Entertainers celebrate Chinese Lunar New Year. Despite geo-political tensions, a number of ASX small caps say plenty business opportunities are still on the table. (Pic: Getty)
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Ask almost any ASX company or investor, and they’re likely to tout the benefits of a viable sales strategy into the Chinese market.
And despite the complexities 2020 has thrown up — COVID-19, increased geopolitical tension — a number of ASX small caps have been busy laying the groundwork for a viable long-term China strategy.
Speaking with Stockhead on the current backdrop, Roolife (ASX:RLG) CEO Bryan Carr noted the increased tit-for-tat at the government level.
“But I think you’ve also got to balance that with the reality, which is that China still needs the products Australia sells,” Carr said.
Some products — notably coal and wine exports — have been subject to potential restrictions in recent months amid ongoing trade tensions.
However, “the reality is Chinese consumers want products from outside China”, Carr said. “And in our experience, the impact of COVID-19 has driven even more desire for Chinese consumers to look abroad.”
In that context, the business opportunity for Australian brands (ex-resources) has been well established; leveraging the country’s reputation among Chinese consumers as a premium producer in sectors such as food, agriculture and healthcare.
And Carr says for Roolife — a digital marketing company with a focus on Australia and China — that narrative is still very much in play.
“COVID’s obviously pushed people online, and we’ve seen an uplift in the areas we’re focused on in terms of health and well being,” he said.
“So we’ve actually been able to leverage off the regard Australia is held in for those reasons. It’s still viewed as a healthy, safe, high-quality country and producer.”
Carr cited an interesting case study from French food giant Danone, which sells one of its product lines out of France “but that same product ships through Australia — and that’s the product that’s in demand from Chinese consumers, because of the Australian connection”.
It’s a similar story for listed retailer AuMake (ASX:AU8), which is in the process of pivoting from a physical retail presence aimed at the Asian tourist market to a stronger online presence.
Executive chairman Keong Chan told Stockhead the shift was partly in response to the “new normal” post-pandemic. But within the context of an ecommerce boom, the China opportunity shouldn’t be ignored.
“I don’t think Australian and New Zealand brands really understand how much they will be a part of this in the future,” Chan said.
“Australian brands are still very strong in the Chinese mind and Asian consumers more broadly, and it’s important people don’t lose sight of that. Right now there’s some commentary that may be diminishing, but I can say I’m pretty confident that’s not the case.”
Star Combo Pharma (ASX:S66) CEO Su Zhang agrees, and says she expects China will remain a key piece of the health supplement company’s global distribution strategy.
“China is a very big market and if you don’t have a China strategy in your business in some way or form, in essence I think it’s a huge miss in terms of future business growth,” Zhang told Stockhead.
“So we need to acknowledge that from a business point of view. For us it’s about sustainability, it’s not a short-term spike. For us it’s about building a long-term strategy and putting the right kind of strategic partnerships in place.”
For ASX small caps with a digital China strategy, one theme that emerged is material differences in shopping behaviour among Chinese consumers.
“Chinese markets and Chinese consumers think differently to western shoppers, so it’s important not to take western thinking, translate it and expect success over there,” Roolife’s Carr says.
Chan said that in the process of choosing a distribution partner and building out its platform, AuMake also conducted some “really deep research” into the Chinese market.
“There are some key trends, particularly around the way brands use social networks to target younger demographics, and that market has developed very quickly,” he said.
“The social ecommerce aspect in China is way advanced to the west,” Carr added.
“People look for endorsement and they’ll do a lot of research into a company or product. They want to know the history, what’s different and why they should buy it.”
On that front, Carr said live streaming was a huge way of selling in China, where someone with a trusted following would present and endorse products, and people would buy in real time.
“Most western consumers have already validated a product they’re looking at online, so it becomes a price decision,” he said.
“So there’s different approaches, and that’s part of what we do — position and market and present western products to meet the requirements of the Chinese market.”
In addition to market research, it helps to have some local knowledge and boots on the ground when it comes to distribution.
In that sense, China isn’t really that different to other international markets for ASX companies with global aspirations. And all of the companies we spoke to have made it a priority.
Zhang cited the $33.3m investment Star Combo Pharma received from Chinese partner Goldenmax in May, which saw the Shenzhen-listed company come aboard as a strategic backer with a 36.1 per cent stake in the company.
“We started the conversation (with Goldenmax) towards the end of last year, well before COVID-19,” she said.
“So there was a long due diligence process. Their core operations are in computer hardware so it’s something they’ve given a lot of consideration to over the past couple of years, and they’ve made the decision to move into the health and wellness space.”
Chan added that in choosing a tech partner to drive its online strategy, the AuMake team must’ve interviewed “at least 30 different companies in China and Australia to see if they could help us build this platform”.
Late last month the company chose Shenzhen Jiezhou Technology Co, which in turn is part-owned by Ant Group — the payments giant controlled by Alibaba chairman Jack Ma which is expected to list publicly later this year.
“If you look at the Chinese market, consumers are really leveraging social networks and ecommerce in a different way,” Chan said.
“So I think now we’re working with a tech partner that not only knows the stakes but in some ways is leading the field due to that backing from Ant Group.”
In a similar way, Carr said Roolife also operated with a network of local experts as part of its China distribution strategy.
“Our partners typically have four to five years’ experience in the Chinese ecommerce space, which really makes them industry veterans in this space,” he said.
He added that heading into FY21, the company was now in a position to benefit from its track record of successfully taking brands into China.
“We find one of the best selling points for us comes from our existing clients who act as referees and references,” Carr said.
“To be frank I’m yet to meet a business that doesn’t want to sell into China.
“They either don’t know how, haven’t tried before or failed. But they still have a desire to access that huge online market — they’re just looking for the right partner to do it with.”
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