Center links firms with foreign partners

Shanghai's small enterprises center is proving a boon to small businesses trying to find intertionial partners and clients

As China's government seeks to open up the economy and ease it away from leaning on state-owned heavy industry and a massive manufacturing base, the role of small and medium-sized enterprises has become more important.

Opportunities are springing up for many companies, established and new, but equally, many are struggling to cope with the rapidly changing economic landscape.

Nowhere is this more evident than in Shanghai. The city may be the regional headquarters of more than 1,000 multinational corporations, but it is also home to 340,000 SMEs. They represent 96.7 percent of all business in town and are responsible for providing 54.6 percent of job opportunities.

No wonder then that support for SMEs has long been recognized as vital. But now it is more crucial than ever as many find themselves pushed against the proverbial wall by rising costs, dwindling overseas orders and the relentless appreciation of the yuan, all sapping their confidence and competitiveness and eroding their profit margins.

Help and support for SMEs has arrived in various forms from local and central government. One that is getting results is the Shanghai Small Enterprises Center and its associated incubator programs.

The center, set up in 2011 by the Shanghai municipal government, is proving particularly resourceful in linking local small companies with foreign business.

Since he became head of the international cooperation office at SSEC to meet the soaring demand from SMEs for a global presence, Dai Jie has been putting in a lot of overtime.

Home to about 500 SMEs, the center currently oversees 50 industry associations in Shanghai and handles several exchange programs for Chinese and foreign companies every week.

"We try to link local small companies with their international counterparts in the hope that efficiency, energy and creativity will blossom," Dai says.

So far, more than 100 firms have benefited from the exchange platform, either getting special funds or locating foreign partners.

Brand building

One such company is Shanghai Guangyu Automobile Air Conditioning Compressor Co. Established in 2002 by veteran car engineer Dong Rongyong, the family-owned company wants to build a homegrown brand of automobile air conditioning compressors.

Dong, a former employee at the state-owned Shanghai Automotive Industry Corp, realized that even a company as big as SAIC was failing to master leading compressor technology, leaving the domestic market firmly controlled by foreign manufacturers.

To endure, a family business must be willing to reinvent itself, Dong says. After introducing the first production line from Japan, Dong hired more than 30 researchers and a plant with 300 employees to focus on research and development.

Today, the company boasts more than 30 patents and holds half of the market share in the domestic commercial car sector.

While Dong's push to build a local brand drove the company to innovate, it also led to an unexpected problem - its own reluctance to compromise on foreign partnerships.

"When we were on track to form a partnership overseas, the president insisted that we be the controlling party of the joint venture, so negotiations reached an impasse," says board secretariat Dong Yaojun, who is Dong Rongyong's nephew.

It was then the company turned to the SSEC, which had just started organizing regular international fairs for specific industries to bring local and foreign SMEs together. The center awarded Guangyu 4 million yuan ($627,000; 489,800 euros) as an incentive to develop core technologies.

The younger Dong soon became an active member, joining a group trip to Japan and South Korea, where he made numerous valuable contacts.

"The SME center knows our needs, and they are good at matching us with good contacts without sacrificing our interests," Dong Yaojun says.

Anchor overseas

Similarly, it was thanks to SSEC that Shanghai SIIC Zhen-tai Chemical Co Ltd managed to anchor an overseas expansion in a turnaround battle for its domestic market.

With just 200 employees, Zhen-tai produces about half of China's magnesium oxide products for manufacturing companies, including special silicon steel grade magnesium oxide, widely used to isolate coating material.

Although winning quality awards and owning a wide range of patents, its once-dominant market share fell in the 1990s as it lost expert personnel to rivals and suffered technological leaks.

"One effective action was to make a foray into foreign markets, and partner with recognized industrial heavyweights," says Zong Jun, Zhen-tai's general manager.

That proved difficult because Chinese brands, especially small and medium-sized enterprises, have yet to win trust among global customers.

