Capitalize on Overseas Trends

Over the last year, the game has completely changed if you want to do business in Asia, especially in China. The economic slow-down is global, and just as conditions have changed stateside, new opportunities and challenges have developed for small and midsize businesses overseas.

To address these issues, NY Report recently hosted “Hidden Opportunities and Challenges of Doing Business in Asia.” The event was sponsored by HSBC Bank and featured four expert panelists: Savio S. Chan, president and chief executive officer, US-China Partners; James Emmett, regional vice president, HSBC Bank; Jeremy Hitzig, chief executive officer, The Distinguished Programs Group; and Jeremiah Schnee, managing partner of ABA/RFR Business Advisory Services. The panelists identified emerging trends in doing business in Asia, with a focus on China, and explained how to successfully do more business overseas.

While China has not been immune to the global economic downturn, the Chinese government implemented a $178 billion economic stimulus, which has turned the economy around. The stimulus is broad-based, and there are opportunities for many industries, including those focusing on green technologies and infrastructure (roads, railways, airports, water treatment, etc.).

Chinese Government Becoming More of a Resource

Local governments in China can be an indispensible resource for foreign businesses. They can help businesses gain deeper knowledge of potential and existing partners. In fact, you can engage various local government officials to keep you informed of a partner’s financial situation, or any changes to the ownership or control of a partner’s company.

The government also provides initiatives for businesses in industries they need to attract. For example, the Chinese government has determined that business process outsourcing (BPO) is an industry they want to nurture. They do this in a number of ways, including rent subsidies, support for obtaining industry certifications (such as ISO), airfare and travel subsidies for visitors, and cooperation with job training and learning initiatives for employees. Advantageous conditions for specific industries (manufacturing, technology, service providers, etc.) vary by region.

Opportunities in Specific Regions Open to Specific Industries

Due to an increase in wages and other pricing pressures, many Chinese factories have had to relocate to lower-cost provinces to the north, such as Chongqing and Chengdu. This helps importers create better margins for their products. Meanwhile, in south China, specifically the province of Guangzhou, there is increased need for infrastructure providers and companies producing LEED-certified products and services. The areas of China that are advantageous for specific types of business are always changing, and keeping on top of these trends is essential to profitability.
Even companies that have been doing business in China for years may not be attuned to the latest trends. One panelist cited a very large, successful company that had been doing business in China for years and didn’t realize there was a better region in which to produce their goods. This is an opportunity for small businesses, with the right help, to compete.

Beware of the Trade Wars

Another issue affecting manufacturing is the tariffs being imposed on Chinese goods, which are straining US-China relations. For example, the cost of a recent tariff on tires being exported from China rendered many businesses unprofitable overnight.

Know Your Partners (This is Now More Important Than Ever)

Partnerships and relationships with local vendors in Asia are crucial. However, over the last few years, it is not unheard of for a Chinese supplier to vanish overnight, leaving a US partner without products and out of a significant investment.

There are several steps companies can take to establish and manage secure partnerships. They shouldn’t put all their eggs in one basket; build more than one partnership. Get a letter of credit or credit insurance from your suppliers or partners to protect yourself against risk. Look for early warning signs, such as requests for help purchasing raw materials. And most importantly, spend time at the potential partner’s factory or place of business.
The concept of “management by walking around” is as important with overseas partnerships as it is with domestic ones. If you have been doing business in Asia for years, now is a good time to revisit your suppliers and “kick the tires.”

One more tip is to have all contracts written in accordance with the local laws. If you are relying on the types of contracts and laws that protect businesses in the US, that can be a mistake; they won’t help you overseas.

All of that said, ensuring that your overseas partner will help, not hinder, your business is only one half of building a successful relationship. Understanding your partner’s financial needs can affect your relationship and direct costs. Think about the cost of financing throughout the process, not just your own costs. Just as their shipping time affects your inventory time, their financing costs affect your financing costs. Consider what you can do to reduce their financing costs, and you could increase your gross margin.

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