The annual EU-China summit provided a platform for the two powers to reaffirm their common commitment on climate change in front of Trump's America. From an economic point of view, however, negotiations were not very successful.
That famous saying comes to mind: 'the enemies of my enemies...' The 12th EU-China Business Summit, held in Brussels in early June 2017, saw China and Europe reach an agreement to reduce the use of fossil fuels, develop green technologies and contribute to financing an annual fund of EUR 90 billion for greenhouse gas emissions. From a purely economic view, there has been very little progress in discussions since June 2016. The EU missed an opportunity to become the first partner of China in respect of imports and exports.
Which strategy is the EU adopting on China?
In a fact sheet published on 1 June 2017, the European Commission summarised this policy through a series of "Council Conclusions EU Strategy on China". Its aim is to strengthen reciprocity and establish a level playing field and fair competition across all areas of cooperation. This is particularly relevant at a time when the European Union and China are working towards a Comprehensive Agreement on Investment, in order to create new market opportunities.
"Sound economic development, trade and investment also require respect for the rule of law. To conduct business, people need to be able to access free and independent information and also be able to communicate and discuss." Cecilia Malmström, European Minister for Trade
Europe is also trying to improve the connectivity between Europe and China in terms of infrastructure and discussions on the digital plan. During the "Belt and Road" forum, which took place in Beijing in May, the European Union set out its vision on improving the connectivity between Europe and Asia; it requires for there to be cooperation on infrastructure, in particular financing, interoperability and logistics.
"A common framework of norms and standards is also central to a prospering economic relationship, for example, with regard to intellectual property rights or food and consumer product safety." European Commission, June 2017.
Trade, investment... and dumping
During the negotiations, the EU was seeking the completion of a Comprehensive Agreement on Investment (negotiations on which have been ongoing for about two years.) What is the priority? To create fairer competition for businesses.
The EU intends to continue collaborating with China to get it to make its markets more open to European investments. A key concern for the Commission is what it calls "China's industrial overcapacity" in a number of sectors, notably the steel and aluminium sectors. Discussing the argument for an "unfair competition for European companies", the European Union is finding itself "being flooded with dumped Chinese goods", a problem that China needs to "address rigorously".
EIF: a plan of EUR 500 million
On 2 June, the European Investment Fund and the Chinese Silk Road Fund signed a Memorandum of Understanding to invest in funds (private equity and venture capital) together. What is the aim of this Memorandum of Understanding? To invest, in turn, in SMEs located primarily in the EU. The total amount of funds committed should reach EUR 500 million, split 50/50. The initiative should supplement the SME part of the European Fund for Strategic Investments from the Juncker plan, aimed at enabling some 416,000 SMEs/VSEs in Europe to have access to funding.
Export plans? Make sure you talk to our experts first
To prepare your international adventure properly, ask yourself the right questions and talk to people who have done it all before: partners, customers, fellow exporters and experts.
BNP Paribas Fortis listens to the questions asked by international entrepreneurs and offers reliable advice. "A lot of exporting companies ask for our help when it's too late", Frank Haak, Head of Sales Global Trade Solutions, says.
Entrepreneurs with little export experience are often unaware of the bigger financial picture. So what do they need to take into account when they set up a budget for their export plans?
Frank Haak: "Budgeting and pricing are affected by a lot of crucial factors: working capital, currency exchange risks and currency interest, prefinancing, profit margins, insurance, import duties and other local taxes, competitor pricing and so on. We always advise customers or prospects to start from a worst-case scenario. Quite a few companies are insufficiently prepared for their first international adventure: they see an opportunity and they grab it, but quite often disappointment and a financial hangover are not far away.
Our experts have years of export experience and the BNP Paribas Group has teams around the world. This means that we can give both general and country-specific tips. Let's say a machine builder wants to design and manufacture a custom-made machine. We recommend including the machine's reuse value in the budget: can this machine still be sold if the foreign customer suddenly no longer wishes to purchase it or if export to that country becomes impossible due to a trade embargo or emergency situation?"
What type of companies can contact BNP Paribas Fortis for advice?
