Making It Big on The Mainland Taiwanese companies embrace Xiamen as a jumping point to expand their businesses

By Zhou Xiaoyan

Making It Big on The Mainland Taiwanese companies embrace Xiamen as a jumping point to expand their businesses

By Zhou Xiaoyan

W ith 600,000 yuan ($94,380) in hand, Huang Tien-chen embarked on an ambitious business quest to open a bakery shop in 1998. The young native of Taiwan had been down this path before, founding a real estate firm and a vehicle repair company in the early 1990s on the island east of Fujian Province. Both times he was met with a sluggish local economy and operation difficulties that forced him to abandon his ventures.

Huang’s third attempt was different: This time he had abandoned Taiwan in favor of the mainland, choosing Xiamen as his starting base. Today, his bakery, Sunmile, has 500 stores and 17 subsidiary companies on the mainland.

“Over the past five years, sales revenue has increased at an annual rate of over 80 percent. The sales revenue in 2011 exceeded 500 million yuan ($78.65 million), and we expect it to reach 700 million yuan ($110.11 million) in 2012 and 1 billion yuan ($157.3 million) in 2013,” said Huang, now Board Chairman of the Sunmile Cayman International.

As a leader and pioneer in the baking industry in Xiamen, Sunmile’s operations cover bread, cakes, soybean milk, moon cakes, cookies, snacks and soft drinks.

Huang is one among many Taiwanese who have accumulated immense wealth by moving their businesses to or opening new companies in Xiamen. Located opposite Taiwan across the Straits, Xiamen is a key destination in the greater Western Taiwan Straits Zone.

By the end of December 2011, the paidin investment from Taiwan had reached $7.92 billion and the industrial output value of Taiwanese companies accounted for 40 percent of the total in Xiamen. The city’s cumulative trade volume with Taiwan totaled $44.45 billion in the years leading up to 2012, including $37.02 billion of imports from Taiwan and $7.43 billion of exports to Taiwan, according to the information department of the Xiamen Municipal Government.

In 2011, the trade volume between Xiamen and Taiwan was $7.24 billion, a yearon-year increase of 13.4 percent. Among the total, Xiamen imported $5.77 billion worth of goods from Taiwan, an 8.6-percent increase from the previous year, and exported $1.46 billion to Taiwan, a 37.9-percent increase. In 2011, Xiamen introduced 154 Taiwanese companies, and the paid-in investment from Taiwan hit $430 million, a 6.1-percent yearon-year increase, according to the department.

Taiwanese companies in Xiamen are mainly engaged in such sectors as photoelectricity, biomedicine, new materials, software and service outsourcing.

“We should expand people-to-people exchange across the Straits to promote the peaceful development of cross-Straits relations and increase the people’s welfare. Consolidating and deepening the peaceful development of cross-Straits relations is the common responsibility of the people from both sides,” said Jia Qinglin, Chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) at the Fourth Straits Forum that kicked off on June 16 in Xiamen.

Taking off

Taiwanese companies flock to Xiamen mainly because of its lower costs and hugemarket potential.

BUILDING A BAKERY EMPIRE: Huang Tien-chen enthusiastically talks about the future of Sunmile

Wa Obi, a Xiamen-based fashion company, was founded by the Taiwan Jellery Trading Co. Ltd. in 2009. Like many other Taiwanese companies, Jellery Trading gained its initial fortune by being the original equipment manufacturer (OEM) for famous international fashion brands, such as Dior, Burberry and Coach.

Due to the increasing costs of exporting original components and equipment and the attractive emerging mainland market, Jellery Trading decided to transform its business pattern by establishing its own fashion brand. After two years of preparation, Wa Obi’s high-end bags and accessories fnally hit store shelves in 2009.

“We chose Xiamen to save money,” said 28-year-old Jill Shen, Planning Manager of Wa Obi. “Also, we set the mainland market as our biggest target market and we are quite confdent with it. The sales revenue is expected to reach 30 million yuan ($4.72 million) by 2015.”

Taiwanese companies have won their market share in the mainland through market positioning and market competitiveness based on product characteristics and corporate culture.

PHOTOS BY ZHOU XIAOYAN

The first Sunmile store, established near a low-end food market, failed because people in the neighborhood couldn’t afford the high-quality baked goods. After Huang realized this, he immediately shut down the store and opened a new one near Gulangyu Island, where better-off natives and tourists are prevalent. The new store has found great success, with the sales revenue on the first day alone totaling 16,000 yuan ($2,516.8).

“All our 500 stores, located in different places, cater to the dietary habits of local residents. The recipe in each store is specially designed after careful study and is different from those of others,” said Huang.

Wa Obi has a similar marketing strategy.

“Wa Obi is targeted at white-collar workers from 28 to 45 years old with 200,000 yuan ($31,460) yearly income,”said Shen. “We offer customized designs that stand for the elegant attitude to life. Meanwhile, we use special fabric in our bags and accessories, which can be used for collection. It’s an innovation in the fashion industry.”

Wa Obi now has six stores, located in Beijing, Tianjin, Xiamen, Taipei and Tokyo.

Worries remain

Taiwanese companies still have reason to worry: The profit margin of traditional industries is decreasing, while it’s a painful process to transform the development pattern by establishing their own highend brands; and policy support from the government is less than a decade ago and cannot always be carried out by local authorities.

Although the sales revenue of Sunmile in 2011 exceeded 500 million yuan, the net proft is only tens of millions of yuan due to the low profit margin of the traditional food industry.

“The government used to grant overseas capital much more preferential policies than mainland capital. But now things have changed, and we are treated almost the same as ordinary private companies,” said Huang.

Even if the Central Government puts forward favorable policies, there may be some obstacles and thresholds set by local governments for Taiwanese companies when those policies are implemented, said Huang.

Having its own brand may mean big money, but the process is painful.

In transforming its growth pattern, Jellery Trading has invested 4 million-5 million yuan ($629,200-$786,500) in Wa Obi and plans to retrieve its investment within seven years.

“Wa Obi started in 2009. Although with long-term preparation, the path of establishing a brand can be painful. We have 90 percent confdence in the transformation of the growth pattern from OEM to self-owned brand, and the left part depends on fate,”said Shen.

zhouxiaoyan@bjreview.com