China Business: Payment giants battling the banks (NZ Herald)

Tencent is probably most well-known around the world for WeChat — which has transitioned from being an instant messaging system to more of an ecosystem and way of life in China. WeChat is used for everything from chat and games to paying bills, ordering a taxi, booking doctor’s appointments, and filing police reports.

Government policy dictates WeChat users register with their real names, and a pilot programme by WeChat has seen virtual ID cards launched through the platform, which serve the same purpose as traditional state-issued ID cards.

The platform has more than one billion monthly active users; 400 million use its payment system Tenpay (which includes WeChat Pay). Alibaba’s Alipay, run by Ant Financial, has 520 million users.

The transaction figures are astounding. Between those two major players, they control nine out of every 10 renminbi of the US$5.5 trillion (NZ$7.6t) spent by Chinese consumers on mobile payment platforms — and both have lofty ambitions to move beyond China.

China’s payment companies have begun expanding into global markets. Alipay and TenPay chose to first introduce their payment facilities in popular destinations for China’s increasingly affluent and digital-savvy travellers — South Korea, Japan, and Thailand.

The World Tourism Organisation estimates Chinese tourists spent US$261b abroad in 2016. Retailers and service providers taking up the payment systems are hoping to entice Chinese shoppers to spend their renminbi with them.

Finland is an increasingly popular destination for Chinese tourists, and became the first country to offer Chinese tourists an entirely cashless experience when they visit.

Partnering with Finnish payment platform ePassi and tourism group Visit Finland, Alipay introduced the “Smart Travel” initiative to connect local businesses with Chinese travellers at every point during their visit. Shopping, services, activities and experiences can be paid for using Alipay — even receiving duty-free refunds at the airport.

Last year Christchurch Airport signed a memorandum of understanding with Alibaba, agreeing to promote Alipay in the South Island, and in the past month Smartpay announced a partnership with Alipay that will see Alipay capabilities rolled out to Eftpos and credit card terminals for up to 25,000 merchants.

Alipay Australia New Zealand’s managing director George Lawson says Alibaba now partners with approximately 2000 merchants here and expects this to grow dramatically.

“The recent Smartpay announcement will drive a lot of this growth as it gives Alipay access to tens of thousands of merchants with one software update. This is very exciting as it makes it much easier to accept Alipay with existing terminals.”

Increased use of Alipay in New Zealand means Chinese visitors can more easily find, rate, and pay for goods and services using their mobile phone app, providing a platform for Kiwi businesses to promote themselves and form a relationship with tourists before, during, and after they visit.

More than 400,000 Chinese visit New Zealand each year, and spend around $1.7b per year. MBIE estimates this figure will grow to $4.3b by 2023, and as independent travel grows in popularity the scale of the opportunity for business is clear.

Christchurch Airport’s Chief Aeronautical and Commercial Offer Justin Watson believes making the payment process easy and familiar will benefit businesses that take up the technology.

“The Chinese use Alipay more than credit cards,” he says. “They trust it and know how it works; our Chinese guests are more likely to spend with a business that offers Alipay than one that doesn’t.”

Lawson agrees: “The Alipay brand is a beacon for Chinese tourists as they are familiar with it, receive the best exchange rates and it reduces anxiety associated with dealing with another currency. It also breaks down language barriers.”

Though these payment services are initially targeting Chinese tourists, they are hoping to rub off on China’s growing diaspora — and ultimately more widely — encouraging locals to make use of mobile payments.

To support this ambitious growth strategy, Alibaba and Tencent are quickly expanding their presence outside China through partnerships and investments in global brands and foreign payment networks.

Tencent has acquired a stake in over 15 foreign companies at a cost of US$4.3b, including 10 per cent in Snap (the parent company of social media craze Snapchat) and 5 per cent in Telsa.

Tencent’s music unit recently exchanged equity stakes of just under 10 percent with Spotify.

Alibaba has also been investing globally over the past few years, including Southeast Asian e-commerce company Lazada, India’s largest online food and grocery store BigBasket, and Indian payment app Paytm.

Analysts say these investments are made for a variety of reasons: to help Alibaba and Tencent capture data and gain intel from market leaders, to export what they have learned from their operations in China to other countries, and in some cases to encourage customers in global markets to use their online payment system, cloud services, and other infrastructure.

Cracking the global payment system will lay the foundation to provide other services, including insurance, loans, and investment offerings.

Despite this growth in acquisitions, the US is starting to hit back at China’s expansion.

Ant Financial made a US$1.2b move to acquire MoneyGram — an American money transfer company with around 350,000 remittance locations in over 200 countries.
This takeover was under a year-long regulatory review as questions were raised over customer data and privacy.

In January, the US Committee on Foreign Investment — a multi-agency government panel — scuppered the deal over national security concerns.

This has been the most high-profile Chinese deal to be axed by the Trump administration to date — occurring despite Alibaba’s founder and executive chairman Jack Ma wooing then-US President-elect Donald Trump prior to his inauguration with a promise to bring a million jobs to the US.

Piyush Gupta, chief executive of Singapore’s DBS bank, also recognises Alibaba and Tencent as among the bank’s biggest competitors and considers their rapid rise in China a salient reminder of the disruption that can occur if banks don’t react swiftly to innovation.

Gupta told McKinsey that it is not enough to apply digital “lipstick”.

“In 2013, the DBS board therefore took the view that the future for us and for our industry would have to be digital. We felt that if we didn’t lead the charge, frankly, we might die,” he says.

DBS recently launched its mobile-only bank to take on China’s e-banking giants. The bank is using the service as a strategic tool to strengthen its presence in emerging Asean markets — where the World Bank estimates 264 million people do not have access to banking facilities, and just 30 per cent of adults have debit cards.

The opportunity is significant, and the race to cash in is well and truly under way.

China Business: Tapping into the food chain (NZ Herald)

Leading nutrition companies spoke to Tim McCready about expanding into China. Among topics discussed with Sanitarium’s China Country Manager Tanne Andrews, Blackmores’ Asia Managing Director Peter Osborne, and Fonterra’s Greater China President Christina Zhu were challenges they face in the market and the impact of e-commerce.

Herald: Could you describe your presence in China?

Christina Zhu: We refreshed our China strategy five years ago and we’ve gone from strength to strength in that time. China is our largest and most important strategic market accounting for a volume of 5.5 billion liquid milk equivalents (LMEs) which is equivalent to over 1000 glasses of milk sold every second. Today, we have a fully integrated model that enables us to capture value for our farmer shareholders — from the farm gate through to the end consumer.

Our business model is unique in China. No other multinational or local dairy company has the same mix of businesses and reach across sectors that we have. We have a strong in-market presence and operate a range of business units — including consumer brands, foodservice, ingredients and farms, as well as a number of strategic partnerships. In the past 12 months we have made great progress integrating these businesses more closely to capture the opportunities being created by rapid changes in China’s food industry, such as growing household affluence, demographic changes in the population and the rapid growth of technology and e-commerce.

We are the market leader in food service, Anchor is the number one imported milk brand both online and offline, we have around 35,000 cows producing a significant amount of milk each year and we are a leading supplier of dairy ingredients to major international and local food companies in China.

At the same time we are Fonterra’s biggest employer off-shore with close to 1700 people in the greater China region (mainland China, Hong Kong and Taiwan).

Tanne Andrew: We’ve been an export business into China for about five years, and have had a functional office in China for about the past 18 months.

Chinese consumers increasingly want to try things from the West and there is massive growth in breakfast cereal in China. We are building trust in Sanitarium’s brand, which we want to expand on. Light ‘n’ Tasty will likely be the next product we bring to the China market.

