Do you know of a company that went out of business recently? According to the SBA, 50% of businesses fail in the first 5 years. In the trading and used copier industry especially, many businesses are out to make a quick buck and turn tail as soon as the market goes awry. If you’ve been in the business for a while, you know what I’m talking about.
In this articles, we will cover the follow topics:
Market Risks that Erase Businesses
China’s Used Copier Industry Crackdown
The Effect of Increased Risk in the Used Copier Industry
How To Do Business for the Long Term
How Kingnote is Able to Price Match and Beat Any Offer
Market Risks that Erase Businesses
Anyone who deals in importing and exporting would probably have heard about Trump’s trade war with China by now.
As each country’s politicians one-up each other, businesses on both sides suffer, not only through increased tariffs but through increased risk.
A 10% tariff cuts deep into profit margins. A 25% increase will be the end to many businesses. Profit margins will be wiped out and businesses will have to close shop.
As a business, taking on risks is normal. Take Kingnote for example. There is market risks that our inventory will depreciate during the time that it is in our warehouse or on the sea (shipping can take 3+ months).
Another risk is currency fluctuations. The 52-week range for USD-CNY is $6.24 - $6.94, an 11% difference.
As an exporter who needs to convert Chinese Yuan back into dollars, this currency fluctuation is a big deal, especially when leveraged with loans (interest on loans is also affected by the Fed’s regulation and interest rate increases).
So the government plays a big role in business and you better bet big brother China plays a major role in which industries succeed and which industries fail.
Let me share a story about how many, or most, of our competitors failed and shut down in 2017.
China’s Used Copier Industry Crackdown
At the beginning of 2017, China was the final destination for 60-70% of all used copiers in the US. Click here to read about market structure differences between US and China.
There is huge demand in China for these machines and 2017 would have been one of the best years, until the Chinese government cracked down on importing of used copiers in the name of environmental protection (We are re-using machines that would otherwise be wasted, so we’re not sure what the logic is here.)
This was a scary time as there was no warning -- only news that 60+ people who dealt with importing used copiers were arrested in China.
The crackdown resulted in many containers being stuck at the port as they were unable to enter the country (remember the depreciation risk we talked about earlier?). Inventory stuck in ports means the money flow is stopped. As a result, many businesses who relied on China’s demand were forced to shut down. Those who stayed could only wait (for who knows how long) if they did not have additional cash.
Those with containers on the sea were not even able to recall their shipment.
Luckily, Kingnote has buyers all across the world, so we were able to continue buying and selling. We actually increased our purchasing during this time. Since then, we have opened up even more markets such as Dubai and the Middle East.
The Effect of Increased Risk on the Used Copier Industry
Risk is priced into businesses as it is priced into stocks. When one party runs a risk, that party is able to charge premium for the risks that it undertakes. Dealing drugs can be lucrative because of the risks involved (we are not advising you to sell drugs, quite the contrary!)
The companies that continued to export to China took on the risk on having their inventory stopped at the ports. Some also smuggle machines into the country, which is also a huge risk.
Unlike our competitors who look to circumvent the law, Kingnote follows policy changes very closely because we know it is the key to long term success. We will not take any risks for breaking the law.
We also only import if we have the correct licenses.
Additionally, we have pivoted our strategy to focus on only importing compliant machines that are 60+ pages per minute. These high speed copy machines and wide formats such as the KIP 3000, KIP 3100, and Oce Varioprints.
Large machines are compliant with Chinese regulation and have low risk when they are imported.
How to do Business for the Long Term
High risk, high reward, right? This may be true for many of the companies running in 2017. However, companies who take on legal risks inevitably fail. Sooner or later, someone will catch on.
These companies not only do themselves wrong, but also their customers. They seem to have no interest in a long term, mutually beneficial cooperation.
Operating for over 10 years, Kingnote is here to stay for the long term, not to make a quick buck. This is seen in Kingnote’s interactions with clients. Kingnote has purposefully taken unfavorable deals in order to satisfy our clients who need to get the inventory off their hands.
Businesses have ups and downs, and Kingnote understands this. Thus, when our clients are in a tough spot, Kingnote steps up in good faith. By doing this, we ensure the long term success of our clients. The long term success of our clients leads to Kingnote’s ability to stay in business.
Kingnote has worked hard to build its reputation.
I won’t write about our reputation here, just ask our clients.
How Kingnote is Able to Price Match and Beat any Offer
Kingnote has a competitive advantage in bidding in several regards.
First, we ensure we have the proper licenses to import. This means less risk which is value transferred to our clients. We can offer more because we take less risk.
We also follow policy changes very closely, and adjust our strategy accordingly. Once again, we don’t take legal risks.
And lastly, I will mention that we have an established sales team located abroad so we are direct sellers in the market.
We sell directly to the end market while other companies need to sell to traders, who will then resell again for a profit. Thanks to our team abroad, we have the highest bidders for our copier models.
As direct sellers, there is no middle man taking up fees. Once again, this value is transferred over to our clients as we are able to offer more.
We can guarantee that we offer the best price because of these reasons.
Kingnote is committed to stay. That's the only way to do business.