Category Archives: Personal Insights

Silver Lining in Eurozone Financial Crisis

May 23, 2010

The European financial crisis has sent shockwaves through the global economy and has a number of ramifications for the international trading sector, especially sourcing product from China via ecommerce platforms. However, like in all things, there is a silver lining for many companies, particularly from the US, who can take advantage of the situation.

Back in March of this year I somewhat hesitantly predicted that there would be no significant movement in the value of the Chinese currency (RMB) as against its major trading currencies like the US dollar and the Euro in the short term. This is still a hot topic of discussion and contention for many international and Chinese clients of my company, www.dhgate.com, as it has a direct impact on the costs of sourcing products from China.

Currently, the Chinese RMB is informally ‘pegged’ to the US dollar at a rate of about 6.8 and this undervaluation was arguably causing trade imbalances between the US and China. The argument goes something like this: while it was good for US importers and Chinese exporters to have the RMB at an artificially low level, at the same time it made products imported from the US into China artificially high thereby hurting US companies

In the past few months it was thought that there was a consensus amongst Chinese policy makers that the peg would be broken and the Chinese RMB would be allowed to gradually rise about 3-5% thereby cushioning the impact on the Chinese export sector. This, of course, was on the basis that the world economy was steadily recovering from the Financial Crisis and there were no other major financial crises in the world.

Well what a difference a couple of months makes!

The dramatic European debt crisis as a result of the Greek bailout and the plunging value of the Euro has meant that any plans for a slight rise in the RMB as against the US dollar are now on hold…again.

The Euro has plunged to its lowest level against the RMB in almost a decade. It has fallen 14.5% in the past 4 months alone and the future is uncertain. The dramatic slump has prompted Chinese authorities to publically warn that China’s exports to Europe are threatened. Indeed, there are a number of anecdotal reports from clients of my company that European importers are cancelling or significantly reducing product orders. This appears to be by virtue of an inability of European companies to obtain normal trade finance because of the severity of the debt crisis together with heavily reduced purchasing power of the Euro.

A number of Chinese domestic economic issues also cloud the picture. The Chinese Stock Exchange has fallen sharply in recent times. This is mainly due to the Chinese government’s attempt to restrict the availability of credit in order to prevent the real estate property bubble from bursting.

All of these factors mean that there will be no short term revaluation of the RMB as against the US dollar. There are important trade and economic bilateral talks next week between the US and China and it appears that the revaluation issue, always a perennial topic in these trade talks, has been taken off the table. The US Government has recently stated that it intends to press China on other trade issues like market access for US companies and increasing the value of US exports to China. The US has announced that it wants to double US exports to China over the next decade.

What does all this mean for US SME importers of Chinese products? I believe that the situation presents great opportunities as the prices of Chinese products available for export will remain low for the foreseeable future and there appears now to be no likelihood of major costs increases as a result of exchange rate issues. From my discussions with my Chinese manufacturing clients, there is now a lot of opportunity to lock in these prices for the future.

More importantly, because of the problems in the European import market, many Chinese suppliers and manufacturers will now shift their focus to other markets, particularly the US. This means that there is the ability to achieve much lower prices from Chinese exporters because of the excess product available. It maybe that there has never been a better time for US SME companies to commence or increase sourcing product from China.

The European financial crisis has sent shockwaves through the global economy and has a number of ramifications for the international trading sector, especially souring product from China via ecommerce platforms. However, like in all things, there is a silver lining for many companies, particularly from the US, who can take advantage of the situation.

Back in March of this year I somewhat hesitantly predicted that there would be no significant movement in the value of the Chinese currency (RMB) as against its major trading currencies like the US dollar and the Euro in the short term. This is still a hot topic of discussion and contention for many international and Chinese clients of my company, www.dhgate.com, as it has a direct impact on the costs of sourcing products from China.

Currently, the Chinese RMB is informally ‘pegged’ to the US dollar at a rate of about 6.8 and this undervaluation was arguably causing trade imbalances between the US and China. The argument goes something like this: while it was good for US importers and Chinese exporters to have the RMB at an artificially low level, at the same time it made products imported from the US into China artificially high thereby hurting US companies

In the past few months it was thought that there was a consensus amongst Chinese policy makers that the peg would be broken and the Chinese RMB would be allowed to gradually rise about 3-5% thereby cushioning the impact on the Chinese export sector. This, of course, was on the basis that the world economy was steadily recovering from the Financial Crisis and there were no other major financial crises in the world.

Well what a difference a couple of months makes!

