Exporting to China – three considerations for every small business
Australia’s export outlook is supported by its strong ties to China and India. This is because China and India’s economies are expected to represent almost 30% of the world’s GDP by 2021 in terms of purchasing power parity valuation, according to a new report from Austrade. This growth has subsequently created opportunities for multiple sectors in Australia to experience growth via exporting.
It’s important, therefore, for small businesses to consider the potential opportunities from Australia’s largest trading partner, China, and to understand the steps Australian small businesses should consider to take advantage of the opportunities of China’s growing middle class.
CarePlus, an exporter of health supplements and personal care products, is a great example of an innovative small business that has overcome challenges and successfully launched its products to the Chinese market. The company’s journey provides useful learnings for other small businesses trying to break into the Chinese market.
Identify Chinese demand for your product first
Just because consumerism is growing in China due to its booming middle class, does not necessarily mean your product will be well-received from Chinese consumers.
CarePlus was established to satisfy the demand for premium Australian health products from the increasingly affluent Chinese middle class. The business was aware of the growing trade ties between Australia and China, and undertook multiple tests to ensure the local market would be receptive to its products.
A solid customer base in the Chinese market is critical. All small businesses that are considering exporting to China must not get carried away with the volume of potential customers.
“A lot of Chinese realise there are great opportunities to make it easier for them to buy Australian products through an online base,” said Founder and CEO of CarePlus Australia, Patrick Liu.
“Identifying that demand is crucial for any potential exporter.”
Understand the logistics of exporting to China
Many exporters overlook the time and resources needed to be dedicated to shipping and freighting when they first start preparing for an export order. The logistics component of an export business is significant – how are you going to get your product to the target market, how long will it take, how much it will cost, how will you manage the process?
For CarePlus, the company decided to operate via an e-commerce platform owned by Alibaba, one of the largest global e-commerce companies connecting Chinese buyers and sellers. The company was then able to keep large amounts of stock in their warehouses and fulfil all orders in a timely manner.
The company’s combination of e-commerce and housing large amounts of stock to send when required was crucial to the company’s quality customer service and overall success in the market.
“To sell online to China is more or less the same way you set up a retail store. You wait for the customer, the customer clicks the buttons, make payments, we receive the orders, and send parcels either from here or through trade zones to them,” said Liu.
“Within a certain time period the customers receive the parcels, they click the button receipt, and then the money automatically transfers to our Australian account.
“It is a safe, easy and simple way for an Aussie company to do business with China.”
Be aware of financial issues (and the options you can take)
One of the most common problems for small businesses is funding export growth, with many businesses needing support to enable them to fulfil export contracts.
With a significant proportion of cashflow tied up in inventory, as well as suppliers often requiring payment in advance of goods being dispatched, CarePlus had a need for additional working capital to deliver on orders and continue to grow.
While the relationship bank wasn’t able to provide CarePlus with the finance it needed, it suggested it get in contact with Efic.
“The real challenge is actually the cashflow part because as the business grows we are storing more products, we store over 400 products, and after the customer pays for it, the money doesn’t come to account until about 60 days or more,” said Liu.
“Efic worked with our bank to give us the working capital guarantee to give us access to the working capital to support our business to pay off supplier’s bills.
“The value of that working capital guarantee is worth $300,000, which helps us a lot. When thinking about finance for export, consider all the options.”
By Andrew Watson, Executive Director, Export Finance, Efic
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