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China's mini boom in foreign entrepreneurs

Foreign entrepreneurs are taking advantage of China's positive economic climate by starting their own businesses there.

Last updated: 09 Jul 2014 07:36
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James Sing, an Australian, opened a restaurant in Shanghai [Mary Field/Al Jazeera]

Shanghai, China - "My family went to Australia for the gold rush. They came over to look for gold, and they didn't find any," said James Sing, who runs an Australian restaurant in Shanghai.

His restaurant, Kakadu, has been in business in China for seven years. On a typical weekday evening, a steady trickle of Australian businessmen sit at the bar. Sing gives some instructions in English to his staff as they stock ice and get ready for the evening rush.

"The chances that I would open up a restaurant in the West are zero," Sing said.

According to Sing, a restaurant that would cost $1m to open in Australia, would cost under $100,000 to open in Shanghai.

These lower costs, coupled with the spectre of unemployment and the troubled economies of Europe and the US are driving a mini boom in foreign entrepreneurs.

According to Eurostat, unemployment in Europe still hovers above 10 percent. While the situation has improved since the 2008 financial crisis, it is still dire for the youth of southern Europe. In Spain and Greece, over half of the youth - defined as those under the age of 25 - struggles with unemployment.

The numbers are slightly better in the US, where the unemployment rate has fallen to 6.1 percent from nearly 10 percent in 2009.

However, the shadow of the financial crisis still looms large in the US business world.

"A lot of people were not willing to sign a lease with us," said Fung Lam, co-owner of Fortune Cookie, an American Chinese restaurant in Shanghai. "They were waiting for the market to pick back up. Things were just not working out in America. It was just really tough to get things started."

Like Sing, Fung Lam and his business partner David Rossi, set up Fortune Cookie in July 2013. According to the pair, they spent a lot of time "looking at shoes and handbags" to gauge the spending power of the people in the neighbourhood.

Time-intensive process

Their restaurant is on the fourth floor of a building housing several other restaurants and bars, which appeal to Shanghai's expat crowd and local elites. Fortune Cookie is set up as a WFOE (wholly foreign-invested enterprise), which is the investment vehicle of choice for most foreign businesses in China today.

"It is a process that is doable, but definitely time intensive," said Rossi. And setting up shop in China is not without pitfalls.

David Rossi and Fung Lam checked the local market carefully before opening their restaurant [Mary Field/Al Jazeera]

In China, time intensive means 3-6 months to set up a WFOE. For restaurants and other businesses that require additional licensing, the set-up time lengthens. This is in stark contrast to the ease of setting up a company in the US, where for example, in Delaware, incorporation can take less than one day.

For foreign entrepreneurs avoiding a stagnant job market and lacklustre economies in their home countries, it has come as a slight shock that one of the biggest challenges to operating a business in China is human resources.

"Our fastest growing cost is labour," Sing said.

He said, in 2007, $240 would be sufficient for an English-speaking waiter, now it's $645 for someone who speaks barely any English.

Sing recalled his first manager, who helped set up the restaurant: "She took a percentage of everything… She got kickbacks on everything."

Around the corner from Fortune Cookie on Julu Road, a street in Shanghai known as home to a large number of designers, stands the tiny flagship store of Mary Huang and her eponymous brand, designed by MaryH.

The amateur Swedish designer turned China entrepreneur recalls her own struggles to set up in China: "Things are different when you are a foreigner … the rules are different for foreigners and locals. Foreigners are seen as having more money." Like in the food and beverage industry, retail has a high staff turnover.

"People always want more," Huang said, adding that the high turnover in China's factories also affects Huang's business.

After the Chinese New Year, which comes after Christmas for retailers in western countries, "some people just don't come back to work."

In addition to finding qualified workers at the low-end of the wage spectrum, foreign entrepreneurs in China like Huang have to navigate the country's business culture, which at times, seems to have developed directly in opposition to that of the West.

As many entrepreneurs with western business educations have discovered, in China, "the [written] contract is not as important, what is important is what is being said over dinner".

That said, when asked if she would ever open a shop in Sweden, Huang said, "Not really … Asian markets are more interesting."

High growth rate

Another foreign entrepreneur who has been keeping his eye on the market here is Mark Tanner. Tanner founded China Skinny in 2011 as a market research agency.

It is cheaper to hire very qualified Europeans than local staff...

- Mark Tanner, China Skinny

"In 2011, China was pretty competitive; there were about 142,000 marketing and public relations agencies in the mainland at the time."

His business has expanded in step with international attention to the Chinese market. The slow growth in the home markets for many western brands has meant an increased push to succeed in China.

An additional side effect of the troubles back home for many western businesses in China is that international labour often comes at a discount.

According to Tanner, "It is cheaper to hire very qualified Europeans than local staff, which is great for us because they are hungry and eager to work."

With China's GDP growth rate of 7.7 percent in 2013, dwarfing that of most European economies, China may seem like a panacea to struggling westerners.

However, almost no foreign entrepreneurs are reporting that they are profiting tremendously from the China market.

The additional struggles for foreign companies in China, especially in the areas of human resources and navigating China's bureaucracy, often negate the advantages of lower start up costs. "In California [during the gold rush]," says Tanner, "the people making money were the ones selling the tools".

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Source:
Al Jazeera
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