The dramatic European debt crisis as a result of the Greek bailout and the plunging value of the Euro has meant that any plans for a slight rise in the RMB as against the US dollar are now on hold…again.

The Euro has plunged to its lowest level against the RMB in almost a decade. It has fallen 14.5% in the past 4 months alone and the future is uncertain. The dramatic slump has prompted Chinese authorities to publically warn that China’s exports to Europe are threatened. Indeed, there are a number of anecdotal reports from clients of my company that European importers are cancelling or significantly reducing product orders. This appears to be by virtue of an inability of European companies to obtain normal trade finance because of the severity of the debt crisis together with heavily reduced purchasing power of the Euro.

A number of Chinese domestic economic issues also cloud the picture. The Chinese Stock Exchange has fallen sharply in recent times. This is mainly due to the Chinese government’s attempt to restrict the availability of credit in order to prevent the real estate property bubble from bursting.

All of these factors mean that there will be no short term revaluation of the RMB as against the US dollar. There are important trade and economic bilateral talks next week between the US and China and it appears that the revaluation issue, always a perennial topic in these trade talks, has been taken off the table. The US Government has recently stated that it intends to press China on other trade issues like market access for US companies and increasing the value of US exports to China. The US has announced that it wants to double US exports to China over the next decade.

What does all this mean for US SME importers of Chinese products? I believe that the situation presents great opportunities as the prices of Chinese products available for export will remain low for the foreseeable future and there appears now to be no likelihood of major costs increases as a result of exchange rate issues. From my discussions with my Chinese manufacturing clients, there is now a lot of opportunity to lock in these prices for the future.

More importantly, because of the problems in the European import market, many Chinese suppliers and manufacturers will now shift their focus to other markets, particularly the US. This means that there is the ability to achieve much lower prices from Chinese exporters because of the excess product available. It maybe that there has never been a better time for US SME companies to commence or increase sourcing product from China.

Also posted in Business News, Events and Happenings, Know-How – 2 Comments

Frictionless Ecommerce

May 12, 2010

Time magazine recently listed the 10 Tech Trends for 2010, that is, those issues and ideas that will shape the Web for this year and the immediate future. Amongst the references to cloud computing, the potential domination of the IPad and reliance on platforms rather than just websites, was the idea of ‘frictionless payments’. This is the ability of consumers or other web users to make money transfers immediately and at virtually no cost.

This is part of the latest ‘mantra’ of the ecommerce industry: ‘frictionless ecommerce’ which involves giving convenience, flexibility and options to a consumer.

The idea of moving money from one person to another, both quickly and cheaply is a relatively new concept. For decades, the banks had a stranglehold on the process. Checks took up to a week to clear, and transferring money from one bank account to another took days, and fees were levied at every step. The introduction of credit cards and EFTPOS made it easier and quicker but provided the credit card companies and banks more opportunities to deduct fees.

There’s no doubt that this will be one of the more interesting areas of development in the ecommerce industry in the future. However, I believe that a ‘frictionless ecommerce’ payments system is still a long way off.

In the current international product sourcing business world, the reliance on safe, cost-effective and seamless payment systems is still of prime importance to buyers particularly those who are sourcing goods from China.

As I discussed in my last post, although China is enjoying exponential growth in its ecommerce sector and the credit card industry is on the verge of major expansion over the next few years, the country is still a cash-based society. There is also a lingering distrust of anything that doesn’t involve cash.

This is particularly so in the millions of small to medium size businesses that power the Chinese private sector. Many SME’s do not have the ecommerce platforms or sophisticated banking systems to handle domestic cyber payments. The same is true for international transactions. A US buyer can’t simply send or wire money to a Chinese supplier if the supplier doesn’t have a foreign currency account held at a Chinese bank. Even if it does, the supplier requires approval from the Government to convert that payment into RMB that can be transferred to its local account. In many cases, such complexity and cost is beyond the reach of most Chinese suppliers.

Even in the area of direct sourcing of Chinese products, the available payment options like T/T or Letter of Credit become problematic because they are simply too expensive for smaller companies and purchase orders.

The ability to simplify the payment options and systems between Chinese suppliers and overseas buyers was one of the major driving forces of the establishment of the B2B intermediary websites like the one I established, www.dhgate.com. Rather than have to make a payment directly to a Chinese supplier which may have limited, unsafe and expensive payment options,( if any at all), sites like mine provide a range of payment options which bridge the gap between overseas and Chinese banking systems and make the process seamless, transparent, cost-effective and safe.