Frank Haak: "All types! Entrepreneurs are often hesitant to ask for advice. Sometimes they are afraid that it will cost them money. However, the right advice can save them a lot of money in the long run. For example, we recommend a letter of credit or documentary credit to anyone exporting goods to a foreign buyer for the first time. This product is combined with a confirmation by BNP Paribas Fortis to offer the exporter the certainty that it will receive payment when it presents the right documents and to assure the buyer that its goods or services will be delivered correctly."
The consequences of not seeking advice: what can an exporter do in case of non-payment without documentary credit?
Frank Haak: "If you are not receiving payment for your invoices, the counterparty's bank can be contacted in the hope that it advances the payment on the customer's behalf. However, we shouldn't be too optimistic in that respect: the chances of resolving the issue without financial losses are very slim. Once you have left your goods with customs, you usually lose all control over them. Hence the importance of good preparation: listen to and follow the advice of your bank and organisations such as Flanders Investment and Trade (FIT). It will protect you against a whole host of export risks."
BNP Paribas Fortis
- is the number one bank for imports (approx. 40% market share) and exports (approx. 25% market share) in Belgium (according to the statistics of the National Bank of Belgium): it offers advice/financing and can help you to discover new export markets through trade development;
- is proud that Belgium is one of the world's 15 largest export regions and is pleased to give exporters a leg up, for example by sponsoring the Flemish initiative ‘Leeuw van de Export’.
Source: Wereldwijs Magazine
The art of negotiating payment terms with suppliers
Cash management is an SME's frontline weapon, and payment terms are a key means of keeping it under control – providing companies proactively open negotiations with their suppliers. But this solution remains underutilised by entrepreneurs
Cash flow difficulties are the number one cause of company bankruptcy in Belgium. Business owners face a constant battle to stay in control and maintain the balance of their inflows and outflows. Negotiating payment terms is one of the levers that can be employed: shortening them for customers while extending them for suppliers. In Belgium, the statutory deadline between companies is 30 days. Yet the reality can be different, since either trading partner may deviate from the rule. Where one of the parties is in a dominant position, the other is often obliged to accept the conditions it imposes... meaning its payment term becomes longer. Everything is negotiable, however, even with "big" suppliers, as long as you formalise the situation and ensure you protect your business relationship.
Who is your supplier?
They say information is power, and there is some truth in this. Indeed, the more you know about your "opponent", the more you will be able to turn the tables. How are the company's finances, and what is its cash position? Is it experiencing difficulties? Where is it placed on the market, particularly in relation to its competitors? What is your dependency ratio in relation to this partner? How does it make payments, and what is its purchase history? The answers to these questions will allow you to take up better positions in the negotiations, and find the best angle to launch an attack that catches the other side by surprise. Specialised websites, data banks, word of mouth (the competition): all means are justified in order to find out more!
What do you want to gain?
And a resulting question: what are you willing to put on the table to achieve your objective? In other words, you need to be properly prepared and establish a strategy regarding what you are willing to concede (and how much this will cost you) and what you absolutely want to gain in return. Remember that the other party has presumably not requested anything, and potentially has little to gain. Therefore, you cannot arrive empty-handed. Are you willing to order larger volumes in order to extend your payment terms? Can you envisage a long-term contractual commitment? Could you contemplate paying more in return for spreading your debits further? Imagine you are playing poker: clearly, you should keep your cards close to your chest. Wait for the right time to show your negotiating partner that you are prepared to make concessions.
How can you negotiate successfully?
The art of negotiating is a difficult skill. However well prepared you are, keep the following principles in mind:
- Even if you have brought a proposal to the table, listen to the other side and pay attention to detail so that you can react quickly.
- Do not be frightened of bearing your teeth a little, even if you are concerned about spoiling the business relationship with your supplier. Stand your ground and mention what the competition can offer you, for example.
- You must control how you communicate, so that you avoid giving the impression that you have cash management problems. Emphasise that payment delays do not help anyone, and that it would be better to agree on a reasonable and sustainable schedule.
- If your business relationship is established, mention your positive partnership and your desire to see this continue.
- During discussions, regularly refer to how far you have come and your shared progress to date. This positive tone will be well received.
- If the negotiations stall, try to resolve the difficulty by pulling out a trump card, for example (i.e. a concession).
