What small businesses need to consider for Asian expansion

To minimise the risk associated with your Asian expansion, explore a selection of suppliers, even if you only select one supplier to engage with in the end.

Thanks to the recent Australia China Free Trade Agreement (ChAFTA), Australian businesses now have unprecedented access to the world’s second largest economy.

However, it’s not always smooth sailing for start-ups planning to enter a new market and when looking specifically at Asian expansion, new hurdles, such as negotiating payment terms, ensuring quality of stock, preventing fraud and gaining trust, present themselves.

To help prepare you for the move, we’ve put together some tips that you may want to consider when making plans to expand into the Asian market.

Scale up slowly

A challenge many start-ups face is the ability to negotiate payment terms with suppliers. Without a proven track record, start-ups often have to negotiate with sceptical suppliers. In most cases, a percentage of the purchase order is required up front, with final payment due when goods are ready for delivery. Do not be embarrassed to ask for a cash settlement discount in these cases.

To avoid financial strain, start-ups must ensure that their inaugural order with the supplier is in line with their available finances, as well as market demands.

Once the first transaction has taken place and finances have been replenished, start-ups can continue to build the quantities of orders with the supplier, eventually leading to more flexible payment terms.

Ensure quality control

It’s important to ensure the product you’re looking to purchase is of sound quality before entering into a contractual relationship with a new supplier.

The best way to do your due diligence when dealing with a new supplier is to get references from existing buyers and to request a sample of each product that you plan to order, before you enter into a purchase contract and make the initial deposit payment. Although the sample should dictate the standard of each unit ordered, it’s a good idea to start with orders of smaller quantities, allowing for review of quality with each order.

It is also extremely important to ensure that the supplier is capable of delivering the supplies you’ll need as your business grows and able to supply product that will conform to regulatory controls of the destination market.

Assess your options

Continuity of supply is critical for the survival of a small business. It’s important not to rely on just one supplier, as any disruption they experience will then be passed on to your business.

To minimise the risk of your Asian expansion, explore a selection of suppliers, even if you only select one supplier to engage with in the end. This way you have an idea of what other suppliers you could work with in the market, without making sacrifices on quality, should any unforeseen circumstance occur with your current supplier.

Get to know your supplier

When you think about the ideal customer or partner for your own business, it’s usually people who are friendly, transparent, reliable and pay within set terms.

Your suppliers are not different. Whether you’re engaging with a new supplier, or there is a long standing procurement relationship with the supplier, ensure you keep in regular contact and make the effort to visit them at least once a year.

Over time, start-ups, like all businesses, can build a good relationship through good business, and this comes down to getting the basics right, paying your bills on time, and ensuring deadlines for orders are met.

Keep in mind cultural values and attitudes

Do some research on cultural traditions, such as etiquette, language basic and customs practiced by the supplier in the country you’re dealing with. Demonstrating an understanding of these go a long way to make your supplier feel at ease and respected. For example, a religious holiday may impact supplier output.

In addition, it’s important to take into account the nature of the country you’re working with: is it an established market? Is it a specialist market? The answers to these questions will help distinguish whether you’re in the right place.

Consider working with a sourcing company

Engaging with suppliers in a new market can be risky, so it’s understandable that some small businesses opt for a sourcing company to help show them the ropes.

For a fee, sourcing companies will work with you to identify the right market for the supply you seek. They also help negotiate pricing, order samples and on some occasions also take you out to meet the supplier in person.

Stepping out and engaging with a new market such as Asia takes courage, but for many businesses it’s a risk worth taking.

Brendan Green, General Manager of Working Capital Solutions, Octet Finance

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