Tripartite Summit: Sharing Culture through Animation

  • Cartoon and animation has proven to be an excellent medium to successfully integrate culture and characters with a global audience.
  • The Chinese animation and comic industry is worth US$15 billion, the Chinese gaming industry is worth over US$21 billion.
  • Collaborative productions such as KungFu Panda (created by a joint venture with Dreamworks Animation) are finding global success.

“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator.” – Tuo Zuhai

Tuo Zuhai from the China Animation Comic Game Group begun his presentation at the Tripartite Economic Summit by asking the audience what they think of when they think of China. He has noticed that since the 2008 Summer Olympics, many people think of the five mascots that were associated with the Beijing Olympic games.

“No matter where you come from, how old you are, or the language you speak, cartoon can be a helpful language. A translator,” he said.

Cartoon is a great medium to tell Chinese stories, said Zuhai. Chinese history dates back thousands of years, and the Chinese government is now beginning to commission people to tell Chinese stories and share that history through the use of animation and cartoons.

Zuhai’s presentation gave three examples of how animation is helping to bring international cultures closer together: integrating Asian characters with world audiences, combining traditional culture with an innovative spirit, and local production combined with world production.

Integrating Asian characters with world audiences

Havoc in Heaven is a Chinese animated feature film that was created in the 1960s the height of the Chinese animation industry. The animation style, and drums and percussion soundtrack used in the film are heavily influenced by Peking opera traditions. Havoc in Heaven received many awards, and was warmly received by Chinese audiences, and also recognised internationally.

Gangham Style, a K-pop single by the South Korean musician Psy went viral worldwide in 2012. It became the first ever YouTube video to reach one billion views, and almost instantly became a household song around the world. The South Korean Ministry of Culture, Sports and Tourism commended Psy for “increasing the world’s interest in Korea.”

Zuhai gave Disneyland as an example of an American business integrating into China. With Disneyland opening in Shanghai in June, they have incorporated Chinese culture into their brand. The typical Disney characters that have come to be expected at Disneyland will be there – including Cinderella, Ariel, Mickey and Minnie Mouse.

But in addition to these, Shanghai Disneyland also includes a giant glass peony blossom, representing nobility and good fortune at the center of the famous fountain, the “lucky” cloud patterns have been painted on some spires of the iconic Disneyland castle, and a traditional dim sum restaurant is present in the Disneytown nightlife area.

Combining traditional culture with an innovative spirit

Monkey King, a film released in 2014, was based on a traditional Chinese classic novel ‘Journey to the West’, and tells the story of how the Monkey King rebels against the Jade Emperor of Heaven – a story about victory against hardships. The reason for the films box office success is because it created a new definition of the relationship between two leading characters. It demonstrated that in traditional Chinese culture, respect is essential – but it did this with a modern spin.

Local production combined with world production

Zuhai encouraged collaborative production. Dreamworks from the United States have a joint production with China on KungFu Panda.

“In 2012, DreamWorks Animation took a gamble and launched Oriental DreamWorks, a US$330 million joint venture that was the first of its kind,” said Zuhai. “What started with the launch of the original Kung Fu Panda film is paying off significantly, with the release of Kung Fu Panda 3 this year.”

The Chinese animation and comic industry is worth US$15 billion. The Chinese game industry is worth over US$21 billion. Every year, China produces more than 200 animation TV series, 50 animated films, and thousands of internet animation and comic products. Creative connections between Hollywood and China are growing, helping to spread culture internationally, and growing the economy of both nations.

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Tax and other changes have been made, but greater affluence and the rapid rise of e-commerce create more opportunities for New Zealand exporters to China, writes Tim McCready.

It used to be said that the biggest challenges to doing business in China were language, culture, and the sheer scale of the market. Now, throw in the rapid pace of change.

Over the past month, a raft of changes to regulations and tax have been introduced by the Chinese government. E-commerce is also evolving at a pace never seen before, and New Zealand’s access to online channels have never been easier.

Though some of these changes are likely to cause price increases, the premium customers New Zealand exporters target tend to make shopping decisions far less based on price and are prepared to pay for the safety and reassurance that comes with the New Zealand brand.

Research by The Boston Consulting Group and AliResearch, the research arm of Chinese e-commerce giant Alibaba, found the increasingly powerful role of e-commerce is rapidly reshaping China’s economy and consumer market.

China has now overtaken the United States to become the world’s largest e-commerce market. In 2010, online transactions made up only 3 per cent of Chinese private consumption. Since then, the number of online shoppers has nearly tripled, with online transactions now accounting for 9 per cent of private consumption.

This growth is expected to continue. China’s Ministry of Commerce expects the country’s cross border e-commerce trade to reach 6.5 trillion yuan (about NZ$1.5 trillion) this year.

Coupled with an increasing demand from Chinese consumers for quality and safe products, it is no surprise this transformation presents an enormous opportunity to New Zealand exporters.

The evolution of e-commerce products in China means that it has never been easier than now for exporters to take advantage of the platform.

This was highlighted last month during Prime Minister John Key’s visit to China. New Zealand Trade & Enterprise and Alibaba signed a memorandum of understanding aimed at developing opportunities for New Zealand businesses to enter China’s consumer market through e-commerce channels and potentially providing access to millions of new customers.

In 2014 New Zealand Post launched an online store for New Zealand products on Alibaba’s Tmall Global. Chinese banks operating in New Zealand also see the importance of e-commerce, and are beginning to introduce their own online shopping malls.

ICBC New Zealand, China Construction Bank, and Bank of China are all actively promoting their own e-platforms and e-commerce consulting services to their clients.

In the wake of the explosive growth of online shopping, China’s Ministry of Finance, the General Administration of Customs and the State Administration of Taxation introduced new tariffs on cross-border e-commerce, effective April 8, 2016.

