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Following on from the “is food too cheap” blog, I did speak to the farmer involved and let him know that his comment had received a great deal of interest online and the power of social media was responding to his thoughts, he did look a little confused by it all.
Moving on from that I’ve been talking to lots of people over the last few weeks following David Cameron’s visit to China about the opportunity for Great British food to make a greater presence in Asia and, in particular, in the Chinese market as there is a lot in the news right now regarding large retail businesses jostling for position. Were this to be the case and there are early signs that it will be, what would be the impact over here and more importantly for us, the position for the professional interim manager. Surely there must be a commercial angle to be explored on behalf of British and European food manufacturing that in the short term would offer real opportunity.
My own gut feel on this would be that Interims with experience of setting up JV’s, and those with international commercial due diligence experience need to dust off their passport and prepare to take flight. We haven’t got a mandate as yet for this experience but with the recent explosion of British brands across the board there and the westernisation of their eating and drinking culture this has to be an opportunity to explore beyond the brands with the established global presence? Clearly there’s a great deal to take into account to make this happen. It’s already happening in retail, food and non food, that much we already know.
I’d be keen to hear your thoughts as this is just a gut feel on what’s around the corner for us in food. If there is to be a move, what are the products to watch and what are the timescales. If you’ve not commented on a blog before, then jump in and get involved.
Simon Gough is a Director and Head of FMCG at Interim Partners.
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November 24th, 2010 at 5:18 pm
In response to Simon’s thoughts on the potential future business developments in China.
Firstly, dealing with the westernisation. This continues to explode in luxury brands, branded alcoholic drinks inclued, as wealth is created in the big cities. However, I do not believe this will migrate to food tastes. It will remain Chinese, perhaps with the exception of fast food. I dont know about the economics of exporting food products eg meat, cereals, vegetables etc. but I would have thought the UK is not in a position to compete on this front.
In terms of the labour market. The migration of UK expats to China from the UK has continued to increase. What’s not so evident is the nature of the employment terms – long term contracts or permanent moves. I have observed recently interim jobs posted for finance professionals, with the requirement to speak Mandarin. So a niche labour market
I agree with Simon, there should be demand for M&A skills, due diligence and experience of managing JV’s as collaboration and cross shareholdings between Chinese and UK companies continues to grow.
November 24th, 2010 at 7:33 pm
Having spent some time over in China over the past few months I would concur with Simon. However, the UK/Western businesses are still behind the curve ball in regards to the opportunities in China and countries in Asia have made significant inroads into the region. Key challenges in China are not much different from when I was there 10 years ago: culture, language, red-tape and time, but all of these are surmountable but we need to play catch up fast. From a purely interim perspective I attended a number of events while I was in China and spoke about interims and what they provide, it was fairly alien and if we are to crack it I think that the length of assignment will be 1 year plus, rates will be an issue and providers and interims need to be very open with each other. China is a beautiful country but not an easy place to work and not an easy culture to engage with but the market is huge and continues to grow.
November 24th, 2010 at 8:16 pm
Hi Simon
I read your article with interest and you raise very important questions on a number of wide ranging issues re opportunities and I would like to start by refering back to basics.
There are enterprises large and small providing employment, adding value and making a profit from the supply of food protein to the nation;
> farmers & fishermen
> haulage & distribution
> food processing
> food packaging
> retailers, high street shops & fast food outlets etc
> advertising & media
The added value in the price of food products is mainly dictated by advertising, branding, presentation, packaging plus added value ingredients to accompany nature’s basic product offering.
A major factor in the UK food supply model is the culture of convenience food with price breaks determined largely by branding and presentation. There is very little by way of daily village or town markets selling fresh produce because the farming sector is highly geared towards volume and specialisation in supplying food manufacturing processors.
The opportunities to repeat this model in France, for example, are not similiar because there is a culture of daily markets in towns and cities offering fresh produce and a more significant role carried out by localised farmers co operatives. France has seen a big increase in household disposable income over the last 25 years and this has been a major factor in the increase of convenience food including the growth of Supermarche etc and the introduction of MacDonalds over the last 25 years but not to the same extent as in the UK.
How can Food UK provide and receive a contribution in the Chinese market?
The areas of added value in the UK model include techniques in processing, distribution & storage, packaging, shelf life enhancement, added value ingredients and selling, marketing, branding & advertising.
I think the opportunity will be in finding those areas in the current Chinese market where the UK knowledge based added value processes can be introduced with a willing partner in the local market.
