The relationship between Australia and China is important for Victorian businesses, with exports to China accounting for nearly a quarter (22.2 per cent) of Victoria’s export market share in 2017-2018.

China is the greatest source of success for many Victorian businesses, and many local businesses are yet to capitalise on the potential China offers.

Here are some practical realities about China that you may not know.

‘Yes’ does not always mean ‘yes’

Many western businesspeople will attest to their confusion and frustration when their Chinese counterparts say ‘yes’ only to end up in a standstill. Are the Chinese people being dishonest?

In Anglo-centric countries, ‘yes’ means ‘agreement’. When incorporating Chinese cultural elements into this communication, ‘yes’ might not mean ‘yes’.

Chinese culture prioritises the building and maintenance of long-term relationships and the Chinese style of communication aims to preserve harmony and avoid confrontation.

Valuing harmony has been imbedded in Chinese culture for more than 2,000 years, originating from Confucianism. Strong displays of emotion, especially open expressions of disagreement are all seen as disrupting the harmony, which is why Chinese people are often reluctant to explicitly say “no” to their business counterparts, as it may signal the end of the overall relationship, rather than one transaction.

Instead, Chinese businesspeople communicate ‘no” through vague expressions, body language, silence or pause. It is important for western businesspeople to be on the lookout for these signs, as Chinese people will expect their counterpart to be attuned to these subtleties.

Although each situation needs to be assessed on a case-by-case basis, the following tips and strategies may help you gain some clarity when you are dealing with Chinese suppliers or customers:

• Speak slowly and simplify your language
• Try to ask open-ended questions that require a detailed answer
• Repeat important questions by paraphrasing the information
• Have your own interpreter in business discussions
• Supply a written summary after the meeting and follow-up for clarification

Both Australian and Chinese businesspeople nominate inadequate cross-culture communication as the main challenge of doing business with each other. Both cohorts need to understand the cultural differences in business communication, etiquette and how their actions may be interpreted.

One country, many markets

A common assumption many western businesses make is thinking China is one homogenous market. In reality, the market in China is diverse and complex.

Approximately 1.4 billion people are spread across the world’s third-largest territory, creating 661 separate cities. Among them are larger metropolitan cities such as Shanghai or Beijing which have a population of more than 20 million respectively, and a GDP (Gross Domestic Product) per capita of A$32,000. There are also cities such as Dingxi or Linxia with a much lower population and only 10 per cent of the income of their wealthy peers.

In order to navigate this uneven economic development, city-tier classifications are often used by external businesses to categorise Chinese cities.

Tier 1

Cities in Tier 1 such Beijing, Shanghai Guangzhou and Shenzhen are the wealthiest per-capita and are usually the most populous. Between Tier 1 and Tier 2 is Tier 1.5 – also called ‘emerging first tier cities’. They are cities that cannot match the strength and influence of Tier 1 cities, but noticeably stand out as having potential.

Tier 2

These cities have reasonable industrial infrastructure and vibrant economic activities. They are attractive to some large corporations, big brands and talent. Some companies regard Tier 2 cities as strategic regional centers of their operations.

Tier 3

Tier 3 cities are large to medium-sized that usually have a population over 1 million, and have developed industrial infrastructure, commercial and transport facilities. Tier 3 cities may still appeal to some large companies although the city’s overall competitiveness may need to be improved.

Tiers 4 and 5

These cities are small and less developed with economies relying on the central cities nearby. Those in Tiers 4 or 5 are usually in the market for Chinese SMEs and second-tier local brands. Overseas products may reach these markets by local distribution networks, but direct marketing campaigns are unlikely to be justified.

Communication

In Western countries, email is one of the most important communication tools, particularly for work purposes. An average full-time office worker spends 28 per cent of the working day reading and answering emails.

Chinese businesspeople generally prefer to use social media apps at work instead of email. The reason for this practice is related to a combination of culture, internet evolution and one technology company.

In 1998, a small tech company, Tencent, developed a desktop instant messaging application called ‘QQ’ which soon became the preferred communication tool. Today, Tencent has grown into a world-leading tech giant with a market capitalisation larger than Facebook.

In 2011, Tencent created a mobile app which seamlessly converted QQ users. The app was called WeChat.

During the late 1990s, workplaces in Australia began using email as their primary communication tool. At the same time in China, only 0.71 per cent of the population had accessed the internet. Once the internet was finally introduced in internet cafés, only the younger generations had access and the older generations were left behind, hence, the prevalence of current social media channels.

China’s lifestyle is also very fast-paced with work and personal life boundaries continually blurred . Social media instant messaging demands immediate responses, and it is common for people to engage in work discussions outside of normal working hours.

While WeChat is popular, Chinese people still use email but check it far less regularly than their western counterparts. Therefore, if you don’t hear back from Chinese contact, you may want to send them a WeChat message instead.

