Tips for buying product packaging from China

Imagine Apple selling iPhones in ziploc bags instead of the glossy cartons we are used to. It wouldn’t be the same thing. Well designed and high quality packaging adds plenty of value to your product. In this article we will explain what you need to think about when buying product packaging from a Chinese supplier – including design options, materials, warning labels and marking requirements.

“Do I need to find a packaging supplier on my own?”

No. While few Chinese suppliers are manufacturing product packaging in-house, most have established relationships with sub-contractors specialised in packaging and printing. Therefore, you don’t need to bother with locating a product packaging supplier by yourself. However, In case the suppliers sub-contractor is not able to provide a satisfying product packaging, you may still source one on your own.

That said, it comes with certain complications. The packaging must still be delivered to the final assembly supplier. Unless you have a reliable partner in China, I don’t suggest you attempt to manage such a transaction.

Product packaging design

When buying product packaging from China, you basically have two options. You either use an existing product packaging, or you design one on your own:

Option #1: Custom designed product packaging

This approach is somewhat complicated. First of all, you must design the packaging according to the product shape and dimensions. Never rely on your supplier to make final adjustments to your packaging design. Chinese suppliers are accustomed to a “make to order” approach, and simply forward clients product packaging designs to their sub-contractors. Unless you have previous experience designing product packaging, you may want to get help from a professional. If you decide to do it yourself, keep track of the following specifications:

• Material (e.g. PVC plastic)
• Lock type
• Surface lamination (e.g. glossy)
• Thickness
• Outer dimensions
• Inner dimensions
• Printing (e.g. Silk screen printing and Offset printing)
• Pantone colors

Customized product packaging also requires additional tooling. Tooling costs are always paid by the buyer, but varies depending on the type of tooling. That said, product packaging tooling costs are usually quite low, and rarely adds up to more than a few hundred dollars.

Option #2: Using a factory designed product packaging

Using an existing product packaging design comes with two benefits. First of all, the packaging design is already tested and based on your products design and dimensions. That’s quite a bit of time and money saved right there. Secondly, the tooling is already paid for by the supplier, or its sub-contractor, and can be used free of charge.

Even if you do decide to use a factory design, you can still add your own touch by customising the layout. The layout must of course be based on the packaging design and dimensions, but most suppliers can provide you with a digital template.

Labelling requirements

Product packaging design is not all about posh artwork. Importers in worldwide need to ensure that the product packaging is labelled according applicable labeling regulations. In many cases, labeling requirements are part of a safety standards, such as CE (Europe) and CPSIA (United States).

Failing to comply with the applicable labeling requirements may result in a forced recall, or even a lawsuit. Keep reading and I’ll explain why.

Warning labels

Certain legal acts and directives requires the importer to attach a warning label to the product packaging, in case a product contains a regulated substance. In the case of California Proposition 65, which regulates hundreds of substances in consumer products sold in California, such a warning label shall include one or more of the following sentences:

WARNING: This product contains a chemical known to the State of California to cause cancer.

WARNING: This product contains a chemical known to the State of California to cause birth defects or other reproductive harm.

WARNING: This product contains a chemical known to the State of California to cause cancer and birth defects or other reproductive harm.

Such labels are certainly not going to make your product fly off the shelves faster. The only way to avoid warning labels is by verifying, through laboratory testing, that the regulated substances are within the legal limits. While California Proposition 65 is only relevant to business based in, or selling to consumers based in, California – similar warning labeling requirements are also outlined in the Federal Hazardous Substances Act (FHSA).

In the European Union, warning labels are not as common as in the United States. A logic explanation is that the EU decided to outright ban or strictly regulate substances under the REACH directive. Essentially, you need to ensure compliance or you are not allowed to sell the item at all – with or without a warning label. In South Africa, the law pays specific attention to the wording of labels and how products are advertised. The objective is to create an equal platform for all products by stating, for instance, having only facts and not confusing the consumer by word of implication.

Marking requirements

Certain directives, including the CE directive in the European Union and FCC in the United States, require the product packaging to contain graphical symbols.

Country of origin

Consumers have the legal right to know where a product has been made, before they make a purchase. If the country of origin (e.g. Made in China) printed on the product unit, is not visible through the product packaging, the country of origin must also be printed on product packaging.

Minimum Order Quantity

The Minimum Order Quantity, or MOQ, for customised product packaging (layout and/or design) is usually no less than 1000 pcs. The packaging MOQ is not controlled by the manufacturer, but the print and product packaging sub-contractor. This may cause certain complications when the product quantity is lower than the packaging quantity. While it’s hard, mostly not possible, to make the sub-contractor to cut the MOQ requirement – most suppliers still agree to store excessive product packaging for future orders.

Thereby, you can order a product packaging volume that exceeds the actual number of items made for your first order, without wasting money on excessive inventory. That said, make sure your supplier keeps your product packaging in a dry and clean storage area. Make that a clause in the sales contract.

