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What Every Business Should Know About Selling in China

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What Every Business Should Know About Selling in China

Not only is China the most populous country on earth (1.3 billion people), it also has the second-biggest economy in the world by Nominal GDP (14.242 trillion dollars).

As the country has pursued ever more progressive policies to trade (and despite the current trade war between China and the United States) more and more opportunities to sell in the country have arisen to businesses across sectors. If you see China as a potential growth market, here are some of the most important considerations when selling in China.

Seek advice

When looking to enter a foreign market, it is always advisable to seek sage advice, and even look to local businesses who you can partner with. Although you may not wish to go down the partnership route, it is definitely advisable to seek the counsel of businesses who are already operating within the sphere, or groups such as the Global Innovation Forum who often provide free advice regarding penetrating new markets. 

This is a smart strategy because selling in China will be totally unlike selling domestically, or in European markets, for example. Any insights that you can garner will be potentially critical to the success of your sales strategy and approach in China, because as is abundantly clear, you will be operating within a totally different market, both literally and culturally.

“The cultural considerations when accessing new markets should never be overlooked. From the way that you brand and market your products to the way that you negotiate with local businesses and retailers, everything you do will be influenced by different rules: rules to which you are unfamiliar. Get the help you need to pass through this difficult phase,” advises Grant Tarrant, a business writer at Writinity.com and Lastminutewriting.com.

Understand Chinese governmental practices and rules

Although the Chinese Government has grown increasingly receptive to foreign businesses working and partnering in China, rules will still be a little conservative in comparison to the Western approach. Make sure you totally familiarize yourself with what you are expected to adhere too, especially when visiting the country and seeking to operate a sales operation from within China.

For example, you will need to understand the levels of bureaucracy that exist to set up a business entity that operates within China. For example, you may need to set up as a Wholly Foreign-Owned Enterprise (WFOE) to operate, and this can be a costly and timely exercise that may delay you implementing your sales strategy. Forming a business plan which pays close attention to all the requirements (and timeframes) of the Chinese state is essential.

Understand your customer

This piece of advice holds for whoever you are selling too, but obviously your Chinese customer base will be different from your US customer base and will have different expectations. For example, haggling is a standard cultural procedure, and Chinese customers demand to know a product impeccably before they buy, so ensure that your eCommerce operation includes high numbers of images and product reviews: this will be expected.

“If you study Chinese eCommerce sites such as Taobao you will see that it facilitates the Chinese custom of haggling down prices. In the West we are totally unfamiliar with this practice as we are satisfied that the price is the price, Be prepared to change your approach accordingly,” says Rachel Walliston, a marketer at Draftbeyond.com and Researchpapersuk.com

Provide impeccable customer support

Chinese customers have come to expect an extremely high level of customer support from their retailers and will demand this from any new business operating within their sphere. Knowing this, make sure you ramp up support efforts, and that, of course, raises questions regarding how you will do this in a new language and culture. Seeking advice from established entities is again the recommended route, and establishing support centers in the country is also best practice. 

Understand the marketing and communication channels

If you go in with a Facebook-based marketing strategy, be prepared to be disappointed. In China the social media platforms are different, for example, WeChat is one of China’s most popular platforms, but barely exists outside of the country. It has been dubbed a ‘super-app’ because it can be used for a multitude of actions, so utilizing such platforms is an absolute must if you wish to successfully penetrate the Chinese market. 

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Ashley Halsey is a writer, editor and international business expert who can be found at both Luckyassignments.com and Gumessays.com. She has been involved in many projects in Asia, and enjoys traveling, reading and cultural exchanges.

paperboard box

U.S. Folding Paperboard Box Market – Imports from China Recorded a Dramatic Increase of 17.9% in 2018

IndexBox has just published a new report: ‘U.S. Folding Paperboard Box Market. Analysis And Forecast to 2025’. Here is a summary of the report’s key findings.

The revenue of the folding paperboard box market in the U.S. amounted to $14.4B in 2018, remaining relatively unchanged against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). Over the period under review, folding paperboard box consumption continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2016 with an increase of 2.9% y-o-y. Folding paperboard box consumption peaked in 2018 and is likely to continue its growth in the immediate term.

Folding Paperboard Box Production in the U.S.