Online purchases will no longer be eligible for the lower personal tax rate of 10 per cent on parcels worth less than 1000 yuan (NZ$224), or no tax on parcels worth less than 50 yuan (NZ$11.20). Instead, imported products purchased online will be treated as imported goods, and are required to include an 11.9 per cent tax.

Under the current system, many products have been entering China with minimal tax. Although some have reported this tax as a crackdown, others consider it the closing of a loophole in regulation.

Eliminating the tax advantage offshore sellers have over locals helps level the playing field, and makes up part of a pledge by the Chinese Government to protect domestic retailers.

On April 7 all major government bodies in China involved in food and drug control, customs and tax, and business trading, jointly published a cross-border e-commerce retail list of imported goods.

This so-called “positive list” outlines products that are allowed to enter the country via free trade zones. Running to 23 pages, the list initially included wine and infant formula, but omitted adult milk powder and long-life UHT milk – though it has since been revised to allow both.

In addition to the list of prescribed products, China has begun imposing tougher regulations on infant formula products sold online.

Forming part of China’s revision on food safety laws, all foreign infant formula companies will be required to apply for new product registration with the China Food and Drug Administration if they want to continue to sell through cross-border e-commerce platforms.

Companies have until January 1, 2018 to comply, but in the meantime can continue to sell without certification.

Speaking at The Global Food Forum held in Australia last month, Gary Helou, former managing director of Murray Goulburn (Australia’s largest processor of milk and largest exporter of processed food), said that although he is surprised at the “clunky way” regulatory changes are occurring in China, food companies must prepare themselves for more sudden regulatory changes.

Helou’s comments were made in light of media, stock market analysts and investors reacting quickly to the changes in China.

Company valuations – particularly those in the dairy or natural health sector – have recently climbed to new highs. This has been dubbed the “Blackmores effect” after its stock soared more than 500 per cent last year in response to the opportunity in China.

However, confusion over the impact regulatory changes on the bottom line of businesses has resulted in a sell-off in stocks.

Australian health supplements producer Blackmores fell as much as 19 per cent in one day. NZX-listed premium dairy and infant formula marketer, a2 Milk, fell 6.3 per cent.

“Daigou” is the Chinese term given to buying items overseas on behalf of others. Products are purchased by Chinese tourists, smuggled into the country through professional “personal shoppers” or bought through online channels – with international students often acting as the intermediary.

With prices of manuka honey running as high as 1789 renminbi (NZ$400) for a 500g jar in Shanghai, it is often much cheaper to buy products directly out of New Zealand.

Furthermore, there is still a deep concern in China about the safety of products – something that was already in place when the country experienced its melamine scandal a few years ago.

Instead, Chinese consumers seek out products directly from somewhere or somebody they trust.

The grey market is a multibillion-dollar business. It can be argued that daigou can help put innovative new products on the radar.

Some brands estimate daigou is responsible for a significant percentage of sales into China. Imported products can be personally promoted to friends and families, which is undeniably an excellent marketing method – particularly in China.

Recent changes, however, have seen authorities tighten up on the practice. A maximum value of 2000 yuan (NZ$450) per single cross-border transaction has been introduced, as well as an annual cap of 20,000 yuan (NZ$4500) per customer before paying an import duty.

To ensure this is monitored, logistics companies are requiring consumers to register online before they will deliver products.

Furthermore, Chinese authorities are tightening up on inspections of goods entering China through airports.

There have been reports of two-hour delays in Shanghai’s largest airport – and products being dumped at the border – as customs officials inspect luggage and charge tax on items worth more than 5000 yuan (NZ$1120).

China is evolving on a daily basis. Managing that, as well as the more traditional challenge of doing business in China is not easy. But greater affluence and the rapid rise of e-commerce is creating more opportunity than ever.

Assuming New Zealand companies continue to have patience, comply with changes as they occur, and get their products across the border, the opportunities in China for New Zealand businesses continue to be almost limitless.

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Tim McCready

Three Chinese banks are now registered and trading in New Zealand.

When the NZ dollar became the sixth currency to be directly traded with the renminbi in 2014, China’s biggest banks looked more closely at the market here. They wanted to boost bilateral economic relationships and support trade, people and capital flows in and out of New Zealand and China.

So far, three Chinese banking corporations — Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China — have made the move. They are identifying New Zealand investment opportunities for their existing Chinese clients, as well as working with New Zealand businesses to expand into the Chinese market.

Their positioning in the New Zealand market has been smoothed by the appointment of former National MPs to chair their local boards: Dame Jenny Shipley (CCNZB); Don Brash (ICBC NZ) and Chris Tremain (BOCNZ).

Trading directly with the Chinese renminbi removed the requirement and associated cost of conversion through the US dollar — a significant benefit for importers and exporters.

ICBC, the largest bank in the world by total assets and market capitalisation, was the first to set up in Auckland in 2014, followed by China Construction Bank and Bank of China. All three are among the largest four global public companies as ranked by Forbes. Agricultural Bank of China, which is third on Forbes’ list, is presently not in New Zealand, although it does have a footprint in Australasia, having opened a branch in Sydney in late 2014.

Here’s how the three Chinese banks are positioned in New Zealand.

Industrial and Commercial Bank of China (Registered November 19, 2013)

In the year ending December 2015, ICBC NZ had assets of $742 million, $70 million in issued bonds, and more than $100 million in mortgages.

Although the bank’s capital base here is small compared with the Australian-owned trading banks, in its first two years ICBC’s focus has been on increasing its profile and establishing itself as a recognised bank here. ICBC NZ has 37 staff in New Zealand, with plans to increase that significantly over the next year, and is the only Chinese bank in New Zealand with a retail banking presence.

