| Purchase Order Financing- The China Advantage | | | | into the U.S. from China? This includes iron and steel |
| explores why manufactured imports from China to | | | | products, specialized industrial machinery, office |
| the United States of America are on the rise and | | | | machines and computer, telecommunications and |
| how you can benefit from this trend with purchase | | | | sound equipment, electrical machinery and parts, road |
| order financing a from commercial finance company. | | | | motor vehicles, building and lighting products, furniture, |
| As of July, 2007, the Central Intelligence Agency for | | | | travel goods and handbags, footwear, professional, |
| the United States government estimated that the | | | | scientific and controlling instruments, photographic and |
| population of China is over one billion three hundred | | | | optical equipment, timepieces, personal care products, |
| twenty one million people. In contrast, the population | | | | and food products such as tea. According to the |
| of the United States is estimated to be a little over | | | | American Electronics Association, high-tech imports |
| three hundred two million people. That's 1,321,000,000 | | | | from China are on the rise. |
| versus 302,000,000 people; China has over four | | | | What are some of the main risks associated with |
| times the population of the U.S. | | | | doing business with a manufacturer in China? We do |
| In the past two decades China has completed and | | | | not speak the same language, so a good interpreter |
| put into operation over 2000 large and medium-sized | | | | is necessary. Our legal systems are completely |
| industrial projects; these include railways, atomic | | | | different and the Chinese legal system is complicated |
| power stations and completely new cities. There has | | | | and weak. Therefore it is vital to develop good |
| been ginormous investments in other fixed assets | | | | relationships with the proper trading partners. It is |
| such as basic industries, 100,000 new reservoirs for | | | | also important to have excellent international legal |
| water storage, irrigated land, coal mining, oil-drilling, | | | | counsel to comply with the complexities of contract |
| steel-making, power generation, highway | | | | law, local Chinese law and relevant U.S. law. Protecting |
| construction, and newly constructed and extended | | | | intellectual property is a challenge in China. |
| ports. | | | | What does this all have to do with purchase order |
| China has the world's largest manufacturing | | | | financing? International purchase order financing is |
| workforce- over 100 million people. In comparison, | | | | complicated and complex in details, but the concept is |
| there are about 14 million manufacturing workers in | | | | simple. If you have a product that can be |
| the United States. China's labor costs are low | | | | manufactured in China, and you have made the |
| compared to the United States and many other parts | | | | proper arrangements for production and shipping but |
| of the world. As of 2002 statistics indicate that | | | | lack sufficient capital to finance the transaction- with |
| employees in China's city manufacturing enterprises | | | | a large purchase order from a creditworthy customer |
| received about $0.95 per hour; rural workers average | | | | a commercial finance company will agree to have |
| about half this amount: $0.41 per hour. A large | | | | their bank issue a Letter of Credit to guarantee that |
| majority of manufacturing employees work outside | | | | the Chinese factory producing the product will be |
| the cities. They earn about 3% of the average | | | | paid. When the goods are shipped and delivered to |
| hourly compensation of factory workers in the U.S. | | | | your customer the commercial finance company pays |
| and many other developed countries. With low land | | | | the Chinese factory. Between 70% and 100% of the |
| costs and low labor costs it is no wonder that the | | | | product's cost may be financed depending on the |
| cost advantage to manufacturing in China is | | | | product's gross margins and the risks involved. |
| extremely attractive to American entrepreneurs. | | | | Purchase order financing may facilitate your |
| When their products are manufactured with sufficient | | | | exponential growth and profits for all concerned. |
| quality controls, the cheaper costs and effective | | | | When your customer is invoiced for the product an |
| delivery systems create a win-win situation for those | | | | account receivable is created which will be paid to the |
| who are able to participate. | | | | commercial financing company. Purchase order |
| Manufacturing is a basic Chinese industry. When you | | | | financing with an international letter of credit can |
| take raw materials and labor and produce products | | | | make the deal possible. Accounts receivable financing, |
| that can be sold in high quantities at a lower cost | | | | or factoring, is the back end financing that |
| than U.S. competitors, and successfully import to | | | | guarantees payment to all concerned. The expertise |
| them to the U.S. and it is possible to have excellent | | | | of the commercial finance company can be invaluable |
| returns on your investment. And China's political and | | | | with regard to helping you succeed in this challenging |
| economic system is relatively stable compared to | | | | marketplace. |
| other developing nations such as many countries in | | | | A wise man once said if you put a flea in a jar with a |
| Africa. | | | | lid, the flea would keep jumping into the lid time after |
| What is the approximate size of the trade in goods | | | | time. After a while if you take the lid off, the flea will |
| from China? According the U.S. Census bureau, | | | | only jump as high as the lid. Why limit your potential |
| Foreign Trade Division, imports from China in 2006 | | | | when it is just as easy to set your expectations |
| were over $287 Billion dollars; for the first five | | | | higher? For businesses that sell manufactured |
| months of 2007 imports from China were over $120 | | | | products to other businesses, purchase order |
| Billion dollars. | | | | financing may be the way to reap the benefits of |
| What are the main categories of products imported | | | | the China advantage. |