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Emerging Drives and Pattern to Work with China


Labelled as World Factory and a Millennium Century Market, China has stirred up the world with its unmatchable capacity in manufacturing and unprecedented desire of consumption. Today, 32 years into its opening up to the western world, China has evolved to a new phase where there are emerging drives and pattern to strengthen its position as both world manufacturing base and a fastest growing market.

Emerging Drives for Manufacturing in China

Many Australian companies see manufacturing in China as offering advantages as a low-cost, manufacturing-for-export location, however many are also pursuing broader strategic objectives. While reducing costs of production remains an important objective, more and more companies are capitalising on China as a key world centre for production and to tap the huge Chinese domestic market.

China represents a strategic opportunity for businesses to position themselves nearer to the source of rising future global demand and production capacity, which is especially driven by the need to seek new customers as the Australian market matures. Businesses also outsource manufacturing to China or set up their own manufacturing bases in China due to the inability to source products at the right quality and price point in Australian or even from some of frequently talked about emerging manufacturing regions, and the need to respond to structural changes in their industry as a result of globalisation.

As an example, a well-known Australian textile company started sourcing from China as production of textiles moved from Europe into Asia, initially to Japan, South Korea and Taiwan, and then to China. As this happened, designers and retailers slowly started dealing with fabric mills and garment producers directly, a factor which slowed the business’ growth. In responding to this development, the company started importing and sourcing from China directly and added to its offerings as an intermediary organisation between top end designers in Australia and fabric and garment producers in China.

New Pattern of Micro-multinationals to Work with China
While opening up the market to small and medium enterprises has been made possible by China’s new ethos of “free market communism”, a greater influence at the individual firm level is enhanced communications, and specifically the internet, allowing access to information, contacts and know-how that has previously not been available. With this new level of information, SMEs are empowered to engage in the Chinese market, and more importantly to control, to a certain extent, their destiny there.

It is likely that this pattern of SME engagement with China will only continue and grow. It is also imperative for Australian companies, in order to be competitive, to look at different business models and push their thinking to leverage China to do business globally, though they are defined as “small and medium” by capacity.

In fact we are witnessing a new pattern of global business engagement which is giving rise to the ‘small global enterprise’ or micro-multinational. These are a new breed of small businesses, enabled by internet-based communication tools, that manages production, delivers services and directs resources, employees and clients in more than one country. The rise of such small global enterprises is due to technological advances in the use of the internet, cheaper telephony and lower travelling costs that allow the implementation of unique business models and the capture of new business opportunities.

To quote Roya Ghafele, the economist with the World Intellectual Property Organisation in a 2006 article, SMEs or Micromultinationals?

When looking at the internationalisation of business operations, size matters less and less. SMEs equally take their share in the global market. Rather than critical mass and the necessary budgetary backing, smart business strategies, a high degree of flexibility and the ability to grasp new business opportunities drive success in worldwide markets… Soros argues in his book on Globalisation that the revolution in information and telecommunication technology, not only impacted the speed at which interaction takes place, but also brought the most remote corners of the world closer together. All this, at incredibly low cost. Access to the global community at low entrance fees has opened doors for new players and provided new market opportunities for small and big companies alike.

Australia, positioned as it is in Asia and with evidence of small businesses successfully operating in China, needs to understand this emerging trend of small ‘virtual’ global enterprises and strengthen its capabilities to capitalise on it for the China market.

The article is contributed by Sara Cheng, Manager-Greater China region, Australian Business. Email: sara.cheng@australianbusiness.com.au

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Get the Most and Best Out Of Your China Business Consultant


By Sara Cheng 

 China is a hot button and probably also one of the most frequent headlines of Aussie media nowadays. Coming along with this are numerous China business consultants emerging like bamboo shoots in all colours and with various language and education backgrounds. Australian businesses eager to jump onto the wagon to do business with China are surrounded and bombarded by China business  seminars, conferences, summits, cocktail functions and then tracked down by all these consultants both during and after functions and events.

