The Next Golden Decade
Taiwanese Style Service Making Inroads in China
From department stores to health care, Taiwanese companies are poised to tap into China's soaring urban spending power to launch the service industry's next golden decade.
Taiwanese Style Service Making Inroads in ChinaBy Isabella Wu
From CommonWealth Magazine (vol. 422 )
On a Saturday night in Beijing's Chaoyang district, Shin Kong Place next to the upscale Ritz-Carlton hotel is a translucent jewelry box, drawing meticulously dressed couples and fashionable parents with their children. The continued squabbling over the department store's operating rights between its joint venture partners, Taiwan's Shin Kong Mitsukoshi and Beijing Hualian Group, has not diminished these consumers' appreciation of the retailer's services.
Turning from Beijing, the country's center of power, to Shanghai, where 85 is the hot number, another Taiwanese company has made its mark. Taichung-based brand 85 degrees C Bakery Cafe brought its sea-salt coffee to China last year, and its baked goods plus coffee business model has created a craze, with Chinese and Taiwanese investors and even restaurant chain the Golden Jaguar Group desperate to enter the market.
From high-end department stores to affordable restaurants, from new street-side shops showcasing new sustainable lifestyles to neighborhood kindergartens and health care institutions, Taiwan's service-oriented enterprises are capitalizing on new opportunities by accelerating their penetration of China's market and building a "Taiwan" brand.
China's Urban Spending Power Dwarfs Germany's
For China's market, 2009 is a new turning point.
Every year, a population equal to that of New York City enters China's cities, the biggest and most rapid urban migration in human history. Demand for daily necessities in China's urban environment – new and rental housing, fashion, restaurants, commodities, transportation, health care, and education -- has created one new market after another.
"Urban China will become a dominant global market," international management consulting firm McKinsey & Company wrote in its report "Preparing for China's Urban Billion" released in February 2009. It estimated that by 2025, China will have 23 cities with populations exceeding 5 million people, with aggregate consumption nearly twice and disposable income more than two times that of Germany.
"The golden decade for the development of China's service sector starts now," said venture capitalist Hans Tung, a long-time observer of China's service and Internet sectors. Compared to mature markets in advanced countries, "there is still the opportunity in China to go from nothing to something," he said.
Harnessing the Golden Decade
The best example of that are the convenience stores that manifest Taiwan's competitiveness in the service sector.
Family Mart China general manager Hsueh Tung Tu, a graduate of Fu Jen Catholic University's Physical Education Department, joined the Family Mart chain in its first year in Taiwan. No matter how hard the chain has worked over the last 10-15 years in establishing new stores, innovating, and making acquisitions, it will always be second to 7-Eleven.
In 2004, Hsueh went to Shanghai to open that city's convenience store market. He was made responsible for Family Mart China, a joint venture between the Family Marts in Taiwan and Japan and the Taiwan-invested food group Ting Hsin International Group through China CVS Holding Corp. In four years, it has opened nearly 200 stores and its brand is starting to take root.
The recently concluded Auto Shanghai 2009 and the Shanghai New International Expo Centre, for example, both invited Family Mart to set up shop on their premises.
Hsueh has finally tasted success at the top, and his ambition to build an even bigger network revealed itself when he said, "In mainland China, there is always the opportunity to turn a situation upside down."
Companies from around the world, however, are all eyeing opportunities in China's service sector. What competitive advantages can Taiwan's relatively young, nimble service enterprises count on as they try to make deeper inroads into China's huge market?
Giving Customers Just What They Want
Four in the afternoon is usually the quietest time of the day for restaurants, but a Master Kong beef noodle shop at the exit of a Beijing subway station still draws customers. Its menu consists of beef noodles, spicy minced pork noodles and a flavored shaved ice dessert. The store will soon introduce a new fruit-flavored cold noodle dish as summer arrives.
"We know what customers like to eat," says Cui Kaijun, director of Ting Hsin International Group subsidiary BeiJing Dicos Foods Co., who runs the Master Kong Chef's Table chain of snack noodle restaurants. Understanding what the customer needs may sound simple, but considering the gaps in language, culture, and development level between China and other countries, being able and willing to understand these differences is, in fact, difficult.
"I once hired an expensive baker from France. It didn't work out," says James Win, the general manager of Sharing Commune Café. The French baker did not understand if the Chinese like to eat cold or hot things, or if they preferred to eat at home or on the road. Even using the best raw materials, the customers weren't interested, Win says.
Early Internationalization Gives Sector and Edge
Aside from its operations management, "Taiwan's earlier efforts at internationalization, and its education and training are all advantages," says Victor Chang, president of Taiwan-invested Landseed International Medical Group. He believes Taiwanese businesses can provide innovative services and also share their experience to help Chinese sectors develop. Landseed launched the hospital chain model in Taiwan in 1991 and now has 10 hospitals in its "Around Taiwan Health Care Alliance."
These advantages are especially noticeable in the closed and conservative health care services world.
From a comparative perspective, Taiwan's health care quality ranks third in Asia. It was the first country to introduce European and American hospital management systems, was the first 18 years ago to have the government require compulsory hospital assessments, and still has 37 academic institutes fostering medical talent. These all cater to China's need to increase its medical resources and enhance quality.
After making many visits to China and sharing Taiwan's experience, Chang established Shanghai Chen Xin Hospital in 2003. Most of the doctors commute between Taiwan and Shanghai. The hospital initially catered to Taiwanese businesspeople and their families living in China, with Taiwan Semiconductor Manufacturing Company (TSMC) and Taiwan-invested First Sino Bank among its contracted customers.
Early on a Saturday morning, the smell of Chinese medicine permeates the air when an elevator door opens on an upper floor of Chen Xin Hospital. The hospital not only offers all outpatient specialties, it also has a physical examination center, beauty salon, and traditional Chinese medicine department. Within three hours after Chinese medicine patients finish their checkups, their decocted medicine is delivered to their homes. This kind of integrated service in China is rare.
Today, Chang is aggressively hiring foreign doctors, and once his basic business has stabilized, he will pursue the growing expatriate worker market in Shanghai. "There is demand from both international enterprises and international schools," Chang says. At present, Shanghai only has a few foreign hospitals offering health care services.
"China's market still has a big vacuum," Chang notes. By adding foreign medical personnel, he is also "helping the local government enhance its image."
Major obstacles, however, hamstring growing Taiwanese-operated service businesses like Chang's. For one, "China's hospitals are progressing rapidly," he says. Many superintendents have overseas work experience and the hospitals' management reporting and application of information technology is practically on a par with that found in Taiwanese hospitals. Also, if a hospital does too well, it will suddenly lose access to help from local hospitals' doctors or come across resistance in its operations.
"China still wants to protect the development of local hospitals," Chang says.
The situation faced by Chang is a common challenge faced by many sectors operating in China.
A constantly evolving legal code and the lack of protection of intellectual property rights are both commonly experienced problems. The pervasive attitude in China is to learn from advanced countries with the ambition of one day overtaking them, and the government's policies are clearly tilted in favor of supporting domestic state-run and private enterprises.
"After China joined the WTO (World Trade Organization), it opened up very quickly. Many of its own service businesses have yet to fully develop," explains Charles Yen, managing partner of National Clients & Markets for Deloitte China. "Of course they will deliberately cultivate their own enterprises."
Despite these challenges, China's ascending service market still offers ample opportunities for Taiwanese businesses to thrive and forge a significant presence. It will be unfortunate if companies are unable to capitalize on the opportunities presented at this pivotal moment. The hope for Taiwan is that more of its enterprises emerge as new winners.
Translated from the Chinese by Luke Sabatier