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The China Effect: The Good, The Bad and The Ugly

China’s meteoric growth has destroyed local industries – but it has also opened new markets.

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There’s no doubt about it – China has changed the way the world does business. And with its increasingly massive clout and the state’s growing closeness to the South African government the Asian giant is likely to play an even greater role in the lives of business owners here in future years.

In just over two decades China has catapulted from its spot as the 10th biggest economy, to become the second biggest economy in the world. It’s now also the globe’s biggest exporter and its hunger for resources has made it the third biggest importer in the world, after the US and Germany. Estimates are that it will overtake the US to become the world’s largest economy in the next seven to 15 years.

In the meantime, China will continue growing at  breakneck speed, albeit at a lower forecast average of 7,5% over the next four years. This is more than double South Africa’s expected growth over the next three years, but down on the 11,2% a year China recorded between 2006 and 2010.

Local manufacturers suffer

In the last decade cheap Chinese imports have wiped out large swathes of local industries. There is already evidence that fewer South Africans are setting up factories. Figures from Business Partners reveal that between March 2004 and March 2007 (the year before the recession), the SME financier’s investments in manufacturing grew from just 107 a year to 119, bottoming out to 105 the following year.

During this time the manufacturing sector, as a percentage of the financier’s total number of deals, shrunk from 20,9% to 17,9% of its portfolio, before falling to 15,7% in 2008. This was at a time when the local economy was pumping, but these figures suggest that not many South Africans were rushing out to set up factories.

On top of this, vacancy levels for Business Partners’ industrial properties had moved from 5% five years ago to 10%, says managing director Nazeem Martin. He adds that many of the properties which were once filled by small factories are now filled by businesses with repair shops or suppliers of goods to the services sector.

In the furniture sector where manufacturers have been hard hit by cheap imports, Michael Reddy, chief executive of Seda furniture incubator Furntech, says the only way for furniture manufacturers to stay in business is by supplying fewer goods at higher prices.

In Brazil, the South American country is ratcheting up support for small firms. But cheap Chinese imports only make up 3% of consumption in the Brazilian market, according to Lawrence Edwards, associate professor in the School of Economics at UCT.

Edwards, who is studying the effect of Chinese imports on South African businesses, believes that Chinese imports make up a much greater percentage of the market here – easily 5% or more. The penetration of Chinese imports into South Africa will be higher because the country has a small economy with a small scope for manufacturing, he says.

Yet, it’s only in recent months that the government has appeared ready to step in to assist local firms hit by the China effect, with the Minister of Finance Pravin Gordhan’s announcement in the 2012 Budget Speech that billions would be given in incentives to improve the competitiveness of local businesses.

Edwards believes that despite SA’s more defensive trade policy approach, following the stalling of the Doha round of World Trade Organisation (WTO) talks, South Africa won’t be bringing down tariffs, which are as high as 40% to 45% on clothing.

This might be good for some local factories, if it continues this way, but it won’t stop Chinese entrepreneurs from coming to South Africa. More local companies are being approached by Chinese companies that want to sell them raw materials.

Colin Mkhonta, the chief executive of Seda’s chemical sector incubator, Chemin, says he receives “almost weekly” requests from Chinese firms to sell raw materials for cleaning products to incubatees.

Now, as they have done in other parts of Africa, Chinese firms are steadily moving into South Africa to take shares in mines and manufacturing companies. Chinese investors are also likely to keep an eye on infrastructure projects announced by President Jacob Zuma in his State of the Nation address in February.

Already three Chinese automotive manufacturers are set to move into the country soon, according to Martyn Davies, emerging markets analyst and chief executive of Frontier Advisory. But Davies, who is helping the South African government to bring Chinese investors to the country, says local businesses won’t necessarily score big, as many Chinese firms will bring their own suppliers with them when they set up here.

Peter Draper, a trade analyst and senior fellow at the South African Institute of International Affairs (SAIA), believes China’s demand for commodities will be key. He argues that China’s enormous economic might presents certain opportunities for local entrepreneurs, including a quest for land, as the Chinese are looking for land from which to export goods or foodstuffs to China.

