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How Australian Businesses Can Prepare for Trade Disruptions During Chinese New Year

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Valued at $183 billion, China was Australia’s top two-way trading partner in 2017 and accounted for 24% of total trade. This means major events in the Chinese economy can impact Australian businesses. 

One of the biggest is Chinese New Year. In this post, we’ll discuss the basics of this major holiday, how it affects trade and what Australian business owners can do to prepare.

 

When is Chinese New Year and How Long Does it Last?

Also known as the Spring Festival or the Lunar New Year, Chinese New Year is determined by the Chinese lunar calendar and takes place somewhere between the 21st of January and the 20th of February of each year. In 2020, it officially begins on 25 January. 

The legal holiday lasts for 1 week, starting on Lunar New Year’s Eve and ending on the 6th day of the 1st lunar month. However, celebrations can easily extend beyond that — up to 10 days or more. But when you factor in preparation and extended celebrations, the entire event can last for upwards of a month in total.

 

What Are the Implications?

Chinese New Year is a fun and joyous time of year. People put up decorations, exchange gifts, share meals, and so on. But from a business standpoint, it can be very disruptive. 

“Almost every local business and company will close during this period,” explains Australian Business Consulting & Solutions. “Corporations, factories, logistics, banks, assemblers are shut down completely. This is especially apparent in tier 1 cities - Beijing, Shanghai, Shenzhen, Guangzhou.”

Business starts slowing down the week leading up to Chinese New Year, and it can remain sluggish until celebrations end roughly a month later. Not only does this apply to companies located in China, it also impacts multiple other countries that have large Chinese populations, such as Thailand, Singapore, Malaysia, Indonesia and the Philippines. 

There’s just no getting around it. “There will always be a handful of agents, manufacturers and businesses’ claiming to be open during CNY, but this generally untrue,” Australian Business Consulting & Solutions adds.

 

How This Impacts Australian SMEs

Any companies who trade internationally with China or countries with significant Chinese populations will be affected as well. Given that nearly a quarter of all Australian trade happens with China, the month-long celebration can create some considerable disruptions for Australian SMEs. 

If you import or export to China or these other countries, you’ll likely feel the impact. During this time, it may take longer for orders and transactions to be processed, and there may be delays when sending or receiving shipments. On top of that, you may have trouble getting in touch with key contacts.

 

How Australian SMEs Can Plan for Chinese New Year

Even if you don’t personally celebrate Chinese New Year, the impact will likely trickle down to your business. Therefore, it’s something to prepare for in advance. Here are some tips to prevent major issues and minimise disruptions to your operations.

 

Communicate with Chinese Business Partners

For starters, it’s important to get in touch with these business partners well in advance. You’ll want to find out what their schedule is like in and around Chinese New Year and the exact dates they’ll be closed. 

If you import products from a vendor, you’ll also want to know how much their production will slow down. Also, see if there’s anyone who can serve as an emergency contact throughout the duration of the holiday in case your normal ones are unavailable. 

The sooner you know this information, the better you’ll be able to plan, so communicate with business partners as soon as possible for the details. For a quick reference point of Chinese New Years start dates for upcoming years, check out this resource from Travel China Guide.

 

Place Orders Ahead of Time

As we mentioned earlier, business disruptions can last up to a month. While it may be possible to place orders during this time, it’s not recommended because it can create friction on your end. You can save yourself a lot of trouble by getting your orders in ahead of time and not resuming them until the dust has settled. 

Keep in mind that Chinese New Year celebrations often extend beyond the legal holiday. Just because a business partner is technically open on a certain date doesn’t mean their operations will be running normally. So it’s wise to give yourself a buffer. For example, you would probably want to get your orders in by 18 January 2020 at the latest — one week before Chinese New Year and not plan on resuming them until 18 February to be safe.

 

Stock Up for Q1

It’s also important to keep a close eye on your inventory volume. Business basically shuts down for many Chinese companies during this time, and the aftershocks can be felt well beyond. To ensure you have an adequate supply of products for January, February and March, you may need to order additional inventory ahead of time. 

That way you can be sure that you receive the necessary products to keep your business running smoothly, your shelves stocked and your customers satisfied.

 

Send Shipments in Advance

As for sending shipments, experts suggest making sure they arrive at least two weeks prior to the start of Chinese New Year. This should give you enough wiggle room so you don’t have to worry about your partners receiving their orders on time.

 

Anticipate a Slump

Australian SMEs who rely heavily on Chinese companies as primary customers should expect a slump around this time.

“If you’re waiting for orders to come in February, you must take into consideration your production times, financing, and all the different issues related to receiving and processing export orders,” writes David Noah, founder and president of export documentation platform Shipping Solutions. “Remember, you likely won’t get much business from China this month, which could be catastrophic if you do not anticipate it.”

Revenue can take a big hit, and it can hurt your business’s bottom line. So you may want to explore other strategic partnerships to expand your customer base and keep your company afloat.

 

Prepare for a Bigger Workload After the Chinese New Year

Finally, it’s common for exporters to experience a surge in orders from Chinese companies once the holiday has wrapped up. After the festivities are over, operations will resume, and there is often a massive spike in product demand. While this is a good problem because it results in a revenue spike, it can create a strain on employee resources. 

All of a sudden, you may find yourself needing additional support from customer service representatives and increased manpower to keep up with production and order processing. In other words, your workload can go from 0 to 60 in a hurry. Without adequate staffing and production capabilities, you’re going to feel the sting. 

So this too is something you should plan for and take the steps necessary to cover the workload. For instance, you may want to consider seasonal staffing or ask your employees to temporarily work longer hours until you catch up.

 

Make Sure Your Funding Lines Are Sufficient

Having access to adequate working capital is also essential during this time of year. For importers, this means ensuring your funding lines are sufficient to cover a build-up of stock. For exporters, this means gearing up for production and ensuring you can meet the demands of partners once Chinese New Year has passed. 

There are several ways to go about this, but one of the most effective is to use trade finance. This is where a lender serves as a third-party to make the trade process go smoother and reduce friction during transactions. For instance, a lender might offer extended credit to the importer to fulfill an order and provide an advanced payment to the exporter that matches the agreement terms. 

That way importers can stock up on items for Q1 and have all of the inventory they need, even if the ordering schedule is disrupted because of Chinese New Year. As for exporters, they’ll be able to rev up production without having to worry about major payment delays.  

Not only does this reduce the payment risk and supply risk and improve cash flow, it makes things easier across the board for both parties during this tumultuous period.

 

Being Prepared

Chinese New Year is an exciting time of year. But like many major festivities, it can also create some significant disruptions that not only impact Chinese companies but international trade partners as well. 

Fortunately, there are predictable patterns that SMEs can plan for. Following the tips listed above should help prevent any major setbacks and keep operations running as smoothly as possible. 

 

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