Peter Osborne: We’ve been here since 2012. We have a wholly-owned foreign enterprise in Beijing, our head office is in Shanghai, and a team of 50 in China — spread across Beijing, Shanghai, Guangzhou and Chengdu. We have an A$250m business in China, with over 3000 points of retail presence across China and an extensive presence on e-commerce — both domestic and cross-border.

What are the challenges you have noticed specific to China compared to New Zealand or other parts of the world?

Zhu: The Chinese consumer is unique and like all markets we operate in, it’s essential to appeal to local tastes and trends. Chinese consumers are very discerning and companies work tirelessly to meet their ever-increasing expectations.

This is both a challenge and opportunity — to capture the opportunity we need to have innovation at the heart of everything that we do. That can mean new packaging, taste profiles, or the way you engage with consumers. The market is evolving so quickly, businesses need to run fast just to stay where they are. Only by running faster though will they ever move ahead.

One area where we have really captured the essence of innovation is through our foodservice business — Anchor Food Professionals. The dairy beverage category is rapidly expanding and we’ve been able to capitalise on this trend by working with our customers to create innovative taste sensations, such as the tea macchiato. This is made using a blend of flavoured Chinese tea with a creamy cap of whipped cream and cream cheese.

Thanks to innovations like this, we are now selling around 80 million drinks per year and this is growing rapidly.

Andrews: While the opportunities in China are big, the challenges are also big. China is not the easiest place in the world to do business — complicated sales channels, language barriers, different consumer laws, professional shoppers — these are just a few of the challenges you face that you don’t have to worry about in your own domestic market.

China is very different to Australia and New Zealand — it’s the antithesis really, when you look at lifestyle. And it is extremely fast-paced. Everything changes so quickly, it’s like a different planet and you have to keep up.

As an ex-pat, if you can’t speak Chinese, you don’t have an interpreter, you don’t have a driver — you will find it very difficult. I found it surprising how little English is spoken.

We used to put a lot of emphasis on using Chinese agencies that could speak English. But now we have a local team in China we’re using some very good local agencies. That might mean they don’t necessarily speak English, but we’re finding we get a far better result.

Osborne: As a health product company, we’re used to highly regulated environments, so that’s not the biggest challenge. Keeping up with the speed of consumer evolution is.

This includes changes in the regulatory environment, how to engage with consumers online, and customer preferences and demand.

In a category like ours, preferences can shift rapidly based on key opinion leaders and influencers. Our category has a long supply chain which means it can take months to get a product to market. That’s a big challenge for any foreign brand in food or fast-moving consumer goods (FMCG).

How are you currently using e-commerce in China?

Zhu: E-commerce in China is such an important platform and it’s moving at a rapid pace.

We’re really capturing this opportunity — over half of our consumer business is online and Anchor is the number one imported dairy brand both on and offline in China.

Our strategic partnership with Alibaba is helping us deliver significant growth. Alibaba has created a huge digital ecosystem in China encompassing all online channels and we’re working in partnership with them to get more and more of our products to consumers across China. For example, Tmall.com, Alibaba’s online retail market place, is an extremely important channel for us, and enables retailers to sell Anchor, Anlene and Anmum to consumers.

A key development in the China e-commerce landscape has been the growing integration of online and offline channels — or what people are calling ‘new retail’. This year we launched a partnership with Hema — Alibaba’s supermarket chain — where we will sell our current product range, launch new products and offer cooking classes to engage our consumers. The signature product is daily fresh milk, an unprecedented development in China. This milk comes from our farms in China, which shows how our integrated business model is coming to life. We have also signed a memorandum of understanding with Alibaba on blockchain.

Andrews: This is what is difficult for people to get their head round in Australia or New Zealand. The majority of our target buy their groceries on line, over 80 per cent of our purchases are made on a mobile device. For the consumer it’s convenient and delivery is both quick and inexpensive.

If you work in FMCG in New Zealand, the majority of your goods are sold through large supermarket chains. Think how much your strategy would have to change if suddenly your goods were now sold predominantly online.

Osborne: We’ve had a long relationship with Alibaba and entered China in 2012 with a flagship store on Tmall — we were the first brand in our category to have a Tmall store.

We sell on various Alibaba platforms — Tmall, Tmall Choice, AliHealth, Taobao — and we also work with them on big strategic projects including a blockchain project for food safety and a Global Healthcare Initiative with Tmall. We have a deep relationship with them, which has really helped drive our business in China.

Online and cross-border e-commerce is a big part of our business, and Double 11 Day is a big feature of the yearly calendar. We work up to it with a range of activations — it is about consumer engagement and brand awareness as much as it is about sales. For a long-term business in China this is important, because it allows you to keep engaging with your consumers.

We did a three-hour livestream prior to Double 11 Day. We used Chinese celebrities and Chinese pop-stars as part of a broader programme produced by Hunan Television [a satellite TV station]. At its peak we had 480,000 people online viewing our livestream and we added 13,000 fans to our flagship store.

Can you give an example of an online success you had in China?

Zhu: One example of our online performance is Double 11 Day — a very important festival that has expanded to become weeks of promotion. During Double 11 Day last year, our overall online business achieved RMB100 million (NZ$22m) in sales volume, 67 per cent higher than the previous year.

This year we ranked in the top 10 of all food and beverage companies on JD.com, another e-commerce giant and also a significant partner. That puts sales of Anchor milk up there with brands like Coca-Cola and the local giants Yili and Mengniu. This is a massive achievement and reinforces that Anchor is standing strong among the biggest food and beverage brands in China.

Andrews: Our Chinese distributor got Weet-Bix onto Ode to Joy [a Chinese television series]. It appeared for over one minute on screen with actress Liu Tao — one of China’s most famous actresses — and was seen by over 350 million people. Daigou in Australia and New Zealand rushed out to buy Weet-Bix to send to China. That was when Sanitarium realised the potential China offers.

Since then, due to a trademark battle, we have had to rebrand in China to Nutri-Brex.

But Nutri-Brex retains the Weet-Bix colours and branding. It is selling very well, and the bonus for us is that Daigou don’t have access to Nutri-Brex as it is exclusive to China.

This gives Sanitarium more control over the Chinese market and eliminates problems associated with parallel imports.

Osborne: We learnt a very good lesson in China from our vitamin E cream — a product we have been selling for 30 years.

There was some social media chatter two years ago that Fan Bingbing — a very famous Chinese actress — was using our vitamin E product. Our sales went from 3000 tubes a month to one million tubes a month.

This really had very little to do with us — but we had to crank up production rapidly to meet this demand we hadn’t anticipated, all because of social media which is so dynamic in China.

Although things have calmed down now from that peak, we are still selling considerably more vitamin E cream than we used to — up into the hundreds of thousands of tubes a month.

China Business: New Zealand products selling well on 11:11 (NZ Herald)

Alibaba’s 2017 11.11 Global Shopping Festival attracted a high demand for New Zealand brands.

The festival comes from Single’s Day in China (the date is 11.11 — four singles) and is also known as Double 11 Day.

Over the 24-hour sale period, Alibaba Group reported RMB168.2 billion (NZ$36.81b) of transactions through Alibaba’s retail marketplaces. As evidence for China’s phenomenal uptake of mobile devices, mobile sales accounted for 90 per cent of the total sales figure.

Alibaba now offers more than 400 New Zealand brands through its B2C platforms Tmall.com and Tmall Global.

Maggie Zhou, Alibaba’s Managing Director of Alibaba Group Australia & New Zealand, says there is a rapidly increasing demand from Chinese consumers to source the highest quality products from all over the world. Brands from Australia and New Zealand have seen excellent sales figures during the shopping festival.