Product packaging regulations

While labeling requirements concerns the item inside the packaging, there are also directives and legal acts specifically regulating packaging design, mechanical properties and substances. In the United States, the Poison Prevention Packaging Act (PPPA) regulates packaging for household items that may be harmful to children.

Most packaging regulations require the importer to ensure compliance with one or more ASTM (United States) or EN ISO (European Union) standards. Contact us today, if you want to know more about how we can help you ensure compliance when importing from China.

This article was originally published here. We re-published with permission from our content partner, ChinaImportal, an e-commerce platform that assists businesses looking to import products from China.

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Private equity funds - what works in Africa and why

Private equity firm Augentius's group head of sales, J.P. Harrop, spoke with the African Private Equity and Venture Association (AVCA) about the attractiveness of Africa and how the firm is helping fund managers to tackle the ever-increasing demands of international regulation.

With your relatively recent presence in Africa, Augentius now stands as one of the only global private equity-focused fund administrators. How did your focus on Africa come about?

Augentius’ roots have historically been in Europe, serving private equity, real estate and private equity fund of funds. In 2007 I went to Mauritius for an initial exploratory visit as we were hearing a lot about Indian private equity managers using Mauritius to domicile their funds. On this visit, a wise man pulled out a map of the region and asked me why we were looking to the right (India) when the greatest opportunity was to the left (Africa). That has always stuck with me as there were no private equity-only fund administrators focused on the African market. Fast forward to 2009 when Augentius led to its foray into Africa by being appointed as fund administrator of Citadel Capital's Joint Investment Funds, on the basis that we opened an office in Mauritius and became regulated by the MFSC (financial services commission). From here, we have build our presence and have now been appointed as the fund administrator for 24 Africa-focused funds, with FUM of circa US$6.1-bn based on committed capital and targeted commitments.

Are there any trends that you are seeing with Africa-focused fund managers that are different from other regions?

We have noticed that the fund of funds model seems to be more popular with those investing in Africa than other regions, with firms such as our client Sango Capital, and a few others establishing themselves as key players. We think this is due to investor demand for exposure to African private equity opportunities coupled with scarcity of local knowledge. Investing into an African fund of funds bridges this knowledge gap in a way perceived as more economical than trying to build out their own investment teams, as many in Europe and the US have been doing of late. At this point in the cycle, it is still very much a case of following cash – cash is still king. We have seen a number of funds in Africa that had previously sourced their commitments from local government and domestic institutions, who are now raising their next fund and looking at investors from other regions. In many cases, these investors are not comfortable with Mauritius as a domicile and consequently, they have to establish feeder or parallel vehicles in places such as Luxembourg, the Cayman Islands or the Channel Islands, alongside Mauritius, to satisfy all of the investors. We have managed this process for a number of our clients with investors joining from parts of Europe and the US. 

With the asset class attracting a more globalised pool of investors, fund managers in Africa need to be ever-more conscious of international regulation. Looking at FATCA, the US’s Foreign Account Tax Compliance Act, how do you see this new legislation affecting fund managers in Africa?

The appearance of FATCA, the US’s new tax avoidance laws focusing on foreign investments, initially caused concern for US-based investors, and then for any investor who had a connection with any US-based institution, over compliance, reporting and withholding obligations being imposed by the IRS, the US tax authority. As mentioned, US-based and other international investors typically participate in opportunities in Africa through funds or feeder funds in centres such as Mauritius, the Cayman Islands, and so on. One of the benefits of these domiciles is that they have inter-governmental agreements (IGAs) with the US to make compliance a more local matter, and reduce potential exposure.

Having dealt with FATCA in a number of cases, it is essential that managers and their service providers ensure they have the systems and processes in place to track their investors’ tax status, and are able to report when needed. The OECD have produced a ‘Common Reporting Standard’ on automatic tax information exchange and as this gains traction, we would expect to see a lot more funds needing to report on a greater number of their investors down the road.

AIFMD, the Alternative Investment Fund Managers Directive, which covers the management, administration and marketing of alternative investment funds in Europe, is also having an impact on fund managers in Africa. What has been your experience?

Precisely that, fund managers in Africa should be very conscious of AIFMD. Following its introduction, the European fundraising environment has been continuously evolving and certain EU countries have taken the opportunity to amend their private placement regimes. These changes particularly affect non-EU fund managers, who are not currently eligible for the EU marketing passport. Germany and Denmark are two examples; both now require fund managers to comply with certain aspects of the AIFMD, specifically the appointment of an EU-based Depositary. This means that all Africa-based fund managers planning to market their funds to Germany and/or Denmark under private placement regimes will need to appoint an EU-based Depositary for each relevant fund.

