China is opening its borders to services companies, and Australian small businesses can make a killing

Small businesses in the services sector could be set to benefit from more open relations with China as the nation is said to be preparing to open its economy to foreign services businesses.

Reports have emerged over the past week which suggest China will be joining Trade In Services Agreement talks.

Prime Minister Tony Abbott also affirmed yesterday he intends to secure a free trade agreement with China in the next year and he will lead a trade delegation to the nation in 2014.

The Australian Financial Review reported yesterday Chinese trade negotiators had told other country representatives a big announcement would be made next month in regard to services trade.

The Japan Times reported last week China was entering trade services talks with Japan, the United States and Europe.

The Australian Services Roundtable also issued a statement welcoming the reports.

“It is a crucial step in the process of multi-lateralisation of TiSA and is likely to encourage other significant Australian trading partners which are not part of the TiSA negotiating group…to get involved in TiSA discussions,” the ASR said.

The TiSA negotiations currently involve 41 countries including Australia and compose nearly 70% of the $4.3 trillion in global services trade.

Cultural consultancy Beasley International managing director Tamerlaine Beasley told SmartCompany should a services trade agreement be reached, small businesses in architecture, insurance, education and financial services could benefit greatly.

“Architecture is one area where Australian businesses have been doing quite well in China already in the services sector,” Beasley says.

“Because the scale of construction is so great there is a great demand, rather than being commissioned to do a building, you could be doing half a city. Urbanisation is a real force in China.”

But Beasley cautions small businesses against entering the market without adequate preparation.

“The key challenge is whether you understand the market, even in Australia is can be tough running a services business and here you’re familiar with the regulatory market and customers,” she says.

“It’s easy to assume when you go offshore there is a universalism, but it’s a different environment, regulations are different, how you engage is different.”

Beasley says it’s more difficult for services businesses to enter a different market because it’s more intangible and it’s dependent on your understanding of the world.

“The regulatory environment in China is notoriously challenging and the legal framework in many instances is still being constructed,” she says.

“The breakout box pieces of advice are, conduct your due diligence, understand the regional nature of the economy, think small and long term rather than big with a quick turnaround and if you’re an SME, be careful not to overextend yourself from a cash flow perspective.”

Beasley says SMEs entering China are often best to start at a second- or third-tier city rather than Shanghai or Beijing.

“To work in one region of China and do it well can be a more effective strategy,” she says.

“For example, going into Chongqing could be the same scale as your entire Australian market, but it will be more effective because in China everything is relationship based and you can’t spread yourself too thin.”

Beasley says testing the market and your business relationships on a smaller scale is a safer strategy.

“You need advice and you shouldn’t go in by yourself, use trusted networks, get expert advice on the legal system, join business chambers and seek advice from people who have been there and done that,” she says.

While the Chinese economy could soon be open to foreign services suppliers, in less than 12 months Abbott also wants a free trade agreement secured.

After meeting with Chinese President Xi JinPing yesterday Abbott said he wanted the agreement to be “as comprehensive as possible”.