“Australia and New Zealand products are perceived as high quality and continue to outperform in China.

“We are working closely with New Zealand merchants and partners to further encourage this growth.
“When we launched Alibaba Group’s Australia and New Zealand office earlier this year, one of our key goals was to show the outstanding performance of New Zealand brands in previous 11.11 Global Shopping Festivals,” she says.

“We are thrilled New Zealand brands have continued to see success on the world stage, adding further proof of the growing appetite for high-quality New Zealand goods among Chinese consumers.”

Zhou says Alibaba’s Chinese shoppers are drawn to products from Downunder, particularly skincare, health supplements, and high-quality organic goods such as fruit and wine. Rapid improvements in logistics mean that fresh items such as beef, seafood and dairy are also becoming more sought after.

Some of the highest performing brands on the Chinese e-commerce giant during the shopping festival were ecostore and Antipodes.

“The opportunity for ecostore to expand its consumer base is significantly increased through sale days such as 11.11,” says Pablo Kraus, managing director of ecostore.
“Chinese consumers are very sophisticated and their demand for an eco-friendly lifestyle continues to grow, so ecostore is honoured to be a brand that consumers choose for its reliability, authenticity, and being safe for all the family.”

CEO and founder of skincare company Antipodes, Elizabeth Barbalich, says: “11.11 presents and amazing opportunity for us to raise awareness of Antipodes in the China market.

“The Chinese market is key for us, with traditional plant remedies long considered an essential part of Chinese medicinal and beauty practices.”

Offshore companies that participate in the 11.11 Shopping Festival are required to store their products in Alibaba’s warehouses ahead of time, so customers receive their products as soon as possible after purchasing.

After midnight marked the start of Double 11 Day, the first package was in the hands of the buyer 12 minutes later. “This delivery speed makes for a far better shopping experience,” says Zhou.

Project Auckland: A view from the summits (NZ Herald)

The Memorandum of Understanding of Economic Alliance between sister city triplets Auckland, Guangzhou and Los Angeles was signed in 2014 – and if a week is a long time in politics, three years certainly is.

Since then, New Zealand has had three prime ministers. Former Auckland mayor Len Brown “The Singing Mayor” hung up his chains – replaced by Phil Goff, known less for his singing abilities and instead for his prowess in forging New Zealand’s free trade agreement with China.

Guangzhou also changed its mayor in 2016, and although Democratic Party superdelegate Eric Garcetti is still mayor of LA, President Obama was replaced by the entirely different Trump Presidency.

Over that time, three summits were held to recognise the alliance. And just as with geopolitics, the alliance has come a long way.

The first summit, hosted by LA in 2015, was attended by a humble delegation of about 43 Auckland businesses.

In 2016, Auckland outdid the council’s own expectations with over 700 delegates and more than 330 formal business matching meetings.

Guangzhou’s turn to host took place last month, and saw 70 Auckland businesses take 97 delegates, with around 800 others from LA and Guangzhou.

“Auckland companies need to internationalise,” says Pam Ford, General Manager – Business, Innovation and Skills (Acting) at Ateed.

“They have to go global from day one – and it’s hard. “That’s why we ran workshops for attendees ahead of this latest summit. They helped to build the capability of businesses to maximise their time offshore, and gave them the confidence to take part.”

Alongside business matching, networking events and showcase functions, panel discussions and keynote presenters shared insights and ideas from speakers across the alliance.

Los Angeles 2015: New York is a river, Los Angeles is a lake

The first summit saw panellists discuss the cartoonish view of cities that people – including Americans – have about the US, and stressed that the City of Angels should be seen as more than just a gateway to the US, and certainly more than just Hollywood.

Hollywood makes up only a fraction of Los Angeles’ economy. As well as tourism, it is the US’ largest manufacturing centre, a hub for aerospace, logistics, clean technology and innovation, and home to the largest port in the Western hemisphere.

It is the country’s fastest growing tech start-up region – many arguing it has benefits over San Francisco or Silicon Valley for a tech launchpad.

Despite this, there is no denying LA remains the creative capital of the US. One in seven people are employed in a creative field, and it is the top American metro area for art, design and media employment, providing more than US$140b (NZ$203b) of annual economic impact to the city.

“One of the things the LA summit did was open people’s minds that it is more than just film,” says Ford.

“LA is the place for many of Auckland’s companies that create content. Content now fits across so many more mediums – from gaming and television to social media and particularly the influencer economy.”

“But LA is also about cleantech, food and beverage, design and manufacturing. “Because of this three-year relationship, we’ve developed solid partnerships with the organisations for our companies to access – whether that is through the World Trade Center Los Angeles or the Los Angeles Business Council – that we would not otherwise have had.”

One panellist – a resident of LA – described how the city unfolds as you spend more time there. “New York is a river, but Los Angeles is a lake. If you step outside in New York you will naturally go somewhere, 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. But that’s what makes it so exciting.”

Auckland 2016: Partnerships, People, and Cross-pollination

The Auckland summit saw global heavyweights take to the stage at the Viaduct Events Centre, speaking about the importance of partnerships and collaboration, and the opportunities that arise when you bring people together and ‘cross-pollinate’ ideas.

Sunny Bates, a serial entrepreneur and a founding board member of Kickstarter who has served as an adviser to companies including GE, TED and P&G, insisted the economic driver of the future won’t come from factories, technology, or software – it will be down to the networks of people.

“Networks are the structural basis for globalisation and for modernisation,” says Bates.

“Networks know no boundaries, and cultural networks are extremely powerful.”

Former Nike innovation expert Erez Morag agreed that networks were critical, but said it wasn’t those networks on their own that lead to innovation, but instead the cross-pollination of ideas through those networks.

“Instead of chasing the competition, chase the insights, listen to everyone, and play bigger than your size,” he says.

Morag used jogging as an example of cross pollination. In 1961, Kiwi runner and athletics coach Arthur Lydiard organised the world’s first jogging club in Auckland, promoting the cardiovascular health benefits of easy distance running.

Lydiard introduced Nike co-founder Bill Bowerman to the concept of jogging on a chance visit to New Zealand.

“[Jogging was] invented in New Zealand and commercialised in the United States,” says Morag – all through the cross-pollination of ideas.

Throughout the Auckland Summit, then-Maori Development Minister Te Ururoa Flavell reinforced the importance of trusted partnerships to the Maori economy. “Maori want to hear your heart, not just slick words.

“If there is no connection to your heart, then there can be no deal – because it will be doomed from the start” – a message that resonated strongly with Chinese delegates, who rely on guanxi – long-term, strong business relationships, based on trust and mutual reciprocity.

Guangzhou 2017: Leverage our Chinese diaspora

Auckland-based Kenneth Leong, co-founder and director at Healthy Breath – an anti-pollution mask using natural New Zealand wool filter media for international markets – spoke about leveraging the Chinese diaspora.

“We sometimes forget Auckland is home to a large, well-connected Chinese business community,” he says.

The summit and surrounding events enabled new connections between the business delegates, and deepened existing relationships.

“Cross-cultural partnerships enrich all parties, by bringing people with great ideas together with people who have connections, capital and channels to market,” says Leong.

“There is a need to accelerate integration between the migrant Chinese and mainstream business communities in Auckland. Everyone is keen to do business together, we just need to create more opportunities for interaction and relationship building.”

New Zealand’s connection to Guangzhou goes back a long way – many of the first Chinese immigrants to New Zealand came from the Pearl River Delta region, including Guangzhou.