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New opportunities

Yet it’s not all bad. The China effect, as some have termed it, has helped spawn new businesses, such as suppliers and importers, and opened up a large new market in the Asian giant itself.

The Johannesburg Chamber of Commerce and Industry (JCCI) has set up a matchmaking programme with chambers in Sao Paulo, Brazil; Shanghai, China; and Delhi, India, to allow local entrepreneurs to interact with one another over the Internet.

“We are going to work with the new BRICS (Brazil, Russia, India, China, South Africa) thing, instead of fighting it,” concedes JCCI chief executive Keith Brebnor. “China is not going to go away, so we are embracing them. If you don’t embrace them these other countries outside Africa will go direct to African countries. So we should move in.”

China’s continued rise is likely to bring with it both threats and opportunities for South African entrepreneurs. Here are some predictions:

  • Chinese exports to move to high-tech

Chinese goods will continue to land on our shores in large numbers, but years ahead these are likely to include more sophisticated, high-tech products. Even if prices are expected to be a bit more expensive than before, local factory owners manufacturing high-end products will have to ensure they have cornered a niche market and can compete on price and delivery with Chinese products, by turning to just-in-time delivery or doing small runs.

Some say China is where Japan was in the 1960s – producing cheap goods which were often of dubious quality, before shifting to more technical electrical and computer products.

Under its current 12th five-year plan (2011-2015), China is looking to aid seven priority sectors as it moves to focus more on high-technology. These are: renewable energy, energy conservation, new materials (such as high-end semi-conductors), biotechnology, IT, high-end manufacturing in telecoms and aerospace equipment and clean-energy cars.

China is also making significant investments in the development of new products and between 1998 and 2007, the country along with Korea, showed the biggest increase in R&D spending, according to the Beijing Axis.

At the same time wages are set to rise. In February the Chinese government released a job market plan to set minimum wage levels at 40% of average local salaries within three years. Cheap labour, which up until now has been supplied by the country’s poorer interior, is also becoming more scarce.

Also, under the current plan the country is making a concerted effort to strengthen its domestic economy, or the share made up by private consumption, but Chinese exports won’t slack off. According to a KPMG report, exports will continue to grow – from ¥11,3 trillion last year to an expected ¥16 trillion in 2015. So expect more high-tech goods at higher prices to start streaming into South Africa in coming years.

  • Opportunities in Africa

Much has been made of Chinese businesses backed by easy finance, moving into Africa, particularly where infrastructure projects are rolled out in exchange for mineral resources. Some liken it to neo-colonialism, others say the Asian country’s projects are a godsend to a poor developing continent.

China’s growing presence on the continent may even create big opportunities for South African firms in financial and other services.

Barrie van Wyk of Beijing Axis points out in a September 2011 edition of Beijing Axis publication, China Analysis, that China’s increased business in Africa has also created demand for services, and thus opportunities for legal firms, banks and other service providers. These are areas of strength for South Africa, and more local companies should be exploring the African market.

Standard Bank economist, Jeremy Stevens says that while China’s focus is turning towards domestic matters, the Asian dragon is also eyeing Africa now more than ever – particularly with the uncertainty in traditional northern markets of Europe and the US.

Africa remains a key market for China, particularly when it comes to its demand for commodities,including minerals and oil. Last year China-Africa trade hit a high of $155 billion.

Africa is also growing fast, and has already been outlined by McKinsey and others as one of the most attractive markets over the next few years. Yet despite this, Africa is in need of an urgent infrastructure overhaul. Stevens estimates that the continent needs about $100 billion a year to build new roads, erect new powerlines and maintain and develop other key infrastructure.

And although it will mean stiffer competition for local firms operating on the continent as they struggle to compete against cheaper Chinese turnkey projects, Stevens, who has been based in Beijing for six months, believes it also means more opportunities for South African entrepreneurs.