In value terms, folding paperboard box production amounted to $14B in 2018. Overall, folding paperboard box production, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2016 when production volume increased by 3% against the previous year. Folding paperboard box production peaked in 2018 and is likely to continue its growth in the immediate term.

Exports from the U.S.

In 2018, the exports of folding paperboard box from the U.S. stood at 16K tonnes, declining by -16.7% against the previous year. Overall, folding paperboard box exports continue to indicate a noticeable deduction. The growth pace was the most rapid in 2016 when exports increased by 13% year-to-year. In that year, folding paperboard box exports attained their peak of 20K tonnes. From 2017 to 2018, the growth of folding paperboard box exports remained at a lower figure.

In value terms, folding paperboard box exports totaled $42M (IndexBox estimates) in 2018. Over the period under review, folding paperboard box exports continue to indicate a moderate contraction. The growth pace was the most rapid in 2016 when exports increased by 8.2% against the previous year. In that year, folding paperboard box exports attained their peak of $51M. From 2017 to 2018, the growth of folding paperboard box exports failed to regain its momentum.

Exports by Country

The Dominican Republic (1.9K tonnes), Belgium (1.1K tonnes) and Italy (932 tonnes) were the main destinations of folding paperboard box exports from the U.S., together accounting for 25% of total exports.

From 2013 to 2018, the most notable rate of growth in terms of exports, amongst the main countries of destination, was attained by Belgium, while the other leaders experienced more modest paces of growth.

In value terms, the Dominican Republic ($5.7M), Costa Rica ($3M) and Italy ($2.6M) were the largest markets for folding paperboard box exported from the U.S. worldwide, with a combined 27% share of total exports. These countries were followed by France, Panama, Germany, Belgium, the UK, Colombia, Nicaragua, the Netherlands and Ecuador, which together accounted for a further 34%.

Nicaragua experienced the highest growth rate of exports, in terms of the main countries of destination over the last five-year period, while the other leaders experienced more modest paces of growth.

Export Prices by Country

In 2018, the average folding paperboard box export price amounted to $2,724 per tonne, rising by 4.2% against the previous year. Over the period from 2013 to 2018, it increased at an average annual rate of +1.4%. The pace of growth appeared the most rapid in 2017 an increase of 5.6% y-o-y. The export price peaked in 2018 and is expected to retain its growth in the immediate term.

There were significant differences in the average prices for the major foreign markets. In 2018, the country with the highest price was Germany ($3,297 per tonne), while the average price for exports to Ecuador ($1,188 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was recorded for supplies to Panama, while the prices for the other major destinations experienced more modest paces of growth.

Imports into the U.S.

In 2018, the imports of folding paperboard box into the U.S. amounted to 161K tonnes, surging by 17% against the previous year. The total import volume increased at an average annual rate of +5.4% from 2013 to 2018; the trend pattern remained consistent, with only minor fluctuations being recorded throughout the analyzed period. The most prominent rate of growth was recorded in 2018 with an increase of 17% against the previous year. In that year, folding paperboard box imports reached their peak and are likely to continue its growth in the immediate term.

In value terms, folding paperboard box imports stood at $536M (IndexBox estimates) in 2018. The total import value increased at an average annual rate of +6.0% from 2013 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being recorded over the period under review. The pace of growth appeared the most rapid in 2018 with an increase of 14% y-o-y. In that year, folding paperboard box imports reached their peak and are likely to continue its growth in the immediate term.

Imports by Country

In 2018, China (103K tonnes) constituted the largest supplier of folding paperboard box to the U.S., accounting for a 64% share of total imports. Moreover, folding paperboard box imports from China exceeded the figures recorded by the second-largest supplier, Indonesia (15K tonnes), sevenfold. The third position in this ranking was occupied by Germany (10K tonnes), with a 6.4% share.

From 2013 to 2018, the average annual growth rate of volume from China amounted to +5.1%. The remaining supplying countries recorded the following average annual rates of imports growth: Indonesia (+11.4% per year) and Germany (+20.5% per year).

In value terms, China ($387M) constituted the largest supplier of folding paperboard box to the U.S., comprising 72% of total folding paperboard box imports. The second position in the ranking was occupied by Germany ($26M), with a 4.8% share of total imports. It was followed by Indonesia, with a 3.9% share.

From 2013 to 2018, the average annual rate of growth in terms of value from China amounted to +5.8%. The remaining supplying countries recorded the following average annual rates of imports growth: Germany (+17.1% per year) and Indonesia (+7.2% per year).