A key commercial point to bear in mind in the sharing of intellectual property and technical know how with any new partner will be the territories and markets in which the new enterprise or joint venture will trade. It is also important to protect and the ultimate ownership of the intellectual property and technical know how in the event of a future change of ownership of such a venture.
Addendum:
The question as to whether it is worthwhile producing food products in the UK for export to China in significant quantities involves challenges in food safety and transportation which in most cases will deem it uneconomic.
I would welcome feedback on the above.
Frank Cullen
November 25th, 2010 at 8:37 am
Your comments reflect a sound commercial and proactive approach that we need to adopt Simon.
If it helps, based on my experience with a couple of FTSE100 FMCG’s, (one in the drinks business and the other in both, food and household products), both have targeted APAC (China in particular) as the highest growth market for the next five years. Within the drinks business it is the spirits division that is forecasting double digit sales growth for their products in that market. The second company is in fact targeting its non food items as the ones that are going to take off and is in fact quite conservative as far as their food related products are concerned. A whole host of factors / reasons have been advanced for this approach and I would be happy to provide the details offline to you or anyone interested.
You are absolutely right in terms of your thoughts around JV’s / international commercial due diligence etc. As with any of these markets, language skills generally play an important part too and should not be discounted…..
November 25th, 2010 at 9:24 am
Speaking from the perspective of working within the food industry for the last 15+ years, including developing businesses in China for the likes of United Biscuits and Kraft, I think there will be limited new entrants from UK food into China. The time horizons for generating positive cash flows are very long and will put many companies off. And ultimately whilst growth is there, the cost of capturing it is too great for any but the multinationals – and they are already there. Much of British food innovation n the past 10-20 years has been in chilled channels and the reliability of the Chinese chill chain to support these products is inadequate and will remain so for many years.
However the exception to this will be if Chinese companies acquire British businesses, they will use the acquisitions to push brands and products back to China. And this model will be true for Indian companies too. The big IF here is whether there will be acquisitions of British brands – Bright Foods interest in UB was well publicised, but ultimately came to nought.
November 25th, 2010 at 10:11 am
Thanks for the comments so far. I dont expect there to be anything happening on the chilled side of the fence as the infrastructure just isnt in place but its the ambient side that offers the opportunity in the form of 3rd party manufacture. I dont expect boat loads of biscuits to be heading there anytime soon.
If the tastes have been changing toward McDonalds, soft drinks, confectionary etc then with the latest trade drive for the government this opens a window of opportunity to explore. We did a project looking at at a JV for a Cereal business wanting to produce in Russia 18 months ago, due dilligence, quality checking etc. Its this kind of opportunity I can see in Asia, the export of the brand, not the physical product.
Just a thought.
November 25th, 2010 at 11:14 am
Robert clearly has experience in this area so I suspect he has captured the main issues. However, I do know of one UK chilled food company that has bought a small Chinese produce business as a platform for supplying the rapidly growing fast food sector. Access to this market area can be through European partnerships and products have a common, global format. I believe their results to date have been positive. Similarly, I know of a UK food engineering company involved in the construction of a giant centralised institutional meal operation in Russia. I am sure there will be other examples.
As China develops and disposable incomes increase there will be lifestyle changes and an increase in ‘aspirational tastes’ for luxury and western products. Food is sure to feature in this.
November 25th, 2010 at 2:30 pm
My experience in these markets relates more to healthcare / personal products where we are also starting to see the hopes of past turning into more substantial opportunities. The challenge from my point of view is that majority of projects that I have dealt with in territories like China (and India in last couple of years) have been relatively modest and handled in house supported by locally based specialists/consultants. Hopefully that will change as more substantial opportunities happen, requiring need for immediate experienced external support to negotiate , structure and co-ordinate specific opportunities.
November 25th, 2010 at 4:45 pm
No arguments that China represents a large and growing consumer market embracing parts of the Western culture – music,clothes, fast food. But and it’s a big but – traditional food tastes are not British [look at what Tesco stock ]and it is a very difficult place for a westerner to come to terms with.
Multinational food companies are considering their positions but with a wealth of internal talent I suspect that start-up project management will be from within.So not such an obvious place for interims although I am sure some opportunities will inevitably arise.
November 27th, 2010 at 9:26 am
There was an article on doing business with China in yesterday’s Telegraph titled ‘Use politeness, patience and persistence to cut it in China’.
I’ve also been doing a bit of research and discovered that ABF, for their 08/09 year, employed 10,000 people in China with sales at 5.6 billion RMB (1RMB = £0.1 at today’s rates). ABF have established more than 50 legal entities stretching up the western side of China. They are obviously the masters of patience and persistence!