As an EU-based Depositary, Augentius is well-positioned to help Africa-focused funds efficiently comply with these new rules, and our detailed understanding and experience of the AIFMD within the European market is complimented by our dedication to and presence within the African private equity industry. We are currently unaware of any other Africa-focused administrators with a European presence offering this service. Unlike many of the larger banks offering this service, Augentius provides this depositary service as a standalone offering, as well as offering it as part of our broader service offering. 

Any final words?

This is a very exciting time for African private equity. The main concern I have heard from investors globally is whether there are enough experienced African private equity managers to cope with the likely material increase in interest in the asset class over the next three to five years. I expect to see more of the experienced African professionals currently working within the larger private equity houses in the US and Europe returning to Africa to help fill this gap, and participate in what may be a golden age of African private equity. 

Source:  Frontier's content partner, AVCA

Top 5 tourism opportunities in Africa

By Kurt Davis

Which countries offer the best business and investment opportunities for investors in Africa's tourism sector?

Africa’s tourism potential remains largely untapped. The continent accounts for 15% of the world population yet receives only about 3% of world tourism receipts and 5% of tourist arrivals, writes African Development Bank Group Vice-President and Chief Economist Mthuli Ncube in the foreword of the inaugural issue of the Africa Tourism Monitor in 2013. 

To maximize Africa’s tourism potential, he continues, critical investments are needed in key infrastructure sectors.

Access to better roads and increased airline connections are a start. But these efforts must be followed by improved energy access and bolstered telecommunications. An ease in the complexities of border crossing and accessing information could also move the sector forward.

Many African countries are making these improvements on a national level. But, elevating levels of tourism requires a boost in investment from the private sector. This article highlights the countries offering the best countries for investment in Africa’s tourism sector.

Uganda

Uganda is one of the fastest growing countries for tourism, based on tourist arrivals, in Africa. Between 2009 and 2012, tourism arrivals grew more than 43% and tourism receipts grew nearly 62%. The “Pearl of Africa”, named top tourism destination for the year 2013, continues to generate big returns in 2014, with receipts predicted to grow nearly 15% year-on-year in 2014.

The country is home to numerous untapped rural attractions, including Lake Bunyonyi and Ssese Islands. Located in southwestern part of Uganda, Lake Bunyonyi bears a resemblance to a scene from “Lord of the Rings”, according to Lonely Planet. Ssese Islands are one of the numerous attractions sitting on Lake Victoria. These locations among other sites require a boost in hotel offerings, especially 4-star and above, and improved logistics. Navigating the country as a tourist is not necessarily straightforward, thwarting revenue potential.

The Pearls of Uganda, a tourism initiative and partnership between Solimar International and the Uganda Community Tourism Association (UCOTA), will further boost the outlook for the tourism sector. Creating a network between tour operators, hotel providers and related parties should help the country manage its brand and better coordinate the sharing of information. Still promoters of the program openly admit that the projected bump in revenues – 60% in three years – depends largely on increased private investment.

Tanzania

Tanzania is already a top five country for tourism receipts in Africa, only trailing Egypt, South Africa, Morocco and Tunisia. Arrivals and receipts grew nearly 24% in 2012 and sector experts indicate that the final numbers for 2013 will show similar growth. Those tourists most familiar with the country know the picturesque Mount Kilimanjaro and striking Zanzibar beaches. But those locations only represent a tip of the tourism opportunities in the country.

Serengeti National Park is one of many national parks in the country, but is sadly the only truly famous one. Other national parks and reserves far from Dar es Salaam, such as Arusha National Park, can be difficult to reach. Negotiating the bumpy roads and unrealistic logistics of tour operators and drivers can be a burden too big for the traveller least familiar with the country.

An increase in airline flights to Dar es Salaam and other cities will only create a heavier burden for the sector. Investing in players in the sector, including tour operators and hotel operators, will pay greater dividends as high prices skyrocket in the face of limited offerings. The country, contrary to popular belief, is not approaching a break-even threshold, according to a local investor, and will not breach that threshold for some years. That observation says a lot for a country already a top player in Africa’s tourism sector.

Tunisia

Tunisia is another country already at the top of Africa’s tourism market, based on dollars and arrivals. Yet its full potential is clearly unrecognized at today’s level. Tourism receipts are still rebounding from their demise during the Arab Spring. Numbers should pass pre-revolution levels this year and establish a new high for the sector. Renewed flare-ups in 2013 have been quelled and should not hinder continued growth.

Opening the market for airlines in the country is a move in the right direction. But efforts by the government have slowed drastically as officials look to prop up the struggling national airline Tunisair. Still a small entrance from new operators has paid some dividends in easing access to the country and attracting a more varied group of travelers. Over the next few years, the openness – even if less than desired – will nicely compliment the return of visitors who stayed away during the previous couple years.

