City becomes a hot spot for business to develop
have to stay conscious of the local taste here, and be aware not to be too ‘localized’, otherwise you will fail.” SCOTT MINOIE FOUNDER OF ELEMENT FRESH
and laffa-bread salads being made in an open kitchen.
His success sharply contrasts to the string of well-known Western restaurant chains that have failed to create brand awareness in a market where a growing number of middleclass workers embrace food with a Western flavor.
An investment surge from the United States is being called a “new wave of capital migration” and is being taken advantage of by small and mediumsized enterprises (SMEs), defined as companies with 500 or fewer employees worldwide.
They are relative newcomers, with just about one-third having been in China for five years or less, according to the annual survey published in February by the American Chamber of Commerce in Shanghai on its members.
Only 36 percent of the SMEs reported being in China for a decade, while 64 percent of larger firms said they had reached that length of time. A higher proportion — 37 percent —identified themselves as SMEs compared to 26 percent a year ago.
The business pursuits and concerns of SMEs are distinct from larger firms, said Chris Wingo, founder of China Sage Consultants (Shanghai) Co, whose firm helps SMEs from the US prepare and manage their businesses in China.
“One of the biggest drivers for SMEs to come to China was their larger business partners, namely multinational corporations, when they started manufacturing in China and wanted their supply chain to be here with them. It was like a command,” he said.
China has been on the radar for many smaller US entrepreneurs since the late 2000s, he added. The Greater Shanghai region, which includes neighboring economic powerhouses Jiangsu and Zhejiang provinces, has attracted smaller businesses due to its accessibility for global businesses, said Zhou Zhendong, president of Jiangsu Eastman Heavy Machinery Co Ltd.
“Shanghai and the rest of Yangtze River Delta region boast a strong network of distribution, suppliers, executives and engineers that are valuable to our business,” said Zhou, whose company is a Sino-US joint venture of heavy-machinery manufacturing.
Zhou said Shanghai has a track record of being the most business-friendly city in China.
“Here you see a concentration of equipment rental houses, construction projects as well as component suppliers. It’s easy for global customers to come visit and easy to attract skilled labor resources including managerial-level candidates,” Zhou said.
Service is the main characteristic of US SME companies, the chamber’s survey showed, with 76 percent reporting it as their main activity compared to 43 percent for larger businesses. That coincides with the city’s evolving economic output, with more than 62 percent of its gross domestic product coming from the service sector.
It also means opportunities in the segment are much more widespread than manufacturing, said Simon Northcott, principal consultant of Competitive Capabilities International China (CCI).
“The trend in the last 15 years is that big MNCs (multinational corporations) come here for manufacturing and for export. Now that the Chinese market is changing together with the demand of the Chinese themselves, so we see bigger shots in the service industries such as insurance, medical care and consultancy,” he said.
Robert Theleen, who chairs AmCham Shanghai and is CEO of the merchant bank China-Vest, which is based in the city, said that with China demonstrating its commitment to economic liberalization through initiatives like the Shanghai Free Trade Zone, it is only natural that more firms are setting up in the country.
“When you combine this improving infrastructure with the decades of experience that American businesses now have in this market, it’s easier for US companies to profit from China’s growth, regardless of their size,” he said.
Wingo from China Sage echoed that sentiment. Proposed policy changes, including promoting trade and financial liberalization, could eventually give big benefits to foreign SMEs, including reasonably priced financing for capital investment and business transactions and a more efficient import process at lower costs.
“SMEs should be able to focus more on the business at hand and less on inefficient maneuvering to get things done. You can imagine the increase in operational flexibility that theoretically could be enjoyed within the FTZ,” he said.