Importing from China: the trust gap

Sourcing from Chinese manufacturers might be cost effective, but managing relationships with them can be tricky.

So says Karl Alomar, CEO of China Export Finance (CEF), a business dedicated to helping small to medium-sized enterprises (SMEs) get over such difficulties.

‘Communication is the biggest problem – for everybody,’ says Alomar. ‘It begets a mutual lack of trust, and a lot of issues with negotiation and dispute resolution.

‘Blue-chip companies have teams of people [in China] to deal with those issues – but an SME’s procurement staff may only be able to visit China twice a year.’

Cash flow is another problem, says Alomar: both the buyer’s and the seller’s.

While it might be normal for manufacturers in Europe to offer 60 to 90 days’ credit, Chinese manufacturers are often unwilling or unable to do the same. Unwilling, because of the trust issue, or unable, because their high rate of growth means that they need the cash immediately.

In response to these problems, ‘export credit agencies’ across China promise to bridge the finance gap. But according to Alomar, these government-backed bodies tend to work in the interests of the seller.

Seeing a gap in the market, Alomar launched CEF last year. With 20 staff in China, the company not only provides finance but also helps importers with other supply-chain issues such as logistics, compliance and currency exchange.

Typical transactions funded by CEF range from £25,000 to £1 million, though Alomar has offered up to £5 million and says funding is ‘thereoretically limitless’. Practically it depends on the credit limits CEF sets for its clients.

Through his dealing with manufacturers in China, Alomar notes that they are having to refine their offering to overseas buyers.

‘The costs of labour and materials are going up, so rather than compete purely on price, they are having to compete on quality of service and product – and on payment terms,’ he says.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.