Competition plagued the returns of operators in the sector. Engaged private investors can reap benefits through guiding companies in how to boost operational efficiencies and manage balance sheets. Poor purchases of assets and poor pricing schemes created some bankruptcies in sector but also opened way for the stronger players to take greater market share in dollars AND brand.

Senegal

Senegal is not the star on this list. But it is definitely one of the countries with the greatest upside. The country hosts numerous picturesque sites, including Île de Gorée (one of U.S. President Obama’s previous visits in Africa). Yet most sites slide under the radar of persons not from Belgium or France.

Local operators argue that the sector benefited during the Arab spring as French travelers happily traded in an unsafe North Africa, specifically Tunisia and Egypt, for Senegal. Untouched beaches and deserts will nevertheless stay relatively bare over the long term until investment in hotels and related facilities begin to match sector demand. The government consequently has promoted expansive tax incentives and custom exemptions to buoy investor interest. Yet these efforts will not pay its truest dividends until the country’s infrastructure improves. Current plans to renovate the international airport in Dakar and introduce new toll roads is definitely a start in the right direction.

Namibia

Namibia is a personal favorite. It is definitely overshadowed – by word of mouth and number of arrivals – by Mozambique, a fellow southern African country on the opposite coast. But the growing violence in the north of Mozambique and uncertainty with safety led to a decrease in days stayed by the typical South African tourist and equally boosted the popularity of Namibia as a result. Yet, the popularity has yet to spread beyond South Africa and neighboring Angola. And sites, such as Swakopmund and neighboring Cape Cross, only make headlines in a Lonely Planet travel guide.

Between 2009 and 2012, tourism receipts grew approximately 40%, based on projected numbers for 2012. Tourists generally travel beyond the quite mellow country capital of Windhoek to the aforementioned tourist sites and other related sites along the coast. The country’s vast landmass in between sites requires tourists spend more time and money than that spent in regional competitors. A boost in foreign investment can help the facilities, including lodging, throughout the country capture greater profits.

A push in strategic marketing and tour packaging could also reap rewards. Betting mainly on South African and Angolan travelers will only sell the sector short. Messages coming from the government indicate that officials and investors are taking notice. The boom in mining and the travel companions associated with sector definitely helps interested parties take notice.

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Ten tech startups to watch in Ghana

By Mfonobong Nsehe

The Meltwater Entrepreneurial School of Technology (MEST), an entrepreneurial school founded in 2007 by Norwegian software entrepreneur, Jorn Lyseggenhe, is helping to train young and intelligent Ghanaians (and from this year, Nigerians) to become software entrepreneurs. Since founding the school, 139 students have graduated and 13 companies have been founded by these people. Collectively, these companies now employ over 70 people.

MEST is a tech entrepreneurial school and incubator with an interesting model.

“The idea was to get young graduates from Ghana who were passionate about technology and entrepreneurship. We wanted people who were interested in building a company. Our selection criteria was that each of them had to have a first degree from a University or higher institution of learning. Then we put them through rigorous aptitude tests and other screening exercises to get the very best out of the entire lot,” said Lyseggen, who was born in Korea but adopted by a family in Norway and has already sold two companies and taken a  third public.

MEST receives close to one thousand applications from hopefuls across the country every year. Lyseggen and his team meticulously review every application and then select no more than 20 exceptional applicants from the pool. On acceptance into the school, the successful applicants, usually referred to as ‘Entrepreneurs in Training’ (EITs) have to go through an intensive, rigorous two-year entrepreneurial training program that blends an MBA-type education with hands-on training in software development in a fast-paced, startup environment. The EITs learn everything from the fundamentals of business management, entrepreneurship and finance to communications and programming. These students are taught by teaching fellows that include business professors, MBA consultants and software geeks, who each bring several years of seasoned experience in the software and tech business in the United States, Europe and Asia. Together these teaching fellows prepare the MEST students for the global markets.

Students at MEST are all compelled to develop software applications that will provide solutions to pressing international problems - applications that must be launched in the global marketplace as real companies. This is the subterranean objective of the intense two-year training. The first year is mainly theory, but in their second year, students must form teams of three or four people and boot-strap their own software start-ups. For their final examinations, the students must present an investor pitch to a committee that includes Jorn Lyseggen, renowned venture capitalists and entrepreneurs. Based on the strength of the commercial viability of the start-up, it’s global appeal and other metrics, the students stand to receive seed funding from $30,000-$200,000 from MEST’s incubator, which is conveniently located in the same environment. When the ideas are funded, the newly-formed companies move into the incubator to start business. 

It’s a model that has worked well so far. Between 2008 and 2013, the Meltwater Foundation, chaired by Lyseggen, has invested over $1.5-million in these budding businesses. But it’s not just about the money. MEST graduates who receive investment gain instant access to a global network of advisors and mentors - many of whom are friends to MEST.