Don Brash, chairman of ICBC NZ, says: “During ICBC’s start-up phase, the investment required in people, systems, profile and marketing has been significant. It’s not surprising that we’re not in profit yet, but we aim to as soon as possible.”
ICBC introduced its e-commerce platform to the New Zealand market late last year and has had over 4500 transactions since its launch. The “E-mall” allows reputable New Zealand companies to sell directly into the Chinese market through a secure sales channel. ICBC NZ chief executive Karen Hou says, “New Zealand is an innovative country. The bank wants to learn more from this market, so that we can adapt and launch products and technology here that will be of value to our customers.”

China Construction Bank (Registered July 15, 2014)

The launch of China Construction Bank New Zealand (CCBNZ) took place during Chinese President Xi Jinping’s visit to New Zealand in November 2014. CCB is the largest infrastructure lender in China, and wants to bring this expertise to New Zealand. Its local chairman Dame Jenny Shipley has also served on the parent company’s board.

CCBNZ’s total assets reached more than $400 million at the end of December 2015, with around $300 million coming from loans and advances, 75 per cent of which are to local blue chip companies and small and medium enterprises. At March 31, 2016, the total value of mortgages issued reached $100 million for more than 60 clients.

CCBNZ employs 35 staff, with one-quarter seconded from CCB Group and the remainder locally employed. Last year the bank launched the CCB Enjoy NZ QDII Scheme, providing a one-stop solution for migrant investment applicants, offering foreign exchange, funds transfer and bond investment.

CCBNZ’s total value of issued bonds is currently $120 million, including $90 million issued to local institutional investors in 2015 and more than $30 million worth of immigration bonds. CCBNZ doesn’t plan to operate any retail branches here. Instead the bank does a significant amount of marketing through Chinese social media and New Zealand’s most popular Chinese website, Skykiwi.

Bank of China (Registered 21 November 2014)

BOCNZ was launched here in November 2014, with former National Party minister Chris Tremain as chairman. The bank employs 35 staff in New Zealand, and at the end of December 2015 it had total assets of $208 million. BOCNZ’s clients include major Chinese companies Haier, which bought Fisher & Paykel Appliances in 2012, and telecommunications giant Huawei. BOCNZ hasn’t issued bonds in New Zealand, and doesn’t provide mortgages — but intends to do so in the future.

BOCNZ provides full commercial services to New Zealand companies seeking access to China’s e-commerce market. Last year the bank held a cross-border e-commerce seminar with more than 30 Chinese e-commerce operators, and had 200 New Zealand companies attend.

During the Prime Minister’s official visit to China last month, Immigration New Zealand and Bank of China signed a deal that will help simplify the visa application process for the bank’s high net worth customers wishing to study, visit or invest in New Zealand.

BOCNZ will hold a China-New Zealand Agribusiness Investment and Trade Conference in Auckland later this month to introduce New Zealand agricultural technology, products and services to a Chinese delegation interested in investing in New Zealand.

“China presents great opportunities for New Zealand agribusiness to produce and export more, but companies here need the right partner to support them in making that first step,” says David Lei Wang, BOCNZ chief executive. “By hosting 70 Chinese agricultural companies here, we aim to introduce local agribusinesses to people who can potentially help them access the Chinese market and grow their business,” he says.

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Tim McCready

Chief executive says hiring local talent part of ambitious plans to help develop bilateral trade relationship.

It has been two years since the Industrial and Commercial Bank of China, the world’s largest bank by total assets, officially opened its New Zealand subsidiary in Auckland.

ICBC was the first Chinese bank to gain New Zealand banking registration, and since then has made significant progress in the New Zealand market.

Karen Hou, chief executive of ICBC New Zealand, says: “In the past two years, ICBC has worked hard to become integrated into New Zealand. We have grown our understanding of the market and the regulations, and introduced new products. We are still the only Chinese bank in New Zealand with a retail banking branch.”

Total assets of ICBC NZ grew to $742 million in the year to last December 31. Although the bank’s capital base in New Zealand is small compared with Australian-owned trading banks, ICBC’s current priority is on establishing itself in the New Zealand market.

Don Brash, chairman of ICBC NZ, says: “During ICBC’s start-up phase in New Zealand, the investment required in people, systems, profile and marketing has been significant. It’s not surprising that we’re not in profit yet, but we aim to be in profit as soon as possible.”

In the same year that ICBC NZ was established, the New Zealand dollar became the sixth currency to be directly traded with the renminbi.

The deal removed the requirement and associated cost of conversion through the US dollar when exchanging renminbi for the New Zealand dollar.

ICBC NZ aims to make transactions between China and New Zealand cheaper and more efficient. Along with traditional banking services, the bank has introduced new products to market with that in mind – including an e-platform to sell New Zealand products into China, a dual currency credit card, and overseas renminbi-related products.

ICBC NZ considers itself a bridge that can encourage bilateral trade and economic co-operation. ICBC hopes to bring more investment to New Zealand from China, bringing the strengths and expertise of both countries together.

In 2014, ICBC NZ and its parent bank provided $100 million of the $800 million banking syndication for the 27km Transmission Gully motorway from MacKays to Linden. In 2015, the bank joined a funding facility for the telecommunications company Two Degrees.

The bank works at strengthening both sides, by helping Chinese investors understand the New Zealand market, and New Zealand businesses understand how to operate in China.

“Chinese companies are increasingly interested in investment opportunities in the New Zealand market. Helping to build a good relationship between the two countries provides great opportunities for ICBC New Zealand. We can help investors understand the market and how to be successful here,” Hou says.

ICBC group established its own e-commerce platform, “E-mall”, in January 2014. Since then, the number of globally registered customers has increased to over 31 million, turnover has reached more than $200 billion and transaction volumes place it among China’s top two e-commerce platforms by the end of last year.

The NZ pavilion of the E-mall was launched in November and allows reputable New Zealand companies to sell directly into the Chinese market through a secure sales channel.