For example, www.dhgate.com currently provides the following payment options:

  1. Pay Pal, the world’s leading and most reliable online payments service. Pay Pal have recently announced a partnership with ChinaUnionPay, China’s biggest inter-bank payment and settlement system which will enable more and more Chinese companies to participate in international ecommerce transactions. This is the most popular and preferred method as you don’t need to use your credit card online, payments are traceable and Pay Pal offers its Buyer Protection service.
  2. Credits cards like American Express Visa, MasterCard and Discover card.
  3. Real time bank transfers.
  4. Offline payments like Western Union and other bank transfers.

The difference between my B2B site and others is that we recommend overseas buyers do not deal directly with a Chinese supplier but pay any amounts via the above options directly to www.dhgate.com. The site also offers overseas buyers an Escrow Service which is a licensed buyer protection service. Under this service, DHgate receives and holds the buyer’s payment until the transaction is successfully completed. Only after the buyer approves the products received will DHgate release the payment to the Chinese supplier.

This highly innovative service has been very successful with overseas buyers with numerous cases of money being returned to overseas buyers who were not completely satisfied with the quality or standard of what they had purchased. In fact, it has been so successful that it has now been copied by other B2B sourcing sites and has become the standard for Chinese product sourcing sites.

Also posted in DHgate, Know-How – 0 Comments

The Competitive Situation in China

April 22, 2010
In recent posts, I have been discussing payment systems in China. Before I continue on that in my next post, today, I would like to talk about Alibaba’s recently developed hacker-technology and how this relates to another important aspect of the business environment here: the competitive situation in China.
One of the key challenges facing China is moving away from low-quality imitation of products and services to more innovative, high-quality equivalents. In fact, this is a key area of investment for my company, DHgate, as we development support and education systems for Chinese manufacturers. Previously, Chinese businesses could create value by lowering production overheads; however, in the twenty-first century, being ‘cheap’ is not enough. I believe the goal should be for Chinese businesses to create value in a totally different way: by innovating beyond the competition.
In recent years, what we have seen is the emergence of a vanguard of dynamic new Chinese businesses that are capable of this. Through DHgate.com, I have found that fostering this attitude internally has allowed us to achieve rapid expansion in international markets. In the West, audiences respond to originality and not, as has been the case in China, to replication.
This has been at the forefront of my mind recently, as one of our key competitors Alibaba, developed and introduced a mechanism which allows its suppliers to access rival backend system and pull content over to their site. This competitive imitation is the hallmark of the old way of doing business in China, and it is a worrying sign that a recognized company such as Alibaba has resorted to these tactics.  This is not the environment in which Chinese business will thrive and become true international market-share contenders.
The philosophy we espouse at my own company, DHgate, is that to be the best you have to be able to innovate beyond the competition. First-mover advantage has proven to be key in online industries, but by the time a new feature has been widely replicated, a truly innovative company will already have developed another improvement.
The competitive situation is improving in China. Government regulations are slowly being rolled back, industries are becoming more diverse and dynamic, and a growing number of Chinese businesses have shown they have what it takes to be global leaders in their field.
China’s future lies in developing high-tech, fast-paced, competitive new industries, and I believe fostering a inventive business atmosphere, not competitive imitation, is the quickest and  way to get there.

In recent posts, I have been discussing payment systems in China. Before I continue on that in my next post, today, I would like to talk about Alibaba’s recently developed hacker-technology and how this relates to another important aspect of the business environment here: the competitive situation in China.

One of the key challenges facing China is moving away from low-quality imitation of products and services to more innovative, high-quality equivalents. In fact, this is a key area of investment for my company, DHgate, as we development support and education systems for Chinese manufacturers. Previously, Chinese businesses could create value by lowering production overheads; however, in the twenty-first century, being ‘cheap’ is not enough. I believe the goal should be for Chinese businesses to create value in a totally different way: by innovating beyond the competition.

In recent years, what we have seen is the emergence of a vanguard of dynamic new Chinese businesses that are capable of this. Through DHgate.com, I have found that fostering this attitude internally has allowed us to achieve rapid expansion in international markets. In the West, audiences respond to originality and not, as has been the case in China, to replication.

This has been at the forefront of my mind recently, as one of our key competitors Alibaba, developed and introduced a mechanism which allows its suppliers to access rival backend system and pull content over to their site. This competitive imitation is the hallmark of the old way of doing business in China, and it is a worrying sign that a recognized company such as Alibaba has resorted to these tactics. This is not the environment in which Chinese business will thrive and become true international market-share contenders.

The philosophy we espouse at my own company, DHgate, is that to be the best you have to be able to innovate beyond the competition. First-mover advantage has proven to be key in online industries, but by the time a new feature has been widely replicated, a truly innovative company will already have developed another improvement.