But the SSEC put them in touch with Israel-based Dead Sea Works, the world's leading producer of magnesium oxide.

Zhen-tai's cutting-edge technologies and local research quickly impressed its partner, allowing it to take new orders and manufacture on behalf of Dead Sea Works.

The cooperation has since helped Zhen-tai accrue 80 percent of the overseas market share, and its global reputation led to it winning orders from domestic steel giants including the Shougang Group.

Orders from both domestic and overseas clients have picked up since mid-2013, and Zhen-tai is planning to take on more employees, says Zong.

FTZ plans

The recent opening of Shanghai's Pilot Free Trade Zone has set Wang Zhendong thinking about ways to go international. Wang, head of the Shanghai Coffee Association, which oversees about 100 small coffee dealers in the city, would like to set up an international coffee trading center in the zone.

"China has no influence internationally over the pricing of coffee, which puts it at a disadvantage," says Wang, referring to recent concern over Starbucks' price differentiation strategy for China.

As a lecturer on tourism management at a Shanghai college, Wang realized a while ago that having a coffee was seen as a hip and affluent social habit by the growing Chinese middle class, and that many aspired to create a good business by opening cafes to cater for this evolving demand. So he opened an evening course on coffee house management, which won widespread praise.

But he discovered the main area where Chinese coffee entrepreneurs were found lacking was in bean-roasting skills and facilities. That more than anything else put the foreign coffee shop chains at an advantage compared to the local brands.

Wang sensed an opportunity to integrate the largely fragmented industry chain that employs at least 100,000 in Shanghai.

"We want to go abroad and bring in the ingrained cafe culture with the best possible roasting techniques," he says.

But he could not have taken the first step without the aid of an incubator program run under the auspices of the SSEC, which he and several other local coffee dealers were put on to by Da Jie, the center's head of international cooperation.

Wang was well aware that selling coffee to Westerners was as difficult as an American running a teashop business, but he believed that, with the right formula, he could penetrate the take-away market in convenience stores.

Last year, he established the Shanghai Coffee Association, aiming to bring together like-minded small businesses and reach out to acquire world-class technology, such as that for bean roasting.

The association quickly became a hot topic among foreign investors. Leveraging the resources of the SME center, Wang made contacts with coffee-industry unions in Colombia, Brazil and India and is now in the process of striking import deals.

He has invited guest professors from Japan and the Netherlands to his coffee shop management classes and has begun talks with an Italian vendor, which he hopes may lead to a joint venture bean-roasting business.

"It's hard to approach people on my own. We need a concerted effort," he says in thanks to the SSEC.

Matchmaking software

Tang Wenming and his company, License Software Consulting Co Ltd, can take some credit for various small-business successes by helping the Shanghai SME center with precise matchmaking.

Tang has seen his business grow through the collaboration with SSEC, winning many Fortune 500 companies as his clients in the process.

His company designs custom-made compliance automation software that helps small Chinese companies gain a foothold in Europe and vice-versa.

Several years ago, however, his first foreign clients were small companies that were eying China but which couldn't afford to establish entities on the Chinese mainland.

So Tang decided to serve them in their hometowns. In 2006, he chose the Netherlands as his overseas base because of its good public security and transparent business environment. Everything went smoothly, except for one thing - he was alone.

"Our company was too tiny to build a reputation and a network there," Tang recalls. "Nobody bothered to meet us. We couldn't survive without resources."

He did not make another attempt until 2008, when he joined an incubator program set up by the Yangpu Technology Innovation Center, the nation's top business incubator for early to middle-phase startups, and now overseen by the SSEC.

That's when everything started to click into place and business began to connect. Tang outperformed competitors and won the top place on a Sino-European entrepreneurship plan introduced by the center.

"Small is beautiful. But we need to get together to magnify our strengths," he says.

hewei@chinadaily.com.cn

(China Daily Africa Weekly 11/15/2013 page16)