WHITE PAPER SOURCING FROM CHINA. How to achieve cost efficiencies by sourcing from China.

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Felicia Hunter
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1 SOURCING FROM CHINA How to achieve cost efficiencies by sourcing from China.

2 Contents. 01. Introduction 02. What can I import from China? 03. Top 100 Imports 05. The key to China s lower prices - lower labour costs 06. What are the other costs? 08. Negotiating in China - Tips 09. Sourcing from China

3 Introduction. The cost of manufacturing components and goods in China is almost always cheaper than in Australia. When assessing if importing is right for your business, you also need to take into account the cost of services related to setting up a global supply chain, and of transporting the goods. If you are committed, importing is an excellent way to give your organisation a competitive edge in the medium to long term. 01.

4 What can I import from China? A range of products can be sourced from China. Each year the Department of Foreign Affairs and Trade reports on Australia s imports and exports. 02.

5 Top 100 Imports. China Australia FY end $A million China Australia FY end $A million Telecom equipment & parts 4,588,974 Computers 4,502,279 Furniture, mattresses 1,766,511 Prams, toys, games & sporting goods 1,681,934 Other textile clothing 1,376,128 Women's clothing (excl knitted) 1,052,109 Footwear 970,185 Office machines 941,682 Plastic articles, nes 935,148 Monitors, projectors & TVs 928,512 Confidential items of trade 844,428 Manufactures of base metal, nes 835,534 Household-type equipment, nes 831,049 Electronic integrated circuits 830,022 Electrical machinery & parts, nes 782,693 Rubber tyres, treads & tubes 685,858 Men's clothing (excl knitted) 678,260 Made-up textile articles, nes 672,351 Iron, steel, aluminium structures 604,605 Railway vehicles 604,001 Travel goods, bags & like containers 569,577 Heating & cooling equipment & parts 506,304 Women's clothing, knitted 500,593 Electrical distributing equipment 463,764 Mechanical handling equip & parts 444,983 Lighting fixtures & fittings 428,860 Household equip of base metal, nes 414,488 Electrical circuits equipment 353,154 Sound & video recorders 350,116 Computer parts & accessories 333,385 Tubes & pipes of iron or steel 332,621 Vehicle parts & accessories 317,528 Specialised machinery & parts 314,120 Electric power machinery & parts 310,424 Aluminium 309,280 Trailers, semi-trailers & containers 298,544 Pumps (excl liquid pumps) & parts 297,447 Paper & paperboard, cut to size 296,227 Prefabricated buildings 251,766 Taps, cocks & valves 245,717 Misc manufactured articles, nes 231,040 Clothing accessories, nes 228,112 Organo-inorganic compounds 227,081 Non-electrical machinery & parts 223,451 Ships & boats (incl hovercraft) 219,087 Paper & paperboard 210,065 Civil engineering equipment & parts 207,622 Jewellery 200,687 Men's clothing, knitted 198,597 Textile clothing accessories 194,

6 Top 100 Imports. China Australia FY end $A million China Australia FY end $A million Radio broadcast receivers 191,333 Hand or machine tools 189,859 Nails, screws, nuts, bolts & rivets 189,574 Plastic plates, sheets & film 188,285 Insecticides, herbicides, disinfectants 186,967 Printed matter 183,026 Measuring & analysing instruments 182,110 Rotating electric plant & parts 174,477 Glass 151,750 Wood manufactures, nes 151,172 Crustaceans, f.c.f. 148,220 Musical instruments & parts 147,530 Clay construction materials 146,147 Medical instruments (incl veterinary) 141,440 Motorcycles & cycles 137,978 Optical goods, nes 132,701 Fertilisers (excl crude) 120,146 Copper 116,348 Miscellaneous chemical products, nes 112,951 Residual petroleum products, nes 111,274 Rubber articles, nes 108,749 Special yarns & fabrics 106,558 Salts of inorganic acids & metals 104,270 Pumps for liquids & parts 104,132 Coated flat-rolled iron & steel 102,923 Pottery 101,000 Pharm products (excl medicaments) 99,152 Watches & clocks 99,127 Mineral manufactures, nes 97,456 Inorganic chemical elements 95,436 Perfumery & cosmetics (excl soap) 92,375 Lime, cement & construction materials 89,395 Glassware 88,414 Agric machinery (excl tractors) & parts 86,749 Carboxylic acids & derivatives 83,779 Floor coverings 82,567 Cutlery 81,751 Veneers, plywood & particle board 80,278 Edible products & preparations, nes 79,221 Passenger motor vehicles 77,533 Goods vehicles 77,414 Cereal preparations 76,946 Nitrogen-function compounds 75,791 Other primary plastics 72,539 Starches, inulin & wheat gluten 72,374 Metal containers 71,011 Road motor vehicles, nes 69,801 Sugar confectionery 69,058 Iron & steel bars & rods 68, Wire products 67,