Import Prices by Country

In 2018, the average folding paperboard box import price amounted to $3,337 per tonne, dropping by -2.2% against the previous year. Overall, the folding paperboard box import price, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2014 when the average import price increased by 3.2% y-o-y. The import price peaked at $3,413 per tonne in 2017, and then declined slightly in the following year.

Prices varied noticeably by the country of origin; the country with the highest price was China ($3,755 per tonne), while the price for Turkey ($1,213 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was attained by Taiwan, Chinese, while the prices for the other major suppliers experienced mixed trend patterns.

Source: IndexBox AI Platform

The Trade War Continues and Businesses are Responding

The trade war raging between the U.S. and China, which seemed headed toward a resolution before President Donald Trump in May accused the Chinese of reneging on commitments they made, is obviously the talk of the global trade-o-sphere.

Trump on May 9 announced tariffs on $200 billion worth of Chinese imports would go from 10 percent to 25 percent. China fired back by announcing it would hit $60 billion worth of U.S. imports with tariffs ranging from 5 percent to 25 percent on June 1. So, the Trump administration countered by saying it would impose 25 percent tariffs on all remaining Chinese imports—or about $300 billion worth of goods—“shortly.”

The president beat back the backlash by saying U.S. tariffs would be paid “largely” by the Chinese, but even members of his own political party argue that the tariffs have been and will be paid almost entirely by American businesses and consumers. “There will be some sacrifice on the part of Americans, I grant you that,” said U.S. Sen. Tom Cotton (R-Arkansas) to CBS News.

Obviously, not everyone (including Trump supporters) agree with the president’s March 2018 proclamation, “Trade wars are good, and easy to win.”

-Vijay Eswaran, entrepreneur, speaker, philanthropist and founder and executive chairman of the Hong Kong-based multi-business conglomerate QI Group of Companies: “Trade wars are never good, and certainly not easy to win. The main victims of this tariff war are the American consumers. Tesla had to raise the price of two of its cars by $20,000 last year after a new round of Chinese tariffs. Walmart and Target have already warned the government about an increase in prices on many everyday essentials. It’s just going to get worse.”

-Nelson Dong, senior partner at the international law firm Dorsey & Whitne, where he is co-head of their Asia group, as well as a current member of the boards of directors of the National Committee on U.S.-China Relations and the Washington State China Relations Council: “As has already been evident since mid-2018, the Administration’s Section 301 tariffs and China’s retaliatory tariffs will now further disrupt—or even break—many thousands of supply chains in both countries as local consumers either turn away from buying affected imports or are just forced to pay the resulting higher prices. Inevitably, suppliers in third countries will also be eyeing this U.S.-China trade war and looking to take advantage of the situation to replace either Chinese or American sources of supply as many importers look for ways to avoid these punitive tariffs.”

-Americans for Prosperity President Tim Phillips: “This White House has accomplished many significant economic and regulatory reforms that have reduced unemployment, lowered taxes and removed barriers to opportunity for millions of Americans. Our economy is thriving despite these tariffs, not because of them. We strongly encourage the administration to listen to America’s job creators who need trade barriers reduced, not expanded.”

-Scott Wine, chairman & CEO OF Polaris Industries: “Ultimately, if this was not resolved, we would have no choice but to move production to Mexico. … This would essentially be forcing me to push jobs outside the U.S.”

-Tiffany Zarfas Williams, owner of the Luggage Shop of Lubbock in Texas: “I definitely want China to be held accountable, but I don’t know why we are punishing consumers in our own country. That’s the part that’s hard to understand as a small business owner in Texas.”

-Rick Helfenbein, president & CEO of American Apparel & Footwear Association, to CNN: “This confirms our worst fears. There are those of us who are optimists and thought it would go away and those who say it could come back at any time—and this points to the latter;” and to Fox Business: “Two-thirds of the GDP is consumer based. Ten percent of the jobs in America are retail, and in the first four months of this year, more stores have announced closings than all of last year.”

-John Bozzella, president of Global Automakers, which represents international car companies: “Our concern is, as we go back into a phase of tit-for-tat tariffs, that the auto industry would face some significant pain.”

-Cal Dooley, president of the American Chemistry Council: “The risks of continuing to use tariffs as a negotiating tactic with China are simply too high—and any potential benefits still unclear.”