 Are these consultants adding value or rather a worthless upfront cost for businesses?

 The answer is yes and no, depending on who you work with and how you work with them.

 It seems cliché but sometimes some businesses do not use common sense when it comes to choosing consultants which are critical for achieving their business success in China. Bear in mind the 3 must-have characteristics of quality China business consultants when you chose whom to work with:

  • China commercial experiences and capabilities: The consultant is not carrying out an academic research for you. They should be able to breathe the depth and breadth of your business, grab the essence of your situation and needs in the shortest timeframe, put this in a broad but practical China business framework and get solutions for you. China is a country full of cultural nuances and operates under a different system. Without systematic business-related education background and extensive personal commercial experiences in China, a business consultant will not be able to possess such knowledge and expertise to navigate you through the system and achieve success in China.

 

  • Chinese language skills-this is common sense. Mandarin is the official language in China. Though there are dialects and accents in various regions, especially in East China and South China, Mandarin is well understood China wide. Without this language skill, your consultant will only obtain 2nd hand (might outdated as well) information when conducting research and will not be able to communicate with Chinese stakeholders on your behalf.

 

  • Most competent communication capabilities: Your China business consultants will communicate with your potential Chinese distributors, agents, manufacturing partners, suppliers, joint venture partners, Chinese government agencies and industry bodies on your behalf. Any small mistakes in such communications may damage your relationships with Chinese stakeholders or compromise the quality of the work they do for you. Assess your consultants’ communication capabilities before you enter into a service agreement with them.

 

Just having a quality China business consultant cannot guarantee you succeed in China. There are 2 must-know rules to make sure you achieve the most through your competent China business consultants:

  • Provide genuine information they require from you: In lots of cases, ethical and experienced consultants can straightaway let you know the ideal model for you to work with China or the potential of your products/services in China if you provide them genuine and comprehensive information on your business strategy, situation and needs. If you have little chance to succeed in China, they may be able to advise you the difficulties upfront and hence save your time, money and resources to work on mission impossible.  

 

  • Provide inputs, monitor milestones and work closely with them: No matter how smart and experienced your consultants are, they do not have the knowledge on your business as you do. Hence do not just leave everything in their good hands. Require progress report, communicate with them regularly, provide feedbacks, ideas and information when required or necessary so that they will refine and tailor the approach during project delivery and achieve the best they can do.

 With a competent consultant and work with them in the right way, you will get the most and best out of your China business consultant and achieve success doing business with China.

For assistance you may get from our China business specialists, please click here or call 1800 505 529 for China business specialists.

 
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Posted by on March 12, 2010 in China

 

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Checklist for due diligence on Chinese Manufacturers / Suppliers


By Sara Cheng

 China has been labelled as the World Factory for more than a decade. Whatever you can think of, it is most likely that you can find it being manufactured in China. Moreover, Internet provides a perfect tool to identify a long list of self-claimed Chinese manufacturers with decent websites in a second. However, foreign companies sometimes find themselves lost in a vast sea of choices, end up with fault products imported from China or work with a “suitcase” company- a Chinese term to describe fraudulent/fake businesses.

The key word here is qualifying. Conduct due diligence on your Chinese manufacturing partners/suppliers before you sign the contract.