Prior to the 2013 graduation ceremony, some of the students pitched their business ideas to a panel for possible funding and a place in the MEST incubator. I had the opportunity to be a part of the investor pitches, and many of the students were eager to share the ideas of their young outfits with me. There were a few decent ideas that I have outlined below and think are worth watching closely.

Dropifi

Dropifi became the first African start-up to be accepted into 500 Startups, the renowned Silicon Valley-based seed accelerator and investment fund. Dropifi offers an intelligent contact form - a smart widget that helps businesses and companies better analyze, visualize and respond to incoming messages. With Dropifi, companies can view the social media profiles and demographic of message senders and analyze the emotions behind the messages.

Orgaroo

Currently in beta, Orgaroo is a web and mobile application that allows event planners and people who coordinate conferences, official meetings, trips and other related activities to seamlessly organize itineraries, manage activities, and keep attendees on track with real-time updates. According to its co-founder Selasi Tsikata, Orgaroo lets organizers import attendees’ email addresses from an address book in less than a second, plan the activities, events and travel information for each attendee, then add them to each person’s calendar.

Afriyage

Afriyage is a mobile app that offers first-time or regular travelers to Africa personalized travel suggestions based on a traveler’s preferences and interests. MEST graduate and Afriyage co-founder, Agana-Nsiire Agana, describes the app as “your intelligent personal travel assistant in Africa”.

ClaimSync

Claimsync is an end-to-end claims processing software that enables hospitals, clinics and other healthcare facilities all over the world to automate patients’ medical records and to process records electronically. Claimsync’s solution allows these healthcare providers to easily prepare medical claims and send electronically to health insurance companies. Claimsync also offers a platform whereby insurance payers can receive medical claims through their online dashboard and easily vet them for payment. With Claimsync, one can also search for patient records by name or membership number.

RetailTower
RetailTower’s e-commerce marketing software allows online merchants to easily list their online stores across all major comparison shopping engines thereby increasing exposure, driving traffic and improving sales. RetailTower submits data feeds of independent online stores to more than 15 shopping engines like Google, Amazon, TheFind, Shopzilla and Pricegrabber. Online merchants can track referral traffic from various shopping engines through RetailTower’s analytics platform. At the moment, RetailTower has over 11,000 merchants and integrates with the leading e-commerce platforms, including Amazon. The firm is even a preferred solutions provider for Amazon Ads.

Trokxi

Trokxi is a mobile and web-based application that provides you with estimated fares for public transportation and destinations around the world thereby allowing you adequately budget for your trip, as well as save money and time. The app also maps the major cities and their transport systems. It is now available only to Ghanaians, so it only maps cities in Ghana, but the founders plan to launch it on a global scale sooner or later.

FreelancePro.Me

Richard Brandt, the Ghanaian co-founder of FreelancePro.Me, describes the site as ‘the LinkedIn for freelancers’. FreelancePro.Me is a website that allows freelance writers, programmers and designers to create a professional reputation profile by aggregating their testimonials on multiple freelance sites like odesk, freelancer, elance and LinkedIn on one singular platform. With all their testimonials from multiple job sites aggregated on one channel, freelancers find it easier to promote themselves to prospective clients and secure more jobs.

mPawa

Founded by Maxwell Donkor, mPawa is a mobile application developed for Africa’s blue collar recruitment sector. mPawa provides companies and individuals with access to a pool of blue collar workers. The app connects employers to blue collar workers such as construction staff, plumbers, mechanics, electricians and the sort. mPawa supports the posting of jobs and then notifies blue collar workers on the availability of new jobs based on  geographic location, job preference, wages and other metrics, thereby getting blue collar workers into a centralized location and allowing employers to easily reach them.

Saya Mobile

Saya has developed a free group messaging application that works on feature phones with internet access. Saya also works on Java, iOS, Android and the Blackberry platforms. The app connects users with their phone contacts and Facebook friends.

Leti Games

Leti Games is a mobile game development company. The arcade and strategy games Leti develop are usually set in traditional African settings complete with African heroes and elements such as elephants, hyenas and other animals, giving the savvy gamer an experience like no other. Leti has thousands of users and their games are available on Apple’s App store for a small fee.

Mfonobong Nsehe chronicles the stories of successful African enterprises and entrepreneurs for Forbes.com

The ultimate guide for importers of auto parts

By Fredrik Grönkvist

Learn insider tips on getting the best deals for auto, ATV & motorcycle spare parts in China

Looking for Auto, motorcycle or ATV spare parts?

Chinese suppliers might have exactly what you’re looking for. While this is a product that can be purchased both from manufacturers and “off shelf” from Trading Companies, the industry is infested with unscrupulous and disorganized suppliers. In this article we look into the do’s and dont’s when buying vehicle spare parts from China.

Buying from a manufacturer

Buying directly from the manufacturer comes with some obvious benefits. The product selection is wider (I explain why in a minute) and the prices are lower due to the lack of middlemen. However, it’s not viable for most small businesses importing vehicle spare parts from China. The reason is spelled “MOQ”, or “Minimum Order Quantity” Requirement.

