When China opened its doors to offer cheap manufacturing to the world, Australian importers hastened to explore this exciting market. The Australian furniture industry was among the first groups to step into the importing/manufacturing arena and experience business with China.
Managing supply risks to ensure correct delivery of the specified goods is complicated, and sometimes expensive. In part, this is because the rules in China are different to those in Australia. While there is no independent study to reveal how much money is lost by Australian importers because of costly errors, empirical data suggests that most importers have experienced problems with at least one order.
According to China Blueprint Consultants , the reasons that lead to the difficulties, which the Australian importers experienced in the China market include:
- There is a rush to get ‘a piece of the action’. Having heard about cheap products in China, importers want to take advantage as quickly as possible.
- Importers often fail to do enough due diligence. Many do not take the time to check out their future suppliers properly.
- Some importers send money blindly. They transfer money to foreign bank accounts without verifying where, or to whom, its funds are going.
- Importers are used to dealing with wholesalers in Australia. They want the advantages of buying direct from the overseas factory, but fail to realise that Chinese suppliers operate differently from Australian wholesalers.
- Importers fail to understand the different rules that apply in the Chinese market. They do not know what legal protections exist on the other side of the sea. Often, they are reluctant to pay for costly lawyers. They may have heard that China does not adhere to trade agreements any way.
- Many importers are reluctant to seek expert advice. Experts cost money, and appear to want to slow projects down by planning, and implementing strategies to develop a good business foundation.
- Successes in Australia lead to excessive optimism. Furniture Importers usually come from a tradition of success in Australia. Faced with tougher economic times and increased local competition, they now have to turn to China to remain competitive. Confident in their expertise, they believe they can interpret this in a foreign environment.
- Importers put their faith in the Internet. B2B websites, with their tempting glossy pictures and unbelievable prices, make importing look easy.
Australians have many misconceptions about doing business in China:
- Law means nothing in China: Believing this falsehood could lead to trouble.
- Everything in China is cheap: Many products are cheap, but they may not represent good value. Poor quality items may appear cheap, but can actually prove costly.
- You will make your fortune with your first shipment: Though the price advantage can be significant, the first import will always be more expensive as one must implement due diligence strategies. The importer should ensure the factory is legitimate and can provide a quality product that complies with Australian standards. As the importer develop relationships, it is important to continue managing potential risks. Generally, these risks will reduce over time, leading to increased profits.
- The factory understands Australian standards: Australia is a unique market with some of the world’s highest standards. Australian importers are discerning and have high expectations. Chinese factories find the Australian market challenging because of the demand for high quality, and minimum quantity orders.
- The factory will guarantee the quality: False, especially when the goods have been paid for and are now already at your door step. Guarantees must be negotiated up-front, and confirmed with a contract.
- After a few shipments one need not inspect any more: Inspection is not just about keeping the factory honest. It is also about compensating for potential human error, and errors are common, because Chinese factories leverage themselves on cheap human labour.
It is still possible to achieve a competitive advantage using Chinese manufacturers. Some may be able to do this unassisted, but most will need a consultant with expertise both in your industry, and in the China market. The expertise and experience of a quality consulting service allows the importer to import with confidence. The importer’s selected team of experts should include:
- Business Consultants (with proven experience in China): The business consultant manages the ground affairs, reducing risks and saving time and money.
- Inspection and Testing Laboratories: The importer’s inspection agent, usually managed by the consultant, alerts the importer to the many manufacturing-related issues that can occur before the goods leave the country.
- Freight Forwarders: The freight forwarder manages freight costs and challenges.
- Insurance Brokers: The insurance broker offers protection against accidental damage or loss, and many other specified risks.
- Banks and Trade Finance: The bank or trade financier helps the importer to manage cash flow to grow the business. This team of professionals manages procurement for the importer, letting the importer to get on with the job of ensuring the profitable sale of the goods when they safely arrive.