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Managing Your China Business during a Global Downturn Managing Your China Business during a Global Downturn(0)

[ By Chris, Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ]

Much has occurred over the past few weeks, with stock markets plunging, banks in crisis and governments worldwide having to step in to rescue their ailing financial institutions. Although an international government bailout of taxpayer money appears to have stopped a complete meltdown of the global economic system, there remains no doubt that the consumer boom in the West over the past couple of decades is going to slow down. With many businesses in China geared towards supplying that boom, now is the time to look at practical considerations when managing your business in China.

In this issue we will look at businesses on the ground in China, businesses buying from China but based abroad, the implications for the Chinese economy and developments here, and also at other, regional emerging markets and what new opportunities they might offer.

On the ground in China

What to look out for:

  • receivables increasing
  • pressure on cash flow
  • project work time slippage and cancellations
  • banks requesting loans and overdraft reductions

Make no doubt about it, if you are supplying customers in the United States or Europe, they will be looking to change the balance of their relationship with you. In short, to remain their supplier, they will want you to fund more of their business. That means they will delay paying their invoices, and will extend credit terms, even without asking. You need to ensure that your contracts with them are tight, define credit terms and also define late payment penalties if they fall beyond say, 60 days.

Cash flow

In today?s interconnected world, payment should not really fall much beyond 45 days?six and a half weeks. If it does, they are simply using your money to fund their cash flow. You need to be strict about it and insist on payment according to contractual terms. This may mean making a nuisance of yourself until they get the message. This may prove difficult if you have a good relationship with them, but if they start to abuse that relationship it?s time to start calling the shots.

To deal with this you must pay attention to your own business cash flow and start to plan it out. This means looking at all of your overheads, working out when these are due, (not when you can pay them) and looking at what money you can realistically expect in to cover these amounts. Be honest, and be tough. If you?re not sure if someone will pay on time, don?t rely on it. These are not blue sky times we are talking about, and you need to get a large dose of reality into your cash flow to work out the true extent of any problems and what you need to do about them.

Next :
Purchasing Power Parity: The Smart Way to Buy in China

To know more, the whole issue is available (after a free subscription) on China Briefing website with others archives
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