Would you Sell Your Milk Powder to a Chinese Firm?

Wednesday, April 10, 2013 20:43
Posted in category Going to Market

With crisis comes opportunity, and in China, where there are no shortages of crisis, many firms are beginning to see an opportunity to enter a market salivating for safety.  Leading the charge are a number of firms looking to bring their food to China, organic and otherwise, and with every crisis foreign firms benefit to the point that Hong Kong’s recently announced fines for anyone exporting more then 2 tins of milk powder.

For some, while importing food by the suitcase may seem to be a solution, for others, this is an opportunity, as the article Mainland milk powder brands turn to overseas contractors speaks to:

The rapid rise of foreign baby formula brands in China has pushed Chinese milk producers to seek milk powder contractors overseas. One foreign milk power manufacturer has started to produce for different clients, including Chinese brands, at the same time, reports the Shanghai-based First Financial Daily.

Setting aside the fact that this practice is not a solution to China’s problems, and will likely do little but drive the price of “better” milk powders up, it needs to be said that firms who allow their products to be sold into this supply chain are opening themselves up to a significant amount of risk.  As the recent article Imported baby formula brand taken off shelves shows:

Xile Lier, Hero Group’s sole authorized China dealer based in Suzhou in neighboring Jiangsu Province, was busted by Suzhou’s quality watchdog in November for blending expired milk powder and an unknown milk source into imported formula, changing production and expiry dates, repackaging them and re-labeling formula for older babies as more expensive milk for younger children, according to a CCTV report yesterday.

The baby formula was marked “100 percent imported dairy source from the Netherlands.”

Perhaps an isolated incident, but one that should serve as a shot across the bow to those who do not understand the complexity of China’s market, or the creativity of firms who are participating in a system that has lax regulations.. and even laxer enforcement of the regulations.

Yet, as the recent coverafge from Rabobank Supply-chain flaws at heart of food scandals highlights, this is a market that is going to grow :

“Food is something that we consume daily and do not think much about, however as China’s standard of living increases, so will China’s demand for healthier and better quality food.”

With demand for safe and healthier food, China’s consumers will look to foreign and global brands to satisfy their demands. This raises questions about what local F&A companies have to do to remain competitive.

“Bigger companies need to step up and set the standard – brands speak for the whole supply chain, and Chinese brands are not valued due to the lack of trust,” Chen said.

So, what is a firm to do?  The market is ripe for your product, but the downside risk is significant enough that others are already seeing problems and talking about walking away?

Simple.  Invest in China in a manner that provides for the greatest long term access, and reduces the short term risks. Which is to say, don’t cut corners, leverage the “experience” of a middleman (to save a few bucks), and put a log on your site.

Selling to China is an attractive proposition, one that many have been speaking of since 2008 when China was forced to decouple its manufacturing sector from the global market by kick starting its domestic market, and there are certainly opportunities for firms to enter this market.  Particularly at a time that consumer confidence in a particular category are at an all time low.  But that doesn’t mean that the opportunity should be taken lightly, asset lightly that is.

Building out a local office to handle the imports and sales is a basic minimum, and leveraging the channels of an established distributor is a good strategy during that time.  But selling to a distributor into the China market without stepping foot in the market, or doing your due diligence on the partner, is a risk that I wouldn’t recommend any firm take.

Lest they too want to find themselves on the wrong side of a product recall gone bad in China.

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One Response to “Would you Sell Your Milk Powder to a Chinese Firm?”

  1. Will Consumers Buy into “Imported Ingedients” | All Roads Lead to China says:

    May 27th, 2013 at 1:56 am

    […] mentioned in a number of previous posts, but more recently in the post Would you Sell Your Milk Powder to a Chinese Firm?, Chinese firms scramble to regain the trust of consumers.  And while it is not limited to the […]