November 28th, 2010 at 8:52 pm
Simon,
I like the fact that you are approaching this issue about opportunities in China. As far as there is a swift of economic and political power from developed countries to China and other emerging countries, so Europe, if it wants to survive, will have to pay more attention to the countries where the future growth is, which means promoting and placing resources on those high growth countries instead of their own areas. China is progressing very rapidly in all terms, including education and management skills, nonetheless, I think is still a high need of human talent there.
We are in a global economy and, as such, I think that we, as professionals, are obliged to recognise the fact that where the good professional opportunities are is on those countries with high prospects.
Western economies are too mature and the current crisis has put them with high deficits, high unemployment and low growth.
Under these conditions it would be a short-sight vision to develop a strategy for low growth areas instead of thinking on those high growth areas.
From the point of view of interim opportunities I agree with you that M&A skills, due diligence experience and managing of JV’s can be areas on demand, nonetheless I would also include, in order to be successful, the interchange of experience, for the purpose of a better understanding, in all the fuctions and areas related to the core competences that are driven a specific company.
Jesus Lozano
November 29th, 2010 at 11:59 am
Simon I think you are right re opportunities in emerging markets (not just China) in general, however I am sure you are aware of the melamine cross contamination in baby milk which killed a number of infants, or the petfood issue which killed 100’s of pets in the US – as with any major opportunity comes a degree of risk, plus the greater the opportunity the more people (some more scrupulous than others) want a slice. The major challenge is not the DD element but post contract maintenance of the agreement and ongoing adherence to standards.
November 29th, 2010 at 12:03 pm
Finlay, That’s an interesting stat regarding ABF. Did it mention of the 50 legal entities, how many were in the food space. I’m conscious that they will manufacture a great deal in China for their Primark retail business so wonder if that sucks a great deal up??
December 3rd, 2010 at 3:20 pm
Tim Jolly says: From my experience of working in Hong Kong and China I do not believe that any western European food Retailer would consider exporting their format to Asia. Asia is a very complicated region to crack. The cultural differences are marked, for example Chinese wet markets are a part of everyday life where food is so fresh it’s alive and killed in front of the consumer and the high rise cities are heavily populated with extended families living in limited space so family food shopping is often carried out by grandparents 3 times per day. Going it alone is extremely difficult. JV’s are the way forward (even the strongest brands such as MacDonalds have JV’s) but care must be taken regarding the partnership. The JV route gets you through the complications of site finding, human resources and of course the way each region does its business. Companies like Tesco and Carrefour have been in the region for years setting up buying offices and JV’s which connect them with the right people and allows them to move forward. Finally I would say the western internal business practices are also hard to export, for example the control of cash and scheduling are completely different in Asia.
December 4th, 2010 at 7:35 pm
China is likely to dominate everything for the foreseeable future and as it opens up culturally, will adopt more Western tastes. The leading edge of this might well be food & drink. After all didn’t we do the same thing with Chinese & Indian food in the UK 40 years ago?.
I think interims can add value in China in food quality and safety. Partly because these are the two areas most likely to be difficult for local businesses to control though auditable management systems, and partly because of corruption. Remember the baby milk scandal in China recently?
It also might be as well for Interims to understand IP law, or whatever is the current state of evolution of the Chinese legislation. Fake and forged products abound, so the better your marketing and quality is, the more attractive it is to copiers. Or, and this is a true case, the forger lodges a patent or product registration, and low and behold, your company is the one who is doing the copying:)
December 13th, 2010 at 3:08 pm
Simon,
I read with interest your article on the Year of Export and the oppotunities for UK Food companies and China in particular. Certainly having lived in China between 1998 and 2000 and having recently visited there has been a step change in the availability of foreign(western) foods. Some such as Unilever, Mars and Nestle are JVs with local production but I was surprised by the variety of imported brands. This leads me to my point. The immediate opportunity for many UK consumer goods in China and the balance of emerging markets(China may be the biggest but can be the toughest to enter) may to to have a stonger “export” strategy before thinking of JVs. The barrier is many companies see “export” as opportunistic, a way to close annual sales gaps and staff accordingly. There is a major opportunity for interims but it may be as much as driving credible and sustainable export strategies as in managing JVs. That strategy would encompass finding the right partners willing to invest in driving distribution versus importation, pragmatic consumer understanding and executing comprehensive consumer and shopper plans.