Got a winning offer for EU? Get your skates on
Mike O’Donnell Opinon Mike O’Donnell is a professional director, writer and strategy adviser, and a regular opinion contributor. He is also chairperson of Garage Project Brewery and deputy chairperson of NZTE.
Taiwan’s election in the co: I caught up with an old staff member for a beer last week. Sam worked for me a long time ago in an ecommerce company. She was one of those business development people who’s half sweetheart and half terrier.
A great mix if you are trying to convert sales. She’s just moved into a general managers role in a new company and wanted some advice about decent strategy books to read.
Like most greybeards, I’ve got a few that tend to be my go-to resources. Collins and Rukstad’s classic Can You Say What Your Strategy Is?, Reeves’ Your Strategy Needs A Strategy, and Roger Martin’s Where To Play and How To Win.
The Martin book came to mind this week with the news that the European Parliament voted to approve the New Zealand-European Union free trade agreement (FTA). A huge event at a time when any form of rules-based international order is under significant stress.
While we still need to ratify the agreement, it’s great news for our 12,000 exporting companies. It will provide those companies with duty-free access across 97% of New Zealand’s trade to the European Union (EU).
The EU is already New Zealand’s fourth largest trading partner, with two-way trade in goods and services hitting $20.2 billion last year. Now that importance is going to ramp up.
Economic modelling suggests that by 2035 the NZ-EU FTA could increase export to the EU by up to $1.8b per year and generate an extra $1.4b to annual GDP.
It’s not just the revenue, it’s the costs as well. Based on current export volumes, exporters will save around $100 million per year on tariff elimination.
Getting specific, kiwifruit, onions, apples and other horticulture products will enter the EU tariff-free from day one. Wine and manuka honey also. Likewise, my beloved beer hops.
Tariffs on 99% of fish, and mussels, squid and other shellfish will be eliminated from day one, moving to 100% over time.
Manufactured products are also winners with almost all tariffs eliminated on day one. There’s also good news for butter, cheese, beef and sheep meat.
There’s also a Māori Trade and Economic Co-operation Chapter to advance Māori trade interests in the EU.
All of is which is great, but so what, I hear you saying?
For businesses that are already exporting to the EU, this is an opportunity for them to grow presence and profits.
For businesses that aren’t exporting to Europe, the FTA might make the numbers stack up. If they do, then now is the time to start preparations for entry and understanding what benefits apply and what gotchas are waiting for the unsuspecting.
The first gotcha is understanding that the existing United Kingdom and new EU FTAs don’t add up to a single free trade zone. We’re not headed back to a pre-Brexit world. You’ll still need to consider issues around moving goods between these two separate markets.
Another risk is the impact of leaving it to your European import partner (if you have one).
You should learn about what the changes mean for your export operations, including tariff removals.
This will pay off better than having your distributor just using the reduction to lower your prices, which can erode your brand or market position, or simply allow them to pocket your tariff reduction as margin.
Lastly, you need to be right across current and emerging sustainability requirements.
The Green Deal framework means that products sold in Europe need to meet much higher sustainability standards. Exporters should be thinking about accurately measuring their emissions levels and lowering them to entice European consumers.
There are also standards around making green claims like “eco” or “green” to avoid greenwashing.
To be clear, neither last year’s UK FTA nor the new EU one is a reason to pivot to Europe. But with that said, if you are in food and beverage categories such as wine, honey, seafood, beer and horticulture, you’d be a mug not to check it out.
Which brings us back to Roger Martin’s book, Where To Play and How To Win.
New Zealand is not short of markets. We are short of companies with the capacity to grow into these opportunities. While there are 12,000 exporters, 11,000 of these are under $5 million export revenue and have shallow pockets for new markets.
So the choice of what opportunities we are hunting, and where to play is crucial, and very easy to get wrong. If you’ve taken a good hard look at Europe with the tariffs removed and reckon you do want to play there, you are only half of the way through.
The second question is how will you win. What do you offer that meets European consumers needs in a way that other offers don’t. In my opinion, getting a high-quality answer to that question is the key to unlocking growth out of these new FTAs. Better get your skates on.