Exporters find it hard to do business with local retailers

PUBLISHED : Saturday, 08 May, 2010, 12:00am
UPDATED : Saturday, 08 May, 2010, 12:00am

The Ministry of Commerce's attempts to encourage struggling exporters to seal supply deals with local retailers as a way of offsetting a slump in overseas shipments do not appear to be working.

The difficulties of selling products to local stores, intellectual property theft, unattractive payments terms and the small orders involved make the domestic market unattractive even for companies still riding out the economic slump.

Exporters signed deals worth US$34.4 billion with overseas buyers during the spring session of the Canton Fair, which closed on Wednesday, up 12.6 per cent from the trade fair's previous session six months ago.

The volume of deals is 10.3 per cent behind the pre-financial crisis level in early 2008, the Ministry of Commerce said. But it did not disclose figures on how much business the manufacturers had secured from domestic buyers. That was despite an announcement that 8,000 large and medium-sized supermarket chains will be purchasing from manufacturers at the twice-a-year event. It had said 70 per cent of the exhibitors were interested in the trade-matching.

The Canton Fair - held in spring and autumn every year - is largely regarded as a barometer of overseas appetite for mainland products. The decision to invite domestic buyers came early last year as the country's manufacturers were being roiled by the global financial crisis. Beijing was also keen to lessen the economy's reliance on exports.

The ministry organised two trade-matching forums to help manufacturers to expand into the domestic market at the fair's spring session in 2009. But while dozens of manufactures sat in a huge hall waiting for local buyers, only a handful of retailers showed up. The forum managed to drum up 466 million yuan (HK$530 million) worth of business.

Domestic buyers purchased 250 million yuan of goods at the fair in October and November last year, according to the ministry's record.

This year, the format was changed with manufacturers interested in meeting local retailers putting up a sign at their booths, indicating they are open to domestic trade.

Yi Xianrong, a finance professor at the Chinese Academy of Social Sciences, said the results show there is still a long way before China can lower its reliance on exports. He blames irregularities in the domestic market as deterrent factors.

The most common complaint from manufacturers is they are not interested in developing the domestic market because the export trade is simpler and nearly risk-free. Differences in tastes and lifestyles between overseas and Chinese consumers was another factor.

Tang Jiehua, a sales manager of a Panyu manufacturer, said his company produced some hair accessories for the domestic market a year ago when the export business was very bad in order to keep its factory running. But selling into the local market was not easy.

'You simply can't imagine how many procedures it takes to sell goods in department stores and supermarkets,' Tang said. 'The export market is very simple. We receive orders, manufacture in large quantities and ship them overseas. Sometimes they have designs for us, sometimes we come up with our own design. But selling to the local shops takes a lot of effort, and they only want small quantities.'

Amy Ding, a sales manager of a Guangzhou company that manufactures paper boxes, said that despite losing money during the worst of the crisis, the company did not attempt to sell to the domestic market. 'What is the point? We make paper boxes, Chinese people don't buy boxes made of paper; they want durable boxes,' she said.

Jenny Lin, a sales manager at a Quanzhou-based manufacturer in Fujian, said her company had opened a shop to sell their products but found their designs were copied shortly after they hit the market. 'We opened a store in Yiwu several years ago because it is the biggest wholesale market,' she said,

'But it didn't work. We make polyresin dolls and shortly after our dolls went on display, they were copied by other shops. Then the competition is solely on price. We closed our shop and decided not to try the domestic market again.'

In general, overseas buyers pay a 30 per cent deposit to the manufacturers before production. The rest of the money is paid, either in cash or through a letter of credit, before the goods are shipped overseas.

For the domestic market, retailers pay 90 days after the goods arrive. It is already the best-case scenario if retailers do not return the goods for unsatisfactory sales and pay the money on time. 'Getting payment from domestic retailers is not an easy job,' Ding said.

On top of the long payment period, manufacturers have to pay an 'entrance fee', 'bar code fee', 'promotion fee', and 'distribution fee' to have their goods reach the shelves.

Another major difference is the size of the orders. Overseas buyers, many of them wholesalers, buy in large quantities. Their orders are at least 10 times bigger than local retailers' orders for each item.

'Factories are built to handle large quantities, so we lose money doing orders for domestic buyers. Even the workers don't like doing jobs for the local market because their salary is based on how many pieces they manufacture,' said Paul Chan, a sale manger turned business consultant.

Yi said he was not surprised that manufacturers were not interested in developing the domestic market. 'The overseas market is more regulated, while the domestic market is highly monopolised and full of under-dealings,' the professor said.

Fair trade

Exporters sign deals worth US$34.4 billion with overseas buyers

This volume of deals during the spring fair is higher than that of the fair's previous session six months ago by: 12.6%