The recent Australia China Free Trade Agreement (ChAFTA) has opened doors for many Australian businesses by giving unprecedented access to the world’s second largest economy, whilst enhancing Australia’s competitive position within key markets.
But entering a new market can be daunting for many start-ups and when looking specifically at the market in Asia, new hurdles, such as negotiating payment terms, ensuring quality of stock, preventing fraud and gaining trust present themselves.
To help point you in the right direction, here are some tips that you may want to consider when branching out into neighbouring waters.
1. Walk before you can run
A challenge many start-ups face is the ability to negotiate payment terms with suppliers. Without a proven track record, start-ups often have to negotiate with sceptical suppliers, and in many cases, up-front payment will be required.
Up-front payments cause a considerable strain on the overall business cash flow, particularly when you don’t have much of a track record to prove to the bank that your business is in a position to obtain a line of credit. To avoid financial strain, start-ups must ensure that their inaugural order with the supplier is in line with their available finances, as well as market demands.
Once the first transaction has taken place, and finances have been replenished, start-ups can continue to build the quantities of orders with the supplier, eventually leading to more flexible payment terms.
2. Do your due diligence
It’s important to ensure the product you’re purchasing is of sound quality before entering into a contractual relationship with a new supplier. So, do your due diligence.
When dealing with a new supplier, start-ups should always request a sample of each product they plan to order, before they make initial payment. Samples will give a good idea of the materials being used by the supplier, making sure that the end product meets quality expectations of buyers.
Although the sample should dictate the standard of each unit ordered, it’s advisable to start with orders of smaller quantities, allowing for review of quality with each order. Many start-ups opt to engage a third party service provider, who will certify the goods as correct, prior to being shipped and also negotiate on their behalf to help source the right suppliers for the business in the first place.
It is also of paramount importance that the buyer ensures that the supplier is conversant and able to supply product to conform with regulatory controls of the destination market. In addition, sufficient time must be allowed for any certifications that may be required prior to distribution of that product within the marketplace.
3. Keep your options open
Continuity of supply is critical for the survival of a start-up. It’s important not to rely on just one supplier, as any disruption they experience will then be passed on to your business.
To minimise the risk, it’s worth exploring a selection of suppliers, even if you only select one supplier to engage with in the end. This way you have an idea of what other suppliers you could work with in the market, without making sacrifices on quality, should any unforeseen circumstance occur with your current supplier.
4. Build a relationship with your supplier
Start-up or enterprise, all businesses need to be careful when dealing with overseas suppliers.
Whether you’re engaging with a new supplier, or there is a long standing procurement relationship with the supplier, ensure you keep in regular contact and make the effort to visit them at least once a year. Over time, start-ups, like all businesses, can build a good relationship through good business, and this comes down to getting the basics right, paying your bills on time, and ensuring deadlines for orders are met.
5. Keep in mind the country you’re dealing with
Asia is one of the world’s largest continents, and it’s important not to assume all countries in Asia share the same attitudes and values. Aside from the language and currency hurdles, it pays to know cultural aspects and customs of the country you’re dealing with, for example a religious holiday may impact supplier output.
In addition, it’s important to take into account the nature of the country you’re working with: is it an established market? Is it a specialist market?
The answers to these questions will help distinguish whether you’re in the right place, as a country which specialises in supplying the good you’re looking for is likely to be more competitive in price as well as quality.
6. If in doubt, use a sourcing company
Engaging with suppliers in a new market can be risky, so it’s understandable that some start-ups opt for a sourcing company to help show them the ropes. For a fee, sourcing companies will work with you to identify the right market for the supply you seek. They also help negotiate pricing, order samples and on some occasions also take you out to meet the supplier in person.
Stepping out and engaging with a new market such as Asia takes courage, but for many start-ups it’s a risk worth taking. Australia’s export credit agency, EFIC provides export assistance and grant programs, and it never hurts to seek advice from those who’ve done it before.
Brendan Green is General Manager of Working Capital Solutions at Octet Finance, a supply chain finance company and supply chain finance management platform.
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