The key to China s lower prices lower labour costs. Labour costs in China certainly are cheaper than in many countries. Especially when compared with Australian factory worker wages.

7 The key to China s lower prices lower labour costs. Labour costs in China certainly are cheaper than in many countries. Especially when compared with Australian factory worker wages. In 2011 it was estimated that a factory workers wage in Sydney was more than 8 times higher than the wage of a factory worker in Beijing.* It s this labour cost difference which has the most impact on the price of goods in China. As demand for workers grows, wages are raising, and accordingly, the cost of goods from China will rise too. However, generally speaking the cost is still far lower than that of producing locally. 05.

8 What are the other costs? To understand the savings, we need to consider all of the costs involved in importing from China. advice. Unless you re experienced in importing goods, it s best to get the right advice. An organisation like VECCI can help you assess if importing is the right approach for your business, help you through the process, and most importantly, introduce you to trustworthy and proven potential suppliers. If you re introduced through someone the supplier knows and respects, your experience will be far more positive. Setting up global supply chains takes time and effort capacity for this will need to allowed. landing costs. An experienced exporter should be able to provide a landing cost quote. Landing costs capture the costs of the goods until they arrive in Australia and include: Cost of the goods Loading onto transport Transport costs by forwarder Import duties Costs of service providers like inspectors You should have these costs checked, especially because if these details are wrong, shipments can be delayed at customs. You ll also need to contact a service provider in Australia to deliver your goods to you once they arrive. 06.

9 What are the other costs? lead time. Whilst not a physical cost necessarily, chances are you ll need to allow more lead time to manufacture in China than you would if you were manufacturing locally. That said, with some planning, the impact of increased lead times can be diminished. intellectual property. If your product is unique, it may be appropriate to trademark the product in the market in which you are manufacturing. Australian trademarks won t protect your intellectual property in foreign markets. due diligence. Once you find a supplier, it is prudent to conduct some due diligence unless your advisor has an existing relationship with them. quality control. Allow budget for yourself or an agent to do regular quality control. This will include visiting the factory and checking goods and materials against specs to ensure that the job is running on time, that the quality is consistent and that the goods are carefully packed for shipping. 07.

10 Negotiating in China - Tips. one. Use a good interpreter or bilingual advisor. two. Be honest about quantities. three. Emphasise the importance of quality. four. Be optimistic about future growth. five. Leave price until last in negotiations. six. Ask for freight on board prices. (so you can compare without the shipping element) seven. Be assertive about payment terms. A deposit of 30 % to 50 % is acceptable. 08.

11 Sourcing from China. You can save money and make your business more competitive by sourcing from China. VECCI has helped hundreds of Australian organisations find reliable suppliers in China, and managed imports from design specifications through to watching the goods loaded and containers be sealed. Our Global team experts have over 60 years experience in global supply chains. Ask us how we can help your organisation. * The 22nd Survey of Investment Related Costs in Asia and Oceania (FY 2011 survey) - Overseas Research Department Japan External Trade Organization (JETRO). 09.

Manufactured goods by degree of manufacturing groupings (SITC Rev. 3)

TDRA Manufactured goods by degree of manufacturing TDRB Labour-intensive and resource-intensive manufactures 1 611 Leather 1 612 Manufactures of leather, n.e.s.; saddlery & harness 1 613 Furskins, tanned