How to do business with China in a crisis

How to do business with China in a crisis

Сообщение! » 11 мар 2015, 19:53

At the moment, the market of the Russian-Chinese trade for a number of market and administrative factors is undergoing serious izmenieny. Thus, according to the Russian-Chinese Centre for Development of Trade (RCC) in January 2015 compared to the same period last year, turnover for the main groups of consumer goods decreased by 70%. In these circumstances, it becomes extremely important to choose the right anti-crisis strategy. RCC experts have prepared answers to typical questions from customers in the current environment. How to increase sales? The main reason for the fall in sales today - a sharp decline in the purchasing power of private and public sector, to which the efforts of only one company can not be affected. It is recommended not to bet on sales growth, and, conversely, to prepare for their further decline. The situation is aggravated by the fact that in addition to reduced demand and margins, ie the ratio of revenue to cost of goods sold Based on long-term observations, it is safe to say that at any given time margins of most companies working with China is about the same level, adjusted plus or minus 10% of the effectiveness of management. This suggests that the margin - an objective measure, which depends more on the environment than from the company itself. Depends on the marginal stability of the business: the lower it is, the more risky business. Some experts believe that if the margins of business with China, for any commodity group less than 30%, then it makes no sense to deal with, because it's too risky. At the moment, margins in almost all commodity groups fell below this level, and in some groups even became negative. Conclusion margins of 30% of the bar - the primary task, a key success factor. If this is not possible, there is an occasion to reflect on the close of business - losses will be smaller. But to increase margins by simply lifting the price is unlikely to succeed - selling can do to stop. What to do? Increase the margin, keeping the price. This can reduce the discounts to dealers, find a new supplier in China, reduce logistics costs, redistribute goods sales channels, reduce storage costs, etc. How to reduce procurement costs? First, check to see whether the intermediary supplier (even works in some cases can be a mediator for a particular product group). Find out the current level of prices for your products in China, find alternatives and talk with the supplier. Second, calculate the real cost of logistics, compare your costs and, if necessary, optimize the cost of shipping. Third, reduce the supported range of stock ("stock program"), ideally reducing it to the group "A" and the best products of the group "B". Other goods groups "B" and "C" can be left in the directory with the status of "custom". Separately, the most important area of ​​work - the effective use of the goods of group "A" (best seller). Two-fold drop in the ruble appreciation and the actual unavailability of credit is significantly complicated the new purchases. Recommended proceed from the fact that stocks are not tradable goods will be replenished for at least 6 months. If the purchase will be possible, let this be a bonus. While it is worth to bet on the most efficient use of existing commodity stocks. Implement product group "A" with the highest margin and "in the money": reduce discounts to wholesalers, delivers it to the more profitable sales channels, potentially reduce shipping channels in the ultra-low marginality. In absolute value terms and sales will fall, but the gross margin (the difference between revenue and cost) will not change much, and the inventory is to be used more efficiently. Pick advance replacement goods group "A" from the more expensive products of groups "B" and "C". Sale of more expensive goods at reduced prices (when the goods group "A" end), "de jure" bringing loss, "de facto" will keep the sales channels, customers, replenish working capital, to fulfill obligations to counterparties and free storage space. Bear in mind that the deficit of goods "A" group will result in an additional reduction in sales by 20-40%. Prepare for this scenario of events in advance. How to pay with the credit crisis in Russia? Banks also are in crisis and are more interested in maintaining cash flow, rather than as collateral (especially if the collateral is goods in circulation). Offer workload retain business, even in abbreviated form, can help in debt restructuring. Negotiating strategy may be based on your ability to repay the loan, albeit at a much greater period of time. As an example, it is possible to divide the business: structure capable in actual current conditions to generate profit; ballast. It is a powerful argument for the bank can be coherent action to discharge ballast and based on the profit plan for restructuring against the backdrop of alternative collateral (goods that can not even sell you). What are the risks if you can not pay its suppliers in China? What to do? Situation should resolve itself it will not be resolved. Risks include: Having lost the opportunity to receive goods from the supplier with deferred payment, you actually lose business. The crisis will end sooner or later, but find current assets, offsetting the loss of deferred payment, will be almost impossible. If the debt is large (several million dollars), or trade credit is insured (eg, Hermes or Sinosure), then the Chinese side has plenty of opportunities to collect significant share of the debt with the beneficiary. Output in a dialogue with the supplier. Negotiating strategy can be based on the fact that the Chinese have a strategic thinking. In other words, they see the situation and working with you not to cut today and in the future several years, and the crisis is considered a matter of time. If you convey to the vendor to understand that you have a sufficient safety margin that will pass the crisis is not lost, and to increase the share of the market that the situation has improved quickly pay off debt and for a long time will make an excellent profit to the Chinese, he may find you still reliable and interesting partner. The result - the restructuring of debt and saving supply of necessary goods with deferred payment. In this case, it is a mistake to build talks exclusively about debt repayment. Your debt to the Chinese is very important, but it is - a special case in your cooperation and, believe me, does not cause significant inconvenience to the supplier. More importantly, whether you stay a reliable partner or not. Whether or not to raise prices in the crisis? Only if all market participants raise their prices. Overestimate the loyalty to the brand in the current environment should not be. Significant depletion of end users and reduced cash flow from dealers led to a global reduction of their loyalty and reliability. Today, for most product groups, we observe a unilateral reduction in price elasticity. Ie decrease in prices will not lead to an increase in sales and an increase in sales prices may stop completely. Rising prices make the buyer "look on the market", and in virtue of ultra-high competition necessarily someone will give a lower price. But if your segment is only 2-3 companies and none of them are western, it is possible that prices can be raised synchronously by 20-30%. It is worth considering the possibility of their fixation in dollars. Is it worth it in the current crisis to reduce prices? For slow moving goods (groups B, C) additional revenue does not compensate for the loss in profit. Tradable goods - a reserve of profits, they should spend rationally because procurement prices have risen significantly. What is the optimal strategy for action? Abandon rates on sales growth. Consider running goods (group "A") temporarily irreplaceable resource. It makes sense to implement it only "in the money" and with minimal discounts. The key question - the struggle for margins (cost of goods in the warehouse is useful to consider a new purchase prices). "Restarting the company." Close funding for all projects, project proponents again prove their necessity in today's environment. The remaining costs cut "willed by" at least 10 percent. Optimize procurement, to restructure debts to Chinese suppliers and Russian creditors.!
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