A supplier must produce a certain minimum quantity of a product in order to make the production run viable. This “minimum quantity” tends to be 300 – 500 pieces for each part. Assuming that you wish to offer a wide range of different parts, the required investment can skyrocket to several millions of dollars if you would buy every single spare part directly from a manufacturer. However, there are other ways to do this.

Advantages when buying spare parts directly from a Manufacturer

• Lower prices
• Product certification compliance (when required)
• Full product availability
• Disadvantages when buying spare parts directly from a Manufacturer
• High MOQ requirements (300 – 500 pcs per part)

Buying from a Trading Company

While it’s in general not possible to find “off shelf” products in China, vehicle spare parts can be purchased “off shelf” from Trading Companies. A Trading Company offers smaller volumes compared to manufacturers. Sometimes the MOQ requirement is as low as 5 to 10 pcs per spare part model. However, these Trading Companies are not working for free. The prices are often two to three times as high compared to if you would’ve purchased the spare parts directly from the manufacturer.

But that’s not where your trouble ends. I’ve had my fair share of dealing with auto, motorcycle and ATV spare part traders in China and it’s been far from pleasant in most cases. The main problem is that they are in general very disorganized. While the Trading Companies may have product catalogues, far from all are in stock at any given time. Basically, you get to buy the parts that are available. This can cause major disruptions in your supply chain and it can take months before you’re able to restock on certain spare parts.

While it would be fair to assume that a Trading Company should be able to deliver spare parts faster than a manufacturer (well, the parts have to be manufactured before they are delivered, right?) – it’s often the opposite Trading Companies often purchase spare parts from other traders. In most cases it takes at least a month before the Trading Company has gathered all the ordered parts.

Advantages with buying spare parts from a Trading Company

Click on this link to read the full article 

Fredrik works for Frontier's content partner, ChinaImportal - an e-commerce platform that assists businesses looking to import products from China.

What is private equity doing about risk in Africa?

​What does risk look like in the New Africa with its impressive headlines on growth, investment, and the emerging middle class?

The truth is that risk in Africa today is murkier than ever: lessened by reforms, muddled by continued misperceptions and shifting reputations. What does this mean for private equity (PE) investors – buyer beware? Yes and no. You just have to know where to look, and who to ask, according to Deloitte's latest East African Private Equity Confidence Survey.

Many of the elements that characterise African Private Equity portfolios are also their principal risk factors. Investors must plan for longer term engagements: projects in Africa can take triple the time of other markets to get off the ground from inception to income flow. Most deals are growth investments that require hands-on engagement. And the prominence of development finance in African PE means that investors must further contend with impact mandates and consider what acceptable risk looks like for any Development Finance Institution (DFI) partners.

Operational risks are the number one concern for most PE investors in Africa. General Partners (GPs) want to work with strong companies and good management teams, but those can be difficult to find in what is still a relatively immature corporate environment. The lack of larger deals and resulting focus on SME investing lessens the amount of track record information that investors have to work with. Many smaller deals are also minority stakes, and in those cases it is especially important to understand the people you are doing business with. Reputational risk looms large, and can become particularly critical for sensitive DFIs who answer to tax payers in their home markets. Investors need to assess the type and extent of corruption risks they face. In principle, corrupt staff members can be replaced. But if corruption is intrinsically linked to the company, it will be hard to work around.

Political risk today is much more nuanced than exploding headlines, and often linked to corrupt local politicians who like to disagree with the ‘nature of the investment’. Citizens are also legitimately becoming more vocal, helped by stronger media and, importantly, by their ability to expose wrongdoings on social media. However, even for the best behaved investors who tick all the right ESG (environmental, social, governance) boxes, risks remain: In a corrupt environment, it is still easy for vested interests to mobilise the local population against investors, and feed a distorted media campaign. This is a particular challenge for any investment involving land rights, whether in extractive industries or in large-scale commercial agriculture: land is a notoriously emotive and mismanaged asset.

Regulatory risk in Africa varies widely across sectors and countries – as do corresponding political risks. The risk of corruption and the risk of government interference in a deal will increase commensurate with both the strategic status of the sector in the country and also with the size of the sector. For strategic sectors such as oil and gas, mining, infrastructure, land-related agribusiness or financial services, investors face increased risk of political interference, hidden ultimate beneficial owners, corruption and legislative change. Larger, expanding, multi-jurisdictional sectors like retail and fast-moving consumer goods offer a happy medium, with more opportunities and less vulnerability.

Due diligence: Most PE firms do initial due diligence in house. The model, in any emerging market, is very relationship driven and even more so in Africa, where all investors will need to build up capacity on the ground quickly to keep up, whether through local offices, on-the-ground teams, fly-ins or local partners. There is a historical impression that you need to identify a Mr. Whatever-the-Country is that you’re working in who can open doors for you, but that is changing. More PE funds do the ground work themselves these days.