He stresses that it makes “long-term structural sense” for China to partner with South Africa, the biggest manufacturing sector on the continent. Added to this, many larger South African firms have become household names across the continent. Stevens believes Chinese firms could also help with another South African problem – unemployment.

  • Prospects to enter the Chinese market look good

With over 1,3 billion people China has become a valuable market for entrepreneurs to tap into. Chinese consumers are on the rise and the country is already the biggest car manufacturer and second biggest energy consumer in the world, as incomes have tripled between 2000 and 2010, according to Beijing Axis.

China is set to become the largest market for luxury goods by 2015, when it will account for 29% of consumption of luxury goods, according to the Boston Consulting Group.

And China’s goal to increase technological capabilities in a range of sectors will mean that Chinese regulators will welcome advice and training from experienced foreign companies, according to public affairs global giant Apco.

South Africa is looking for a slice of the action and the Department of Trade and Industry last year presented the Chinese Ministry of Commerce with a list of ten key sectors that they would like to promote to Chinese consumers, including wine and vehicle manufacturing.

But, trade analyst Draper cautions that South African entrepreneurs who export food products to China will come up against health checks and have to compete with China’s heavily subsidised local agriculture sector.

For South African firms looking to invest in China, having expertise in a cutting edge technology or service is far more important than arriving with briefcases of cash, says emerging markets analyst Davies. China, with the world’s largest dollar reserves, isn’t short on funds.

Breaking into the market, he says, will also require good people skills, as doing business in China is a very human relations-dependent exercise. There is also the issue of language. Any meaningful transactions will require knowledge of Mandarin.

According to Davies, about a dozen or more South African companies have a presence in China. These include Kumba Iron Ore, Naspers, SAB Miller, Anglo American, Hollard, Old Mutual, earth compacting company Lanpac, Barloworld, FirstRand, Capespan (which invested 20% in a food distribution company in Shenzhen) and Discovery Health.

Despite this, Davies says the number of South African companies in China remains limited, particularly compared with Australian firms which have been there for some time.

“South African companies have been late to the party,” he says, adding that a small country like Switzerland already has 500 companies based in China.

This means that entrepreneurs will have to keep a watchful eye on China – be it exporters looking to expand into new markets or  business owners looking to roll out a new factory. The Asian giant offers both opportunities and threats, but, with careful planning, the opportunities can outweigh the threats.

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Stephen Timm is a freelance writer at Entrepreneur Magazine.

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2 Comments

2 Comments

  1. sugarequip

    Jul 11, 2012 at 08:05

    Its interesting that I recently learnt that in Pakistan that the government raises or lowers customs duties to earn foreign exchange and to protect local manufacturing / employment. Why do we not do the same seeing as employment read jobs is so widely discussed??

  2. Andrew Blaine

    Jul 11, 2012 at 12:27

    Unless South Africa initiates a serious programme for the beneficiation of both raw materails and small manufacturing organisations in the very near future the country is destined to become a vassal state to China who will control our raw materials. The evidence supporting this contention is everywhere in Zimbabwe but then we could not follow that example courld we?

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Business Landscape

Load Shedding – How To Stay Productive

We’ve all already had massive interruptions from load shedding and it’s not going away anytime soon so, instead of being caught out each time and losing productivity, let’s stay steps ahead of the outages and make sure that our productivity stays where it should be…

Warrick Kernes

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They say that prevention is better than cure and with load shedding the best cure is to have a generator, backup power inverter or UPS (Uninterrupted Power Supply) set up to kick in when the lights go out. If you don’t have this in place then you will want to understand when you will be affected and how to minimise the impact of this on your work.

The first step is to know when your area is scheduled for load shedding. You can find out by downloading the free app called Loadshedding Notifier which tells you when Eskom has scheduled areas to be turned off. We’ve already seen that the lights don’t always go out when they are scheduled to do so but it’s better to be prepared than to be caught in the dark.