Since the NZ pavilion of the E-mall went live in New Zealand, ICBC NZ has facilitated more than 4000 transactions on the platform.

Leveraging the increasing demand from Chinese consumers for high quality, safe products, the majority of items on the New Zealand pavilion are New Zealand food, personal healthcare products, cosmetic products and snacks. More and more quality New Zealand-made products will be boarding in the E-mall soon.

The ICBC E-mall has a well-established network in China, which can take care of customs requirements, warehousing, sorting and packing and domestic logistics. Products can be purchased in renminbi in China, while the seller receives New Zealand dollars – with immediate and direct NZD/RMB settlement.

This innovation opens New Zealand manufacturers up to a potentially enormous customer demand, especially now that China has overtaken the US to become the world’s largest e-commerce market. This is expected to continue with China’s strong domestic consumption and rapid urbanisation.

One of ICBC NZ’s key retail growth areas is its mortgage business. Over the two years in which the bank has been operating in New Zealand, customer numbers have grown substantially, and the value of home loans has also grown substantially.

ICBC is known internationally for its innovation and use of technology in banking products. Although the bank demonstrates its retail commitment through its branch in the heart of Auckland’s Britomart precinct, it is preparing to enhance the customer experience by launching a complete online direct banking solution.

This may not require the customers to visit the bank, instead replicating the traditional banking experience online – right through to opening a bank account. In addition, the online banking system is able to do cross-border remittance all over the world.

“Creativity and innovation are both very important to ICBC,” Hou says. “New Zealand is an innovative country. The bank wants to learn more from this market, so that we can adapt and launch products and technology here that will be of value to our customers.”

ICBC NZ was the first bank in the Southern Hemisphere to offer the UnionPay credit card. UnionPay is the second largest payment network (by the value of transactions processed) behind Visa, and can be used for transactions in New Zealand by NZD and renminbi in China, lowering the cost of transactions when travelling in China.

ICBC NZ has 37 staff currently. “Last year, more experienced local staff joined us and they are playing very important roles in our business and helping us to understand local regulations and the local market,” Hou says.

As ICBC New Zealand moves past the start-up phase, it has ambitious plans for the next two years. To manage growth, the bank will need more experienced staff. Reaffirming ICBC’s commitment to New Zealand, Hou aims to recruit new staff locally.

“We are very excited about the next phase of growth for ICBC NZ,” Brash says. “Although ICBC NZ has only been here two years, we can already see the opportunities ahead of us are very substantial.”

Vladivostok to St. Petersburg by Car (Russia Insider)

Danielle Ryan

Ever wanted to pack a bag and travel across Russia by car? Here’s how to do it the Russian way

Travelling from one side of the world’s largest country to the other by car is a dream that has no doubt been jotted down on many a bucket list — but how many people actually set out to make the daunting journey?

Tim McCready, a business development expert from New Zealand is one of them. Using the hashtag #TimInRussia, he has been documenting his journey with two friends. The trip, with the odd deviation from the route plan, will span five weeks across July and August, and McCready’s updates are a fascinating insight into its highs and occasional lows.​

So far, the three friends have taken in Vladivostok, Khabarovsk, Blagoveshchensk, Chita, Ulan-Ude, Lake Baikal, Irkutsk, Krasnoyarsk, Tomsk Novosibirsk and Omsk — and that’s just the first half. From Omsk, the journey will take them to ​Tobolsk, Yekaterinburg, Perm, Kazan, Nizhny Novgorod, Samara, Saratov, Volgograd, Moscow, a few of the Golden Ring towns to its north, Novgorod and finally, St. Petersburg.

Russia Insider caught up with Tim at the halfway point of his journey — the city of Omsk, roughly 7,500 kilometres from where he started.

What inspired you to get in a car and travel across Russia?

After my first visit to Russia [for a business trip], I became increasingly fascinated with the history, the culture, the food, and the people, and wanted to learn more about the country that was previously completely unknown to me. Over the last year I have been planning this trip with a Russian friend, Igor.

I had initially considered the trans-Siberian railway, but I felt like traveling by car would be a better way to experience ‘real Russia’ and would allow us more freedom to choose our own path and stop where we wanted.

How do you split up all that driving time?

We are dividing the driving roughly into thirds, taking turns where one drives, one entertains the driver, and the other sleeps in the back. So far we have insisted that Igor do all of the city driving. The roads and the drivers within cities seemed terrifying to begin with, but I think we are adapting well to the Russian driving style.

There are a huge number of trucks to constantly pass, and as most highways are only two lanes, it requires an intense level of concentration. Highways between cities occasionally have long stretches of road that are made up of gravel, rocks, and large potholes, but are mostly in surprisingly good shape.

How thoroughly did you plan your route beforehand? Is there any leeway for detours?

Fairly thoroughly. Over the course of a year I read a lot of books on Russian history, and watched several documentaries about cities across the country. I made a rough itinerary which we were all able to work on together to finalise which cities to visit, and how long to spend in each. We’ve kept the document as a live Google document and made constant alterations, even during the trip — so we do have a little bit of leeway for detours.

What’s been the most enjoyable aspect so far?

The most enjoyable aspect has been getting to know some Russian people. They have been incredibly hospitable – even when language has been a challenge, and made me feel extremely welcome.

Igor’s brother and his parents looked after me incredibly well in Vladivostok, baking us traditional Russian food, taking us to their dacha, and driving us around the city. We also stayed with Igor’s aunt and uncle in a small Siberian village who didn’t speak a word of English. Despite the language barrier, they spent a huge amount of time with us, taking us through the Siberian forest, showing us old family photos and videos, and over-feeding us with amazing meals and homemade vodka.

In terms of sights in Russia, seeing the incredibly diverse Russian geography, and how warm and green Russia is during summer has been a huge surprise. The amount of time we have spent in a car has really emphasised to me just how enormous this country is – particularly since I come from New Zealand, which is comparatively tiny.