Risk insurance: Once in bed, political risk insurance as offered by MIGA and ATI or guarantee schemes can hedge further risks, but PE funds have not traditionally gone this route. Cost is a disincentive for GPs and LPs alike – just a few percent per annum can cut into your returns. And for private investors, most of whom still avoid real frontiers like CAR, insurance is not enough to make them comfortable with the risk. At that level, you’re either in or you’re out. Many investors in Africa hedge using mezzanine structures, pure debt or convertible loans.

Veterans and newcomers: Overall, seasoned investors that have been in Africa for years – Aureos (now Abraaj), ACA in Nigeria, or ECP to name a few – are better equipped to manage these risks. They are more accustomed to long-term investments, more familiar with local regulations, have more support built up in house, and more deeply rooted networks. They may have also already made mistakes that taught them crucial lessons. But there are so many opportunities across Africa that even PE outfits new to the market can find their way around it as long as they invest time and resources identifying the right deals for their investment profile and finding partners they can trust.

This article is extracted from Deloitte's latest issue of the 'East African Private Equity Confidence Survey'.

See the full report here

The ultimate guide for sea freight and shipping from China

By Fredrik Grönkvist

Figuring out how sea freight works is challenging particularly for small businesses. This guide is a well-rounded introduction to shipping and sea freight.

Unlike most sourcing agents I didn’t have a clue about how sea freight worked by the time I set up my first business. Another thing that struck me was the fact that it was, and still is, very hard to find decent information on how sea freight and shipping from China is actually working. I know that this is a big concern for small businesses importing from China and I receive questions about this topic on an almost daily basis.

My hope is that this article is going to provide the reader with a well rounded introduction to shipping and sea freight. In this article, I’ll introduce the reader to the shipping process and some of the things that you better keep an eye on when importing from China.

Incoterms 

Shipping Incoterms are international standard codes that decide when and where cargo shall be transferred between the supplier and the importer.Incoterms may look a bit confusing at first sight, but they are not hard to get at all. Basically an incoterm consists of two components: a three letter code and a city name. The three letters incoterm code specifies “how far” the supplier shall ship the cargo. Basically how much of the shipping you pay the supplier to handle. Based on the incoterm you select, you can let the supplier handle the shipping of products to a nearby port in China or all the way to your front door. I recommend inexperienced importers to select an incoterm that takes the cargo as far as possible. 

FCL & LCL shipping

Sea freight is not exclusive to those importers who purchase large quantities from China. If you want to import by the container then FCL (Full Container Load) shipping is the right choice, it’s also the cheapest mode of transportation if counted by cost per kilogram. However, for smaller buyers LCL (Less than Container Load) is available. In fact, you can basically ship cargo with very small volumes - even less than one cubic meter. See an in depth guide to FCL and LCL shipping here.

Who’s managing the sea freight?

There are two options here, either the supplier or you. I’ll begin with explaining the latter. Letting the supplier manage the shipping is common among inexperienced importers and even we let the supplier manage the shipping from time to time. It’s very simple and all you need to do is to tell the supplier that you want them to ship the cargo as CIF “Port of destination” (you actually have to specify which port you want it to be delivered to) and they’ll do the rest. The downside is that you’ll probably end up paying a bit more than if you would have managed the shipping by yourself.

As mentioned, you can also manage the shipping by yourself. This doesn’t mean that you have to swim all the way to China, pick up your cargo and then swim back home. It can be done from the comfort of your home and office by hiring a shipping and logistics agent. These companies are everywhere and they tend to offer discounts in return for a fairly small yearly service fee. The shipping agent can then manage your shipping,  from the Chinese supplier to a nearby port or a specific location within your country (i.e your warehouse).|
Do I need to pay any fees or taxes in China? 
No, you don’t need to pay any “export tax” when importing from China. However, you will need to pay for transportation to the port of loading in China and the cost for export clearance papers. Both of these are included in every incoterm from FOB (Free on Board) and above so you don’t need to even bother with this unless you select EXW as your incoterm.What about insurance?Insurance is included when you select CIF, that’s why it’s called “Cost Insurance Freight”. However, the definition of the insurance may vary between different shipping companies. When you let your supplier manage the shipping you are not in control of which shipping they select, which is probably the cheapest. I suggest that you contact a local shipping agent if you want to know what the insurance actually covers.Delivery timeThe transit time from China to most locations in Africa, Europe and the US is roughly 29 – 35 days. However, keep in mind that it can take a few days – sometimes up to a whole week – before your cargo is loaded in the port of loading in China. The same thing is true in the Port of Destination, it usually takes two to three days before your cargo is cleared and ready for pick up.

