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Helping Companies Grow Through Exports to China
By: Steve Jagler
In the view of Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, generating true wealth and value for Wisconsin requires local manufacturers to export their products out of state.
“The rest of us,” Sheehy says, “are just washing each other’s socks.”
Last week in this column we explored the best practices for importing goods to Wisconsin from China.
This week, we want to look at the latest and greatest ideas for exporting goods from Wisconsin to China.
Joseph Jurken, founder and senior partner of The ABC Group LLC, a Milwaukee-based consulting company, estimates he has visited China on business more than 200 times over the past three decades. He closely monitors the trade agreements the United States negotiates with other countries and regions.
The United States had a record $365.7 billion trade deficit with China in 2015, according to the U.S. Census Bureau.
However, Jurken says the “Americanization” of China provides opportunities for smart Wisconsin companies.
In most cases, Wisconsin companies aren’t able to compete on labor costs in China, but they can compete on innovation and premium brands, Jurken says.
“We have to be able to sell our products in China. People like American products,” Jurken says. “Regarding the trade deficit, the problem is not that we import too much. It’s that we don’t export enough.”
Over time, Chinese business executives have become more savvy about dealing with Americans in negotiations over price and other concessions, Jurken says.
“There are great opportunities in China, but a large challenge is that as they have become more Americanized, they understand our way of thinking better, and I think they have become tougher negotiators. They’ve gotten smarter in their negotiating skills,” he says.
Jurken has plenty of anecdotes about companies that have figured out how to prosper by exporting to China.
“It is important to not only know your products but also how they fit in the global economy,” Jurken says. “We had a client that manufactured a specialized component and sold to a multinational company. They did an outstanding job of working the engineers in the USA for approval and provided us ‘intel’ to work with the Chinese buyer. Basically it was both sides of the ocean focusing on their strengths and working in tandem. It was a huge success for our client.”
He also has seen companies that have failed in their Chinese ventures.
“It is important for U.S. companies to stay true to their business model and not be swayed by Chinese buyers to take control of the relationship,” Jurken says. “It is extremely important for the U.S. seller to remain in the driver’s seat of the relationship. It is never wise to allow the Chinese buyer to get behind the wheel.”
I asked Jurken to share five insights for Wisconsin companies interested in exporting to China:
- Charge a fair price. “Follow the rule of supply and demand. If there’s demand for your products there, strongly consider charging a fair price as you would in any other country. Don’t drop prices because the Chinese economy is lagging. Also, don’t be afraid to ask for a premium when selling goods to a new Chinese customer.”
- Plan around purchase orders. “Consider using firm purchase orders to get a handle on production visibility and reduce exposure to China’s economic fluctuations. It’s an attractive alternative to flexible forecasts, which can leave a company struggling with excess capacity when orders are down and not enough capacity when orders are up.”
- Expand carefully. “China consists of multiple submarkets. Companies will do well to gain significant traction in their core markets first and then expand to others. Avoid the tendency to expand quickly in multiple submarkets, which can strain resources. When expansion is called for, select markets that are geographically proximate and look for similar demographics in customers.”
- Be prepared to succeed. “China offers a tremendous opportunity for success, which is something that any company’s competitors fully realize. Great companies understand the need to decide early whether China represents a short-term opportunity or a key market for long-term growth, and plan for it.”
- Make it in China for China. “Production proximity to end-users can be a deciding factor in meeting customer demand and outmaneuvering competitors. Those who believe China is a critical growth market for the long term should consider licensing agreements and contract manufacturing to bring goods closer to consumers while also reducing costs,” Jurken says.
The rest of us will support you while we’re washing our socks.
Steve Jagler is the business editor of the Milwaukee Journal Sentinel. Send C-Level ideas to him at firstname.lastname@example.org.