The competitive situation is improving in China. Government regulations are slowly being rolled back, industries are becoming more diverse and dynamic, and a growing number of Chinese businesses have shown they have what it takes to be global leaders in their field.

China’s future lies in developing high-tech, fast-paced, competitive new industries, and I believe fostering a inventive business atmosphere, not competitive imitation, is the quickest and way to get there.

Also posted in Business News, DHgate, Know-How – 5 Comments

The Future is Social Media

March 19, 2010
Social Media
As you’ve likely read recently, lots of big corporations are trying to harnass the power of social networks to help grow their sales. But even if you’re not a huge retailer, you can still leverage social media to share information about your products as well as to communicate with your customers. I like to think of social media marketing efforts as one part of a larger strategy. Lots of people (your potential customer base) like to communicate in different ways. Some will browse to your website for info, others are on email all day and respond to electronic promotions over anything they get in the mail, and others still prefer to rely on recommencations from friends and family that they might find on social networks.
One important thing to remember about the various social networks is that each has distinct functionality and users log on for different reasons. Here’s a quick overvoew of three extremely popular platforms.
Twitter
Twitter users (aka Tweeters aka Tweeple) use this service to share 140 character long updates with everyone who follows them. You can log into Twitter on any web browser, or you can send and receive updates through text messages on a mobile device. Because of the character limit, messages tend to be in shorthand and often reference short links created on tinyurl.com or bit.ly. For companies that want to use Twitter to gather followers, here’s some advice.
First, don’t use the service only to blast out messages about promotions and products. Followers will view your messages as spam and will stop following. While it’s okay to use Twitter to share links to products and special deals, be sure to spend some time seeing what other users are saying about or to you, and engage them in conversations about relevant topics. It’s also a good idea to follow the competition and companies that sell complementary items. There fans will make for great potential customers.
LinkedIn
LinkedIn is generally considered the more business/career focused version of Facebook (see below). You’re highly unlikely to find photos from last weekends bar crawl or pot luck dinner and users log in and update statuses less frequently. You’ll find more information about educational and professional backgrounds and users can write recommendations about their colleagues or other business contacts.
The best way for you to take advantage of LinkedIn is to use it to connect to potential suppliers and customers through your existing connections. It’s also a great place to post about job openings ors make requests for contractors and other vendors.
Facebook
Facebook is quickly becoming a one-stop-shop for a wide array of online tasks. It’s 300+ million users previously relied on tools like gmail, snapfish, message boards and blogs to get the same information that’s now available all in one place. Facebook users are more likely to regularly post status updates, links, video clips and other media and the platform makes it easy for anyone to comment on or share information that they find on Facebook or the wider web.
All this makes Facebook an ideal spot to engage with customers and potential customers in a variety of different ways. Companies can do this by creating a Public Profile that represents the brand. One key thing to remember, however, is that if your brand doesn’t have a lot of awareness, there is very little reason to for people to become a fan of your public profile. What you’ll be best served by doing is creating a page that’s purpose is to share useful information about a topic that relates to your business. So if your company, Irene’s Custom-Made Handbags, only has a small group of loyal customers, make your public profile have mass appeal by sharing information about all sorts of trends and information about custom made purses and other accessories. If you become the go-to place to find out which independent bag makers, chances are, you’ll develop a list of followers that will be great to market to.

As you’ve likely read recently, lots of big corporations are trying to harnass the power of social networks to help grow their sales. But even if you’re not a huge retailer, you can still leverage social media to share information about your products as well as to communicate with your customers. I like to think of social media marketing efforts as one part of a larger strategy. Lots of people (your potential customer base) like to communicate in different ways. Some will browse to your website for info, others are on email all day and respond to electronic promotions over anything they get in the mail, and others still prefer to rely on recommencations from friends and family that they might find on social networks.

Twitter.com/DHgate

Twitter.com/DHgate

One important thing to remember about the various social networks is that each has distinct functionality and users log on for different reasons. Here’s a quick overvoew of three extremely popular platforms.

Twitter

Twitter users (aka Tweeters aka Tweeple) use this service to share 140 character long updates with everyone who follows them. You can log into Twitter on any web browser, or you can send and receive updates through text messages on a mobile device. Because of the character limit, messages tend to be in shorthand and often reference short links created on tinyurl.com or bit.ly. For companies that want to use Twitter to gather followers, here’s some advice.

First, don’t use the service only to blast out messages about promotions and products. Followers will view your messages as spam and will stop following. While it’s okay to use Twitter to share links to products and special deals, be sure to spend some time seeing what other users are saying about or to you, and engage them in conversations about relevant topics. It’s also a good idea to follow the competition and companies that sell complementary items. There fans will make for great potential customers.