Now, Guangzhou is China’s third largest city, contains seemingly endless skyscrapers, and is considered a manufacturing and commercial hub.

It has been consistently ranked by Forbes magazine as the best commercial city in mainland China for ease of doing business, talent, location, and international connectivity, and in many cases, could be a more accessible market for New Zealand businesses than the more recognised larger markets of Shanghai and Beijing.

Project Auckland: A positive vector for growth (NZ Herald)

Tim McCready sat down with Vector chief executive Simon Mackenzie to discuss the future of Auckland’s energy sector, and beyond.

“It’s almost like we’re back to the future,” explains Vector chief executive Simon Mackenzie as he discusses the energy industry’s shift towards distributed energy systems.

It’s a future Mackenzie seems relatively at ease with, despite it completely disrupting the business models of the industry in which Vector operates as a distributor.

“The whole investment focus is now turning to: how do we utilise technology in the energy sector to still deliver energy in an affordable, yet renewable, sense?” explains Mackenzie.

“We’re seeing a huge tipping point in terms of customers driving what they require from energy.”

Where energy is currently generated at a centralised location — say, a dam — and then transmitted via the national grid to distributors such as Vector, increasingly customers are gaining the ability to generate the energy themselves, within — or on top of — their homes.

This shift has been driven and accelerated by global initiatives to reduce the use of fossil fuels from transport and energy sources in response to the threat of climate change.

And while the lack of international progress on emission reduction targets is often lamented, beneath the surface there has been significant subsidies provided for the development of renewable energy generation and a reduction in the price of technologies, such as solar panels.

“The customer has choice and may send energy back out to others, but even in urban environments they still probably need to move that energy around within the urban environments.”

In this context, says Mackenzie, “transmission and generation are becoming more and more commoditised. At some point in time it will be there more for a backup, or segmented needs.”

The position of Vector as a distribution company — downstream from those increasingly commoditised sectors — appears to be enabling the company to embrace the disruption.

“There’s a desire for more physical solutions — things like solar and batteries and the like — but I think one of the other sides is that we’re now seeing the convergence of transport coming into energy with electric vehicles, and that whole infrastructure to support that,” he says.

“Essentially, an electric vehicle could also be a mobile battery that you connect into your home, so we’ve got technology that enables that.”

And to complement the physical technologies being developed and deployed, Vector is heavily invested in software and digital innovation too. Data analytics is increasingly playing a role in how the company makes decisions, for example.

“We do a huge amount of work on data analytics, and we’ve worked really well and collaboratively with Auckland Council,” says Mackenzie. “We’ve got a huge amount of data and information with them.”

That includes layering data relating to housing construction and demographic trends with behavioural economics insights to generate predictions about future energy and transport usage.

Mackenzie says this unlocks “latent capacity” in the market currently; getting more usage hours for less, without necessarily needing to construct new hardware assets.

Similarly, giving customers the ability to optimise their energy usage by controlling devices from their mobile phones is another way Vector are hoping to use technology to access efficiencies.

“That’s all centred around de-complicating,” says Mackenzie. “Because we don’t believe customers want to be computer programmers to run their energy lives.”

“That sophistication now of being able to co-ordinate and optimise everything, we can provide through technology that we’re utilising.”

“That means there will be a lot more customers with those types of solutions either in their homes or on their roofs. Or they could be connected through other community initiatives such as peer-to-peer trading, or a school might have solar and battery in it that’s not used in the weekends or holidays — so then how does that get shared with communities?”

“The way we see the overall picture is Auckland becomes more and more self-sufficient, so the remote transmission and generation becomes more of a backup in the long-run, and more of a security layer, as opposed to the primary.”

Mackenzie says this vision is one in which Auckland is also a more resilient city, no longer dependent on remote transmission.

Interestingly, Vector’s modelling predicts the primary climate change impact in Auckland to be more high wind events, meaning building resilience and continuity of supply is of heightened importance.

The company also wants to raise the awareness on how climate change will differentially impact New Zealand’s various areas — with some areas more susceptible to sea level rises, for example, than Auckland.

“From the modelling we’ve done, from the global research, we worry about the fact that things are changing a lot quicker than people think, and I think we need to raise the debate and awareness around New Zealand on that.”

A company target of net zero emissions by 2030 reflects that awareness.

Another example of how the company is looking to lead the community and shift attitudes about how energy can be generated, traded, and used is the project with Auckland Council to light the Harbour Bridge using smart energy technology.

From this coming Auckland Anniversary Weekend, the bridge will be lit by some 90,000 LED lights, utilising solar-generated energy, new battery technology, and peer-to-peer energy trading.

“We saw that as a great fit for us, because it’s really iconic,” says Mackenzie of the project.

“For us, it’s a representation of giving back to Auckland but also displaying how we see the future of energy.”

The bridge will have static ambient lighting on most nights, but can be programmed with dramatic animated displays for special events, such as Waitangi or Diwali or the America’s Cup. The intention is to have between 12 and 15 of these events over the first year.

Partnerships, collaboration, and cross-industry learnings underpin much of how Mackenzie discusses Vector’s strategy in this fast-changing industry.

The company has worked with companies such as LG Chem and Tesla to bring their energy storage products to New Zealand consumers, for example.

Though there is not a great deal that is fundamentally unique about the Auckland energy market and infrastructure, or the city from an environmental perspective, these are features that has made the city amenable to innovation.

“Auckland is of a large enough scale to be globally recognised as an international city,” explains Mackenzie. “It’s got a political and regulatory environment which is seen as pretty conducive to actually adopting these technologies.

“For some of the technology companies we work with, they see that as a real positive because it becomes a proving ground for what they want to deploy into markets which are going to be a lot slower to adopt.”

Adopting new technologies early is seen as vital given Auckland’s pace of growth.

“What we’ve found, is that using technology has enabled us to build a whole new layer of networks internationally — and it’s not all from the energy sector — a lot is from outside of the sector, or from adjacencies,” says Mackenzie.

“Although we are small on a global scale, the reality is that doing these deployments or adopting these technologies early is advantageous.

“If you’re not an early adopter, by the time technologies gain a lot of interest from other parties, you’ll end up falling right down the pecking order.”

Project Auckland: Partnerships for growth (NZ Herald)

Tim McCready talks Auckland, infrastructure, and Chinese investment with ICBC NZ chief executive Karen Hou.

You have been living in Auckland for a while now. How do you see its future?

Auckland is a beautiful, attractive city. I have been living here now for three years, and every year it becomes even better. There are signs of growth everywhere.

I have lived and worked in a lot of cities around the world, but Auckland stands out because although the city is relatively expansive and feels big, the actual population is very low.

This, combined with Auckland’s beautiful weather, climate, scenery and multi-cultural population makes it a wonderful place to live.

However, increasingly Auckland’s infrastructure is lacking. As Auckland has grown in population the infrastructure hasn’t kept up.

Auckland Council has tried very hard to meet people’s requirements. They have big plans to make the city more usable.

More apartments, hotels, transportation links and other infrastructure projects are underway.

As one example, the New Zealand International Convention Centre (NZICC) will greatly improve Auckland’s capacity to host world class conferences and exhibitions, which will provide yet another reason to attract people from all over the world.

But the key challenge is making sure the required infrastructure developments happen to ensure the city continues to remain as great as it is now into the future.

The new Finance Minister Grant Robertson is looking to the private sector to finance major transport and housing projects in Auckland.

Do you see an opportunity for Chinese investment?

For Auckland, the government or local government can’t possibly fund everything that is needed. For New Zealand to quickly see results from infrastructure projects, it will be important to use public-private partnerships (PPPs) to bring in significant investment alongside the funds of the government.