Sea freight is indeed quite slow and this means that importing from China certainly requires a lot more long-term planning compared to domestic product purchases. This has also been a major cause for the recent surge in reshoring in Europe and the US. In general I recommend businesses to place an order at a minimum 3 months before they need the products in their warehouse.What happens when the cargo arrives at the Port of destination?
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Top tips for distributors in frontier markets

Planning on moving goods in Africa? An expert points you to the best path to success. 

Setting up a distribution system in emerging and frontier markets can be a challenging undertaking. Below are a number of issues to consider:

Fragmented markets 
What is the balance between modern and traditional trade? Modern trade (e.g. Shoprite supermarkets) in most African countries, with the exception of South Africa and Kenya, is still in the very early stages of development. The contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas) is a difficult and costly business.

Product flow and reasons for purchase
How do products flow in the market? Often small groceries purchase product directly from the wholesale channel. The wholesaler is often in close proximity to these outlets (2-5km radius). They provide a basket of goods, and in some cases credit, if they have a good relationship with the small grocery.

Market and key business areas 
Define the key market and business areas. Identify feeder markets and hubs for product distribution.

Regional differences 
Define the regional, urban and rural differences in distribution. 

Channel strategy
How do channels function and operate? Define the key channels, characteristics and key buying decisions.  Are traditional and non-traditional channels well defined?

Outlet base 
In most emerging markets, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base, including the outlet density. A well defined every dealer survey (EDS) is a key component of any successful distribution strategy.

Territory 
When working with distribution partners, does the distributor have the ability to service the territory? Are routes and maps in place?

Services
Assess the service and delivery for each channel and the service partners. Review the key issues with service and delivery and map out the distribution models employed.

Customer service frequency
What is the frequency of product replenishment and reasons for the frequency? Outlets in emerging markets often have limited cash flow and, in some cases, limited space to stock product. Review the required service frequency and the need for micro supply depots or wholesalers.

3rd Party Logistics 
Where do the 3PLs operate in the country?  3PLs often cover the major roads well. However, in emerging markets they normally have a limited footprint in rural areas.

Selection criteria 
What are the key components of a successful distribution partnership? Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organisational structure.

Role definition
When working with distributors, are the roles for the company and distributor well defined? It is important to review the organisational structure and how the company will support the distributor. Ensure that each profile (e.g. salesperson) has a clear understanding of his or her role.

Account development
How should account development be managed? This a critical component of any distributor operation. Not all accounts are equal. In most cases, companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.

Value chain
Do we understand the value and margin of partner in the system?

Cost to serve 
What is the true cost to serve? The true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in emerging markets, financial cost centers provide limited data and financial modeling is essential to determine the true cost to serve. Many distributors fail because the remuneration is set too low and not adjusted for inflation on a periodic basis.

Low cost distribution
What local distribution solutions exist in the market that can be leveraged? Often small groceries are situated in congested areas, with narrow gravel roads where trucks can’t enter. In these markets you might find pushcarts, trolleys or motorbikes (e.g. Tanzania). Tapping into their distribution structure can lower cost and increase product availability.

Key performance indicators
What are the key performance drivers? By focusing on the key performance drivers of your business, avoid overextending yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point in tracking something just for the sake of tracking.

Processes
Are processes and systems well defined and standardised? Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations.

Skills
What skills need to be recruited or developed? Emerging market operations often lack critical skills.  It is dangerous to make assumptions about what people can and can not do. For any principal working with a distributor, conduct a skills gap analysis to determine the training recruitment needs.

Complexity
Can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs (Stock Keeping Units) to all channels fail. Always aim to reduce the complexity in the business.

Collaboration
How will the distribution partners share information with the company? Too often critical information is only available at distributor level and not shared with the company. Also consider the role that technology can play in information sharing.

Appropriate technology 
What technology is necessary? Evaluate mid tech solutions and identify the “appropriate technology” for your operation. Don’t overdo it.

Patience
How much time do you have? Ensure you have management buy-in. A Route-to-Market roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.

Regulatory environment
Review the regulatory environment including cross county or district tariffs where applicable. In some countries distributors and transporters are subject to multiple charges for crossing county borders. Assess transport bands (e.g. times truck can enter central business district) and traffic restrictions.

Culture
What are the culture issues? Take time to understand culture issues and don’t assume anything. Change your thinking when working in other markets.

Take note of the evolution
Are you taking the necessary steps to adapt to change? Too often supply chains in emerging markets evolve without any strategic plan. Modern trade and retailing are expanding and middle class consumers shopping patterns are changing. Consider how these changes in the market will affect your distribution.

This article is supplied by Frontier's content partner, The Supply Chain Lab. 

The Supply Chain Lab is is a group of supply chain improvement specialists with a focus on factory to village supply chain solutions in frontier and emerging markets. The company focuses on strategy, assessments and implementation.

Contact Tielman Niewoudt to learn more about the company's focus areas.

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