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Exports: The formula for selling to China

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Kendal Nutricare

Ross McMahon is doing his bit to reduce the UK’s £25.4bn trade deficit with China.

The Irish entrepreneur launched Kendal Nutricare in 2015, buying a closure-threatened baby food factory in Kendal from Heinz to make infant formula from locally-sourced, full cream natural nutrients.

The business began selling into China the following year and has just signed an agreement that should see it export £85m worth of infant formula by 2022.

The announcement came as Ross joined a business delegation accompanying Theresa May to China to promote British manufacturing.

This success is no accident. He had China firmly in his sights when he approached Heinz about buying the factory.

Ross said: “The only reason that Heinz sold it to me was because they knew I could deliver on the Chinese market and that would secure the site’s future. They didn’t want to sell the factory and see it fail.”

China is the world’s biggest importer of infant formula, buying 750,000 tonnes a year, a situation that arose out of tragedy in 2008 when milk and infant formula there were adulterated with the industrial substance melamine. Some 54,000 babies were hospitalised and six died.

Ross said: “From that point Chinese consumers lost total faith in domestic production. New Zealand and Australia were the first to see that and began exporting infant formula to China in 2010.

“My story dates from around that time, when I began investigating the market opportunities in China and travelling to Europe and New Zealand to see manufacturing facilities looking for co-packers.”

In 2013 he came across a 100% state-owned company, Orient International Holding Shanghai Foreign Trading Co, which subsequently was appointed as Kendal Nutricare’s exclusive master agent in China and licensed importer.

Ross said: “I had a meeting with them in Shanghai and they said they would be interested if I acquired my own factory.

“We signed a memorandum of understanding.  Later Orient appointed Goldcare International sales company as their sales team. Goldcare have 800 sales people on the ground covering the whole country.”

Ross took over the Heinz site in Mint Bridge Road, Kendal, in June 2015, preserving the jobs of the 88-strong workforce, which has since risen to 125 and is set to rise further.

But it was 13 months before the first Kendamil infant formula arrived in China, largely because of the regulatory hoops they had to jump through.

Three accreditations are required: China Inspection and Quarantine (CIQ) for packaging and labelling; Certification and Accreditation (CNCA) for the factory itself; and China Food and Drug Administration (CFDA) accreditation for the whole production process starting from the farms supplying milk.

Ross said: “The factory already had CNCA approval but Heinz couldn’t guarantee if that would continue under new ownership.

“Fortunately, I got an inspection within weeks although formal approval didn’t come through until September 2015.

“The Chinese are very detail-orientated. The rules written in Beijing are designed to protect the consumer and they follow up very diligently.

“There has been a wariness amongst others about exporting to China and a lot of multinational companies have lost money there.

“But that is maybe because they didn’t know the rules or didn’t follow them. China is a highly-regulated country.”

Outsiders don’t always appreciate that, while Mandarin Chinese is the principal language, China has eight languages and hundreds of regional dialects and variations, which affect how Kendal Nutricare packages its products as well as having to accommodate the weather extremes the country experiences.

One strong positive is that the Chinese settle their bills promptly.

Ross said: “As soon as you build up trust there is no problem getting paid on time. Other countries are much more difficult.”

He added: “We only got real traction in China from February last year.

“The first year we did £3.5m worth of business. This year we’re on target for £8.5m and we expect it to grow rapidly from there.

“Once you break into the Chinese market and overcome initial inertia things move quickly and sales can grow rapidly because it’s such a big market.

“As an exporter you have to be able to deal with that and step-up production. We were lucky in that our factory had under-utilised capacity but some businesses would struggle to scale-up to meet demand.

Around 30% of Kendal Nutricare’s output is destined for China.

The business is targeting other export markets, initially in North Africa and the Middle East. North and South America are next on the list – a niche Kosher product is already on sale in 130 shops in New York.

European markets are harder to crack, and that has nothing to do with Brexit.

“Consumers in France like to buy French infant formula and it’s the same in Germany and Denmark and other European countries,” Ross said.

“The UK is the only European market dominated by imports. Until we launched Kendamil, there hadn’t been a British made infant formula sold in the UK since 2008.”

So what advice would he give to would-be exporters?

“You need to protect your trade mark and IP, and you need somebody on the ground you can trust,” he said.

“I appointed a chief representative China as far back as 2013. I was lucky I found the right person and then the right agent. The first can help you find the second.”

He also advised exporters to take advantage of the help available from the Department for International Trade (DIT).

He said: “If I’m looking at a new market, such as Saudi Arabia, where I don’t speak the language or know the rules, my first port of call would be DIT for intelligence on the market, competitors, importers and translation services. DIT will give you an overview.

“With China, I already had a lot of the information but they were still heavily involved providing us a dedicated relationship manager in Manchester and help from the DIT teams in Shanghai and Beijing.

“DIT are always there as a sounding board and in an advisory capacity in terms of the latest regulations and helping with introductions.”

Kendal Nutricare has attended international trade shows exhibiting alongside other businesses from the region under the ‘Northern Powerhouse’ banner, facilitated by DIT.

Ross said: ”You’re part of a group of 15 or 20 businesses and that can save £8,000 to £10,000 compared with the cost of having your own stand.”

The Chamber’s Cumbria Business Growth Hub can provide a wealth of assistance to new and existing exporters.

We offer half-day workshops, export masterclasses, a series of online video tutorials and an export documentation service, plus information on trade shows, introductions, export finance and discounted flights for exporters.

We can also put you in touch with DIT to help begin your export journey.

For more information click here, call Catherynn Dunstan on 0845 22 600 40 or email her at catherynn@cumbriachamber.co.uk

Kendal Nutricare

© Cumbria Chamber of Commerce

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