ICBC NZ has been shortlisted several times for recent infrastructure syndication loan tenders, and although we are yet to secure a successful deal, our team has become increasingly experienced in the local market.

It takes a lot of time and effort to prepare a bid, but our commitment to this shows our dedication to being involved in successful infrastructure project finance here.

Chinese investment presents a lot of opportunity for Auckland. Over the past few years, China has very quickly developed its infrastructure – in areas like energy, telecommunications and water, but also massive transportation projects that link the country together.

Where local enterprises in New Zealand are struggling to meet the infrastructure shortage, Chinese companies can help them to increase capital, access high quality materials, and reduce cost.

Are Public Private Partnerships popular in China?

Yes, one of the most popular PPP models used in China for delivering major infrastructure projects is called a BOT (build, operate, transfer). With this model, the government uses the private sector to design, build and run an infrastructure project. After a period of time the asset is transferred back to the government.

This structure relies on the private sector, but the government supports the private sector to help with regulatory hurdles and ensuring the repayment of the investment makes the project worthwhile.

As an example, when establishing a subway: the cost is designed from the outset, including how to repay the investment.

If there is not enough money to repay the investment through the subway alone, the government can help by using other developments associated with the subway – such as the related commercial areas – to go towards the repayment of the project.

That way, getting resources for infrastructure projects is easier because the risk of repayment is lowered.

Is ICBC’s client base actively looking to do deals here?

Yes. We have already helped Chinese companies come to New Zealand and understand the bidding process for projects. Although there have not been many successful bids, our Chinese customers are increasingly seeking out opportunities here.

ICBC is the largest bank in the world, and works with the best companies. This means we are able to ensure the highest standard of Chinese companies enter the market to help with infrastructure projects.

We have now been operating in New Zealand for four years. Over this time, we have progressed significantly – we have more than NZ$1.5b of assets in this market – mostly to local customers.

We’ve introduced new technologies and products such as an e-commerce platform to make it easier for New Zealand export companies to do business in China, and we help local companies connect with companies in China.

We also introduced a dual currency credit card, which can be used locally for New Zealand dollar transactions as well as in renminbi while in China, making visiting China more convenient. ICBC hopes that we can continue to increase the links between the two countries.

What can Auckland learn from China in terms of our mounting infrastructure projects?

China’s Government plays an important role in the country’s infrastructure. The government considers the future of the country, makes plans, and ensures projects are delivered quickly.

What people may not realise is that China has become very strong in construction, operating at an interna tional standard. As an example, Chinese companies have played a role in construction projects for the Singapore and Hong Kong subway.

To strengthen the local construction capability here, we need more labour and a lower cost of materials.

The use of Chinese companies can make the cost relatively lower than others due to labour, scale, and the cost of materials. At the same time, Chinese technology, management and safety are world-leading.

Should New Zealand take greater advantage of the skilled labour that China can provide?

Nearly everyone in the world wants to immigrate to New Zealand – for the reasons I outlined earlier.

This provides New Zealand with the rare opportunity to identify the particular skills that are most needed here, and get the right people to match.

For this reason, access to labour should not be a problem in this country. Rather than constricting the volume of people that can come and live here, New Zealand should look towards implementing a policy that will select the people that are needed.

The use of short-term and special visas can bring skilled workers in that can help with construction.

This type of visa is really helpful to fill the labour shortages and rapidly advance infrastructure projects.

China has some great inter-city transportation links, such as the line between Beijing and Tianjin that has cut travel time from three hours to around 30 minutes. Do you think Auckland can learn anything from this?

I think that in the long term, it will be good for New Zealand to be more evenly developed, and not just focused on one or two major cities.

Imagine if there was a high-speed train connecting Auckland and Hamilton – or other satellite cities. A short commute between the two cities would encourage people to spread out further, and reduce the housing, transport, and other infrastructure pressures that Auckland currently faces.

Many cities in China have – or are introducing – high speed rail networks to link them to neighbouring cities. Working with China can give access to not only capital and cost advantages, but also to innovation and experience in projects like these.

Project Auckland: Running the ruler over Auckland Mayor Phil Goff (NZ Herald)

It’s just over one year since Phil Goff became Mayor of Auckland after a stellar three decades long career in national politics. Tim McCready asked business leaders to rate how Goff is handling the job.

Heather Ash, Partner, Simpson Grierson: Overall the council is making good progress under Phil Goff’s leadership. My sense is he is working well with council officers and has a good structure around him.

In particular, the proposal for a regional fuel tax is a significant step forward, given the restrictions that local authorities face around alternative funding mechanisms.

Funding, or lack of, is the biggest constraint for the council. Mayor Goff understands the importance of investing in infrastructure – transport, water, etc – for unlocking issues like the housing shortage. New solutions will be needed to help pay for this investment.

A stronger relationship with Wellington will help create solutions for these strategic challenges. The dynamic on this front seems, as expected, to be in good shape. The new Government has a positive attitude to working with local government.

A big issue for the mayor, and council generally, is winning hearts and minds in the community. Progressing the big issues for the city, delivering a great service and keeping control of costs and rates is a major challenge.

For local government, managing the entire Auckland region post-amalgamation is challenging because people’s expectations on what councils do are very different.

Keeping the focus on the big picture and what’s best for the region will mean that local government (the wider Auckland Council group, including the CCOs) does deliver for the city – in particular making the strategic decisions needed to address challenges around growth, transport, infrastructure and housing.

Auckland is a stunning city geographically and has such great potential. It’s an exciting time to rise to these challenges as well as plan for the America’s Cup and Apec.

Kim Campbell, CEO, EMA: Auckland city is facing major challenges.

By 2036 its population is predicted to rise by almost 750,000. We’re already lagging behind in infrastructure investment by billions and that will only be exacerbated with the intensification allowed for under the Unitary Plan.

Furthermore, there continues to be a disconnect between where people live and work, both now and in the future, that will only add to current congestion woes.

Therefore, the mayor’s relationship with Wellington has been constructive and he has a functioning council. After all, he has been successful in convincing the new Coalition Government of the need for a regional petrol tax.

While we don’t necessarily see the petrol tax as a solution, we do know that transport is a major issue for businesses and residents of Auckland.

Our own research shows that the city loses at least $1.3 billion dollars a year in productivity.

The mayor and council in conjunction with Auckland Transport, the New Zealand Transport Agency and central Government must work in alignment on the how the roading and public transport networks will operate.

We need to address both short-term bottlenecks and long-term congestion issues that the city’s growing population will put increasing pressure on.

The funding mix is crucial, and Auckland business and residential ratepayers cannot be expected to pay more, unless they know what the network looks like and are confident it will reduce or manage congestion.

The cross-city tunnel has yet to have a major contract let and the Auckland Transport Alignment Plan (Atap) is still only a laundry list of projects being considered with no clear governance or pathway to completion.

Local body funding is an issue facing every council. In Auckland city’s case this is about growth.

The population growth and the growing pressure this puts on the infrastructure, housing, moving around the city and so forth, is a matter the mayor and council are only too aware of, I’m sure. Rates alone will never fund the investment required, and the council is limited in how much money it can borrow.

However, public private partnerships, infrastructure bonds or targeted rates (such as a congestion charge) all have a role to play to overcome investing in some of the significant big-ticket items the city faces. We would like to see these options being given more serious consideration.

I know the mayor has recognised the delays and other planning system issues residing within council but we have yet to see real evidence that lead times have reduced.

It has been a solid start but there is a tidal wave of issues including the America’s Cup and Apec which the city needs to be prepared for.

