ZESPRI CEO can’t rule out more issues in China
Sunday 28 July, 2013
ZESPRI CEO can’t rule out more issues in China
ZESPRI’s CEO Lain Jager told Q+A host Susan Wood he couldn’t rule out more trade issues in China because “what was accepted practice in China isn’t accepted practice any more. There is a real focus on corruption,” but he says the company is doing all it can to make sure it is fit for business.
Earlier this month, a ZESPRI subsidiary lost its appeal in China against a smuggling conviction for under declaring customs duties between 2008 and 2010 which saw the company fined nearly a million dollars.
Today on Q+A, Jager distanced ZESPRI from the actions of the importer there.
“What we had is we had an independent importer not paying their duties. So there was corruption here, there was fraud here, but that wasn’t ZESPRI. This independent importer provided to ZESPRI shipping reconciliations. What those shipping reconciliations showed is that the full duty had been paid. They also told us that there was a deemed value for imports into China. So, again, there was corruption. It wasn’t ZESPRI,” Jager says.
The problem arose after ZESPRI issued what’s known as dual invoices to Chinese Customs, which Mr Jager argued was not uncommon.
“Dual invoicing is not uncommon, Susan. A deemed value is not uncommon. So, a little bit of background. When you have a duty price, and you have a deductive value. So you don’t know what the final sales price of the fruit is going to be. What you have is you have a pro forma invoice or a deemed value. So for administration purposes, that’s the value of which the fruit goes over the wharf. That’s not the problem here. The problem is that the full value wasn’t paid on the fruit.”
Mr Jager says it’s a common practice around the world but could not name another country; however, he was sure ZESPRI did dual invoice other countries.
But Q+A panellist Fran O’Sullivan, a columnist for the NZ Herald, saw things differently.
“Doing business in China is complicated but I have to say ZESPRI knew damn well what was going on. The warning signs were there, they took legal advice, they could have brought this to a head, they allowed a double invoicing system to go ahead,” Ms O’Sullivan says.
She says dual invoicing is not that common and not common for New Zealand companies to indulge in.
“Of course people try things on but sensible companies and corporations that want to look after their reputation make jolly clear that they don’t go down that route,” Ms O’Sullivan says.
“This is a single desk monopoly exporter. It carries the NZ name. It’s a creature of statute, it’s not just any old private company and that’s why it’s important to flush this out. You know, you can’t be doing this. It’s against our own legal framework for our companies to be doing these sorts of things,” she says.
Mr Jager says ZESPRI will now have direct relationships with Chinese Customs to insure correct procedure is followed.
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SUSAN WOOD INTERVIEWS LAIN JAGER
Joining me now is ZESPRI CEO Lain Jager. A very good morning to you.
LAIN JAGER - CEO, ZESPRI
Good morning, Susan.
SUSAN A couple of people in prison in China. It’s cost you 10 million bucks in reparation, probably another 5 million overall. As CEO, it’s your responsibility. How did you let that happen?
LAIN Well, first of all, bear in mind that these are historical issues. So while the court case has focused on the seasons 2008 to 2010, in fact, those duty arrangements had been in place for many years with partners that we’d been doing business with for many years. So these are historical issues.
SUSAN So you’re saying because it happened in the past, it’s ok? It was still wrong, wasn’t it?
LAIN Certainly not ok, but let’s focus on the issue itself. What we had is we had an independent importer not paying their duties. So there was corruption here, there was fraud here, but that wasn’t ZESPRI. This independent importer provided to ZESPRI shipping reconciliations. What those shipping reconciliations showed is that the full duty had been paid. They also told us that there was a deemed value for imports into China. So, again, there was corruption. It wasn’t ZESPRI. Now, is that good enough? The answer to that-
SUSAN Hang on, let me just ask you- I get that. You’re saying there’s a person in China who’s representing ZESPRI who is corrupt.
SUSAN But you, ZESPRI, Mt Maunganui, issuing dual invoices. How do you justify that?
LAIN Dual invoicing or the existence of a deemed value is very common in fruit markets around the world. There is no technical problem with dual invoicing as long as the deemed invoice value is correct. Now, the issue that we have here is we were given an incorrect deemed invoice value. Was there a shortcoming? Yes, there was. We should have looked over the shoulders of our importers, had direct relationships with Chinese Customs. There are deep learnings for the company here, but it’s not about-
SUSAN So you were too trusting?
LAIN Yes, too trusting. Yes, too trusting.
SUSAN So you were guilty of being naïve. Nothing else?
LAIN Certainly we should have- What should we have done? I think, first of all, we should have had direct relationships with Chinese Customs. We should have double-checked what our importers were telling us. So, call it naivety, call it hindsight. There are things we could have done better, but we’re not corrupt.
SUSAN You’re telling me you were not knowingly complicit with this?
LAIN Absolutely. We had shipping reconciliations showing that the full duty value had been paid.
SUSAN Paying bribes. Did you think bribes were being paid in China? Did you have any knowledge of that?
LAIN I still have no knowledge of any bribes. I’m not aware of any bribery, have no information or suggestions of bribery.
SUSAN And yet you’re issuing dual invoices.
LAIN So, as I’ve said before, dual invoicing is not uncommon. A proforma invoice is-
SUSAN Where else do you do dual invoices? What other countries would you do that for?
LAIN Oh, I can’t tell you off the top of my head, but it’s common around the world. So common that I don’t name the countries.
SUSAN I’m not talking about the rest of the world; I’m talking about ZESPRI. Does ZESPRI dual invoice to any other country?
LAIN I’m sure that we do, yes.