Many entrepreneurs rely on their normal routine to drive their productivity but once you know that your routine is going to be interrupted then it’s time to re-plan your day. You could plan to get up earlier to avoid traffic or to start work super early so that you get through your priority work before the power goes off.

Arrange your to-do list so that you can get through the highest priority and income producing activities first and then you can get around to the rest of your work. Prioritising your daily actions becomes even more crucial when you have limited time. You can also plan priority work for when the power is out; just imagine how many sales calls you can make when not being interrupted by emails.

If you work from home check if the neighbouring suburbs will have power so you can go work at one of the cafes. Most cafes have free wifi but it can be slow and these networks aren’t always secured so it’s preferable to have your own 3G dongle so that you don’t rely on others for internet.

A few more load shedding quick tips:

  • Work in the cloud so that all your work is backed up automatically and not lost if you suddenly lose power.
  • Unplug devices when the power is out to avoid damage from potential surges when power is restored.
  • Keep your electronics charged up such as; headphones, cell phone, laptop battery, powerbank, 3G dongle.

If your computer battery dies or you run out of things to do then create a list of work that you and your team can do which doesn’t require computers or internet. An impromptu team building lunch or a good old brain storming session could prove incredibly valuable or if your team isn’t up for that then the storeroom could probably use a clean.

If all else fails don’t panic as you can always just go for a walk, meditate, spend time with the kids or go to the gym to clear your mind.

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Business Landscape

4 Tips To Create A Great Conference / Workshop / Event In 2019

Being able to host a great workshop or event is an essential skill for anyone in creative and innovative businesses. Your event will have a major impact – that is guaranteed. However, whether it is a positive or negative impact depends on the how well the event was put together and executed.

Revel Africa

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Your business is fantastic. You work with amazing people, and your industry is dynamic and evolving. There are so many exciting ways available to you to share your good stories: social media, podcasts, videos, live streaming, emails. But the trend we’re seeing of more workshops and conferences is the most exciting, and effective. Why? Because people still do business with people, and face-to-face still has more impact than anything digital.

Being able to host a great workshop or event is an essential skill for anyone in creative and innovative businesses. Your event will have a major impact – that is guaranteed. However, whether it is a positive or negative impact depends on the how well the event was put together and executed.

Here are 4 top tips to create and host amazing events this year

1. Purpose

Identify the purpose of the event. Is it to train clients or future clients on the latest trends in your industry in a bid to position yourself as the subject matter expert? Is it to bring a large multi-campus business together into one space to unite them and refocus and energise them? Is it to bring creative minds together to solve a problem? Answer these questions and you will know if you need a small, vibrant workshop, a large, slick event, or a creative team-building conference.

Plus, having a really clear understanding of why you’re doing this event is the best way to deal with the stress of putting it all together. Anchor yourself to the core reason behind the event, and it will not only propel you forward through the process, but will also make a lot of the decisions easier to make as you go.

2. Prepare

If you are going to host an event, then embrace the reality of late nights, money stress, volatile emotions and extended periods when your nearest and dearest, your social life and your free time take a back seat. There’s no nice way of saying it – an event is a huge responsibility and one that will take up a lot of your time.

The best advice we can give you is to find an event planner straight off to help you put your best foot forward at your event and deliver on your vision for the event. That way, once they’ve done all the heavy lifting, all you have to do is arrive on the day of the event looking fresh, fabulous, and stress-free and allow yourself to revel in its success. Your event planner would have handled everything for you, from haggling with suppliers, to sourcing the best locations at great prices, and should even handle the headache of RSVPs. In the Western Cape and Gauteng we highly recommend Revel Africa for bespoke events and innovative ideas that fit your budget.

Whether you use an event planner or not, you will need to think these through.