Checkout www.twitter.com/dhgate to see what my marketing team are doing here.

LinkedIn

LinkedIn is generally considered the more business/career focused version of Facebook (see below). You’re highly unlikely to find photos from last weekends bar crawl or pot luck dinner and users log in and update statuses less frequently. You’ll find more information about educational and professional backgrounds and users can write recommendations about their colleagues or other business contacts.

The best way for you to take advantage of LinkedIn is to use it to connect to potential suppliers and customers through your existing connections. It’s also a great place to post about job openings ors make requests for contractors and other vendors.

Facebook

Facebook is quickly becoming a one-stop-shop for a wide array of online tasks. It’s 300+ million users previously relied on tools like gmail, snapfish, message boards and blogs to get the same information that’s now available all in one place. Facebook users are more likely to regularly post status updates, links, video clips and other media and the platform makes it easy for anyone to comment on or share information that they find on Facebook or the wider web.

All this makes Facebook an ideal spot to engage with customers and potential customers in a variety of different ways. Companies can do this by creating a Public Profile that represents the brand. One key thing to remember, however, is that if your brand doesn’t have a lot of awareness, there is very little reason to for people to become a fan of your public profile. What you’ll be best served by doing is creating a page that’s purpose is to share useful information about a topic that relates to your business. So if your company, Irene’s Custom-Made Handbags, only has a small group of loyal customers, make your public profile have mass appeal by sharing information about all sorts of trends and information about custom made purses and other accessories. If you become the go-to place to find out which independent bag makers, chances are, you’ll develop a list of followers that will be great to market to.

Check out www.facebook.com/dhgate to see what my company is up to in this exciting space.

Read more tips on promoting your business at IntroducingSuccess.com and let me know what you think!

Also posted in Know-How, Trend Insights – 0 Comments

Chinese Parliament and You

March 14, 2010

Now that the spectacle of the Chinese Spring Festival has finished, China is back to business. Whereas February is the festival season, March is politics season. This week I want to focus on some pressing economic and financial issues because of their importance to US buyers of Chinese products.

Beijing has become the focus of China as over 3000 government and people’s delegates descend on the capital for a ten day Congress which decides the economic, social, legal and other policies of the country. It is a particularly important and timely meeting as there are a number of pressing economic and financial issues, like inflationary pressures and the valuation of the Chinese currency the yuan, that are uppermost in many people’s minds – Chinese and foreigners alike.

February was a great month for Chinese exports which were up about 45% on the previous year. There is guarded optimism that this trend will continue and I believe that cross-border ecommerce will be a driving force.

Looking at our transactional data and talking to our DHgate.com Chinese suppliers, I believe that foreign companies, particularly US firms, are replenishing their inventories and introducing new product lines. This is a strong sign of increasing confidence in the future.

Also in my discussions with Chinese and international clients and colleagues, I am constantly asked about my opinion on the direction of the value of the RMB. Clearly this has a direct impact on the costs of sourcing and has tremendous importance. You will no doubt have seen and read numerous analyses, commentaries and articles on this issue.

I don’t want to get into a debate of the rights and wrongs of this issue, but I think it’s suffice to say that there’s a lot of misconception and misunderstanding on both sides. I believe though that there will be no significant movement in the value of the RMB in the short term. Whether there will be a slight rise in its value later in the year as some are predicting will depend on the economic performance of the country. In the meantime, China-sourced products continue to remain extremely cost competitive for SME buyers. Stay tuned as there is a lot more to come on this issue.

The other major Chinese financial issues that have the potential to affect Chinese suppliers and overseas buyers are the specters of inflation, wage rises and looming labor shortages.

Despite a recent spike in inflation (particularly in the food, housing and wages sectors) over the past few months, the Government appears to have it under control. With respect to the labor market and costs, I’ll post on this issue in the future.

On a final note, during the Congress, the Government announced a major commitment to the development of China’s ecommerce platform, particularly in the SME sector. This is the first time it has been made a ‘front and center’ policy. A number of initiatives will be promoted to introduce SME online suppliers and manufacturers to better business practices and ecommerce trade. This is a welcome development.

My own company, DHgate.com, is actively developing its training and education programs for our online Chinese clients and welcome this Government policy which complements our vision for the future of high-quality product and service offerings from China’s manufacturing sector. I’ll talk more of these initiatives in a later post.

Also posted in Business News, Events and Happenings, Trend Insights – 0 Comments
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