Tony Falkenstein, CEO, Just Water: The first year has been an opportunity to judge Phil Goff as a leader, and he has failed to lead. He is managing, but not leading this city.

If he was a business leader, taking on a company that was spending more than it was receiving, this would have been the first port of call to get those costs under control.

Something is wrong with the budget process when the mayor “was surprised” and did not realise that the number of executives earning over $200,000 had increased by 25 per cent in the past year.

Either the mayor isn’t getting meaningful information or the CEO is incompetent. Both of them, plus all councillors, should have been all over the staff salaries to see what could have been cut to get the foundation of the council in order.

This is the council’s largest expense, with a new mayor the staff would have been expecting change, and it didn’t happen.

People want to see “leaders” and the inaction over the first year has been disappointing, and a wasted opportunity. I do not see it happening under Phil Goff, as much as I like him as a person.

All we have seen are meaningless cuts, which have done so much to harm our city. If he had been able to reduce only five of the overpaid executives, it would mean our prestigious Art Gallery would not have to consider closing on one or more days a week.

There have been many of these pitiful cuts, which have been overall so small as a percentage of council spending, but so large in terms of those affected.

The mayor can talk about visions of the future, but a vision without a plan is just a dream.

Get the foundation right first, get rid of the shareholdings in the port and the airport, establish private/public partnerships for long term funding opportunities, and most of all get the organisation structure right to match the costs with income.

Graeme Stephens, CEO, SkyCity: I have had a number of positive interactions with Phil Goff and have found him to be highly energised, interested and engaged.

When it comes to translating some aspects of our discussions into action I think his team hits up against the somewhat cumbersome bureaucracy and the silos which dictate decision making in Auckland. The long process to get things done must be as frustrating for him as it can be for us.

Investment in infrastructure, transport and tourism are critical to ensure Auckland keeps pace with regional competitors.

Equally as important, however, is addressing the pressing issue of those with genuine social and financial needs that are not being met under the current system, particularly the homeless.

As a large ratepayer with a big footprint in the Auckland CBD, the decisions council makes strongly impact our business.

The disruption we’re seeing to the roading network is hurting us, as it is hurting many inner-city businesses, but we accept it is critical if we want a vibrant, competitive city in the future.

The council’s vision for a network of laneways, shared spaces and green corridors is also positive, and will ensure the city evolves and responds to community and business priorities.

Homelessness is an issue which requires partnerships from central government, local government, businesses and communities if any meaningful progress is to be made.

Following conversations with the mayor, SkyCity is considering how we can contribute.

Though it does feel as if the city is gaining momentum, with the CRL construction going ahead and the announcement of a regional fuel tax to fund projects like light rail connection between the CBD and the airport, there is still much more that needs to be done, and SkyCity is keen to play a part wherever possible.

Auckland needs major events to stimulate the local economy and promote the city. The New Zealand International Convention Centre will play a role, and SkyCity can and will do more, but the America’s Cup provides the mayor and council an enviable platform to cement Auckland’s place as a global city, for major events, leisure and business tourism, and investment.

Making sure this event is a huge success is critical.

 

Dynamic Business: Air New Zealand, Excellence in Governance (NZ Herald)

Air New Zealand has taken out the MinterEllisonRuddWatts Excellence in Governance award in 2017 in recognition of the company’s world-class track record and its emphasis on broad stakeholder management.

Air NZ has consistently been recognised for its excellence in governance — this is the company’s third appearance in this category at the Deloitte Top 200 awards.

Of particular note, is the seamless way in which the airline has managed board and CEO transitions through its robust succession planning processes.

Since the Government-backed recapitalisation of the national carrier in 2001, it has had just two chairmen: John Palmer (appointed in November 2001) and Tony Carter (appointed in December 2010).

In that time there have been three chief executives: Sir Ralph Norris — who came off the board in February 2002 to pilot Air NZ through a major rebuild following a near bankruptcy; Rob Fyfe — who brought marketing pizzazz to the role when he took up the CEO reins in 2005 following Norris’ move to Australia to become chief executive of Commonwealth Bank; and, Christopher Luxon, who became chief executive in early 2013 introducing a global management style to the airline.

Both Fyfe and Luxon were internal appointments who were thoroughly blooded by their predecessors before stepping up to the top job.

In September, former Prime Minister and Tourism Minister Sir John Key joined Carter and fellow members Jan Dawson (deputy chairman), Rob Jager, Linda Jenkinson, Jonathan Mason and Dame Therese Walsh on the board.

Air New Zealand was recently rated New Zealand’s most reputable company for the second year in a row.

The company has continued to sport outstanding financial results since it was named Company of the Year in the 2014 Deloitte Top 200 awards.

Both Carter (2014) and Luxon (2015) have taken out the top honours, for chairman and chief executive respectively, which is another testament to the company’s overall governance record.

It was recently nominated “Airline of the Year” by leading international aviation website AirlineRatings.com for the fifth consecutive year.

The Deloitte Top 200 judges said New Zealanders’ continued faith in Air NZ was a stellar reflection of the airline’s successful governance and the positive impact it has in the country.

They added: “Air New Zealand does the best job of broad stakeholder management. The company does an excellent job for the shareholders, but beyond that it really thinks about the country.”

Air New Zealand’s concern for its wider stakeholder group is evidenced by the airline’s annual sustainability report.

First published in 2015, this annual report tracks the company’s performance socially, economically and environmentally.

These three pillars are supported by six key focus areas — the airline’s people, the communities it operates within, carbon, nature and science, tourism, and trade and enterprise.

The judges remarked that the sustainability reports were a fantastic resource and said Air New Zealand is considered among the best in the country in this area.

The airline has formed a sustainability advisory panel, which includes British environmentalist Sir Jonathon Porritt, New Zealand entrepreneur and environmentalist Sir Rob Fenwick and US biofuels expert Suzanne Hunt.

The airline industry contributes around 2 to 4 per cent to global greenhouse gas emissions.

As part of the sustainability framework, Air NZ is committed to working closely with key regional stakeholders, collaborating and helping them to develop attractive tourism propositions.

An example of Air New Zealand’s work is in Northland where, with local tourism operators, the council and other stakeholders it created a “Summer of Safety” inflight safety video, which was complemented by other tourism marketing campaigns both in New Zealand and internationally.

The judges also noted that the airline’s board had applied best practice in a number of important areas — including its commitment to creating a diverse and inclusive workforce.

The airline says its workforce reflects its diverse customer base and helps it to better serve their needs.

The company also acknowledges that its diversity helps it to be more innovative, challenging traditional ways of thinking, and introduces fresh perspectives.

Air New Zealand has made strong progress in delivering on its diversity and inclusion objectives, focusing strongly on gender representation and growing the cultural capability and fluency of leaders.

The airline recently achieved 39 per cent female membership on its senior leadership team, and has committed to reaching 40 per cent by 2020.

It has established a women’s network around the country to coach and mentor women throughout the business.

Air New Zealand has also implemented other employee networks, including Young Professionals, Maori and Pacific Islands, Pride (LGBTQI) and an Asian employee network.

These have helped to promote a sense of community and belonging across different employee groups, and increase the visibility and awareness of its diverse workforce.

The judges commended Air New Zealand’s commitment to Maori language and culture.

The airline has placed an increased focus on making this a core part of its identify — reinforcing the company’s role as the national airline of New Zealand.

Air New Zealand provides executive coaching and intensive residential, marae-based workshops for members of the senior leadership team to help them to develop greater Maori fluency. The company has also established Maori ambassadors to promote Maori culture and language among all its employees.

