The reality of today’s economic climate is that offshore production is almost a given. But a haphazard approach to bringing a new range or product line to market is destined for failure, so knowledge of offshore markets is essential. Small to medium enterprises (SMEs) by nature are under-resourced with team members wearing many hats. It is unlikely that SMEs will have the capacity to allocate a dedicated resource to manage the process. This is not a show stopper. What is important is ensuring investment in important parts of the process – even though there may be cheaper options - which will slice costs later in the process.
Produce samples locally
While tempting to skip this step, often seen as an unreasonable and avoidable expense, it is regarded as one of the more important foundation stones in the process of creating a solid understanding between a business and an offshore partner. A quality finished product can not be argued with when stepping into negotiations and can provide a benchmark for comparison as production commences. Produce this locally so you can remain close to the process and spend your time efficiently rather than managing communication delays between Australia and China.
Be explicit about requirements
The Chinese generally are a very prescriptive culture. As such, clear and exact direction is required when working with the market. Details regarding all elements of your requirements – from quantities through to quality standards – must be explicit. Information about ordering cycles will assist the Chinese partner in their planning and ensure needs are being facilitated in their production planning. Do you have seasonal requirements? What are your minimum volumes? If there is any room for misinterpretation then your risk as a business is heightened and ultimately costs will escalate unnecessarily.
End-to-end plan
Outside of core production requirements, clarity around logistics and shipping requirements is also fundamental to the establishment of a good, working relationship. A Chinese partner is going to need to know ahead of time where goods need to be delivered to, is it going direct to port or to a Chinese distribution facility? Who is managing your logistics, customs and shipping requirements? What timeframes do you need in order to meet the time guidelines around this? Transparency around your full production cycle will help your partner to deliver within your requirements.
The importance of face-to-face
When it comes to establishing relationships with Chinese partners, online research is not the place to decide. Meeting these companies in person is paramount.
Carl Jetter of Australia China Connections advises against relying on the internet for trading partners.
“Referral business through professionals in the know is critical. Work with businesses who already conduct business with Australian companies or who have strong links to Australia through brokers, trading partners or sourcing agents.
“Trying to fast track the set up of this part of your business by skipping important steps such as meeting face to face, will expose you to additional costs and increase the risk of failure.”
Jetter says many businesses don’t have capacity to support a reasonable research and development budget in their expansion activities. Local opportunities to research are rare but do exist.
Visiting local trade expos such as the China Clothing & Textiles Expo is a great alternative for local companies to make these connections without the burden of an expensive overseas trip. It is important to research thoroughly to be sure of all your options, this event gives visitors the perfect opportunity to do this, whilst minimising their costs.
Maintaining a high standard of event is paramount therefore exhibitors must meet minimum criteria in order to participate.
Key features of a quality partner
There is no question, the choice of partner in China can be overwhelming. In order to sort through the many options, Tiefu Zhang, Australian representative of Sunvim Group, one of the largest international textile manufacturers, advises the following:
- Ability to scale: The manufacturer must be able to grow with your business. There is significant time and energy invested in establishing this relationship, the bigger picture must be part of the plan. As your business grows, you need to be assured that your production requirements can be met by the same partner, thus minimising ongoing costs as time passes.
- Quality product: The end product must be high quality and as briefed
- Strict delivery timeframes: The manufacturer must have a track record of being able to deliver within prescribed timeframes.
- Broad range: Again, looking at ongoing growth, a single manufacturer that has capacity to produce a broad range of product is going to assist in your business development over time.
- Competitive and scaled pricing: As your volumes increase then you need to be assured that economies of scale will be offered through pricing from the manufacturer. As a true partner, this needs to be clear at the outset, with the discount benchmarks pre-defined.
Have all these elements qualified by other Australian businesses, agents or brokers already working with them prior to committing to a contractual agreement.
Bridging the cultural divide
Culturally, the two markets still have much to learn from one another. To establish a strong working relationship at the outset, Australian businesses need to do their homework. While relationships between Australian and Chinese partners have developed in recent years there will always be cultural differences that are entrenched and each party needs to learn how to manage these with diplomacy.
The Chinese are a culture which avoids conflict, therefore negotiations at the outset need to be clear, concise and direct. There is not a lot of room for entertaining drawn out price wars or negotiation on specific terms of contractual agreements. The simpler, the better. Maintaining a focus on communicating requirements explicitly as part of this process should be a priority. This will deliver the most efficient outcome, even if this means that negotiations break down, it will be done sooner rather than later.
Visit often
Zhang says there is no golden rule to how often businesses should visit Chinese partners.
“The short answer is – go as often as you can.”
As a business, when it comes to justifying this cost, if there was a way to quantify costs associated with troubleshooting and potential production quality and delivery issues, the ultimate savings will be incomparable.
Regular visits to Chinese partners also opens up dialogue in regard to developing new product ideas and insight into what is in demand. These discussions are more likely to take place when your relationship with the manufacturer is closer. These may make the business of growing your enterprise better informed and a simpler transition moving forward.
Also, in contrast to Australian business negotiations, the more familiar and to some extent, personal, you can make this relationship, the more front of mind you will be with your Chinese partner. The genuine effort will be noted and regarded favourably.
Volume
To be in a position to negotiate cost savings and develop a strong working relationship with an offshore partner, being able to provide volume will give grounds to achieve this. The exponential increases in production, logistics and shipping costs can all attract efficiencies as volumes increase. This will also support a more ambitious growth strategy that can offer deeper market penetration through a full range of new offerings. The economies of scale afforded through such an approach will deliver better bottom line results but naturally require more investment up front.
What Not To Do
What is the quickest way to undo all this fine planning? The single biggest piece of advice Zhang can offer is loyalty, particularly in challenging market circumstances. “You will never establish a long term partnership with a Chinese provider if you regularly move around from one supplier to the next. For the best outcome, especially in times of market fluctuations which oscillate between favouring buyers or sellers at different times, flexibility in your dealings is recommended. Committing to a relationship will deliver cost benefits more and more as time passes.”
The key is partnership. Even though, in a traditional sense, these relationships have many more layers ingrained within them, adapting to these and embracing their nuances will set businesses up for the greatest opportunity for success.