Here are some factors you must include in your due diligence on Chinese manufacturers / suppliers:

  • Is the business a genuine business? Obtain copy of their business licence and, if possible, check with local Commerce and Industry Administration Bureau on the legitimacy of the Chinese business.
  • Is the business a manufacturer? Smart Chinese middlemen understand you would like to cut down cost and go directly to manufacturers. Hence they may work on a manufacturing site picture, put it on their websites and claim they are manufacturing what you need. Again obtain the copy of their business licence to check their business scope and/or investigate  with local government agencies/industry bodies directly or through China business consultant.
  • Does the Chinese manufacturer have surplus manufacturing capacity and capabilities to meet your current and potentially growing demand? Check with the staff of the company on their manufacturing capabilities. If you are placing big orders and/or look at working with a long-term manufacturing partner, it is worth visiting the Chinese manufacturers to better assess their manufacturing capabilities.
  • Does the Chinese manufacturer have quality control system in place? Do they have an international quality accreditation? Obtain a copy and check with the authorization organization.
  • Is the Chinese manufacturer a reputable business in the industry and protect clients’ intellectual property? Check with industry bodies, their clients and suppliers and conduct secondary research to find information on the company’s reputation.
  • Is the Chinese manufacturer committed to work with you? If your business is not vital to them, you are at the very bottom of the list when they prioritize orders and hence may delay the production or delivery for your order during peak time.

 

For further information and/or assistance with Chinese manufacturers/supplies selection and due diligence, please contact Sara Cheng, Manager-Greater China, Australian Business International Trade Services. Email: sara.cheng@australianbusiness.com.au or call 1800 505 529

 
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Posted by on March 12, 2010 in China

 

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Peru: From Machu Picchu to Mining and Minerals


Australia’s ties with Peru are growing steadily. After all, it was less than a month ago that Peru made headline news in Australia. Out of 2,500 tourists stranded at the popular tourist destination of Machu Picchu after a crippling mudslide, 170 of them were Australians!  The figure was hardly surprising as 25,000 Australian’s visit Peru every year.

But Machu Picchu isn’t all Peru has to offer Australia. In fact, never before Latin America looked so inviting and Peru is no exception. In 2008-2009 trade between Australia and Peru reached $A 252 million, Australian exports amounting to A$134 million. Australian exports were concentrated in milk and cream, civil engineering and parts, goods vehicles and analysing and measuring instruments.

Economic Performance

Like many of its Latin American counterparts the Peruvian government undertook a lot of privatisation and other market-orientated economic reforms in the 1990s and the affects have now taken hold. Peru has outperformed the rest of Latin America and indeed the rest of the world with impressive annual growth rates that peaked at 9.8% of GDP in 2008 before the onset of the global financial crisis. In the last decade, Peru has promoted trade through investment reforms and a series of bilateral FTA’s.

Mining

With out a doubt the mining and construction sector has been the back bone of Peruvian growth. Peru is one of the world’s top mining countries with large deposits of copper, iron and zinc. 60% of Peru’s merchandise exports are minerals and like Australia, Peru has benefited enormously from the boom in commodity prices.

The down-side of this of course is that Peru is vulnerable to any fluctuations in commodity prices and could experience a recession in the event of a slump. At the moment the GFC has delayed a number of large U.S-backed projects worth billions of dollars and as a result the Peruvian economy has slowed significantly. 

But the strong demand for minerals from China and Asia, as well as the number of large government projects has stopped the mining sector from grinding to a halt. If we’re lucky, numerous future projects should fuel demand for Australian engineers and suppliers of future goods and services. Peru remains incredibly attractive for Australian businesses.

The Peruvian market is no stranger to Australian business. There are several big-name Australian businesses already set-up in Peru including ALS Chemex, Pasminco Explorations, Rio Tinto, BHP Billiton, Burns Philp, Amcor Packaging, Orica and Downing Teal. Australian suppliers have succeeded in the Peruvian market for mining locomotives, slurry pumps and mineral processing control systems.

There is a lot more money to be made. Peru is going to need more mining equipment, gear, machinery, shovels, software, compactors, safety equipment and much more that could potentially come from Australia. We have the know-how, let’s use it. The economic relationship between Peru and Australia has a bright future!

 Amy Doyle – International Market Analyst

For more information or assistance, please contact Australian Business International Trade Services under 1800 505 529 or email Sara at sara.cheng@australianbusiness.com.au.