Finalist: Abano Healthcare

Abano Healthcare received high praise from the judges for its successful business model and steadfast focus on growing shareholder returns while fending off disruptive hostile takeover offers.

The Abano board, led by chairman Trevor Janes is focused on growing its trans-Tasman dental group — which is benefiting from economies of scale and increasing market share.

The Top 200 judges were impressed with how the board and shareholders have backed the company, particularly in light of the hostile partial takeover bid from Healthcare Partners.

Janes is joined on the board by Pip Dunphy (deputy chair), Danny Chan, Murray Boyte, Dr Ginni Mansberg and Ted van Arkel.

“The board’s resistance to attempted takeover offers has resulted in shareholders continuing to receive growing returns,” the judges said.

In particular, they were impressed that the company has not been distracted while dealing with attempted takeovers, instead remaining focused on the business and implementing strategy.

They noted the successful transition of Richard Keys into the role of chief executive. Keys was previously the company’s chief operating officer and chief financial officer, and took up the role at the company’s 2015 annual meeting following Alan Clarke’s retirement.

The board undertook a considered process to identify the best and most capable person to fill the role. Under Keys’ leadership, Abano reported a record net profit after tax of $11.1 million for the 2017 financial year, enabling an increase in its full year dividend by 20 per cent on last year.

The judges also commended Abano Healthcare for its recent record dividend of 36 cents per share, and payment of $25 million in dividends over the past five years – an indication on why shareholders continue to back the company.

Finalist: Sanford

Sanford’s recognition as a finalist is the result of the freshness of strategy and a focus on broader considerations beyond the company’s commercial activity.

The directors are acutely aware the company’s future depends on its long-term sustainability. This commitment to rigorous management of environmental performance and sustainability across all areas of the business was commended by the Deloitte Top 200 judges.

They said: “Sanford is clearly transitioning strategy around their footprint and sustainability throughout the business to build a long-term business.”

The Sanford board chaired by independent director Paul Norling includes Liz Coutts, Bruce Goodfellow, Peter Goodfellow, Peter Kean and Rob McLeod.

Sanford has placed strong emphasis on offering meaningful opportunities for continual learning and development, setting a goal to maximise the prospects of all its people.

The company has acknowledged this is not an area that has previously been managed as effectively as it could, and has put in place management systems to make it a priority.

Sanford has made a commitment to improving the wellbeing of its employees, adopting the WorkWell programme developed by Toi Te Ora Public Health to support the development of a healthy working team.

Sanford’s annual report was referred to as “absolutely outstanding” by the judges. It includes a touching story from an employee, who credits turning her family’s health and lifestyle around following a visit to Sanford by a diabetes specialist.

The judges also commend Sanford’s very strong integrated reporting. The company has been recognised by the market for this — providing a balanced picture of their economic, environmental, and social performance; facilitating comparability, benchmarking and assessing performance; and addressing issues of concern to stakeholders

Dynamic Business: The value of seizing the moment (NZ Herald)

The forces and trends that shape the world are not always front of mind when running a business.

But in a world where trends are dramatically changing the way value is created, they form an important backdrop that all company strategy and planning should be considerate of.

Some of the most successful businesses over the past decade have prospered because they have managed to successfully navigate the challenges and opportunities these global forces bring with them.

Andrew Grant, Senior Partner (Asia-Pacific) at McKinsey and Company, says New Zealand is a small, nimble nation with an inherent ability to respond quickly to global forces.

“Over the years we have had many global trends working in our favour, but we’ve failed to respond fast enough to seize the moment and capture the opportunity,” he says.

McKinsey uses the metaphor of a crucible for these forces — “a place or situation in which concentrated forces interact to cause or influence change or development,” and segments these “crucibles” into global growth shifts, accelerating industry disruption, and a new societal deal.

Some, like cybersecurity, geopolitics, and the rapid invasion of technology are already front of mind for executives and the boardroom.

Others, though not so obvious, are just as important to consider.

No one can know for sure what the future will look like. But businesses — both old and new — that grapple with these crucibles and question the assumptions of their business model, can expect to compete more effectively in the increasingly disruptive world we have found ourselves in.

1. Beyond Globalisation

Globalisation as we have known it — and as New Zealand has greatly benefited from — is going to change.

Donald Trump, Brexit, Jeremy Corbyn, TPP: the results of recent elections and referendums worldwide can be attributed to a growing sense of disillusionment, anti-globalisation and protectionism.

Traditional measures of globalisation are also slowing. Trade growth over the past decade has been half of that in the late 1990s and early 2000s.

Following the global financial crisis in 2008-2009, global capital flows as a percentage of GDP dropped dramatically — and have not returned to pre-crisis levels.

Despite this, many argue globalisation has accelerated — but it is taking place in different forms: cross-border data flows are increasing at rates approaching 50 times of those in 2005; the McKinsey Global Institute estimates there are now 914 million social networking users with at least one foreign connection.

The world now has 429 million international travellers, 361 million cross-border e-commerce shoppers, and 244 million people that live outside their home country.

Competing with the increasing number of global players means maintaining a local touch is increasingly important for companies. Rising tension between technology firms in China and the rest of the world is creating a gulf that will be an important factor shaping the future of global tech innovation.

The New York Times’ Farhad Manjoo explains: “You can be Alibaba or you can be Amazon. You can be Uber or you can be Didi. But you can’t be both.”

2. ICASA Factor

Brazil, Russia, India and China (or the “BRIC economies”) are four major emerging national economies postulated by Goldman Sachs in 2001 to become among the four most dominant economies by the year 2050 and the biggest drivers for future global growth.

But more than 85 per cent of the growth from the BRIC economies came from China.

McKinsey proposes that ICASA — India, China, Africa and Southeast Asia — will become the dominant force, primarily because the greatest growth engine has been urbanisation.

At the same time, these regions present some of the biggest risks to global growth, as they struggle to deal with internal obstacles including sustainable urbanisation, increasing productivity, mobilising domestic resources and deepening regional integration.

3. Resources (Un)limited?

As the world’s population approaches 9 billion, there is growing urbanisation which brings with it a rapidly increasing demand for resources. This includes a dramatic increase in the demand for protein, consumption of oil and gas, fresh water, and synthetic and natural fibre.

Yet advances in analytics, automation, the Internet of Things and material science are reducing resource consumption in other areas.

McKinsey and Bloomberg have estimated advanced mobility systems — including self-driving cars, ride-sharing, and electric vehicles — could yield US$600 billion (NZ$880b) in societal benefits through to 2030, by cutting the costs of traffic congestion (about 1 per cent of GDP globally), road accidents (1.25 million deaths in 2015), and air pollution (health problems like respiratory ailments).

In other sectors, algorithms are helping optimise and predict energy use, enhanced oil recovery is transforming resource production, and innovative new materials are helping reduce resource use. Demand for resources is growing, but innovation and technology provide the opportunity for the world to be more efficient with what we have.

4. Technology Invasion

Technology change is happening continuously. But Grant believes we are underestimating the scale and the pace at which technology is evolving and will shape business. “People don’t quite understand how profound and how long the journey is going to be.

“The ubiquity of technologies and the ability to roll it out globally is making new advances far more impactful than ever before.”

We’re seeing rapid innovation in areas where families of technologies are coming together.

The smartphone brought the touchscreen, applications, CPU, LCD displays, wireless connectivity, and lithium-ion battery technology together with advances in miniaturisation.

The development of the autonomous car is combining video cameras, presence sensors, Radar, Lidar, GPS and CPU technology. Instead of linear step changes, we can expect to see combinations of technologies make the scale of change much more powerful.