-David French, senior vice president of government relations for the National Retail Federation: “American consumers will face higher prices, and U.S. jobs will be lost.”

-Lisa Hu, founder of the handbag company Lux & Nyx: “You start a business thinking you know how much things are going to cost, and then something like this comes along and changes everything. … Are these tariffs going to happen? Are they not? I’m having to make long-term decisions based on the little information I have now.”

-American International Automobile Dealers Association CEO Cody Lusk: “If President Trump follows through on his threat to place 25 percent tariffs on imported autos and auto parts, he will be directly responsible for a drastic tax increase on American consumers, which could result in a loss of 2 million vehicle sales and jeopardize up to 700,000 American jobs.”

Do Tariffs Cause Prices To Go Up? Not Necessarily

President Trump recently raised tariffs on $200 billion worth of Chinese exports and threatened to impose import duties on all Chinese goods coming into the United States. Will American prices rise substantially as a result? This is a loaded question, because contrary to popular belief, tariffs don’t always raise prices.

One alarming study from The Trade Partnership, a think tank, estimates that an average American family of four may have to pay an extra $767. And if all Chinese exports are taxed, the cost could rise to more than $2,000.

However, the effects of tariffs on prices are not as straightforward as they may appear at first glance. Indeed, until the pioneering contribution by the late Lloyd Metzler, a University of Chicago professor, the question was not even explored. It was taken for granted that tariffs automatically raise the prices of imported goods. But Metzler’s article, known in the literature on international economics as the Metzler Paradox, changed this view once and for all. Let us analyze the problem without hysteria.

Tariffs have two effects on prices: one tending to raise them, the other tending to lower them. The overall impact depends on which effect is stronger.

It all comes down to supply and demand for goods in China. The United States is a large importer of Chinese products, so tariffs will cause a huge decline in American demand for Chinese goods because of the initial rise in prices. But as demand falls substantially, prices of exportable goods inside China will also decline substantially.

Assuming that transportation costs are minimal, as they are nowadays, the American price of a Chinese product is determined as follows: American Price = Chinese Price(1 + t), where “t” is the rate of tariff. From this formula, it is clear that there are two countervailing effects on the U.S. price of a Chinese good. A rise in the tariff rate initially tends to raise it, whereas the resultant fall in the Chinese price tends to lower it. The final effect depends on whether the Chinese price declines more or less than the rate of tariff.

As a simple example, suppose Walmart imports a shirt from China for $20, and then faces a 25 percent tariff on that import. If China’s price is constant, then the same shirt will now cost $24. But the Chinese price cannot stay constant. Since the United States imports a vast number of Chinese shirts, the demand for Chinese shirts will fall sharply, and that will lower the Chinese price. Say this price declines to $18, then a 25 percent tariff will raise its U.S. cost by one fourth to $22.50, which is still higher than its free-trade cost of $20.

At a Chinese price of $16, the tariff-inclusive price will be the same as the free-trade price. But if the Chinese price were to fall below $16, the cost to Walmart will be less than $20. Thus, it all depends on the forces of supply and demand inside China.

The extent of the Chinese price decrease depends on the cost of producing a shirt. If this cost is low, then the price decrease can be large in the wake of declining demand, because a producer can still make some profit. Since Chinese wages are much lower than American wages, the Chinese cost of producing a shirt is likely to be very low, in which case the Chinese shirt price can fall substantially. If that happens, American prices of goods imported from China could actually decline.

Indeed, this may explain why thus far the U.S. tariffs that were imposed on Chinese exports in September 2018 have not been inflationary. In fact, even the Federal Reserve has been surprised by the recent cooling of core inflation and, as a result, pledged not to raise interest rates any further.

So the American consumer has nothing to worry about, especially when the consumer can easily switch to imports from other countries.

Large trade deficits with China have decimated American manufacturing and wages. U.S. industries need a revival, and tariffs are indispensable toward this purpose. In 1800, at the start of the American republic, barely 5 percent of the U.S. labor force was employed in manufacturing; today, according to the Economic Report of the President, 2019, the share is about 8 percent — vastly below the 30 percent figure that prevailed in the 1960s. We are very close to where we were in 1800, and clearly, the manufacturing sector still needs a lot of support.

