Expanding your business should be done cautiously. Expanding into an international market, even more so.
Following US president Donald Trump’s decision to sign an executive order to essentially kill the Trans-Pacific Partnership trade deal, Business Insider has asked a handful of successful Australian entrepreneurs for their advice on how to deal with China.
Here’s what they had to say.
James Wakefield, co-founder of InStitchu
The most common way to expand into China is through a joint venture with a local partner. It is extremely important that they have a proven track records navigating the commercial and, in particular, political landscape of the specific provinces that you plan to expand into. There is a huge amount of risk as your expansion plans could come a sudden halt due to something as simple as a roadblock at local government level.
Each region in China is essentially its own country, with differences in culture, various dialects and business legislation. Studying the Chinese market as a whole, is not sufficient, you need someone involved with plenty of experience, who will be able to guide you and your business through the vast and varied cultural and legal landscape.
Brett Isenberg, general manager at Octet Express
Engaging with the Chinese market can be a challenging but necessary step for many Australian businesses. In order to see success, Australian businesses will need to build strong relationships with local suppliers. But first you need to throw away your Western business practices as you check through China passport control, and be ready to adapt a new way of doing business. It is important that you meet any potential business partners face to face. In a world where communication is so often digital, there is no substitute for meeting in person.
During the initial phase of your expansion, do your due diligence and explore an array of suppliers in the area. Get existing buyer references, sight their export licence and most recent annual business registration certificate. That way, even if you eventually just settle with just one supplier, you can have backup options should any unforeseen issues arise with your chosen supplier, without sacrificing on quality.
Finally, sample all goods you plan on purchasing when you visit the factory to check for quality. Start your orders small and quality check with each batch. While you’re at the factory, ensure that your goods are sourced in a sustainable and ethical fashion. Seeing the working conditions for yourself can help to avoid unfortunate surprises further down the track.
Jack Zhang, co-founder and CEO of Airwallex
Government relations and payments in and out of the country are a big challenge of doing business with China. Foreign companies often underestimate the extent of the government’s power and don’t devote enough resources to establishing relationships with both regional and national governments. Like most other countries’ propensity to promote local businesses, the Chinese government too favours local companies over foreign ones. Given that a lot of local companies are formidable competitors to multinational corporations, this puts foreign companies at a disadvantage.
Alex Phillips, sales and marketing director of LNP China
The China business environment tends to have a lower level of trust than Western economies such as Australia, so making sure you get paid requires going above and beyond what you would normally do back home. Never process an order or start a project on a Purchase Order or written agreement alone (as is standard in many Western economies). All too often, we’ve seen the ‘final 10%’ or sometimes 50% of payment never arrive due to a weak paper trail. Get a local dual-language contract in place and chopped with the Chinese company seal. Maintain leverage over the product or services throughout the deal.
Edwina Walsh, founder of Bamboo Monkey
The biggest issue for any small business is finding a supply resource and building a relationship. Especially from the other side of the world. Being a small business, you are not meaningful – in that the size of your order is quite small in comparison to the customers Chinese factories deal with. So my initial production orders were placed through third party operators, so I could leverage their buying power and existing relationships with primary producers. However when creating the apparel, I researched via the internet to find the right Textile Mill. Then I got on a plane and flew to Beijing to meet with them.
I am a big believer in the need to meet with a company, and see how they operate as the first step in any relationship. Especially an international one. It also shows the supplier you are committed to the process, and you will get better results.
Daniel Brady, founder of Heavenly Hammocks
Be wary of cashflow problems. Some manufacturers let us pay a 30% deposit and some want 100% upfront – it’s a little difficult, but it’s doable. Some suppliers let us pay by Paypal but most prefer bank transfer in USD. Initially we used a local bank for the transfer, but their fees and exchange rates were not competitive, so we’ve since changed to OFX (an online FOREX provider for Australia) whose costs are very reasonable. This method goes smoothly with all of our suppliers.
Elyse Daniels, founder of Exodus Wear
I started by using an agent, but it’s a difficult process. It’s really hard to get out of that situation as you’re giving them complete control of the supply chain. They can be very secretive, so it’s important to follow your gut if you’re not sure if your agent is on side.