Foreign Investment in New Zealand: Cultural and Institutional Perspectives

The assignment consisted of an analysis of the relationship between New Zealand and China, focusing on their free trade agreement (FTA) and foreign direct investment (FDI). The student was required to read and understand the content provided, which included information on the NZ-China FTA upgrade, openness to foreign investment, and various academic articles and government reports. The summary should provide a concise overview of the assignment content.

Running head: INTERNATIONAL BUSINESS
International Business
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Essay 1
The international relationship between China and New Zealand started since December
1972. The relationship improved so much that New Zealand is the first developed country to sign
the Free Trade Agreement with China. Currently, China is the biggest trading partner of New
Zealand in merchandise goods. While doing business between two countries, the culture and
societal pattern must be considered. While China has a collectivist society, New Zealand follows
the individualistic pattern of the society. Hence, the business cultures in these two countries are
quite different (Fang, 2012).
Collectivism refers to communism. In this society structure, the welfare of the society is
prioritized over the individual welfare (Chhokar, Brodbeck & House, 2013). In China, people
pay attention to the relationships in both personal and professional affairs. The greeting style in
China is different. During the exchange of business cards, it is mandatory to present the card
with two hands and accept it with a bow. This way the card represents respect. The background
of the person, participating in the deal, must be taken into account, such as, the family
background, effects of political or economic conditions on the family, etc. (Liu & Woywode,
2013). Any business deals should not be rushed, as the Chinese like to know their business
partners very well before going for a deal. First they like to build a strong relationship and then
they would like to know about the values, honesty and thoughts of the business acquaintance.
Once they are convinced about the integrity and credibility of the business acquaintance, they
would go ahead for the business deal. Apart from that, the Chinese people expect the opposite
party to be extremely well prepared about the meeting, with minimum of 20 copies of the
proposal and presentation made only in black and white. Small talk at the beginning of the
meeting is important. While making the decision, the Chinese do not like deadlines and delay the
process. The patience of the partner is appreciated. The hierarchical order while entering the
room and in any business meeting is very important in the business world of China. It must be
maintained by everybody. The first person to be walked into the room is the head of the
delegation. During the lunch break, almost everything halts too (Chhokar, Brodbeck & House,
2013).
New Zealand follows individualistic culture in the society. Individualistic culture is
characterized by prioritization of the individual over a group. In this culture, people are more

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interested about self, than for the group. However, the business etiquettes do not reflect that
entirely. The New Zealanders are very reserved people and do not like to be overfriendly at the
first meeting. The dressing sense is considered to be very important, especially in the business
meetings. Maintaining hierarchy is good but not compulsory in the meetings or any business
dealings. Punctuality is very important. People expect to make an appointment before meeting
another person (Sturman, Shao & Katz, 2012). Small talks before the meetings are done to break
the ice. Building trust and a good relationship is considered to be essential for any deal. For the
presentations, New Zealanders expect simple and precise language rather than any flowery
language. Bargaining is not practiced here, therefore a deal should not be started with a very high
price. Value for money is significant in any business deal. While greeting people, a firm
handshake with good eye contact is appreciated. Women are expected to initiate a handshake.
First impressions play a very major role in New Zealand. During first meeting, people are
expected to use title and surname of the business acquaintance, until they are permitted to use the
first name. Discrimination in work place is illegal in New Zealand (Gao, Knight & Ballantyne,
2012).
From the above discussions it can be said that New Zealand business managers should
keep in mind the hierarchical order maintained in China, the punctuality, small talks before the
meetings, and presenting the business card with two hands should be maintained by the business
managers for a business deal. They should also not talk about delays in deals and deadlines while
making a deal with the Chinese. The Chinese like to think long term about any business deal.
However, one of the biggest cultural differences is the language difference between the two
countries. As the two languages are sharply different, and Chinese prefer to use their own
language for the official purposes also. The New Zealander business people must take into
account this fact (Li & Zahra, 2012).

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Essay 2
The Free Trade Agreement (FTA) between New Zealand and China is a bilateral
agreement of free trade, signed in April 2008 in Beijing. This is the first free trade agreement
signed by China with any developed country. For New Zealand, this agreement is the biggest
trade deal after the Closer Economic Relations agreement with Australia signed in 1983. Before
signing the agreements, the negotiations spanned for more than three years and fifteen rounds.
The agreement provisions will fully become active in 2019. The agreement included the
conditions that, 37% Chinese exports to New Zealand and 35% New Zealand exports to China
would be free from tariff by October 2008. By 2016, all tariffs for the exports from China were
to be eliminated and 96% of the New Zealand exports to China would be free from tariff by
2019. This agreement also included the clause that 1800 skilled workers from China can go to
New Zealand for up to three years. However, this is limited to 100 workers per sector, except in
the sector for Chinese medicine practitioners, Mandarin teaching aides and Chinese chefs. New
Zealand would also establish a scheme for working holiday, which would enable 1000 Chinese
citizens to work in New Zealand and travel for up to 1 year. The business visa processing and
conditions would be improved by both the countries (Song & Yuan, 2012).
Benefits
The major benefit of FTA between New Zealand and China is the saving of the money,
spent in the form of tariffs. When fully implemented, the FTA would save almost NZ $115.5
million annually on 96% New Zealand exports to China. The immediate tariff removal on worth
of NZ $200 million of the current exports include a particular type of fibreboard, scrap metal,
fish meal, iron slag and coking coal. 5 years of tariff, worth of NZ $621 million of the current
exports, would be eliminated on infant milk formula, frozen fish and fish fillets, yoghurt,
methanol, casein, animal fats, apples, oil and wine. 9 years of tariff elimination, worth of NZ $77
million, includes sheep and beef meat, sheepskins, kiwi fruits, and edible offals. 10 years of tariff
elimination, worth of NZ $50 millions, include tariffs on cheese, butter, liquid milk and 12 years
of tariff on skim milk and whole milk powders, worth of NZ $305 million. These items have to
pay an entry duty of NZ $36 million in China. Country specific Tariff Quota (CSTQ) has been
implemented for wool exports and 75% has been made duty free (Aggarwal & Urata, 2013).