  • Decide on a theme – A theme helps to unify your ideas, source expert speakers, and market to the right people. Pick something simple, catchy and on topic. You can even go so far as creating a mission statement for the event to keep your efforts focused, such as, “We care a whole lot about this topic / industry / situation and we couldn’t find a conference that matched what we want and need. Our goal is to bring something that is welcoming and inspiring, where the talks are fresh, and the snacks are even fresher. We’d love you to join us and celebrate the people (including you!) who make this industry great.”
  • Prepare a budget and make bookings – Knowing what your budget is will help you set the price for delegates if it is not an in-house event. Here are the most common items you need to budget for, and book:
    • Venue – Once you’ve found a venue within the price and date range that you had in mind, you can fix the date for the event.
    • Transportation – For out-of-town delegates.
    • Catering – Events can rise and fall on the quality of the food provided. Shop around for this one and request taste-tests.
    • Speaker – Start thinking about speakers very early on, as all the good ones get snapped up fairly far in advance, so if you want your top choices, secure them as soon as possible. For interactive staff sales training we recommend Mark Berger, and for your MC / Inspiration needs, we recommend Warrior Ric.
    • Activities – Think of icebreakers and activities to get people out of observation mode and into participation mode.
    • Marketing – If this event is for external delegates, invest in a good marketing agency for social media, printed marketing collateral, banners, brochures, website updates, and paid media.
    • Team members – Select, and brief the team that will help you with this event.
    • Invitations – Once you have a date, venue, and keynote speakers, you can send out your invitation. Managing RSVPs and payment effectively is critical. Quicket can be a useful payment portal for events.
  • Daily emails: Once the conference has started, send out a daily email outlining the itinerary for that day. Keynote speakers and times, social events, meal plans, highlighted sessions, even the daily weather report can all help the attendee feel more prepared and connected when they reach the event. You can use Mailchimp or any other of the great bulk mailer platforms available.
  • FAQ: An FAQ is great for questions that come up again and again. The answers can be published on an event FAQ page on your website and the link sent in the daily mails. Questions like:
    • Are sessions be recorded? When will they be available?
    • Is parking available?
    • What’s the Wi-Fi password?

3. Productivity

Be mindful of who is attending the session and whether or not the session’s content is suitable to them. A talk that is too basic, too advanced, too demographically narrow, or too far off-topic for the conference – no matter how famous the speaker is – will bring the session’s productivity to a grinding halt.

Another great thing to consider is self-directed co-ordination as a great way to meet new people or to connect with people you’ve known for a long time. Using a Twitter hashtag, a Slack team, a Telegram group, are a great communication channel for the event to ensure attendees easily find information about how to network with each other. If your event is more technical, you could also create a wiki during the event to enable sub-communities to self-organise on the day and share content.

When it comes to how productive the sessions are, as the event planner it might be tempting to participate in the day’s events. However, as a facilitator your role is to remain objective and observe. You can’t facilitate and participate at the same time. Keep scanning the room to sense the mood and energy; keep discussions on track by asking great questions; constantly keep the end goal in mind. Typically, a good facilitator or event planner is often invisible on the day of the event.

4. Participation

There are many creative ways to structure the day’s proceedings to facilitate maximum participation.

  1. Campfire sessions – These start like a traditional presentation, with a speaker at the front of the room presenting an idea to a group of people. However, after 15 or 20 minutes, the presenter becomes the facilitator and shifts the focus of discussion to the audience, inviting comments, insights and questions from those around the room. Campfire sessions allow attendees to drive their own learning and share experiences with others, which also assists with networking.
  2. Birds of a Feather (BOF) – BOF groups are small, informal gatherings of people with a common interest or area of expertise who join up to work together, typically over lunch or during the morning coffee break. You can suggest BOF groups for attendees to join or they can create their own. Sessions don’t have a pre-planned agenda and are aimed at encouraging discussion and networking.
  3. Lightning Talks – As the name suggests, lightning talks give speakers no more than 10 minutes to make their presentation. Because speakers don’t have time to waffle, the presentations are to the point, which keeps audiences focused and energised. A window of between 30 to 60 minutes is usually given to lightning talks, which can allow for up to 12 speakers to be heard.
  4. Silent Disco Talks – This is where many speakers present at once within the same room, while delegates – wearing wireless headphones with channels that they can switch between – choose who they want to listen to. Delegates enjoy bite-sized pieces of information and are always tuned in to something that interests them.
  5. World Café – This simple, effective, and flexible format is ideal for hosting large group discussions. Start the first round of discussion with groups of four to six people sitting around a table, and present each group with a question. After 15 minutes, each member of the group moves to a different table. Once all rounds have been completed, key points from each table are presented to the whole group for a final collective discussion.
  6. Storytelling – This is where speakers tell real-life stories that help illustrate or enhance themes in the conference. The story should contain a beginning, a middle and an end, with characters and plots, like adversity and triumph. Stories should be 15 minutes long, with 10 minutes provided for Q&A afterwards.

