Strategic Responses to New Zealand-China Free Trade Agreement: A Case Study of New Zealand Natural Health Products Industry

The rise of global consumption, as well as technological innovation in transportation and telecommunications, have increased international exchange of goods, services and factors of production. Economic globalization in terms of production and markets has been accompanied by an unprecedented intensification of economic and financial linkages within geographic regions. The world economy is shifting towards greater regional economic integration. As open and dynamic economies, New Zealand and China heavily rely on international trade and investment to stimulate economic growth. Strengthened international linkages and improved access to markets are major economic strategies for both countries. As they have been committed to building up longstanding and healthy bilateral trade and economic partnerships, these two countries signed a free trade agreement (FTA) that aims to liberalize and facilitate trade in goods, services and investment, and improve the business environment and strengthen cooperation in a wide range of economic areas. From the perspective of New Zealand's businesses, the FTA will not only improve the business environment, and open up market access opportunities, but it will also pose threats. To take advantage of these opportunities, neutralize threats, and consequently achieve a stronger market position in the Chinese marketplace, New Zealand's businesses must strategically respond to the fast-changing environment arising from the FTA. Due to the special meaning of the FTA to New Zealand's economic growth and the significance of the Chinese market to New Zealand's businesses operating in China, it is important to explore how New Zealand's firms perceive the New Zealand-China FTA; and what strategic decisions and adjustments they have made or they are going to make in response to shifts in the business environment arising from the FTA. Besides several studies with limited empirical evidence were conducted at the macro-economic level by some of interested groups such as New Zealand Ministry of Foreign Affairs and Trade during the FTA negotiations, little research has been conducted to examine the impact of the New Zealand-China FTA on New Zealand individual companies' business strategic performance. Building on case studies of two representative companies in the New Zealand natural health products industry, this study aims to discover the nature of salient companies under the New Zealand-China FTA and to ascertain what particular patterns of strategy and performance these companies will adopt in response to trade liberalization. The findings of this study suggest that: 1) With the New Zealand-China FTA, the Chinese fast-growing market is typical of the mix of the opportunities and challenges facing New Zealand's businesses. The FTA provides them with a strong incentive to undertake strategic adjustments for further development in the Chinese market. 2) Strategic adjustments made by a firm depend upon the nature of its firm-specific advantages and country-specific advantages, as well as its existing competitive advantages. Firms that are able to secure their resources and capabilities necessary to exploit opportunities and counter threats are more likely to gain international competitive advantages; 3) Small firms with limited resources and capabilities are more likely to engage in the formation of strategic alliances in order to strengthen their competitive positions both domestically and internationally.