WEEKEND READ: Dodging the dragon

As the Australian economy slows, small and medium businesses should consider exporting to one of the few countries where economic growth will be reasonably strong – China. Yet many SMEs remain hesitant.

If you haven’t heard that there’s a serious economic crisis underway worldwide, you have either been under a rock or en route to base camp on Mount Everest. But here’s a nice little summary: times are tough and they’re going to get tougher. Consumer and discretionary spending have taken a hit despite recent interest rate cuts, and retailers are bracing for bleak times.

According to the recently-released Sensis Business Index, Australia’s top ten exporting destinations for small and medium enterprises (SMEs) are led by New Zealand, the United States and the United Kingdom, in that order. The world’s most populous nation and Australia’s neighbour, China, ranks fourth.

Australian businesses – especially SMEs, which are more vulnerable than their larger peers in the economic downturn – should be looking to China to provide buoyancy in these tougher times, because Chinese economic growth is expected to be buffered in comparison to its Western cousins.

When in China earlier this year, I had the privilege of meeting an amazing business owner. Rachel owns Guangxi Dream Island Group, which in turn owns eight high-end department stores in the south of China. She has been working to import Australian fashion labels into her stores, with Austrade helping as facilitator.

But one of her principal roadblocks has been a lack of interest from Australian companies. After buying several fashion lines from Australian designers and realizing that the size and cut is comparable to locally made garments, she started approaching local designers about stocking their clothing or acting as a local representative. She rarely got past the receptionist. Fears of intellectual property infringement are too high.

After visiting a city in China famous for its ginger production, she contacted a local Australian company that makes ginger beer, suggesting a joint venture. She was flatly denied. These were only two of the ideas Rachel shared – she has hundreds more. But at every turn she encounters Australian companies that are unwilling to take the risk carried with expansion.

In China, there are local enterprises hungry for foreign tie-ups. They flock to events like Austrade’s Business Club Australia, held during the Olympics in Beijing, looking for Australian partners that can share expertise, products and ideas.

For any SME, expansion should not be taken lightly, particularly in these difficult economic times. But those who have businesses in China will benefit as the economic downturn hits much harder in western economies. With measured risk comes reward and in a country of 1.3 billion, the significance of that reward could be significant.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles