The importance of trust in trade

A study by Andrew Gilmore shows how trust in partners and products raises and lowers trade demand.

China is Australia’s largest trading partner by a wide margin. With a trade relationship worth $138 billion in 2014/15, $81 billion of which was Australian exports, Australia puts a lot of emphasis on this economic partnership.

While much of this trade success can be put down to demand for Australian commodities such as iron ore and coal, trust in the quality and standards of goods from Australia is also an important factor.

“High trust means that the Chinese market will push for more imports, and the increased demand means Australian products can command a higher price,” says Dr Andrew Gilmore, a lecturer at the Business School in La Trobe University. “Maintaining a healthy level of trust with Asian partners should be an industry priority.”

Dr Gilmore’s research examines the international market trust in Australian institutions and goods. By surveying food importers and distributors in China, Japan, and India, he hopes to highlight strengths and weaknesses in how Australian products, and those of rival supplier countries, perform in Asian marketplaces.

While competition in the Asian market is crowded by American and European brands, Gilmore believes the resilient performance of Australian products is, at least partly, a result of consumer trust and desire.

“China has a lot of domestic problems with the manufacture of food,” he says. “In 2008 they had a milk safety scare, so demand for imported dairy was high. The same happened to the production of baby formula, and they looked to Australia to fulfil those needs. China strongly associates Australian products with safety and quality.”

Streamlining of quarantine agreements in 2014 reduced the time it takes to get milk from Australia to the Chinese consumer to seven days – dairy exports alone to China are now worth $424 million annually. Free Trade Agreements with China, Japan, Korea, and numerous other Asia-Pacific countries is also credited with increasing the attractiveness of Australian products.

Recently, an Australian manufacturer of fresh milk (Made Group) has developed a product with a 90 day shelf life, opening up the entire Asian region to fresh milk shipped by low-cost sea freight, thereby undercutting the prices of air-freighted fresh milk from European and American suppliers. In combination with the high trust levels ascribed to Australian dairy products, this augurs well for Australian milk exports.

“Trust is an under-researched aspect of international business, but it is crucial to the success of export sales,” Gilmore says. “My research will set an important benchmark for tracking our performance in the future in the increasingly competitive Asian markets.”