Export essentials: What SMEs should know when expanding to China
Tuesday, September 29, 2015/
Exporting can be an important strategic decision for many small and medium-sized enterprises as they seek to grow and expand.
For SMEs with international aspirations, the first step is selecting the right export market, which requires conducting as much research as possible on whether a market is suited to their product or service before making any commitments.
China is one market that offers some great export opportunities for Australian SMEs, with its long-term economic growth trajectory and rising middle class.
Identifying a potential market in China is only the first step. The next step is understanding how to go about entering the Chinese market.
SMEs should take the following steps to ensure their transition into the Chinese market is as smooth as possible.
Network with peers
Establishing strong networks is crucial for all SME exporters, and when exporting to China, is a particularly important method of accessing valuable information and support.
One great way to do this is through established forums and networking groups. The Australia China Business Council provides information programs and opportunities for the Australian business community to network on China business activities, as well as hosting events with senior contacts within the Chinese government.
Another option SMEs exporters should explore are events hosted by their industry associations. These can be a useful way to meet peers and learn from their experiences of doing business in the Chinese market.
Understand the business culture
When exporting to a new market, it is paramount to understand the local business culture and ensure you have an appreciation of the expectations of doing business there.
This is no different in China, where many Australian businesses find the business culture quite different to the environment in which they are used to operating.
Chinese business culture is focused on building strong relationships and many business deals will not be closed until trust has been established between the parties. This can mean an extended period of meetings and dinners during which both parties build trust prior to any deals being signed.
Meet trade advisers
Trade advisers can provide advice and support to SME exporters operating in China in a number of ways.
The Australian Government’s trade and investment agency Austrade has 11 offices across China providing support to Australian businesses.
Austrade’s advisers and other export services are available to Australian companies looking to grow their business in China by helping them connect with potential partners and clients.
Seek expert advice
Receiving good quality legal, tax and professional advice is critical before commencing export activities into China.
When establishing operations in China, it is advisable to use a legal firm with a local presence to ensure you are complying with regulations and laws. They will also be able to highlight any contract issues you may encounter.
Manage potential risks
There are always potential risks involved in exporting. Being aware of these risks and planning for them can help to mitigate their impact on your business.
To help you manage potential risks when entering China, you should consider:
1. Hiring a local translator to help in establishing strong trusting relationships with local business partners
2. Spending time learning local regulations to avoid getting caught out
3. Asking your accountant or banker to help you understand the payment methods available to you to ensure you get paid
4. Protecting yourself against potential intellectual property issues by building strong relationships with local partners and protecting your products with patents.
CarePlus Australian success story in China
CarePlus is a Sydney-based online exporter of Australian food products, health supplements and personal care products to China.
As an online exporter with limited presence in the market, strong customer service throughout the order and delivery process is critical to customer satisfaction.
This requires a large amount of stock to be purchased and warehoused at all times in order for the company to fulfil all orders in a timely manner, which places pressure on the company’s cash flow.
With a significant proportion of cash flow tied up in inventory, as well as suppliers often requiring payment in advance of goods being dispatched, CarePlus has a need for additional working capital to deliver on orders and continue to grow.
Australia’s Export and Insurance Corporation (Efic) provided a $300,000 export working capital guarantee facility to the company’s bank, allowing it to release the funds as needed to support the prepayment of stock and freight costs associated with the rapidly expanding business.
With this taken care of, CarePlus has taken advantage of the growing trade ties between Australia and China, further encouraged by the free trade agreement negotiations, to significantly grow its business.
Andrew Watson is the executive director of export finance at Efic.
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