01 January 2016

Taiga takes advantage of the Renminbi

Small and medium-sized businesses know better than anyone else that a happy customer is more likely to be a repeat customer. It was with this in mind that a group of experienced lumbermen in Burnaby, British Columbia, founded building supply firm Taiga in 1973.

The company prides itself on having customer service as the cornerstone of its business, and has grown to be the leading independent wholesale distributor of building products in Canada, with 15 distribution centres.

Entrepreneurs with integrity at heart, Taiga's mission statement is based around knowing their market better than anyone else, attracting the best talent in the industry, being a market leader and doing more with less to stay efficient.

When a few potential buyers in China expressed an interest in paying for their orders in Chinese renminbi (RMB), the benefits and immediate efficiencies to using RMB were very appealing to Taiga. The company could also demonstrate its superior customer service by showing flexibility in its first deals with these potential new clients. Taiga chose to work with HSBC, with its long history of doing business in China, and began discussions as to how best to approach working in RMB.

The RMB has only been accessible outside of China for a few years, but it has already surged to become the fifth most-popular trading currency in the world. The Chinese government has steadily liberalized the RMB in that time, carefully managing the roll out to its major trading partners with the intention of it being a global reserve currency alongside the U.S. dollar.

In late 2014 the Chinese authorities decided to encourage more trade with Canada by signing a currency swap agreement and authorizing the first RMB trading hub in North America. Similar hubs already exist in London and Singapore.

As the first foreign bank to receive capital injection in RMB and the best overall offshore RMB products and services1, Taiga was keen to work with HSBC to seize upon the practical benefits of working in RMB with its Chinese buyers. The most immediate benefit is the cost saving from reduced exchange rate risk. Invoicing in RMB allowed Taiga’s buyers to lock in its costs when HSBC Canada executed their first RMB Export Letter of Credit (LC). RMB invoices also remove FX exchange risks and costs for the buyer.

“The strength of the U.S. dollar has resulted in depreciation of the Chinese and Canadian currencies,” explains Andrew Skinner, Head of Global Trade and Receivables Finance (GTRF) Canada. “If the supplier's terms indicate payment 90 days after delivery and the invoice is in US dollars, the buyer may end up paying more when exchange rates change.”

RMB transactions also extend payment terms for Taiga's buyers in China. Under an RMB LC the payment deadline can be extended to one year from a previous limit of 90 days, the longest payment term allowed when using U.S. dollars in China. This is a distinct advantage to a buyer looking for more flexibility in managing their working capital.

Using the RMB has therefore generated a certain amount of goodwill among Taiga's new Chinese buyers by reducing costs and cash management concerns. With Taiga's history of putting customer service at the heart of its business, this was a win-win for all parties. In addition, many small and medium-sized businesses in China are not equipped to deal in any currency other than the RMB, so Taiga also opened up a swathe of potential new clients that their competitors may not be able to access. On paper the advantages of paying in RMB may seem more in favour of the buyer, but in the longer term, the gesture has helped Taiga build stronger business relationships and open up new opportunities. The company is keen to continue to grow its business in China, and HSBC’s willingness to pursue non-traditional financing solutions is a key part of that strategy.

Taiga has set an excellent example for Canadian companies looking to do more business in China., but while the benefits of dealing in RMB are tangible, many companies remain cautious. However, Taiga has shown that the savings generated, and the competitive advantage gained, make for a compelling argument in favour of dealing in the RMB.To find out how doing business in renminbi can open doors for your international business contact HSBC.

Disclaimer

The information presented is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without first obtaining specific professional advice. While reasonable care has been taken in preparing this document, HSBC does not make any guarantee, representation or warranty (express or implied) as to its accuracy or completeness. The information presented in this document is subject to change without notice.

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