- Remember: a good agreement is balanced, and leaves neither party feeling wronged. So do not be too greedy: the outcome must be worthwhile.
- Are you happy with the situation? Move to finalise the deal, either by accepting what is on offer or by finally opting for a fair compromise.
E-commerce: the 3 steps to success
Which stages should a company that is venturing into e-commerce go through? And how do you avoid customers and employees getting stressed and frustrated in the process?
Phase 1: managing the channel conflict
When a manufacturer, distributor or importer starts selling the products they previously only sold to shops online themselves, the shops may experience that as a channel conflict. Their supplier has now become a direct competitor benefiting from low start-up costs as well as more customer convenience. But does the supplier have a choice? If the supplier does not sell online, some customers will go to a seller who does. The solution? Benny Sintobin, Manager of e-commerce specialist Frucon²:
"The channel conflict is a perception debate that is more emotional than rational. E-commerce is unavoidable, so you had better adjust. The roughest edges of the channel conflict can be smoothed out by being a ‘friendly’ online store. With that I mean that you have to approach it correctly, with empathy for the party that may be at a disadvantage. You have to be bold enough to tell the customers of your distribution channel in advance what you are planning and which rules you are going to follow. If you start up everything on the quiet, you will cause frustration and negative emotions."
And these are totally unnecessary, because the new situation can be favourable to the distributor or shop as well. The distributor's online sales channel can also refer to his customer's website or shop, for example. Benny Sintobin:
"Take a bicycle manufacturer offering bicycles to customers online, for example. The website could allow consumers to combine certain materials and colours online in order to create a personalised model. The bicycle can be sent by courier, but can also be delivered to a retailer near the customer for the customer's collection. In that case the retailer will have to be satisfied with a smaller margin and the fact that he has gained a new customer, who will come back later to buy a helmet or a bicycle bag or to have his bicycle serviced. The other members of his family will follow his example for their bicycles and accessories. That way everyone wins."
Downward price spiral
When you say channel conflict, people almost automatically think about a price war between shops competing with online sales channels offering the same products at a lower price. According to Benny Sintobin it is therefore important to put a fair, correct price on the products:
"When manufacturers engage in e-commerce themselves, they set the product's retail price. The price is there online in black and white. In that case shops can rarely afford to charge a higher price. That is why the pricing must be correct, so that shops can still earn a living.
In practice a channel conflict often causes the reverse phenomenon: it is usually not the manufacturer, but the shops starting the downward price spiral. That is in fact the biggest threat to e-commerce: the shop trying to hurt the supplier. Major players striving towards market dominance can afford to destroy their profit margins. However, smaller manufacturers and brands cannot compete in such a price war. This proves once again the importance of making good e-commerce arrangements."
Phase 2: geographical expansion
Once the channel conflict has been well and truly digested, it is time for the next phase: tapping into new markets. For larger SMEs e-commerce is often a perfect way to gain more of a market share. For example, take a Belgian brand that achieved a nice market share in Belgium by selling in retail points as well as through its own online sales channel. Perhaps the brand has developed some brand awareness abroad through a couple of shops in the capital, for example. Benny Sintobin:
"In that case it is entirely possible that some consumers abroad know the brand already, but are unable to get to the shop because of the distance. It would be very unfortunate not to take control of that potential channel yourself and to leave it to Amazon, would it not? Online your products are available to all customers. Conclusion: expansion abroad with an e-commerce channel could be the first low-hanging fruit that is therefore easy to pick."
Phase 3: reinventing your business model
The third phase in e-commerce is a leap in the dark. Company thinking is traditionally product-, market- and wholesale-oriented. Take a company manufacturing or importing pots and pans, for example. That product is part of the world of cooking and dining, but still the sales strategy traditionally focuses completely on the product. However, the online activities offer opportunities to change tack and create an entire world around the particular product. You can work with other companies in that respect: a publisher to create content about dining, a candle manufacturer, a herbs specialist, a table linens manufacturer, a supermarket offering home delivery, etc. Benny Sintobin:
"Around Valentine's day or other key moments of the year you can create content and an entire world where those pots and pans belong. In that case what you sell online becomes more of an experience than a product. The effect is further strengthened if each of the partner companies present that experience on their sites as well. That way you enter each other's customer base and target groups. And you also immediately make sure that your social media really start to work for you. Consumers will tend to like a Valentine's experience more than just a set of pots and pans. In other words, you become a "love brand" rather than just an everyday product."