 
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Posted by on February 26, 2010 in Latin America

 

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Business in China – Doing it Right!


When Coca Cola entered the Chinese market, they wanted to find Chinese characters for the phonetic equivalent of “Coca Cola”. So they chose Ke Kou Ke La, which translates literally into “bite the wax tadpole” or “female horse stuffed with wax”, depending on the dialect. Similarly, in Taiwan, the Pepsi slogan “Come alive with the Pepsi generation” was translated as “Pepsi will bring your ancestors back from the dead.”

These are just two of many anecdotes about intercultural communication gone horribly wrong. Especially when it comes to cultures (and languages) as different as Australia’s and China’s, there are significant challenges for those who wish to overcome the existing barriers. Lucky then that our Prime Minister is the only Mandarin-speaking premier outside of Beijing. Or not?

Human beings generally display a great desire to surround themselves with familiarity. That’s why people from the same background tend to stick together and rarely exit their particular comfort zone. It’s where we belong and where we feel understood. But the world has become a very small place and with international business links connecting the entire globe like a bowl of spaghetti it’s hard to escape the need to cross cultural boundaries.

China is THE emerging market of the future. This is particularly true for Australia, considering China is our most important two-way trading partner, taking about a quarter of our exports. Demand from China was one of the key factors that rescued Australia from global recession. But we will need to find a balance between being open and being vulnerable and relations have been strained recently by the Chinese expression of interest in buying key stakes in Australian resources and commodities firms.

If anyone still has doubts about the intense interdependency between the two countries, think about monetary policies. Governor Glenn Stevens announced that the RBA’s decision to leave Australia’s target cash rate where it is can be explained mainly because of the Chinese authorities’ efforts to reduce the degree of stimulus to their economy. 

How does all this affect Australian businesses? Most of them engage with China on a trial-and-error base, wasting money and time on working out the basics. This is the outcome of a recent study by the Australian Business Foundation in co-operation with Australian Business International Trade Services, titled “Engaging China – The Realities for Australian Businesses”. The research was designed to explore the actual experiences of Australian enterprises which have had a substantive history of doing business in China, analysing the opportunities and problems addressed by them as they seek to enter, expand or maintain an competitive position in Chinese markets. Following a series of 25 business case studies based on interviews with senior executives of Australian businesses, the study points to three key issues in the business environment: culture, relationships, and government. All of them are at the heart of successful entry into the Chinese market and can decide over the yays and nays.

To read the full report at no cost, click here.

Stefanie Mueller – International Communications Strategist

For more information or assistance, please contact Australian Business International Trade Services under 1800 505 529 or email Sara at sara.cheng@australianbusiness.com.au.

 
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Posted by on February 18, 2010 in China

 

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Colombia – Investors Sold on Peace and Security


For many investors the mention of Colombia has for decades been accompanied by the frantic waving of red flags. It is no longer the case. The unparalleled success of President Álvaro Uribe Vélez in reducing the prevalence of violence and unrest has translated to new heights of investor confidence.

Political Stability

Violence has been a mainstay of the Colombian nation. Simply put, the fighting has been between left-wing guerrilla groups and right-wing paramilitaries. Drug cartels fund the violence so that the guerrillas defend their cocoa crops from any government interference. Civilians have been very involved. The fighting has occurred in their backyard, and on their front lawn.  Their family members have been murdered and kidnapped.

It was no surprise then when in 2002, Uribe was elected on a platform to restore security and target violence. His language was highly explosive and his policies hard line – and guess what – they worked. The rebel groups have been left weak and fragmented and the most of the paramilitaries have been demobilised. He was re-elected in 2006 by a grateful citizenry.

The Colombian Economy

Despite the turbulent political environment the Colombian economy is diverse and relatively advanced. Its key exports include petroleum, coffee, bananas, emeralds, flowers and coal. After a crippling recession in 1999 in which GDP contracted 4.3% the economy was resilient and bounced back with an annual economic growth rate of 5% from 2002 to 2007. The economy was not immune to the recent crisis. GDP fell 0.7% at the end of 2008, and unemployment rose slightly in 2009. 

