With Chinese New Year kicking off this week, now is the time for SMEs to reevaluate their trade practices with China with a view to more prosperous trade relations. By Simon Glendenning.
With recent East & Partners research suggesting over a third of trade goods received by SMEs in Australia come from China, with similar statistics on the export side, China is one of the most important international markets for Australian small businesses.
These figures are set to remain strong for the foreseeable future due to the recent Free Trade Agreement which will include various tariff removals and provide new opportunities for doing business with China through mutual qualification, permit and technical recognition agreements. If you’re currently doing business in China – or plan to do so in the future – here are a few things to consider.
Don’t get caught out
The Chinese New Year falls between 18February and 24 February, during which time no payment processing can be executed to China, Hong Kong and Macau (19 February - 21 February). As such, it would be prudent for all SMEs dealing with China to consider whether it would be beneficial tosettle their January 2015 Renminbi (RMB) invoices before 18 February. Doing so can ensure businesses avoid late settlement fees or cash flow issues associated with delayed incoming payments.
Keep it local
For importers, there are significant benefits in paying Chinese beneficiaries in Renmimbi, rather than AUD or USD. Paying your trading partners in their local currency is a faster and more efficient method of payment, which can also lead to potential discounts from your trading partner. This also ensures businesses can avoid FX transfer fees which can add unnecessary dollars to costs.
Understand who you are dealing with
There are some notable differences between how Chinese businesses operate compared to businesses in Australia. For example, many Chinese operators are willing to run their business on lower margins in order to gain market share, whereas Australian SMEs tend to operate with more conservative margins.
Understanding these differences and maintaining a strong working relationship, including regular verbal contact, are important factors when dealing with China.As such, hiring a Chinese-speaking employee (or learning some Mandarin/Chinese yourself) can be a useful tactic for developing an open and trusting relationship that extends far beyond emailed orders and invoices.
Simon Glendenning is Regional Director, Asia Pacific at Western Union Business Solutions.
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