E-commerce

To many Australian exporters, China’s e-commerce market has already proven fruitful. Many Australians will know via local media reports that Australian-made health supplements and infant formulas are examples of coveted commodities in China.

Unlike western shoppers who are accustomed to simple, search-and-click buying, Chinese shoppers prefer experience-led purchasing. The Chinese people will often spend time in a discovery-driven journey with multilevel interactions, making shopping an adventure rather than a task. Chinese consumers will regularly prioritise the new or trending items rather than searching for specific items.

Consequently, Chinese e-commerce marketplaces have shifted their transaction-driven model into one that encourages vendors to create a richer alternative to traditional shopping. Many Chinese sellers incorporate videos, livestreams, games, virtual reality and competitions to the sales process.

In less than 20 years of development, China’s e-commerce market has grown to become the single-largest in the world. In 2019 China’s online retail sales reached A$2.7 trillion, larger than the rest of the world combined.

Like many countries in the world, Chinese brick and mortar retailers are losing market share and profits amid competition from online sales. Given that digital transactions in China are now predominantly on mobile, the largest factor in this market is WeChat: the super social media app with 1.1 billion monthly active users.

Apart from being the largest social media platform, WeChat allows users to buy and sell products along with supplying a wide variety of online and offline services such as money transfers, food delivery and paying bills.

Brand owners recognise that in order to capture consumers attention, they need to operate within the WeChat environment.

Australian exporters should actively observe the trends and development of China’s e-commerce market and find a way to take part in the value chain. While the competition is recognised as extremely fierce, the opportunities are too good to be missed for those that can find their niche in the market.

Pitfalls in sourcing

While China is an attractive export market for Australia, it also remains the prime sourcing destination many Australian companies engage with. Finding suppliers is not that hard these days thanks for the internet, however, there are some common pitfalls to watch out for.

It is important to identify the issues early to help your business avoid expensive mistakes.

Manufacturer or trading company?

Most Australian companies sourcing from China request to deal with factories directly rather than trading companies. The reason is simple - a trading company charge higher margin as they charge a mark-up over the factory price.

Engaging directly with the factory could also give Australian importers more control over their products as they are the manufacturer of the goods.

However, the services and value of trading companies are often ignored. A good trading company is often easier to deal with than factories as they are usually willing to go the extra mile to meet your requests while factories are reluctant to do so.

Price increases

Western companies often experience sudden price increases from Chinese suppliers after a sample is made or before they place a second order. The buyer then often feels deceived and starts to question the integrity of their Chinese suppliers.

The price increase is usually caused by one of two reasons:

• Poorly prepared quotations – some Chinese suppliers see their quotations as a guide only. They don’t thoroughly analyse customers specifications and detailed requirement but give a rough estimate to overseas customers.
• Low quotation to get businesses – Chinese suppliers will offer lower-than-market-rate quotation to bring customers in. Once the customer has experienced their products, they adjust the quotation and hope customers will still stay. This is a quite common tactic in Chinese business environment.

Quality requires the most attention

Quality assurance is the biggest headache for many Australian importers.

Samples may appear of good quality, but finished bulk-products will be substandard, and often it is more expensive to send the goods back than have the issue fixed.

China has many quality and professional manufacturers, but they may be either expensive to work with or require higher minimal order quantity (MOQ). Therefore, many Australian companies may have to engage some smaller manufacturers in China to achieve their goals.

Instructions

It is important that Australian companies try to give Chinese suppliers the best possible chance of understanding their requirements and expectations from the start of the project. This needs to be done in writing, but certainly not in a lengthy and complicated email or document.

Here are some useful tips:

• Keep emails and other written documents simple and concise with plain English
• Use bullet points or checklists
• Keep the information consistent and in the same format
• Test supplier’s understanding by asking them to explain important details
• Ask open questions so suppliers can’t answer with only ‘yes’ or ‘no’
• Use WeChat or phone to aid follow ups

Suppliers should also be given information such as delivery schedules and warranty expectations.

Help and support

For more information, or if you would like assistance and support from our China Desk on your export and import activities, please contact Eddie Zhao at ezhao@victorianchamber.com.au or call 03 8662 5234.

Attend the world’s largest trade fair

The Canton Fair is a ‘must go’ trade exhibition for businesses who deal with China or want to expand into the Chinese market. It offers game-changing business opportunities as one of the few trade shows in the world that features a wide variety of products under one roof.

The Canton Fair will be held as a virtual exhibition from 15 to 24 October 2020 for the first time in its 64-year history due to COVID-19 restrictions. The silver lining is that the Canton Fair will be more accessible to business than ever before as you can attend from the comfort of your own office or home.

Click here to register for the Victorian Chamber’s free information session to help businesses seize the many opportunities that the Canton Fair presents.