The wild ride for shareholders in Bellamy's, Blackmores and Bega Cheese is a reality check for Australian exporters seeking to cash in on Asia's ballooning middle class.
For years, the holy grail for many businesses has been to export straight to the rapidly-growing number of wealthier consumers in our region, who are demanding everything from higher quality food, to overseas holidays, to financial services.
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Bellamy's CEO Laura McBain has been widely credited for transforming the family-run local company to a global brand.
As we all know, the opportunity here is enormous. PwC forecasts Asia's middle class will swell by six-fold from half a billion today, to 3.2 billion in 2030.
Alongside the huge potential profits, however, the distinct challenges of succeeding in these markets are also coming into focus.
Bellamy's, the organic infant formula producer, epitomised these ambitions when it floated in 2014, surging 34 per cent on its stockmarket debut.
Big ideas
It had grand plans to rapidly expand sales in China, where there has been an explosion in demand for baby formula from safe foreign suppliers.
And to be fair, Bellamy's has indeed chalked up rapid growth in China since then, which helped drive its share price to a peak of $14.99 last year, before things went pear-shaped.
Last week it emerged from a trading halt to slash profit forecasts and embark on a sweeping restructure of the business, including losing chief executive Laura McBain. More than 70 per cent has been wiped off its market value since its 2016 peak, and the company is frantically trying to run down excess stock without further damaging its brand.
![Companies exporting to Chinese consumers, such as Bellamy's, face challenges that did not apply for miners selling to China.](/web/20170116145316im_/http://www.theage.com.au/content/dam/images/g/s/w/o/y/r/image.related.articleLeadwide.620x349.gtqobc.png/1484523308105.jpg)
And while many of the problems with Bellamy's are specific to the company, it is also the latest in a string of Australian businesses that have run into challenges trying to crack the lucrative Chinese consumer market.
Blackmores, the vitamin business, has also had a volatile time, albeit slightly less dramatic than the Bellamy's rollercoaster.
![Bellamy's former CEO Laura McBain, who was ousted this week.](/web/20170116145316im_/http://www.theage.com.au/content/dam/images/g/t/r/b/n/o/image.related.articleLeadwide.620x349.gtqobc.png/1484523308105.jpg)
Its share price has tumbled 47 per cent from last year's record high of some $220, as sales have slowed. It has faced changing regulations in China, with chief executive Christine Holgate in October saying doing business in the country was "not for the faint-hearted".
Cheese sliced
Bega Cheese is another Australian exporter targeting Chinese consumers, whose share price has fallen 45 per cent from last year's $7.93 peak after problems in the infant formula market.
![Blackmores chief executive Christine Holgate says Chinese commerce is not for the faint-hearted.](/web/20170116145316im_/http://www.theage.com.au/content/dam/images/g/p/9/5/c/t/image.related.articleLeadwide.620x349.gtqobc.png/1484523308105.jpg)
These are all businesses that have had success in the much-hyped next phase of the China boom after the mining bonanza: selling to the middle class. Yet there's clearly been plenty of turbulence along the way.
So, why is the next phase of our China boom proving such a bumpy ride?
Well, to some extent Australia could rely on the hand it was dealt during the first stage of China's industrialisation, when it wanted minerals we had in abundance.
We happen to have extensive and high-quality reserves of coal and iron ore, the key ingredients for making steel, which is crucial for mass urbanisation. Our location on Asia's doorstep is also extremely handy. In the economic jargon, Australia has a clear "comparative advantage" as a commodity exporter.
Consumer goods like infant formula are also helped by Australia's reputation for clean, high-quality produce, but selling to the masses comes with a range of risks that aren't there for the miners.
Tricky customer
"The level of difficulty and complexity for Australian businesses from mining compared to consumer are vastly different," says the director of AsiaLink Business' China practice, Nick Henderson.
"The closer you get to the consumer, the more complex the whole environment for Australian companies gets."
One big difference is the customers. While an iron ore miner can build up long-term relationships with its handful of steel mill customers, selling infant formula means staying in touch with the wants of millions of parents buying the stuff.
Fast-changing rules have created another headache for foreign businesses eyeing off China's massive consumer market.
Speculation that China would crack down on the "daigou" trade – where Australian-based buyers bought up local formula and send it back to China – was one reason for Bellamy's ill-fated move to sell more of its product through online portals.
And of course, trying to sell to Chinese consumers is "hypercompetitive." Companies everywhere have spotted the huge potential, so we're up against them too.
What might we do to curb some of these risks from the next phase in the China boom?
Skills for risk
Henderson says there's no silver bullet when it comes to avoiding these challenges. Venturing into less-developed but fast growing economies can be lucrative, but it's riskier: that's the trade-off.
Even so, there are things businesses can do to manage these extra risks, such as having carefully thought-out Asia strategies, and directors with experience in the region.
As more companies are likely to look overseas for growth – including those in services where most of us work – there are also implications for the broader skills base of the Australian workforce.
The challenge of selling to Asia's consumers underlines the importance of what Ken Henry's Asian Century White Paper of 2012 called "Asia-relevant capabilities": a broad group including skills spanning science, creative thinking, and knowledge of Asian languages and culture.
That may sound vague. But it's also clear that our economy can't simply rely on its natural resources and handy location if we're to make the most of the next phase of the China boom.
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