And what about the most annoying thing so far?

Booking accommodation has been a frustrating challenge. We have opted to mostly stay in apartments. They’ve been cheaper than hotel rooms, provide more space for three people, and allow us to do washing and a bit of home cooking.

But booking accommodation in Russia has been less predictable than I have experienced in other countries. Even when using websites like booking.com, we have had the accommodation provider phone us on the day of check-in to tell us the apartment is no longer available, or the current guests want to stay on longer. There have been a fair few days when we have had to scramble to find accommodation for the night.

What’s the weirdest or best thing you’ve seen on your travels?

The best thing I have seen is definitely the architecture. The churches, and the buildings – particularly some of the traditional wooden buildings in Tomsk are incredibly impressive.

Some of the more unusual things would have to be the sheer number of unexpected and unusual monuments located across Russia. Tomsk has the monument to happiness, a cabbage monument outside a maternity hospital, a monument to a state traffic inspector, and a monument to football fans. Novosibirsk has a traffic light monument, a monument to electricians, and a monument to lab rats that have given their lives to medical research. This last one required us to detour for almost an hour to see, but given my background in biotechnology was one I was particularly keen to visit.

Is there any place or city that really surprised you?

Siberia surprised me a lot. I think generally Siberia is thought of as a region of the world where nothing much happens, and not much exists. What I discovered is that there’s a lot of great cities in Siberia, they are all quite different from one another, and there is a lot to see and do. Ulan-Ude stood out as an incredibly different city to the rest. The Buryat people, culture, and food all felt quite different from other parts of Russia.

There is still of course a lot of forest, and long stretches of highway with nothing much in between them besides a few gas stations.

How are your Russian language skills? Has not being a fluent speaker hindered you a lot?

I’ve been learning Russian recently, but my language skills could be described as beginner, at best. I had no problem getting by in Vladivostok, which is reasonably well set up for tourists, but navigating some of the other more remote cities we have stayed in would be extremely difficult without having Igor traveling with us.

He has made the trip feel seamless, although I know at times some of the unexpected complications have been stressful for him. He is doing a really great job at showing us the best of his country.

Okay, if you had one piece of advice for someone setting out on the same journey, what would it be?

If you are able to convince a Russian friend of yours to travel with you, you absolutely should. Not only do you have a handy translator — for both language and culture — but you also get to explore Russia a little more off the beaten track than I think would be achievable as a foreigner.

Also, make sure you allow yourself enough time to get between cities. The longest drive we have done was between Blagoveshchensk and Chita, which was 1600km (990 miles). We initially thought this journey would take just over 16 hours, but by the time you factor in the unpredictability of the roads, extremely long stretches of roadworks, and brief bathroom and food stops, it ended up taking much longer.

Korean reunification – Bonanza or Bust? (NZ INC)

Tim McCready

This year marks the 70th anniversary of the end of World War II, and also the 70th anniversary of Korea’s division into North and South. Last month the World Journalists Conference was held throughout South Korea under the theme ‘the 70th anniversary of the division of Korea: Thinking about unification on the Korean Peninsula’.

Na Kyung-won, Chairperson of the Foreign Affairs and Unification Committee of the National Assembly, posed the question: What is North Korea for South Korea? Her response – “On the one hand, a serious security threat, but on the other hand, a partner with which we have to work together on the way leading to the unification of Korea.” This stance isn’t surprising – the requirement to seek peaceful unification is included in the South Korean Constitution.

South Korea established a Ministry of Reunification in 1998, which works to establish North Korean policy, coordinate inter-Korean dialogue, pursue inter-Korean cooperation, and educate the public on unification. In Korea there is an old saying, ‘ten years can change even the rivers and the mountains.’ However any progress on reunification to date has been largely non-existent.

From 2000 until 2008 liberal governments in South Korea put in place the Sunshine Policy under the leadership of President Kim Dae Jung. The policy resulted in greater political contact between the two countries, two Korean summit meetings in Pyongyang, several business ventures and brief meetings of some Korean families separated by the Korean War.

Kim Dae Jung was awarded the Nobel Peace Prize in 2000 for his successful implementation of the Sunshine Policy. However, following nuclear and missile tests and the shooting of a South Korean tourist at the Mount Kumgang Tourist Region, the Sunshine Policy was deemed a failure and wound up in 2010. The Sunshine Policy is dead, and so are the key players on both sides.

Sadly there are an estimated 6,700 people from separated families living in South Korea. The tragedy of the division is most prominently seen through those people who have not seen, spoken to, or even sent letters to their family members. Those people with the closest ties to the North are getting very old. Koreans, who are extremely family-centric, are very conscious of the fact that there is not much time left. The older generation passionately long for reunification, and believe it is imminent. Younger Korean’s seem to be agnostic about the prospect and worry about the economic cost.

Aside from reuniting disrupted families, South Korean government officials frequently spoke about ‘hitting the jackpot’, or the ‘bonanza’ that would come with reunification. The Korean Peninsula would be thrust into the role of an Asian hub. China, the world’s second largest economy lies to the West. Japan to the East is the world’s third largest. The virtual island of South Korea that is so evident from nighttime satellite photos would become connected through rail, road, and pipelines through to Eurasia.

South Korea’s population of 50 million combined with 25 million in the North would develop an entirely new market. North Korea has 20% more space geographically than South Korea and an abundance of natural resources including coal, iron ore, gold, rare earths, hydroelectric and seafood. South Korea would suddenly become resource rich, and South Korean companies would gain access to a pool of hardworking, inexpensive North Korean labour.

On the flipside, Andrew Salmon, an author and high-profile journalist based in Seoul had a more pessimistic stance. He noted that if you look at North Korea through only the lens of the leadership, nothing much has changed. His view is that the most exciting and underreported story in Asia is that North Korea is becoming a de facto capitalist state.