5. Customer-to-Business

B2C (business to consumer) and B2B (business to business) have long been commonplace, but digitalisation and new business models are giving consumers the ability to shape goods and services, often receiving free access to what would once have been paid for.

Alibaba’s founder and executive chairman, Jack Ma, declared the start of C2B, or consumer to business, open several years ago.

Rapidly growing Chinese mobile manufacturer Xiaomi uses crowd-sourcing to engage with consumers for fast, first-hand feedback on its products. Grant says Xiaomi is becoming representative of where the business world will need to position itself for the future.

Customers are increasingly dictating the terms of what they need (and what they want) directly to companies and the Internet is providing the ability for this to occur as never before. Consumers have an ever-increasing choice, and companies must make decisions about their product offering and which business models they should use to continue to create value.

6. Ecosystem Battles

Five of the 10 largest companies in the United States are platform-oriented. Airbnb now has four million listings globally, more than the top five hotel brands combined.

The company says “on any given night, two million people are staying in other people’s homes around the world on Airbnb”. Uber might be the world’s largest taxi firm, but it doesn’t own its cars. Neither of these companies existed 10 years ago.

Alibaba — the world’s largest retailer — moved NZ$37b (US$25.3b) worth of stock during its November 11 extravaganza, but doesn’t own warehouses to store the eye-watering quantity of products sold through its platforms.

These platforms offer business models that can be enormously disruptive in the way they shape the world, and are shaking up industries that were immune from significant competition in the past.

7. Dealing with the Dark Side

Cybersecurity has become a trillion-dollar issue. Grant says boards of Fortune 500 companies are now spending about 15 per cent of their boardroom agenda on cybersecurity.

The Herald’s Mood of the Boardroom in September revealed that New Zealand’s executives are highly concerned about the threat, with 67 per cent of respondents now doing significantly more to combat cybercrime and 30 per cent doing more “in a modest way”.

Previous Mood of the Boardroom reports suggest a clear — and rapid — trend: in the 2015 survey, cyber crime rated 5.9/10 in terms of impact on business confidence. Last year it became the top issue at 7.16/10, and this year it sat head and shoulders above other issues, with an impact rating of 7.64/10.

Alongside cybersecurity, McKinsey estimates that 81 per cent of executives worldwide single out geostrategic factors as the top risk to growth.

Examples of the severity geopolitics can have on business include:

  • A 4.5 million shortfall of Russian tourists as a result of the ban on agency tours to Turkey in retaliation for shooting down a Russian warplane.
  • 120,000 tonnes of Norwegian trout and salmon have been banned from Russian markets in retaliation for EU and US sanctions over the Ukraine crisis.
  • 16 per cent of London properties listed online have had their price cut after the UK referendum to leave the European Union.
  • 500 direct daily flights were halted in the Middle East as a result of the diplomatic stand-off between Saudi Arabia, Iran and Qatar.

8. Growth Formula Experiments

There is no shared narrative on why economic growth is stuck. Is the problem in developed economies a supply problem or is it a demand issue?

Monetary easing, a universal basic income, and debt mutualisation are among the suggestions on how to restart growth. There is extraordinary experimentation going on, but no consensus.

Grant says solutions will not be singularly political. They will require business, civil society, and the political arena to come together.

“Some interesting insights are coming from Denmark, Switzerland, Finland, Israel, Singapore… I think New Zealand has a real opportunity to lead on this,” he says.

9. Middle-class Progress

The benefits of globalisation have not been distributed evenly. Alhough globally the middle-class have done well, those in advanced nations have missed out.

This has created a widening of earnings disparity, and has been blamed for the increasingly negative view towards immigration, the status quo, and trade deals that appear to favour the boardroom over the workers.

Much disillusionment has been blamed on, and exploited by, politicians, but trust has become a critical flashpoint that companies must address and build back to ensure long-term, sustainable businesses.

Sources: Presentation by Andrew Grant — A new narrative of progress? Major Macro Trends Shaping our Region — to the 2017 Infinz conference; McKinsey report — The global forces inspiring a new narrative of progress.

Phil Goff extends alliance with Guangzhou, Los Angeles (NZ Herald)

Auckland Mayor Phil Goff has signed an agreement with Guangzhou Mayor Wen Guohui and Los Angeles Deputy Mayor Jeff Gorell to extend the alliance between their three cities for another three years.

The third and final Tripartite Economic Summit took place in Guangzhou last week.
Los Angeles, Guangzhou, and Auckland are sister city triplets, and the past three years has seen the Summit rotate between the three ‘gateway cities’ – previously in Los Angeles in 2015 and Auckland last year.

The 97 Auckland delegates represented 70 businesses including tourism, urban planning and design, bioscience, creative, digital and education.

Auckland Council says this has been the largest ever trade delegation to come out of the city noting that business delegates all paid their own way to attend.

Goff – who signed the free trade deal between New Zealand and China during his period as Labour’s Trade Minister – said , “If like me you’ve been coming here for 30 years, you can appreciate just how quickly, how dramatically, how strongly this country has grown.”

“When I came to Guangzhou in the 1980s I travelled by steam engine on the rail. Today, we see a nation that has progressed more quickly and further than any nation I can recall in history.”

Now, Guangzhou is China’s third largest city, contains seemingly endless skyscrapers, and is considered a manufacturing and commercial hub. Although it may not always be the first city companies have in mind when they consider entering China, it has been consistently ranked as by Forbes magazine as the best commercial city in mainland China when considering ease of doing business, talent, location, and international connectivity. Many delegates left the Summit noting that Guangzhou may be a more accessible market for their business than the more recognised larger markets of Shanghai and Beijing.

New Zealand can tend to overuse the phrase “punching above its weight,” but in this sibling rivalry we indisputably are. Auckland’s population of 1.5 million is dwarfed by Guangzhou’s 14 million. Auckland’s estimated GDP of NZ$93.5 billion could be considered a mere rounding error when compared with Los Angeles’ over US$1 trillion.

Yet Auckland’s 97 delegates were met with around 500 others from Los Angeles and Guangzhou that saw value in making connections and seeking out opportunities to collaborate.

The biomedicine and health forum was an example of these collaborations, co-organised by Auckland’s Maurice Wilkins Centre – New Zealand’s Centre for Research Excellence targeting major human diseases – and the Guangzhou Institute of Biomedicine and Health (GIBH), part of the prestigious Chinese Academy of Sciences.

The Maurice Wilkins Centre has been working closely with its Chinese counterparts since 2012, establishing a joint centre for biomedicine with the Guangzhou institute in 2015. The two research arms are now expanding their relationship with new projects, joint symposia in both countries, and increased exchange of staff and students.

“GIBH is one of China’s leading biomedical research groups and hosts many world leaders in their fields,” says Professor Rod Dunbar, Director of the Maurice Wilkins Centre.

“We are delighted that our colleagues in GIBH see such value in intensifying our collaboration, and look forward to working with them to deliver new treatments through the clinic.”

Businesses took part in business matching, sector specific sessions and forums, and a visit to tech giant Huawei’s nearby Shenzhen campus.

While New Zealand can be blasé about our mayors and local Councillors, in China they are considered almost like celebrities. It is for that reason that many of the Auckland business delegates considered the high-level representation to have helped connect them to significant players within companies that they would not have otherwise had access to. While the primary aim of the Summit is to build connections for the long-term outcomes that can eventuate, ATEED has said that several companies have made excellent progress at this year’s Summit.

The Council will track and report on the business outcomes of the Tripartite Summit where possible.

– Tim McCready travelled to China as a guest of Alibaba.