SUSAN And what would they be?
LAIN I just can’t remember.
SUSAN How come you don’t know, though? You’re chief executive. I mean, does it happen in NZ? Do you dual invoice in this country?
LAIN Dual invoicing is not uncommon, Susan. A deemed value is not uncommon. So, a little bit of background. When you have a duty price, and you have a deductive value. So you don’t know what the final sales price of the fruit is going to be. What you have is you have a proforma invoice or a deemed value. So for administration purposes, that’s the value of which the fruit goes over the wharf. That’s not the problem here. The problem is that the full value wasn’t paid on the fruit.
SUSAN What are you doing to make sure this never happens again?
LAIN Certainly a number of things. We’re working with some independent experts with deep knowledge as we rebuild our China operation. We’ve got a new China manager in place. Strengthening our compliance frameworks. So, really, a number of things. Just making sure that we’re really fit to do business in China. It’s a demanding market, but it’s a hugely exciting market.
SUSAN So you weren’t fit to do business then essentially, is that what you’re telling me?
LAIN Oh, sure. Absolutely clear that there’s shortcomings. Absolutely clear that there’s shortcomings.
SUSAN So what are you doing there if you don’t understand the market and you’re not fit to do business?
LAIN China’s a hugely exciting and rapidly developing market. Bear in mind now that it’s an over $100 million business for us. We’ve been there for 10 years-
SUSAN And we’ve seen NZ companies, and the biggest of them being Fonterra, get into all sorts of bother there. Did you not look at that and think, ‘We’ve got to be awfully careful because they do business differently there’?
LAIN I don’t know of a single issue that’s not better with the benefit of hindsight. Could we have done better? Of course we could.
SUSAN But you had the benefit of looking at Fonterra. You had the benefit of a company that had really got themselves in trouble.
LAIN And companies, very large companies, from many countries around the world are finding themselves in strife in China on an ongoing basis. That’s not an excuse. It’s about being fit to do business there. But is it demanding? Absolutely, yes, it is.
SUSAN Are you fit to do business in China today?
LAIN We’re certainly getting fit. Would I rule out the potential for another future issue in China? Of course I wouldn’t. Are we absolutely taking actions to make sure we are fit? Yes, we are. We’re very optimistic about the future of that market.
SUSAN The fact you can’t rule that out, is that about a lack of ability on your part, or is it just the difficulties of doing business there?
LAIN Doing business in China, the business environment is rapidly evolving. What was accepted practice in China isn’t accepted practice any more. There is a real focus on corruption. It’s still an incredibly diverse and complex environment. So, China’s tough, but you won’t hear me whinging or using that as an excuse. It’s our responsibility to be fit to do business in China.
SUSAN And get it right.
LAIN And get it right.
SUSAN How much damage has it done to the ZESPRI brand in China?
LAIN It hasn’t in China. If there are issues, it’s the fallout back here in NZ of people saying that ZESPRI’s corrupt. ZESPRI isn’t corrupt. China’s tough. ZESPRI’s a great business, but the noise back here is disproportionate to the duty issue in China.
SUSAN What damage has it done to brand NZ, if any, in China?
LAIN Never good for NZ companies to have issues in China. That’s never helpful. And certainly we’re embarrassed about it. We’re unhappy that we’ve been seen in that light. But NZ is seen very positively in China, and that has certainly helped ZESPRI in its situation over there as its situation has evolved.
SUSAN How much more work have you got to do to get to the point where you feel really comfortable about China?
LAIN Do you know what? I don’t know that we’re ever going to feel really comfortable there. It is really demanding, but we’re certainly pouring in the resource, pouring in the focus, and the growth potential is worth the risk.
SUSAN You’ve got some grower discontent here at home. That may be growing. Hard to tell. How worried are you about that?
LAIN Well, let me first of all say that what we’ve seen is we have seen some negative media, and we do have-
SUSAN The media is picking up growers, though. ONE News just a few days ago, there’s a grower-
LAIN Sure, sure. So, we do have some grower discontent. So, let’s first of all have some analysis. There’s the industry structure and there’s ZESPRI’s performance. Two quite different things. There’s overwhelming support for the industry structure in ZESPRI, and even those growers who are unhappy with ZESPRI currently would say-
SUSAN You’re talking single desk?
LAIN Yeah, would say that they support the single desk. When we talk about ZESPRI, then grower support for ZESPRI, grower satisfaction with ZESPRI fluctuates depending on how the company is doing. Currently some growers are expressing some concerns. But a key point - this is an industry that was founded on grower activism. This is an industry, a company that’s owned by growers. It’s owned by current and former producers. It’s fully controlled by current producers.
SUSAN Sure. And some people say, to quote Dita’s [De Boni] track, ‘bloated, lazy and inefficient.’ Is that what you’ve become?
LAIN I don’t think so, and neither do the majority of kiwifruit growers. Just a point - we had an annual general meeting four days after that TV ONE news article. We had 50 minutes of general business. The growers who are associated with this discontent spoke at the meeting. 50 minutes of general business. An overwhelmingly positive meeting. Incumbent directors voted back on to the board. We are an industry in good heart, but it’s a primary industry. A diversity of views, robust debate. Nothing wrong with that.
SUSAN Good luck.
SUSAN Lain Jager, thanks for your time this morning. And we did speak to the Minister of Primary Industries, Nathan Guy, who told us despite ZESPRI’s conviction for smuggling in China, he thought it would be counter-productive to hold a government-led inquiry while an industry-led on is currently underway. The minister says what happened with ZESPRI highlights the importance of companies being aware of overseas laws when doing business in offshore markets.