Here’s to hosting many great workshops and events this year.

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Business Landscape

What Is Business Insurance And Why Does Your Business Need It?

Your business asset insurance cost will go up if you add on more items, but this is common with all insurances. Not sure why you need it? Find out more information below.

Amy Galbraith

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You need to protect your business against all eventualities. This means that you need to have the ability to pay for any physical or legal damages that might occur, such as a client claiming that they were injured while on your property or an asset being stolen from your property. And business insurance in South Africa is a necessity if you want to apply for business finance, as the bank will need to see that your assets are insured.

You might be wondering now, as a business owner, “What is business asset insurance?” It’s insurance which insures your assets, such as vehicles, electronic equipment, and your business premises. You can also opt to have business car insurance if you have a company car that is used by your employees. Your business asset insurance cost will go up if you add on more items, but this is common with all insurances. Not sure why you need it? Find out more information below.

It protects your assets

Whether you are a small business just setting up or an established company, you likely have assets that are important to keep your business functioning. This could be a business vehicle that you use to transport goods to clients or computers that are vital to your employees.

If you do not insure these assets, you will need to pay for repairing and replacing that might need to happen out of your own funds. And this can become extremely expensive, depending on what has been damaged, lost or stolen. Another reason why you need business asset insurance is that there might be a natural disaster or “act of God” that occurs, such as a fire or flood, which could damage your equipment, meaning that it needs to be replaced.

It protects you from legal issues

Some of the problems that businesses face include legal issues, which can become costly and tiresome. These issues can be handled easily and efficiently if your business insurance to help pay for legal fees and settlement fees with the client or employee who is issuing the complaint.

In the case of being sued or taken to court, it is useful to have a business insurance offering available to help you. If you do not have this type of insurance, you will soon see that legal costs can become exorbitant. Legal issues can also reflect negatively on your company in the eyes of other clients or employees, but having business insurance can help to clear up any problems effectively and without any drama.

Your business will not shut down due to incidents

If your business vehicle is stolen or if the equipment is damaged, this could lead to your business closing for a period while you try to recoup your loss of money. This could lead to you losing even more money which could be highly detrimental to the success of your business.

Your insurance company will be able to compensate you the lost funds, granted that the issue is covered by the insurance cover you have in place. This will allow you to stay open despite the fact that you are experiencing difficulties due to equipment not working or other problems. You could even opt for emergency assistance if there is a natural disaster which will keep you, your employees and even your property safe from damage.

Your employees will be protected

Your employees are the backbone of your company. And, as such, you should have protection in place for them. You should have workers’ compensation coverage in place so that should your company lose money or be unable to pay your staff, their needs will still be covered.

And business insurance will protect them from any possible lawsuits that could be lodged against them by clients or customers. It can become highly expensive to pay for these out of your own pocket. Protecting your employees protects your business, so be sure to invest in insurance which offers workers’ compensation as well as disability cover to protect your employees.

Think smart for your future

Having business asset insurance and business insurance is important to both small businesses and large corporations. This is because your assets will be protected from theft and damage, which can be costly to replace and repair. You will also be able to weather any legal storm that might come your way, as well as being able to protect your employees and their welfare.

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