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The elimination of tariffs on New Zealand’s imports, that is, exports from China also has
some benefits. The imports will become cheaper, rising the demands for the imported good.
Thus, the level of imports will rise in New Zealand. China’s export market will gain advantage
due to removal of tariff and this would make China to produce and export more. Equipment and
machinery import from China accounts for almost 35% of total imports from China to New
Zealand. When these become cheaper, it would be beneficial for the manufacturing industry of
New Zealand (Yuan, 2012).
Costs
The FTA focuses on trade tariff removal, but there are also non-tariff barriers exist in
international trade. These also create impediments for international trade. The forestry industry
of New Zealand has appealed to the government to negotiate with China for reducing the non-
tariff barriers, and make a complaint to World Trade Organization on China’s terms of business.
The CSTQ is welcomed but the initial level of 75% wool exports to China is not sufficient for
growth. Apart from that, China did not enter into any agreement for paper and processed wood
products, which accounts for nearly 4% of New Zealand’s current exports to China. On these
products, China would not give any tariff reduction; hence, New Zealand exporters would not
gain any competitive advantage (Irwin, 2015).
Potential improvements
Both the countries announced in 2014 that they would improve the agreement. The
upgrade provisions include modernization the FTA and improvements that focuses on further
freeing up the trade for products and services for helping the exporters to reach $30 million in
bilateral trade by 2020. This target was set by the leaders in 2014. The negotiations for
improvement include Technical Barriers to Trade (TBT), custom procedures, trade and
cooperation facilitation, Rules of Origin (RoO), Competition policy, Services, E-commerce,
Environment, Agricultural Cooperation, Government procurement (Wilson, 2015).

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Essay 3
The New Zealand government has a liberal and welcoming approach towards the foreign
direct investment (FDI) and the contribution it makes to improve the social and economic
wellbeing of the New Zealanders. The FDI regulatory rules are quite liberal and have some
specific FDI restrictions in some areas of critical concern. As per the government report on FDI,
New Zealand needs additional $200 billion FDI to support efficiency, growth, export and R&D
targets. Most economic reports suggest that FDI is beneficial for New Zealand (Kelsey, 2015).
The FDI stock in New Zealand has almost doubled from $55 billion in 2001 to $100 billion in
March 2015. More than half of the FDI stock comes from Australia, while China contributes
only 0.7% of the total stock (Export.gov, 2017). Majority of the FDI flows into Finance and
Insurance, Manufacturing, Agriculture, forestry and fishing, retail trade, wholesale trade, and
utilities.
The governmental policies in New Zealand regarding FDI are to welcome FDI without
any discrimination. The country has an open and transparent economy, where the investors and
businesses have liberty of easy transactions. With a few exceptions, investors from all over the
world can make investments in any sector of New Zealand, with almost no limits on control or
ownership. The country has been expanding its network of bilateral investment and free trade
agreements with many countries of the world. This is resulting in increased foreign investments
in many sectors. The nation also has a well developed regulatory system and legal framework,
and the sanctity of contracts is upheld by the judicial system. This system allows free inflow and
outflow of the capital (Chung & Tung, 2013). The disputes in investment are rare and if any, the
government handles through transparent and efficient system. According to the OECD FDI
Regulatory Restrictiveness Index, 2016, New Zealand ranks 7th most restrictive country among
the 60 countries (Treasury.govt.nz, 2016).
The New Zealand government announced in 2016, the International Investment
Attraction Strategy to raise the private business investment rate as a percentage of the GDP of
the nation. This has been announced to improve the business growth in the country. This strategy
includes the participation of cross-agencies in the initiatives, which involve the Ministry of
Business, Innovation and Employment (MBIE), Ministry of Primary Industries (MPI), MFAT,

