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Your Competitive Advantage or Your Competitor's Advantage
Julian Hewitt

China surpassed the USA to become the world's second largest exporter in 2006. Two and a half decades of economic reform have placed China firmly on the path of rapid industrialization. China's recent ascension to the World Trade Organisation has further hastened its opening up to the rest of the world.

At the same time, South Africa has also enjoyed a fruitful period and economic and political progress after many years of international isolation. However, it was only since the establishment of formal diplomatic ties in 1998, that these two regional leaders have begun to realize a significant growth in trade.

In 2006 China exported USD6.6 billion worth of goods (dominated by electronic equipment and textiles) to South Africa while it imported USD2.0 billion worth of goods (dominated by raw materials) from South Africa, according to South African Revenue Service figures. Official statistics from the Chinese Statistical Bureau paint a rosier picture, however, with Chinese exports to South Africa standing at USD5.8 billion while importing USD4.1 billion in value from the Africa's largest economy.

China's rapidly growing middle class is opening up new exporting markets for South African suppliers. Not only are Chinese urban families enjoying increased household consumption spending, but they are fast becoming exposed to global tastes such as luxury goods, fashion, food, beverages, spirits and travel. Further fuelling this trend is the strong confidence consumers place in the quality of imported goods.

From a South African perspective, rising Chinese living standards are translating directly into more wines, fruit juices and fruit on local supermarket shelves. Chinese shoppers are also starting to exercise more choice in buying quality foodstuffs. There is a rising trend to towards purchasing premium organic and health products.

In addition, China is becoming a focal point of international gold, diamonds and platinum sales even the man on the street often associates South Africa with these precious metals. Of course, on an industrial level, South Africa is also a large supplier of raw materials to that help fuel China's factory - floor economic model.

China presents big importing prospects for many South African suppliers and retailers. A huge population and cheap labour give Chinese products a massive competitive advantage, even after transportation and tariffs have been factored into purchasing costs.

Whole towns and giant trade fairs are gearing up to profile China's made for export economy.

Large amounts of money are being pumping into research and development and China is making a concerted effort to move up the value-added chain. China is intent on being a source of high, quality cutting-edge consumer products and following a model very familiar with some of its more successful Asian neighbours. This strategy is already bearing dividends, not only in products such as high tech consumer goods and automobiles, but also in developing the next wave of home-grown Chinese technology brands.

Sourcing of products from Chinese suppliers is an avenue that South African firms have not fully tapped into. Sourcing provides a powerful cost saving avenue to businesses seeking to capitalize on a variety of expansionary strategies, such as increasing capacity without increasing capital expenditure or introducing of new products into an existing portfolio. Most importantly, sourcing maximizes the China's strength as a producer of lowest cost goods.

Of course, trading with China is not without its pitfalls, even for companies with previous Chinese experience. Language and cultural barriers and often opaque importing and exporting processes serve to complicate business interactions and frustrate expectations between buyers and sellers. This can have the undesired effect of turning a cost saving China strategy into an expensive cross country business lesson.

China is also a very regionally fragmented market, rather than the single gleaming 1.3 billion consumer base that many sensationalist business books like to make it out to be. This often requires specialized local knowledge in best tapping into potential Chinese business opportunities.

However, it is not without just cause the China commands daily media attention. The benefits of incorporating a China objective into your business' importing or exporting plan far outweigh challenges on the way. China represents a competitive advantage and it not taken up, could easily be to your competitors advantage.

Julian Hewitt, Consultant

THE BEIJING AXIS

China Business Solutions

julian@thebeijingaxis.com