During the 1990s North Korea suffered from horrific famine. The State distribution system imploded and North Korea had no choice but to go across the border to China, start trading, and run primitive markets. These markets have not gone away and have instead expanded nationwide to the extent that you can now buy almost anything – food, consumer goods, even electronics. Instead of North Korean currency the traders use international currencies and communicate with each other to set exchange rates. While it may be primitive and unofficial, for the first time in history change is coming from the bottom up.

Salmon believes there are rewards just ahead. Under Kim Jong-un, we have seen incentives and autonomy for factories, agricultural and fishing industries. A real estate market is becoming established in Pyongyang and even a venture capital market is becoming established.

The Kaesong Industrial Zone was established and is run by the South Koreans. While it has been open for ten years, there are only 123 small South Korean companies operating there and is unlikely to get any bigger. The original plan was for this to be the first step for South Korea’s economic recolonisation.

On the flipside, North Korea are establishing additional special economic zones. They are seeking foreign trade and investment, with China moving in very aggressively. The Rason special economic zone is in the far northeast bordering Russia and China and serves as a warm-water port for both countries. Foreign currency is permitted, and there are no poor people there.

Salmon’s view is that there is some hope in the future. But it doesn’t lie in the hands of the generals, the politicians, or the diplomats. It is up to business leaders. The Sunshine Policy wasn’t instigated by a politician, but by Chung Ju-yung – the founder of Hyundai conglomerate. Salmon argued that South Korea needs to get rid of sanctions that prevent any trade or investment in the North outside the artificial Kaesong Industrial Zone and stop the incessant focus on denuclearization – because it won’t happen. He argued that we should instead separate business from politics so that we can all have a stake in the North Korean economy.

As a country that assisted in the Korean War, I was invited to take part in a panel discussion on reunification, and share lessons that could be learnt from a New Zealand perspective. With speakers from powerful economies of Russia, China, the UK and South Korea, this was formidable, but the Korean’s were interested in hearing about New Zealand’s much admired strong relationships with nations around the world.

Reflecting on Korean reunification from a New Zealand perspective, our close partnership with Australia in particular offers a number of lessons instructive to prospects for such a future partnership between North and South Korea.

Despite our entwined history and combined military efforts, it would be fair to say that our relationship with Australia has remained strong due to our successful economic and trading partnership. Although the countries have their differences – cultural, political, nuclear, and commercial – they both represent an important trading partner to the other, supported by what is often referred to as “the world’s most comprehensive, effective, and mutually compatible free trade agreement”.

New Zealand’s close relationship has endured with Australia because we are stronger together. If New Zealand can share something with the world, it is that careful navigation of trade issues is something that can strengthen relationships, and over time build trust.

Word from the officials is that unification will be a jackpot not only in Korea, but for the rest of the world. Whether that is right or wrong, a divided Korea is a very sad reality. Progress has been slow, but ultimately the key to resolving conflict and division on the Korean Peninsula will come down to demonstrating that the interest in reunification is mutual and that benefits long term will extend the potential – for both economies.

Tips from the best – Raising capital in Los Angeles (NZ INC)

Tim McCready

Panel discussion: Investor Guidance for Raising Money in Los Angeles

  • Mr Bruce Stein, Principal, Westridge Consulting, LLC
  • Mr Robert Perille, Partner, Shamrock Capital Advisors
  • Mr Craig Cooper CCP, LLC
  • Chance Barnett, CEO, Crowdfunder
  • Moderator: Mr Mitchell Berman, Managing Partner Zen Media Entertainment Group

People in the private equity space are miserable at the moment because they are finding valuations at a record high. That means that there really couldn’t be a better time than now for venture funding – for the entrepreneur. There is no shortage of capital in Los Angeles or the United States, but there is a shortage of really good ideas.

Investing used to just happen in boardrooms. Now it can happen online. The floodgates have opened for people to advertise – it is an entirely new industry and crowdfunding allows you to get yourself in front of potentially thousands of investors. Last year saw $14B in crowdfunding. The estimate for 2015 is $34B. Crowdfunding doesn’t have to come at the expense of angel and VC funding. There are a host of investors that are using the internet to find funding opportunities.

Investors are now looking for those businesses that have had some traction. That may mean they have established themselves, have customers, or are experiencing some kind of growth. They don’t have to be profitable but it has to be a profitable business model that makes sense.

Investors like to invest in people that have an unfair advantage. It could be that you have a PhD in a very specific area that no one else would ever know about.

Richard Branson is very candid about not taking much credit for his wins – he chalks some of them up to being in the right place at the right time. In saying that, the team is critical to any investor. An investment decision is generally made 80 percent on the team and 20 percent on an idea. A great team can make a mediocre idea work – but a bad team will kill a fabulous idea.

To get the attention of an investor, try to teach them something. If you are solely pitching for investment, your pitch may or may not be heard. But if you teach someone something, they will take notice of you.

When you are pitching, make sure you are able to deliver it so that someone can understand the core idea immediately. You don’t want to ask someone to delve deeply into a topic area they don’t understand. You will get a false negative if your presentation material is poor. Equally, flooding a pitch with keywords like ‘big data’ will never count for anything if it isn’t clear what your business does.

LA investors will be looking for something that is not a provincial application. This is a risk coming from New Zealand. Your product must be immediately globally applicable. If you don’t have a platform to leverage and build on then you will have a very difficult time to gain the attention of the investment community.

Be persistent and resilient. At seed and early stage it is hard to differentiate people from one another. Investors hear a lot of pitches all the time and they tend to blur together. It is a very competitive market. A big mistake is to not be persistent in follow up. More people lose opportunities because they fail to follow up until someone says no. It is a huge differentiator if you’re kindly persistent to the investor. It demonstrates resilience and that you are more organised than most other people are.

