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Taiwan's Fast Growing Enterprises

China: A Giant Stage for Small Businesses


China: A Giant Stage for Small Businesses

Source:Ming-Tang Huang

For a decade, China has been absorbing Taiwan's venture capital, to the tune of US$45 billion. Scarfing up the cash of China's 600 million-strong middle class is the great opportunity, and the great challenge, for Taiwanese businesspeople.



China: A Giant Stage for Small Businesses

By Hsiao-Wen Wang
From CommonWealth Magazine (vol. 451 )

"Everything is a beginning with no end, everything is a pursuit of the transient." That line from the Chinese poet Bei Dao pretty well sums up the feelings of Taiwanese entrepreneurs that have rushed into China in pursuit of a common dream.

Eighteen years ago, 26 year-old Tsai Ping-jung set off alone for Shanghai to work as a pastry chef. At the time, when the only bakers in town were Hong Kongers selling RMB$4 sacks of dinner rolls and China's average monthly wage was just RMB$600, Tsai was pulling in RMB$15,000 a month, about twice what he was being paid in Taiwan. Each morning Tsai would leave the house at 5 a.m. to buy ingredients and head to the shop to bake the bread and train staff. He even had to be responsible for the interior decoration of the shop.

"In the beginning I was really being run ragged," he recalls.

By age 32, Tsai was determined to start his own business and returned to his native Pingdong county in Taiwan to raise the RMB$1 million (at the time about NT$3.6 million) he needed to open his first bakery, Ichito, in Metro City Shopping Centre in Shanghai's Xujiahui area. What he scarcely imagined was that, in the Shanghai of a decade ago, only high-income white-collar employees of foreign firms could afford to buy bread. Customers at Metro City Shopping Centre were virtually non-existent, and not even all of the shop fronts had been filled.

"When I chose the site, I made the mistake of relying on Taiwanese experience to judge the China market," Tsai says in retrospect.

In just one short year, he lost RMB$800,000. It wasn't until he set up a service counter across the way at Pacific Department Store that Ichito really took off.

After nearly two decades of effort, Tsai now operates a chain of 36 outlets in Shanghai, Suzhou, Nanjing and Shenyang that generates annual revenues of NT$1 billion, with Ichito's most popular item, milk bread, selling at a rate of up to 4,000 loaves per day.

By now Tsai has been featured twice on Tokyo Metropolitan Television and once on NHK. In addition to making five trips to Japan each year to keep up with his craft, he is busying himself with the opening of a high-end French-style patisserie, i-Cake, on Shanghai's trendy Huai Hai Road. His new high-end patisserie is located in Hong Kong Plaza, upstairs from Cartier, with Tiffany's to the right and just across from Coach and iPhone.

"It's even swanker than Paul in Taipei," Tsai says excitedly.

Attracting US$45 Billion over a Decade

Tsai's story represents an attractive vignette among the massive wave of young Taiwanese entrepreneurs who have come to China to start businesses over the past decade.

According to statistic from China's Ministry of Commerce, over the past decade the country has attracted a total of 36,000 Taiwanese investment projects, bringing in US$45 billion in start-up capital.

"So many Taiwanese have come to China to start businesses. Take a walk through the streets of the big cities, and 70 percent of the chain retailers you'll see are Taiwan-operated: RT-Mart, UBC Coffee, Dio Coffee, TenRen Tea, The Precious Moment, Formosa-Optical, Paris Bridal..." Hong Chi-jui, chairman of Orff Corp. and president of the China Chain and Franchise Association, says with authority.

From World's Factory to World's Market

There have been two waves of Taiwanese start-ups in China, coinciding with that country's shift from factory to the world to world's market.

Between 1988 and 2000, the majority of Taiwanese businesses set up plants in China to engage in contract manufacturing. By the turn of the millennium, after the incomes of residents in many of China's coastal cities exceeded RMB$3,000 per year, giving them roughly the same purchasing power as Taiwanese society of the 1980s, the wave of Taiwanese start-ups in China began to change in character, as chain and franchise service industry start-ups targeting the domestic demand market began to flourish.

The only problem is that China's service industry has only been developing for about a decade.

"The talent pool has only been cultivated to the level of middle management at most," Hong assesses.

For Taiwanese companies, this is both the opportunity and the challenge.

One of the secrets of success for Tsai, the baker, has been learning to identify with mainland employees.

A common language has also been key to management success. For example, Chinese employees were only willing to push sales of products that already sold well and balked at improving other products or adjusting flavors.

So Tsai posed a question to them: "If you've got 10 brothers and sisters but only shower praise on the best one, what are the rest supposed to do?"

Even with a shared language and ethnicity, managerial communication still required an extra layer of "translation."

"Recruiting, hiring, training and retaining mainland Chinese staff – whoever resolves these issues is the one who survives." Such is the perceptive analysis of Tsai Ping-jung, who now regards Shanghai as his second home.

A successful start-up in China demands copious quantities of blood, sweat and tears. Dr. W.K. Chen, chairman of beauty and skin care product franchiser Kelti International, lost money on franchises in China until he was 65 years old; he turned 70 this year.

"Some go bankrupt, some skip out. If you want to operate a franchised brand in China, you'll never make it if you don't have 10 or 20 years," franchise association chairman Hong says forthrightly.

In the post-ECFA (Economic Cooperation Framework Agreement) era, the relay race of successive waves of start-ups in China passing the baton to the next will surely continue to test the toughness and endurance of the new generation of Taiwanese entrepreneurs.

Translated from the Chinese by Brian Kennedy