved so much that New Zealand is the first developed country to sign the Free Trade Agreement with China. Currently, China is the biggest trading partner of New Zealand in merchandise goods. While doing business between two countries, the culture and societal pattern must be considered. While China has a collectivist society, New Zealand follows the individualistic pattern of the society. Hence, the business cultures in these two countries are quite different (Fang, 2012).
Collectivism refers to communism. In this society structure, the welfare of the society is prioritized over the individual welfare (Chhokar, Brodbeck & House, 2013). In China, people pay attention to the relationships in both personal and professional affairs. The greeting style in China is different. During the exchange of business cards, it is mandatory to present the card with two hands and accept it with a bow. This way the card represents respect. The background of the person, participating in the deal, must be taken into account, such as, the family background, effects of political or economic conditions on the family, etc. (Liu & Woywode, 2013). Any business deals should not be rushed, as the Chinese like to know their business partners very well before going for a deal. First they like to build a strong relationship and then they would like to know about the values, honesty and thoughts of the business acquaintance. Once they are convinced about the integrity and credibility of the business acquaintance, they would go ahead for the business deal. Apart from that, the Chinese people expect the opposite party to be extremely well prepared about the meeting, with minimum of 20 copies of the proposal and presentation made only in black and white. Small talk at the beginning of the meeting is important. While making the decision, the Chinese do not like deadlines and delay the process. The patience of the partner is appreciated. The hierarchical order while entering the room and in any business meeting is very important in the business world of China. It must be maintained by everybody. The first person to be walked into the room is the head of the delegation. During the lunch break, almost everything halts too (Chhokar, Brodbeck & House, 2013).
New Zealand follows individualistic culture in the society. Individualistic culture is characterized by prioritization of the individual over a group. In this culture, people are more interested about self, than for the group. However, the business etiquettes do not reflect that entirely. The New Zealanders are very reserved people and do not like to be overfriendly at the first meeting. The dressing sense is considered to be very important, especially in the business meetings. Maintaining hierarchy is good but not compulsory in the meetings or any business dealings. Punctuality is very important. People expect to make an appointment before meeting another person (Sturman, Shao & Katz, 2012). Small talks before the meetings are done to break the ice. Building trust and a good relationship is considered to be essential for any deal. For the presentations, New Zealanders expect simple and precise language rather than any flowery language. Bargaining is not practiced here, therefore a deal should not be started with a very high price. Value for money is significant in any business deal. While greeting people, a firm handshake with good eye contact is appreciated. Women are expected to initiate a handshake. First impressions play a very major role in New Zealand. During first meeting, people are expected to use title and surname of the business acquaintance, until they are permitted to use the first name. Discrimination in work place is illegal in New Zealand (Gao, Knight & Ballantyne, 2012).
Lessons to be Learned by New Zealand Business Managers in Interacting with Chinese Managers
From the above discussions it can be said that New Zealand business managers should keep in mind the hierarchical order maintained in China, the punctuality, small talks before the meetings, and presenting the business card with two hands should be maintained by the business managers for a business deal. They should also not talk about delays in deals and deadlines while making a deal with the Chinese. The Chinese like to think long term about any business deal. However, one of the biggest cultural differences is the language difference between the two countries. As the two languages are sharply different, and Chinese prefer to use their own language for the official purposes also. The New Zealander business people must take into account this fact (Li & Zahra, 2012).
The Free Trade Agreement (FTA) between New Zealand and China is a bilateral agreement of free trade, signed in April 2008 in Beijing. This is the first free trade agreement signed by China with any developed country. For New Zealand, this agreement is the biggest trade deal after the Closer Economic Relations agreement with Australia signed in 1983. Before signing the agreements, the negotiations spanned for more than three years and fifteen rounds. The agreement provisions will fully become active in 2019. The agreement included the conditions that, 37% Chinese exports to New Zealand and 35% New Zealand exports to China would be free from tariff by October 2008. By 2016, all tariffs for the exports from China were to be eliminated and 96% of the New Zealand exports to China would be free from tariff by 2019. This agreement also included the clause that 1800 skilled workers from China can go to New Zealand for up to three years. However, this is limited to 100 workers per sector, except in the sector for Chinese medicine practitioners, Mandarin teaching aides and Chinese chefs. New Zealand would also establish a scheme for working holiday, which would enable 1000 Chinese citizens to work in New Zealand and travel for up to 1 year. The business visa processing and conditions would be improved by both the countries (Song & Yuan, 2012).
Benefits
The major benefit of FTA between New Zealand and China is the saving of the money, spent in the form of tariffs. When fully implemented, the FTA would save almost NZ $115.5 million annually on 96% New Zealand exports to China. The immediate tariff removal on worth of NZ $200 million of the current exports include a particular type of fibreboard, scrap metal, fish meal, iron slag and coking coal. 5 years of tariff, worth of NZ $621 million of the current exports, would be eliminated on infant milk formula, frozen fish and fish fillets, yoghurt, methanol, casein, animal fats, apples, oil and wine. 9 years of tariff elimination, worth of NZ $77 million, includes sheep and beef meat, sheepskins, kiwi fruits, and edible offals. 10 years of tariff elimination, worth of NZ $50 millions, include tariffs on cheese, butter, liquid milk and 12 years of tariff on skim milk and whole milk powders, worth of NZ $305 million. These items have to pay an entry duty of NZ $36 million in China. Country specific Tariff Quota (CSTQ) has been implemented for wool exports and 75% has been made duty free (Aggarwal & Urata, 2013).