NZ INC. traveled with the Auckland business delegation to the tripartite summit in Los Angeles. Representatives from 43 Auckland businesses took part in the inaugural Tripartite Economic Alliance Summit in Los Angeles. This follows the signing in November 2014 of an alliance designed to boost economic co-operation between Auckland, Guangzhou and Los Angeles. Len Brown and councillors Bill Cashmore and Denise Krum led the delegation. Auckland Council organised it with the support of Auckland Tourism, Events and Economic Development (ATEED), NZTE and MFAT.

Media contact at Auckland Council: Glyn Jones 021 475897
ATEED (Auckland Tourism Events & Economic Development)
NZTE (New Zealand Trade & Enterprise)

Living and working in Los Angeles – the reality (NZ INC)

Tim McCready

Through no fault of their own, New Zealand (and even different parts of America) have a cartoonish view of cities in the United States. People tend to think of Los Angeles solely as Hollywood and made up of “fake” people. New Zealand companies – particularly those involved in technology, think of San Francisco or Silicon Valley as their default launchpad.

The United States is a very large country – a market of markets – and it is very important to consider that it may be Austin, Seattle, or Los Angeles could offer the best opportunity.

The reality is that Hollywood is highly visible, but makes up only a fraction of LA’s economy. The vast majority of marketing money for Los Angeles goes into tourism. The tourism dollar for the city is so valuable that it has made it difficult for the start-up community to shine.

LA is the third largest tech ecosystem in the United States (behind Los Angeles and New York), but it is the fastest growing. 12% of early-stage start-ups are located in Los Angeles, and there is now a large number of companies including Snapchat ($10B), SpaceX ($5B), Beats ($3B and aquired by Apple) and Oculus ($2B and acquired by Facebook) that were built in Los Angeles.

Los Angeles is the largest manufacturing centre in the United States, and a hub for aerospace, logistics, clean technology and innovation. Los Angeles port is the largest seaport in the western hemisphere. Southern California graduates the most engineers in the United States from some of the most prominent schools, including USC, UC San Diego, UC Santa Barbara, UCLA and others.

Los Angeles Mayor, Eric Garcetti, describes Los Angeles as ‘the western capital of North America, the northern capital of Latin America, and the eastern capital of the Pacific Rim’.

Despite all of this, there is no denying that Los Angeles is the creative capital of the United States, specialising in video content. One in seven people in LA are employed in a creative field. It is the number one metro area for art, design and media employment, and the creative industry provides more than $140B of annual economic impact to the city.

Video and content start-ups are succeeding in Los Angeles. Maker is the number one producer and distributor of online video, with 6.5 billion monthly views and 450 million subscribers. DeviantArt is the leading artist social network, and Mitu Networks is the largest online Latino video network.

New Zealand’s fastest growing export is IP. It grows at 10-15% each year, and has done so since the GFC. The United States is our number one intellectual property export market. Venture Capital companies in New Zealand do not have the scale of connectedness as capital that comes from the United States. It is important to think about the people behind capital – the right objective shouldn’t be to raise $5-10 million. The right objective is to find the capital provider that can help your business grow in line with its strategic objectives.

The stereotype about Los Angeles traffic is largely true, but if you can base your office near the people you want to attract for work, it is very easy to have a choice about where you base yourself. There is no one tech hub. Pasadena, Silicon Beach, USC, UCLA, Santa Monica all have significant human capital, infrastructure, and co-working spaces.

Los Angeles can offer a great lifestyle. LA is a city of cities – it offers a beach lifestyle, Hollywood, an urban downtown experience, hiking, and ski fields close by. Los Angeles has 300 days of sunshine every year and is offers more affordable living compared to other tech centres like San Francisco or New York City.

Without forgetting that California is currently facing one of the most severe droughts on record, a water metaphor was used to describe the nuances of Los Angeles which stuck with me. “New York is a river, Los Angeles is a lake”.

If you step outside in New York you will naturally go somewhere, because the city itself will take you and it is simple to navigate. In Los Angeles, to get anywhere you have to actively swim there, or you risk never getting anywhere at all. It’s a city that increasingly unfolds as you spend more time there.

But that’s what makes it so exciting.

NZ INC. traveled with the Auckland business delegation to the tripartite summit in Los Angeles. Representatives from 43 Auckland businesses took part in the inaugural Tripartite Economic Alliance Summit in Los Angeles. This follows the signing in November 2014 of an alliance designed to boost economic co-operation between Auckland, Guangzhou and Los Angeles. Len Brown and councillors Bill Cashmore and Denise Krum led the delegation. Auckland Council organised it with the support of Auckland Tourism, Events and Economic Development (ATEED), NZTE and MFAT.

Media contact at Auckland Council: Glyn Jones 021 475897
ATEED (Auckland Tourism Events & Economic Development)
NZTE (New Zealand Trade & Enterprise)

From Soju to Sauvignon blanc – Korean FTA (NZ INC)

Tim McCready

When the New Zealand – Korea free trade agreement signed in March enters into force, tariffs will be eliminated on 48% of current goods. New Zealand’s exports to Korea current attract $229 million every year in duties.

In the first year alone the free trade agreement will save an estimated $65 million in duties, and within 15 years of establishment the remaining tariffs will be largely eliminated. The industries that will see the most benefit are those exporting dairy, red meat, kiwifruit and wine.

The current tariff on wine exports to Korea is 15%, and this will be wiped immediately as the agreement enters into force. This tariff concession will provide a good boost to exporters, but despite the removal of tariffs, exporting wine to Korea remains a challenge for New Zealand.

This is largely due to the tax and distribution system. When wine arrives in Korea, a liquor tax of 30% is applied, along with an education tax of 10%. This is even before it hits the distribution networks, a value-added tax of 10%, and retailer markups.

