How Chinese Pesticide Makers Enter the International Market?
Year:2010 ISSUE:9
Click:336    DateTime:Nov.02,2010
How Chinese Pesticide Makers Enter the International Market?    

By Zhang Weinong   

China had more than 2 600 pesticide manufacturers in 2009, which together produced 2.26 million tons of active pesticide ingredients (source from China's National Bureau of Statistics, which possibly contains pesticide formulations). But China's domestic annual consumption has remained about 300 000 tons (pesticide active ingredients) in recent years. Such a great output/consumption ratio forces Chinese pesticide producers to export their products to overseas markets. China's large and medium-sized pesticide manufacturers generally begin to enter overseas markets after they have occupied a certain market share in the domestic market. In a sense, they export the fierce domestic market competition into overseas markets, and foreign customers will then return the competition pressure back to Chinese makers without reservation. In order to retain their overseas customers and markets, China's pesticide producers have repeatedly slashed prices. So the industry's average margin is constantly dropping.
   According to statistics, in China there are 1 295 pesticide manufacturers who export pesticides in 2009, five of which have an annual export value of more than US$100 million each, 734 have an annual export value of US$100 thousand to US$100 million each, 465 have an annual export value of US$30 thousand to US$100 thousand each and 91 have an annual export value between US$2 000 and US$30 000 each. In China, large manufacturers mainly supply their exports to multinational companies, and small and medium-sized manufacturers usually cooperate with domestic professional foreign trade companies who have the advantages in exploring overseas markets.
   In today's global economy integration, small and medium-sized companies have a unique way of survival. When they compete with multinational companies for international markets, they do not have any advantages in product design, product support, marketing and terminal services at all. Their first task is to survive and grow. They have to cooperate with Chinese foreign trade companies, and process or produce marketable exports for the latter. They are responsible for product designs and production, but they let foreign trade companies sell their products in international markets. Countries require different dosages and contents, so producers are under pressure to develop and produce various formulations with different forms, effective ingredient contents and additives to meet different market needs. Every product should have a perfect design. Only in this way can the manufacturers produce goods with stable quality. Moreover, the appearance and packaging design of products should meet international market demands and environment-friendly requirements. Pesticide manufacturers must build their product data archives. Every product should have a complete archive about its physicochemical properties and production process. In many countries, the product registration needs the product's complete data archives including its basic physical and chemical properties, active ingredient test reports and toxicological test reports. Advanced and reasonable production processes can minimize the product cost to enhance the product's competitive edge.
   For traditional foreign trade, the commodity circulation chain is: manufacturers to foreign trade companies (exporters) to importers to processing factories or distributors to retailers to end-users (farmers). In China, due to disorderly competition, this foreign trade chain has constantly been shortened. Many manufacturers put aside foreign trade companies and directly negotiate with foreign importers about exports. Compared with manufacturers, foreign trade companies have significant competitive disadvantages. In such competition, manufacturers are also very passive and easily hurt. The result of this competition is that both sides suffer.
   How should pesticide manufacturers develop their international trade? Experts think that foreign trade companies should undertake the role as a market guide and explorer and shift from traditional exporters to overseas market explorers. Several years ago, some forward-looking Chinese foreign trade companies began to shift their roles. They have set up branches overseas or invested or wholly acquired overseas firms. Up to now, they have stretched their marketing channels into North America, South America, Oceania and Africa. They first design products according to local market demands, including product varieties, recipes and labels, then register the product in foreign countries and finally arrange domestic enterprises to produce the products in China. The foreign trade market chain can be summarized as: product design, to product registration, to production in China, to marketing and sales, to after-sales services. In this foreign trade chain, except that production is done in China, all other sectors are done in overseas markets. This is an ideal model for manufacturers and foreign trade companies to cooperate to explore overseas markets. The acquisition of Sanonda Australia Pty Ltd. by Shanghai Agrodragon Co., Ltd. in 2006 was carried out based on this model and is a typical case of such cooperation. Sanonda Australia Pty Ltd was founded in Australia in 1993 and has more than 10 registered products, but because of poor management, it ceased production in 2006. After Agrodragon acquired Sanonda in 2006, it spent nearly a year reorganizing the company and started to re-operate it in the second half of 2007. In 2008, Sanonda achieved very good performance: nearly Australian $4 million of sales income from formulations and more than Australian $3 million of sales income from active pesticide ingredients.