Purchase Order Financing- The China Advantage

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