In Lianyungang, east China’s Jiangsu Province, a ship will leave a container port on Thursday, July 22, 2021.
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BEIJING – Chinese companies looking to operate globally are facing shipping problems.
Access to cheap domestic production gave Chinese companies an advantage abroad. But it is now becoming a disadvantage as the pandemic and trade tensions disrupt international delivery channels.
Many goods cannot be shipped, said Fang Xueyu, vice president of international marketing and general manager for Asia Pacific at Chinese home appliance manufacturer Hisense.
The cost of shipping containers has quintupled from around $ 3,000 to as much as $ 15,000 apiece while it takes about a week longer to get to Europe, she said in a Mandarin interview last month.
From the damming of the Suez Canal in March to the recurrence of Covid cases around a large Chinese export center in Guangzhou in June, logistical disruptions have hit world trade one after the other.
“What you have in Europe, what you have all over the world, that I would not call chaos, but a lot of disruptions in the logistics system,” says Alexander Klose, Executive Vice President of Overseas Operations at the Chinese electric car start-up Aways.
“So we had to rebook shifts, we had to postpone shifts because no ships were available, no containers were available. That definitely had an impact on us, ”he told CNBC in an interview in June.
For the company, which makes its cars in China and sells to Europe, Klose said the disruptions “delayed some deliveries by two or three months just because cars were parked in a port and weren’t transported.”
Foreign demand for products made in China remains strong – both according to company balance sheets and official data. According to Customs, exports to the European Union rose 35.9% year over year to $ 233 billion in the first half of the year, while exports to the US rose 42.6% to $ 252.86 billion.
Hisense remains keen to expand overseas and made $ 7.93 billion in international markets during the pandemic last year. By 2025, the company aims to triple the contribution of foreign markets to total sales to $ 23.5 billion.
The Chinese multinationals are likely to rediscover what they have known for a long time. Your best growth opportunities are right ahead of you.
However, the delivery delays represent the latest challenge for Chinese companies to reach international markets.
Out of about 3,400 Chinese companies that operate internationally, only about 200 generate sales of more than $ 1 billion overseas, said James Root, partner at management consultancy Bain.
“If you dig through it, the early pioneers – the Lenovos, the Haiers, and the Huawei – look more like real exceptions to me than the (avant-garde) paving the way for many, many Chinese multinational corporations to follow them overseas “said Root, referring to three internationally known Chinese brands.
These companies tend to “operate more of an export model for their international business,” he said. “The Chinese multinationals are likely to rediscover what they have known for a long time. Their best growth opportunities are right ahead of them.”
China is the second largest economy in the world, and many economists predict that it will overtake the US and become the largest in the next few years.
Amazon Bans, Taxes, and Other Risks
Other Chinese companies selling overseas have recently gotten into trouble due to crackdown on fake reviews from Amazon.
“We are aware that the behavior of some sellers has been viewed as violating Amazon’s ‘Code of Conduct for Sellers’ and other Amazon regulations, resulting in operational restrictions,” Li Xinggan, director of the Department of Commerce’s foreign trade division, told a news conference earlier this month. That comes from a CNBC translation of his notes in Mandarin.
He added, “We have always required companies to adhere to the laws and regulations of each country, respect local customs and habits, and develop operations in accordance with the law.”
Chinese merchants could also face higher costs from implementing a new EU tax policy on goods exported to the region.
Read more about China from CNBC Pro
“The political, economic, compliance, logistical and human resource challenges faced by Chinese companies when traveling abroad have increased significantly,” said People’s Daily, the official Chinese Communist Party’s newspaper, in an article about the latest publication of a in late June Business Association Report on Risks for Chinese Companies Going Abroad.
“In recent years, inadequate risk identification and prevention has become a major problem for Chinese companies (ability) to ‘go out’,” the article said, according to a CNBC translation of the Chinese text.
Alibaba’s air freight advantage
Alibaba, a major player in China’s domestic e-commerce market, has invested in its Cainiao logistics unit as part of its overseas strategy.
Cainiao’s partnerships with various companies’ airfreight charter companies mean that “we have a stable supply of airfreight to European countries,” said William Wang, General Manager Spain, France and Italy for AliExpress, Alibaba’s international e-commerce business.
He claimed that it enabled sellers on AliExpress to get their products to customers without additional costs or delays.
However, air freight typically costs far more than freight shipping and is therefore impractical for exporting cars or large household appliances.
More overseas warehouses and acquisitions
The logistical challenges mean that Chinese companies continue to localize themselves in international markets.
E-commerce companies in Europe have built or rented warehouse space near customers so that sellers can have products available for storage. Once a customer places an order, the product only has to travel from a nearby warehouse instead of crossing a continent.
Figures from the Chinese Ministry of Commerce show that Chinese companies built around 100 new warehouses abroad in the first half of this year, up from 800 more than last year.
Chinese companies are looking for other ways to establish their presence in overseas markets.
Over the next year, AliExpress plans to double its workforce in France, Spain and Italy from just over 200 currently, Wang said.
For Hisense, said Fang, the company plans to make further acquisitions and build more factories in different countries – as tariffs make selling Chinese-made products more expensive in some markets like the US