Korea produces and consumes a large amount of liquor locally. Beer and Soju make up 86% of locally produced alcohol. Wine makes up approximately 20% of imported alcohol. Wine is considered to be a luxury product and is consumed by only a small fraction of the population. Red wine is dominating wine imports at 71%, but white wine is beginning to gain more traction.

With the removal of tariffs, New Zealand wine producers will now be placed on an equal playing field with major international competitors in the market including the US, EU, Chile and Australia. However, the rest of the taxes that make up the total cost of wine are payable whether a free trade agreement is in place or not.

The combination of taxes, high distribution costs and mark-ups can make New Zealand wine significantly more expensive in Korea than in many other countries. And because New Zealand wine is typically sold as a premium product, and tax is applied as a percentage of price rather than a cost per unit, this can increase the markup on a bottle of New Zealand wine significantly when compared to budget brands of wine. This differs to Japan where tax is applied per bottle, and education tax doesn’t exist.

In the year ending June 2014, South Korea accounted for just $2 million of New Zealand’s $1.3 billion wine export business globally. That said, New Zealand wine is increasingly becoming of more interest to South Korea. Until 2001, only one New Zealand winery had a presence in the Korean market. The number grew to 38 in just six years. Demand for New Zealand wine is growing as consumers become more aware and curious to try white wine.

But we still have a way to go.

I visited three cities during my visit to Korea, and one thing that surprised me is that I was frequently asked if New Zealand produced any alcohol. High-end restaurants had New Zealand wine on their wine list, but my experience demonstrated that the average consumer was largely unaware of our ranking in the wine world.

The free trade agreement will undoubtedly be great for New Zealand’s dairy, meat and horticultural industries. But the wine industry will be one to watch. Chile had a noticeable boost in wine exports after their free trade agreement was signed with Korea, and it is likely that New Zealand will see a similar lift.

But it could be that the free trade agreement gives New Zealand the impetus it needs to boost the recognition and acceptance of our wine brands in Korea. And if that occurs, the benefit of the free trade agreement would vastly exceed any reduction in tariffs.

http://nzh.tw/11447897

Tim McCready

Silicon Valley investment an art, not a science says expert.

A leading American venture capitalist, Bill Reichert, believes entrepreneurs and investors have a huge opportunity in New Zealand, particularly in the areas of graphics, animation and agriculture.

Reichert, managing director of Garage Technology Ventures which is based in California’s Silicon Valley, says New Zealand has a unique and compelling advantage across a variety of sectors and is ripe for disruptive innovation.

He says New Zealand now has strong angel groups that have made good investments, and some have graduated to small venture-style funds. However, he feels angel resources could be more aggressively pooled so that capital is set aside for follow-on investment when companies go global. A beachhead adviser for New Zealand Trade and Enterprise (NZTE) Reichert travelled with SVForum chief executive officer Adiba Barney to Auckland and the other main centres, making presentations and meeting entrepreneurs, investors and business leaders.

They were supporting Callaghan Innovation’s incubator programme and providing local technology businesses with a connection in Silicon Valley. Barney believes New Zealand should leverage the success of technology companies like Xero — just as Sweden, her home country, has done with the likes of Skype, Spotify, Minecraft and Candy Crush. They have strengthened the Swedish innovation ecosytem.

She says Xero is a trailblazer and the network it has created will make the path easier for future companies to follow.

Reichert outlined his 10 investment myths New Zealand angel investors and innovators could learn from (below):

His parting advice was that the water separating New Zealand and Silicon Valley shouldn’t matter – there is also a lot of space between Silicon Valley and New York. New Zealand should recognise its strengths and successes, feel the pride and not be afraid to brag about it.

Myth 1: Invest in what you know.

If you have become an angel investor, what you used to know is unlikely to be relevant. Instead, you should be technology agnostic and consider all opportunities. Most winners are black swans – random opportunities where success seems obvious with the benefit of hindsight.

Myth 2: Focus on making money

You can’t look at a start-up company the way you look at the stock market. The margins and projections an inventor or CEO provide are almost always wrong. Focus on whether they are creating value, and in turn, a valuable company.

Myth 3: The key is good due diligence.

Investors often feel a robust due diligence process will result in a good decision. But you cannot capture the data required to show if there is inherent value in a start-up. Instead, you have to develop good intuition and use your heart to make decisions. This is not something that fits into a standard due diligence checklist.

Myth 4: Don’t let emotions cloud your decision.

Since start-ups can’t give you reliable data, you have to pay attention to your emotions. If, for whatever reason, you don’t like the founders, it doesn’t matter how amazing their business model is.

Myth 5: Build a consensus among a syndicate of investors.

Most investors look for consensus. But historical data shows the best investments are controversial. If an idea is obvious it is unlikely any particular company will dominate the industry.

Myth 6: Success comes from adding value.

Everyone working in investment likes to think they add value. The harder you have to work for an investment the less likely it is to succeed. Instead, invest in a team that has the technology and understands the market. Investors don’t build companies, entrepreneurs build companies.

Myth 7: Protect yourself from follow-on investment.

By including protective provisions for yourself, you will likely poison the company. If you think you need them because you don’t trust the entrepreneur, don’t invest in the company.

Myth 8: Valuation is important.

You can focus so much on valuation that you lose sight of what is important. So often after signing a deal investors go through a surprise at the first board meeting. They were buried in term sheets and negotiated from a presentation that is now long out of date.

Myth 9: It is cheap to start a company now.

This is true, but it is more expensive than ever to build a successful company. Anyone can start a company, which means there is a lot of competition. Growth costs money, and a flat open world doesn’t necessarily make things cheap.

Myth 10: Diversify your portfolio.

There is no point diversifying into arbitrary categories. Diversify your entire portfolio, but not your angel investments. Instead of chasing hot sectors, invest in ideas that are exciting and have an edge – things that could be the next black swan.