Practical advice for SME Australian importers
By Clive Isenberg
Importing from overseas markets can be a daunting prospect, but a very rewarding one if implemented with a long-term strategic focus. For many businesses the decision to consider importing can be the start of a business initiative, a necessary addition to facilitate growth or a strategy to positively impact its bottom line.
New businesses ventures always require careful planning and the situation becomes more complex when adding an entirely new foreign market into the mix. While this can seem overwhelming at first glance, it can also be very lucrative if you build-in cost efficiency from the outset and plan ahead.
Making the choice to import
When considering importing goods, the principal goal should be to increase profits and competitiveness in your market back home, so always keep this in mind. However, there are a number of other advantages to be gained from importing such as reducing risk and being exposed to new ideas about business generally. A vast quantity of SME's around the western world have taken this path over the past 5 to 10 years and have seen enormous benefits as a result.
Know what you are getting into
It is essential for any SME to review their internal cash flow to make sure that they can afford to cover the cash outflow that ensues when purchasing from a new overseas market especially China. When starting out, there is usually an initial negative impact on the importing SME's cash flow as the SME generally has to provide bank security in order to meet the payment demands of the exporter. These demands include setting up bank letters of credit on order acceptance or providing the required 20% to 30% deposits on acceptance of orders and then the balance of the payment on shipment. China is a prime example that demonstrates why SME’s need to evaluate their cash flow from the outset, as in China you will need to pay 30-60 days in advance of receiving your goods (it is similar in other markets like, Korea). This means that the SME’s cash flow can be substantially constrained during these periods. Time lags and credit approval periods can often create a difficult barrier to entry for many SME’s but there are ways to overcome this by considering the use of alternative financing products. For example, Octet Finance’s Business Transaction Facilities recently introduced to the market can provide unsecured (no debenture, no property, no guarantee), interest free import lines of credit to tide SME’s over this initial period before they receive and can sell the goods. Octet Finance also allows payment to the Chinese exporter by of Letters of Credit.
Be savvy in every market
Many new importers tend to check their business acumen in at passport control and then wonder why they ended up not achieving their intended objectives. SME importers need to apply the same legal and financial principles they do in Australia to the deals they do in markets such as America, China or Vietnam. Instilling the discipline to keep one’s business acumen consistent in all situations, no matter how disarming is an important skill that any importer needs to always bear in mind.
Advice and Experience
Utilise the extensive experience of others who have already tapped into the market that you are interested in – there are plenty of resources out there, so look into it. Trade Associations, Chambers of Commerce and specialised sourcing organisations can all assist. These can easily be found by utilising search engines such as Yahoo. Aside from this, it is essential that you keep the trading aspect simple, at least in the initial stages. Make sure that the imported product is an efficient fit with your business requirements, analyse the Australian market in relation to the foreign market and back this up by applying sensible management principles to make sure that you get the most out of your time and monetary investment.
Find a financier that has experience in the particular market you want to get involved in, so that they can offer you the necessary assistance, support and guidance from the beginning of the process through to the end. A financier who is active in the foreign market can ensure that the exporter has the necessary licences to be in business and is a legal exporter. For SME’s, it is important to find a specialised financier who can address your cash flow requirements and bridge the difficult upfront 30 to 60 day cash flow gap.
Choosing the market to import from
Research is paramount to creating a comprehensive understanding of the market. Securing your niche within it is the key for all Australian importers who need to achieve their bottom line objectives. Compare the market you are interested in against other similar markets and weight up the advantages. For example, when comparing China to other Asian, South American and African Nations, it could be perceived that China is more advantageous in terms of the enormous size of the population, the fact that it is relatively educated, extremely hard working, conscientious, efficient and open to be shown and apply new ideas and technology. These considerations are relative to the types of products that an SME intends to import and what factors they place the most importance on, such as cost, speed, cultural fit or quality as some examples. It is important to consider the economic stability of the country as well, because you don’t want your deals to fall through at the last minute because of issues at the other end. China, as is the case of most other industrial Asian economies, will not feel the full brunt of the western economies credit squeeze and domestic melt down. China’s domestic market is significant and will no doubt carry the slack brought about by the slow down in the USA.
In closing remember that there is no substitute for planning and research when considering moving into importing especially China. Know your suppliers, negotiate forcefully, utilise the product checking facilities available and most importantly have an efficient financing mechanism in place to absorb the cash flow strain that will no doubt occur on your business once your working capital cycle includes importing from China.
Octet Finance Pty Ltd
Mr Isenberg is an associate of the Institute of Chartered Accountants in Australia, a fellow of CPA Australia and a graduate of accounting. Mr Isenberg has extensive experience in financial services and for many years was a Director of Bank of Scotland subsidiaries in Australia including Capital Finance Ltd, BOS International Ltd and the holding company of Bank of Western Australia.