3 damaging e-commerce blunders
- You fail to inform the customers of your distribution channel of your e-commerce plans and you do not agree on clear rules. Clear arrangements make good business partners.
- You fail to gain sufficient support from all your company's employees. Non-believers and sceptics are best convinced with figures and orders. And you should make sure that dreamers keep both feet on the ground: Rome was not built in a day.
- You focus on bonus systems rewarding targets in a single sales channel. Commercial employees getting a little extra for the sales figures in actual shops are not happy with rising online sales figures, even though they benefit the entire company.
Do not miss the e-commerce boat!
Belgium is rarely ever first in embracing new technologies and their commercial possibilities. The country is not exactly a pioneer in e-commerce either. Unfortunate? It is!
First of all, it is a missed commercial opportunity. What is more, Belgian businesses are at risk of falling so far behind that it will become difficult to catch up. Compared to foreign web stores, the Belgian players are small: the large online stores are usually in foreign hands. The web store names may end in ".be", but behind the scenes you will find companies based in Belgium's neighbouring countries, the UK or the US.
According to the retail federation Comeos, this is partly because Belgian e-commerce is battling foreign dominance with unequal arms. Labour costs and VAT rates are higher here, for example.
Shopping without borders
Until now it has mainly been the European and US web shops doing well. If the Chinese web shops become equally popular, Comeos fears the trend will become unstoppable. The market will be flooded with extremely cheap gadgets and electronics at bargain prices. Fakes? Perhaps. With a guarantee? Who knows. The fact is that Belgian and European web shops are already becoming nervous.
"This is not without reason," according to Benny Sintobin, who has been running his own web shop for twelve years. His company Frucon² also designs and manages online sales channels for other companies. “E-commerce is global and super local at the same time. Global, because the competition is becoming worldwide. A young man from a small village in Belgium can see a longboard by a graffiti artist in California and buy it online. Logistics models will further adjust to this globalised trade. The price war is also constantly intensifying. As a brand, you had better be ready to join this worldwide game.
Super local means that you can order a loaf, some milk and some cheese at midnight and have those products ready for you at your front door at half past six in the morning. Just like in the good old days when the milkman made home deliveries, only the note on the door for the milkman has now been replaced with an electronic order. Something like that can only be organised super locally."
Waiting is no longer an option
At the moment people are afraid of worldwide competition, but fear is a poor advisor of course. The market is gradually evolving towards more e-commerce. Nobody can stop this trend. In some sectors almost half the products are now sold online. Tourism is a classic example of a sector that has taken to the internet like a duck to water. Other sectors, like household appliances, have a more modest e-commerce share for now, but this can change quickly. Even products you may not expect to do well on the internet are being sold online more and more. Take the fashion sector, for example. Clothes involve pure emotions, and colour and fit are hugely important, and yet e-shops for clothes are doing extremely well.
Internet giant Google has even predicted that in time, 40% of B2C transactions will be online. An important part of this will involve reservations, where an order is prepared in store for collection by the consumer. Another part will be actual home delivery.
Companies have to keep up with this trend, and by that we do not just mean the multinationals. A sense of size and scale is necessary, though. According to Benny Sintobin, the calculation is a simple one:
"Imagine a company achieves a turnover of 10 million euros in a sector where 5% of sales are achieved in web shops. Let us say that the e-commerce potential of the entire sector is 10%. Then the company primarily has an e-commerce potential of 1 million euros. You also need to take into account that there will be a channel shift during the start-up phase, whether you like it or not: customers who are used to buying in an actual shop will now make some of their purchases online. It is swings and roundabouts... except if you can increase the online margin."
4 reasons why customers buy online
- 40% (!) because of the price
- 20% because of the convenience: choosing, ordering and delivery at home
- 20% because of its uniqueness: much wider choice, opportunity to personalise, etc.
- 20% because of the availability: all models, colours and sizes are (almost) always in stock