Note that under Abraham Lincoln tariffs were as high as 60 percent. As a result, following the Civil War, American manufacturing became the envy of the world. By 1900 the United States was among the nations with the highest living standard. Even though tariffs were high, prices fell or remained stable for several years.

Such price behavior helped raise the overall standard of living. When a 60 percent tariff rate could not harm the American consumer, how can a mere 25 percent? Free trade has been the holy grail of international economics for decades, but historically, the fastest growth in the American living standard has occurred under the umbrella of tariffs.

Ravi Batra is a professor of international economics at Southern Methodist University, Dallas, Texas. He is the author of The Myth of Free Trade. His latest book is End Unemployment Now: How to Eliminate Joblessness, Debt, and Poverty Despite Congress.

The Trade War Latest: What Supply Chain Professionals Should Consider

With the May 10 increase in duty rates on certain Chinese-made imports—and China’s subsequent retaliation on U.S.-made goods—I think we can all safely agree the United States and China are in a fully-fledged trade war. So, in an atmosphere of uncertainty, what are the key elements supply chain professionals should consider to stay ahead?

Impacts to cash flow

Over the last six months, increasing duty rates from both countries have impacted cash flows in several ways.

For U.S. exporters (especially in agricultural products), China sales are down, resulting in cash flow constraints on the income side. For U.S. importers, duty payments have increased substantially on certain products, leading to much higher cash flow consumption on the cost side.

The old adage that two things move in transportation, goods and money, has never been truer than in today’s climate. As I’ve been discussing the latest tariff changes with importers, a few recurring questions seem to be on most companies’ minds:

-Will our supply chain be more impacted by the policy changes affecting China-to-U.S. freight or U.S.-to-China freight?

-What ripple effects will those impacts have on other areas of our business?

-Will we need to increase our U.S. customs bond?

At C.H. Robinson, we’re constantly monitoring the situation and communicating with our customers on potential consequences for their businesses. Because we’re a comprehensive third-party logistics (3PL) provider—offering customs brokerage and trade compliance services as well as global ocean and air freight logistics—we use our unique market perspective to see end-to-end impacts and help manage our customers’ complete supply chains in unpredictable times.

Will there be a surge of imports trying to beat List 4?

In late 2018, many U.S. importers pulled forward inventory in anticipation of potential tariff increases threatened for January 1, 2019. That threat was ultimately delayed until May 10, but talk of a next round of tariffs has already begun.

This new list of tariffs would be known as List 4 and would affect almost all currently unimpacted Chinese-made goods. That list still must make its way through a formal review process, but the new tariffs could be implemented as soon as late July or early August. Whether we will see importers again pull forward their inventory to try and beat potential duty increases remains to be seen.

Changing U.S. domestic freight flows

One of the repercussions of the U.S.-China trade war that has not received as much attention is the impact of the dispute on domestic freight patterns.

Indeed, the trade war has disrupted some U.S. trucking lanes, including an out-of-cycle surge in demand in Southern California related to the pull-forward of inventory in late 2018. Additionally, frozen pork and chicken, typically exported to China, has been routed to domestic cold storage instead, straining domestic refrigerated trucking capacity.

Now that the cost to import from China has increased, companies may find it cheaper to fulfill product with pre-tariff inventory from a warehouse 1,000 miles away (instead of new inventory assessed a 25% duty). As a result, several questions are beginning to emerge: Will companies in fact try to draw inventory from far-away domestic warehouses with lower landed costs? Will new suppliers require the establishment of new lanes? How would these shifts impact carrier networks that gain or lose freight? Only time will tell.

When will this trade war end?

Whether your company has been positively or negatively impacted by the trade war, uncertainty abounds; current policies and rules (in addition to new ones) may or may not be in effect six months, one year, or five years from now. Therefore, for many businesses, scenario planning increasingly appears to be essential:

-What will your company do if current tariff levels are maintained for one month? Three months? Six months? Longer?

-What will your company do if tariffs increase? Are you making any process adjustments now to prepare for such a possibility?

-How would your company react to an announcement of a deal ending the trade war?

As you plan, make sure to bring your transportation provider and customs broker into the conversation to assess the transportation costs of new lanes, new suppliers, and shifting regulatory and compliance concerns. With close collaboration, deep business intelligence, and proactive planning, providers and businesses can make the most of these unpredictable times by mitigating risk and finding opportunity.


This originally appeared on chrobinson.com. Republished with permission.