The momentum behind the economy is in part due to Uribe’s economic reforms on tax, pensions and the budget. But it is mostly due to his security policies. It is amazing what difference it makes when people no longer fear their income, notoriety or business could lead to their murder or capture. A secure political, civil and business environment has unsurprisingly increased FDI and exports!

 Opportunities

There is an array of opportunities available to Australian businesses in Colombia including wheat, corn, soy and seeds, cotton and yarns, environmental services, renewable energy and medical equipment to name a few. But the most promising areas are agriculture and mining. Agriculture and mining are important sectors to Colombia but are not yet fully developed. As firms become more developed they will look to advanced economies like Australia to import sophisticated technologies so they can increase efficiency and yield. Australia has the opportunity to export mining machinery and training to the Colombian oil, gas and coal sector and both genetic materials and live animals to the Colombian agricultural sector.

Amy Doyle – International Market Analyst

For more information or assistance, please contact Australian Business International Trade Services on 1800 505 529 or email Robert at robert.trzebski@australianbusiness.com.au.

 
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Posted by on February 12, 2010 in Latin America

 

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Cup Half Full in Brazil?


Based on the article “Cup Half Full in Brazil?” by Simon Tarmo, from his Brazil 2014 blog, 18 May 2009

Simon Tarmo is a journalist from Sydney and co-founder of the industry journal Australian Sponsorship News. He now lives in Belo Horizonte, Brazil, and is currently focusing on business opportunities involving the 2014 FIFA World Cup in Brazil.

 

After the announcement of the 12 Brazilian cities to host the 64 World Cup matches in June and July 2014 the only question remaining is just how much work needs to be done before Brazil is ready to rumble. Most stadiums around the major host cities, even those in Sao Paulo or Rio de Janeiro, still don’t meet the minimum standards required by FIFA. The relatively short timeframe to tend to issues ranging over media, technology, infrastructure, hospitality facilities, and security, will pose a major challenge to the country.

Security is one of the most important aspects to be addressed before 2014. The Brazilian government has already started implementing its ‘Torcida Legal’ (literally ‘legal supporter’) project, which features the installation of complex crowd monitoring and security technology in all locations with a capacity of more than 10,000 spectators.

The project is aimed to set standards for the control of access to the stadia, the amount of video cameras required to monitor the area, and the setting up of fully functional security centres around the sites. The facilities are to be at least mainly efficient for the start of this year’s domestic soccer season and ideally up to scratch for the 2013 Confederations Cup, one year before the big event.

It will be an interesting to watch how it all turns out. Sinaenco, Brazil’s national association of architectural and consulting engineering companies, is certainly convinced that Brazil will live up to the expectations and is fully capable of developing and managing all projects regarding the event. Indian-based company Satyam, FIFA’s official technology sponsor for the 2010 and 2014 World Cups, has significantly increased its involvement in the Latin American market and most certainly hopes to get as big a piece of the cake as possible. Especially after its rather unpleasant ramble over the resignation and later arrest of founder and chairman, Ramalinga Raju, Satyam is eager to set the record straight and leave a good impression in Brazil. In South Africa, for instance, Satyam is responsible for the development of the core IT event management system for FIFA.

Enough of the prognosis! After all, it is the party centre of the world we are talking about, the country of Carnaval and Samba. No matter how big the obstacles, Brazil definitely has a strong desire to show what it’s worth and we will be following its progress with excitement. It would not be the first time that all the prior talk about possible failures turns out to be nothing but rambling.

For more information or assistance, please contact Australian Business International Trade Services on 1800 505 529 or email Robert at robert.trzebski@australianbusiness.com.au.

 
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Posted by on February 11, 2010 in Latin America

 

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