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Canada needs exports to boost employment—and that's tough when demand for commodities is weak and global trade is flat. One option: Alibaba. As part of our look at ideas for the Canadian economy, we explore the Chinese digital phenomenon, and whether it can be a gateway for Canadian exports to the Middle Kingdom.

When Prime Minister Justin Trudeau was in China in September, he and billionaire Jack Ma unveiled a new Canadian pavilion on Tmall, an online shopping site owned by Ma’s Alibaba Group. “There will be a digital hub directly connecting Canadian companies to over 400 million Chinese consumers,” Trudeau said, pointing to the partnership as a way for Canadians to make business inroads in China.

Welcome to the new Canada-China relationship. While we still sell large quantities of wood pulp, mineral ores and other commodities to our second-largest trading partner, Canada knows the Asian giant is attempting to pivot its economy towards services and away from manufacturing. And to focus more on its massive consumer market. Canada can’t afford to miss out on that party, given China’s 1.4 billion-strong population of risk-tolerant consumers. Consider the rate at which the Chinese have embraced fintech and online payment models. And that no other country has shown a consistent ability to produce users for new digital products in the tens of millions in a matter of weeks.

What are the challenges and opportunities for Canadian firms in a China defined less by steel mills and factories and more by Alibaba? What role can Ottawa play? We asked some clients who have strong business connections with China, either as importers/exporters or in providing related services.

1. Use The Voice Of Government

Having government’s blessing and backing is a key benefit in China, clients say — it adds weight to business dealings, and helps to ensure success. Clear support from Ottawa would boost Canadian firms’ credibility in Chinese partners’ eyes, and make it easier for them to do business there. Trudeau’s presence at the opening of the Canadian pavilion on Tmall was a case in point. Alibaba has launched a dozen such country pavilions to provide Chinese consumers with access to foreign products and travel information. They’re part of the company’s plan to generate half of its revenue from international operations in a decade, but the pavilions also help foreign firms a lot, making it easier to access Chinese consumers and reducing customs and duty fees.

2. Fight For Lower Trade Barriers

Two-way merchandise trade between Canada and China was close to $86 billion last year. During Chinese Premier Li Keqiang’s recent trip to Ottawa, the two countries said they planned exploratory talks for a free-trade deal with the goal of doubling two-way trade by 2025. There are many obstacles to such a deal — human-rights issues on the one hand, Canada’s moves to discourage Chinese investment in the oil-sands on the other — but a formal agreement would make it easier for domestic firms to do business in China, clients say.

3. Get A Good Regulatory Map

Transparency is an oft-cited problem for Canadian firms doing business in China. So are opaque Chinese rules around how products are made and sold. It can be a long and hard slog for a Canadian firm to just set up an office in China, clients note, never mind understand a complex and ever-changing regulatory framework. Clients raised a big issue for Canadian firms eyeing China — the frequent need for a third party, or middleman, to help them navigate the process of setting up and conducting a business there. The challenge, for Ottawa, is facilitating their access to such middlemen.

4. Be Unique

With just about every other country in the world eager to do business with China, how can Canada stand out? In the Alibaba era, and for China’s growing middle class, brands matter. That’s a challenge for a country whose major exports to China have been commodities. Canadian brands aren’t well known in China, and their price point can be high relative to that of competitors. Research suggests Chinese consumers have an appetite for premium Canadian goods from certain sectors — think ice wine or Canada Goose jackets. But Canadian companies need support with name recognition.

5. Fight Fakery

The message about the importance of brands leads to another point: China has a problem with counterfeit goods. Alibaba, for one, has taken heat from global brands including Gucci for an abundance of fakes on its shopping platforms. The problem raises credibility concerns for Canadian firms, not to mention a hit to their business, since it’s hard to compete on price with fake goods. Some Canadian firms know the problem firsthand — think of fake Canada Goose jackets, for instance. Counterfeiting doesn’t matter much when you’re exporting commodities. In the new economy, trust regarding products’ authenticity is a big deal.

6. Make It Personal

Our clients said understanding the role of personal relationships is critical to doing business in China. The Chinese have a word for it — guanxi — a hard-to-translate term for the connections and trust that smooth over business relationships. In China, it comes ahead of a business relationship. That feeling was on full display when Ma and Trudeau announced the Canadian presence on Tmall last month. Building those kinds of relationships — whether through bilateral organizations, university groups or business associations — and leveraging Canada’s sizable Chinese population, could help Canada develop beneficial ties in China.

Sources:

World Bank – Global Economic Prospects: Divergences and Risks, June 2016 (PDF)

The Toronto Star – Trudeau touts deal with Chinese website Alibaba as boon for Canadian firms

Prime Minister announces increased collaboration with China

Maclean’s – PM to Davos: ‘Know Canadians for our resourcefulness’

Jing Daily – Global Retail Giants Rush Toward China’s E-Commerce Platforms

Enterprise Innovation – Alibaba launches 11 country pavilions on Tmall Global

Canadian Business – Survey: Indian firms best, China worst on transparency

CBC News – Chinese premier, Trudeau announce exploratory free-trade talks

The Wall Street Journal – Alibaba Faces Backlash Over Promises on Counterfeits

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