Despite the well-publicised economic slowdown that continues in China, the market still presents significant opportunities for Australian SMEs considering growth into Asia writes Andrew Watson.
Growing an export business can be daunting but there are a number of steps that SME exporters can take to ensure their transition into the Chinese market is as smooth as possible.
Identify the opportunities
China is Australia’s largest export market and now buys almost a third of Australia’s exports. Australia exported A$90 billion of goods and $8 billion in services to China in 2014, a huge volume that was met by Australian businesses in a wide range of industries.
While China’s economy has slowed over the last 18 months, the outlook for private consumption remains solid, with the country’s growing middle class continuing to offer significant new export opportunities for Australian businesses.
Mining, agriculture and services are three of our most important export markets to China. With a growing population and strong demand from the manufacturing and construction sectors, China cannot meet its growing domestic demands for energy. Iron ore and concentrates, coal and gold are our biggest exports to China, and Australia is also one of China’s largest suppliers for bauxite.
China is the largest importer of Australian agricultural produce, a relationship that was worth $8.5 billion to our agricultural sector in 2014. Strong population growth and rising per capita incomes will mean demand for agricultural products will likely continue.
Dairy in particular is expected to become an increasingly important market segment, offering high returns to Australian farmers.
In the services sector, a burgeoning Chinese middle class means a growing demand for services such as education, for which Australia is in a strong position to deliver. An ageing population is also creating an attractive market for aged care services.
Assess the risks
As with any foreign market, there are some unique challenges to doing business in China.
Australia’s International Business Survey 2015, sponsored by Efic, asked over 1200 Australian international businesses what they believe are the most difficult barriers to doing business in China.
One of the key challenges identified was the local language, which can be an inhibiting factor for Australian businesses seeking to establish relationships. Employing the services of a local translator can be a huge help for Australian SMEs looking to do business in China.
Understanding local regulations was also identified as a challenge when entering the Chinese market. The World Bank’s ease of doing business gauge – which attempts to measure local regulation relevant to SMEs – ranks China 96th out of 189 economies around the world.
China ranks the lowest on ease of registering property and enforcing contracts, so these are important considerations for any SME entering into a contract or commercial operation in China.
Plan and prepare
For these and any other potential risks identified in the Chinese market, there are steps SMEs can take to prepare and set themselves up for success.
Establishing strong networks is crucial for all SME exporters – when exporting to China, they are a particularly important method of accessing valuable information and support.
One great way to do this is through established forums and networking groups. The Australia China Business Council provides information, programs and opportunities for the Australian business community to network on China business activities, as well as hosting events with senior contacts within the Chinese government.
Another important step is taking the time to understand the local business culture in China. For example, establishing strong relationships and trust is crucial before closing any deal – often this takes place over a series of lunches and dinners. Another tip SMEs often overlook is that it is really useful to have business cards printed in Chinese.
Finally, seek advice. As with any business venture, receiving good quality legal, tax and professional advice is critical before making important decisions; use a legal firm with a local presence to ensure you comply with local regulations and laws. They can also highlight any contract issues and be able to help if you are concerned about protecting your intellectual property.
Enjoy export success
China offers excellent opportunities for Australian SME exporters across a range of sectors.
As with all export decisions, getting the right information and making the right connections can be difficult. However, following the steps outlined here should help your business overcome the export barriers and establish a secure export business in China.
For more information on exporting to China and further information about export-related finance, please visit Efic’s website to download a free eBook for SMEs on this topic, Exporting to China. BFM