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NZTE, Callaghan Innovation, New Zealand Treasury and Immigration NZ. The priorities are to
attract more high value FDI, increase the count of MNCs for undertaking the R&D in New
Zealand, and attract and retain the individual entrepreneurs and investors to stay in New Zealand
(Fabling & Sanderson, 2014).
This strategy has enabled the nation to attract more investors, and the level of FDI would
increase significantly. The government has added more visa categories to attract the individual
investors and entrepreneurs and has introduced a trial for a four-year Global Impact Visa
program, targeting the high-impact and younger entrepreneurs, and start up teams for launching
global projects in New Zealand. The government has also launched Regional Investment
Attraction program, in which it has identified the sectors by regions working to attract FDI, for
example, energy in Taranaki and forestry in Northland. The FDI in almost all the sectors has
helped the sectors to grow considerably (Treasury.govt.nz, 2016).
Value adding industries are those, which increases the value of a goods or service at a
given step of a supply chain or production cycle. When the value of a product increases at each
step of production or supply and distribution chain, due to the services of some different
industries, then these industries are called value adding industries (Raziq & Perry, 2012). As the
flow of FDI has been increasing in the nation in all the sectors, it has enhanced the scope for all
types of value adding activities. In the sectors of agriculture, manufacturing and services, many
small industries exist to support the bigger activities. FDI in these sectors not only helps to grow
these directly, but also helps in the growth of the supporting services or activities. The
government should focus on having a coherent and integrated FDI policy for these industries and
should utilize the FDI spillover more efficiently. At the same time, the fears over the ownership
and control of resources and assets for FDI inflow should be eliminated by the government. The
very liberal policies regarding FDI create fear among the industries of New Zealand (Kalderimis,
2016).

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Essay 4
The above three essays focus on three different macroeconomic issues of New Zealand.
The purpose of the essays was to reflect upon the growth of the economy in the context of three
different macroeconomic aspects. The first essay focused on the difference in the business
cultures of China and New Zealand, and the things that need to be considered by the New
Zealanders while doing business with the Chinese. The second essay addressed the Free Trade
Agreement (FTA) between China and New Zealand. It also explained the benefits and costs of
FTA and the improvements that the New Zealand government is making in this trade agreement.
The third one addressed the critical evaluation of the policies on FDI by the New Zealand
government and the changes that should be made to facilitate more FDI inflow into value adding
industries of the country.
While writing these essays, I had to learn more about the specific economic factors such
as, business cultures, FTA and FDI policies. Along with that, I had to study about the economic
and political conditions of the country. While writing the first essay, I had learnt that, cultures
play a very significant role in any type of business dealings, especially in the countries, where
cultures are sharply different. The societal pattern between New Zealand and China is very
different. Hierarchical order is strictly maintained in China while that is not mandatory in New
Zealand. The Chinese take long time before finalizing any deal and they are not bothered about
deadlines. Delays are expected in the Chinese culture. In New Zealand, people are punctual; they
do not like delays, and use simple language for any dealing. Here, people are expected to the title
and surname of the business acquaintance during the first meeting. They need permission to use
the first name. Thus, the business people of New Zealand must consider these facts and cultures
while dealing with the Chinese for business.
I also learnt about the Free Trade Agreement (FTA) between New Zealand and China in
detail. The background, features, benefits and costs of the FTA between these two countries were
discussed in detail in the essay. The agreement was signed in Beijing in 2008. It includes the
terms and conditions of free trade between New Zealand and China. I found that, by 2019, 96%
of New Zealand’s exports to China will be tariff free, and all exports from China to New Zealand

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would be tariff free by 2016. After the FTA was signed, the trade relationship between the two
countries has been tripled in the last decade. It has increased from $8.2 billion in 2007 to 23
billion in 2016. China has become the biggest goods market of New Zealand with $9.4 billion in
2016 and second biggest market in overall trade with $12.3 billion in 2016 (New Zealand
Ministry of Foreign Affairs and Trade, 2017). There are some negative factors also, such as the
existing non-trade barriers, which create problems in terms of trade. However, there are some
sectors where some improvements are required, such as, Technical Barriers to Trade (TBT), E-
commerce, custom procedures, trade and cooperation facilitation, Rules of Origin (RoO),
Competition policy, Services, Environment, Agricultural Cooperation and Government
procurement.
The third essay focused on the policies of FDI in New Zealand and changes need to be
made in these policies for further growth. The level of FDI is quite high in New Zealand.
However, there are still scopes for more. The New Zealand exports are more dominated by some
primary commodities, such as, dairy, forestry, wool, meat, horticulture and marine products. I
found that, finance and insurance sector attracts the majority of the FDI, followed by
manufacturing and agriculture. From the government report, I found that, the other sectors need
to draw more FDI to increase the growth. The welcoming attitude and liberal policies of the New
Zealand government encourages more FDI inflow in the economy. The government has launched
various programs to draw more FDI in specific sectors.
New Zealand has a mixed economy, operating on the free market principles. The
manufacturing and service sectors are the major contributors in the growth of the economy,
along with the highly efficient agricultural sector (Treasury.govt.nz, 2012). It has a very liberal
and open economic structure. With the business relations with Chinese and FTA, China is the
largest trading partner of New Zealand. The liberal policies have made the country attractive to
the foreign investors, which have encouraged the growth of the economy.

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