Benefits of Free Trade Agreement between China and New Zealand
The elimination of tariffs on New Zealand’s imports, that is, exports from China also has some benefits. The imports will become cheaper, rising the demands for the imported good. Thus, the level of imports will rise in New Zealand. China’s export market will gain advantage due to removal of tariff and this would make China to produce and export more. Equipment and machinery import from China accounts for almost 35% of total imports from China to New Zealand. When these become cheaper, it would be beneficial for the manufacturing industry of New Zealand (Yuan, 2012).
Costs
The FTA focuses on trade tariff removal, but there are also non-tariff barriers exist in international trade. These also create impediments for international trade. The forestry industry of New Zealand has appealed to the government to negotiate with China for reducing the non-tariff barriers, and make a complaint to World Trade Organization on China’s terms of business. The CSTQ is welcomed but the initial level of 75% wool exports to China is not sufficient for growth. Apart from that, China did not enter into any agreement for paper and processed wood products, which accounts for nearly 4% of New Zealand’s current exports to China. On these products, China would not give any tariff reduction; hence, New Zealand exporters would not gain any competitive advantage (Irwin, 2015).
Potential improvements
Both the countries announced in 2014 that they would improve the agreement. The upgrade provisions include modernization the FTA and improvements that focuses on further freeing up the trade for products and services for helping the exporters to reach $30 million in bilateral trade by 2020. This target was set by the leaders in 2014. The negotiations for improvement include Technical Barriers to Trade (TBT), custom procedures, trade and cooperation facilitation, Rules of Origin (RoO), Competition policy, Services, E-commerce, Environment, Agricultural Cooperation, Government procurement (Wilson, 2015).
The New Zealand government has a liberal and welcoming approach towards the foreign direct investment (FDI) and the contribution it makes to improve the social and economic wellbeing of the New Zealanders. The FDI regulatory rules are quite liberal and have some specific FDI restrictions in some areas of critical concern. As per the government report on FDI, New Zealand needs additional $200 billion FDI to support efficiency, growth, export and R&D targets. Most economic reports suggest that FDI is beneficial for New Zealand (Kelsey, 2015). The FDI stock in New Zealand has almost doubled from $55 billion in 2001 to $100 billion in March 2015. More than half of the FDI stock comes from Australia, while China contributes only 0.7% of the total stock (Export.gov, 2017). Majority of the FDI flows into Finance and Insurance, Manufacturing, Agriculture, forestry and fishing, retail trade, wholesale trade, and utilities.
The governmental policies in New Zealand regarding FDI are to welcome FDI without any discrimination. The country has an open and transparent economy, where the investors and businesses have liberty of easy transactions. With a few exceptions, investors from all over the world can make investments in any sector of New Zealand, with almost no limits on control or ownership. The country has been expanding its network of bilateral investment and free trade agreements with many countries of the world. This is resulting in increased foreign investments in many sectors. The nation also has a well developed regulatory system and legal framework, and the sanctity of contracts is upheld by the judicial system. This system allows free inflow and outflow of the capital (Chung & Tung, 2013). The disputes in investment are rare and if any, the government handles through transparent and efficient system. According to the OECD FDI Regulatory Restrictiveness Index, 2016, New Zealand ranks 7th most restrictive country among the 60 countries (Treasury.govt.nz, 2016).
Drawbacks of Free Trade Agreement between China and New Zealand
The New Zealand government announced in 2016, the International Investment Attraction Strategy to raise the private business investment rate as a percentage of the GDP of the nation. This has been announced to improve the business growth in the country. This strategy includes the participation of cross-agencies in the initiatives, which involve the Ministry of Business, Innovation and Employment (MBIE), Ministry of Primary Industries (MPI), MFAT, NZTE, Callaghan Innovation, New Zealand Treasury and Immigration NZ. The priorities are to attract more high value FDI, increase the count of MNCs for undertaking the R&D in New Zealand, and attract and retain the individual entrepreneurs and investors to stay in New Zealand (Fabling & Sanderson, 2014).
This strategy has enabled the nation to attract more investors, and the level of FDI would increase significantly. The government has added more visa categories to attract the individual investors and entrepreneurs and has introduced a trial for a four-year Global Impact Visa program, targeting the high-impact and younger entrepreneurs, and start up teams for launching global projects in New Zealand. The government has also launched Regional Investment Attraction program, in which it has identified the sectors by regions working to attract FDI, for example, energy in Taranaki and forestry in Northland. The FDI in almost all the sectors has helped the sectors to grow considerably (Treasury.govt.nz, 2016).
Value adding industries are those, which increases the value of a goods or service at a given step of a supply chain or production cycle. When the value of a product increases at each step of production or supply and distribution chain, due to the services of some different industries, then these industries are called value adding industries (Raziq & Perry, 2012). As the flow of FDI has been increasing in the nation in all the sectors, it has enhanced the scope for all types of value adding activities. In the sectors of agriculture, manufacturing and services, many small industries exist to support the bigger activities. FDI in these sectors not only helps to grow these directly, but also helps in the growth of the supporting services or activities. The government should focus on having a coherent and integrated FDI policy for these industries and should utilize the FDI spillover more efficiently. At the same time, the fears over the ownership and control of resources and assets for FDI inflow should be eliminated by the government. The very liberal policies regarding FDI create fear among the industries of New Zealand (Kalderimis, 2016).
References:
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