A Boston native cooks up a success story and sets example for small firms’ China operations
Shanghai has captivated Scott Minoie’s imagination for as long as he can remember.
It may have happened in Chinese history lessons at college. Or kung fu movies. Or the success of earlier foreign investors.
It propelled the Bostonian to settle in Shanghai after a city tour fascinated him. He took a position teaching English at a local university, something common for young expats, even if he had worked as a chef in five-star hotels back in the United States.
As more foreign executives relocated to Shanghai, Minoie saw a need among expats for a healthy homemade working lunch.
He bought ingredients from a Carrefour supermarket and prepared lunch for 80 people. Then he prepared to run his own business.
“You have to stay conscious of the local taste here, and be careful not to be too ‘localized’, otherwise you will fail,” said Minoie, whose chain has grown to 21 in China’s business hubs.
The majority of his clients. are now Chinese. He remains confident that, with concerns over food safety, they will appreciate a Western-style bistro allowing diners to see their strawberry smoothies and laffa-bread salads being made.
His success contrasts sharply with the experiences of a string of big Western restaurant chains that failed to secure brand recognition in a growing market of middle-class earners who have a craze for Western flavors.
The “new wave of capital migration” from the US is driven largely by small and medium-sized enterprises mostly in niche businesses.
US SMEs are relative newcomers, with almost one-third having been in China for five or fewer years, according to the annual survey published in February by the American Chamber of Commerce in Shanghai.
When looking at longer time frames, 36 percent of SMEs reported having been in the country for at least a decade. Sixty-four percent of larger companies said they had reached the 10-year point. A higher proportion of respondents – 37 percent – consider themselves SMEs compared with 26 percent a year ago.
The business aims of SMEs – companies with 500 or fewer employees worldwide – are distinct from larger firms, said Chris Wingo, founder of China Sage Consultants (Shanghai) Co, whose firm helps SMEs from the US prepare and manage their businesses in China.
A big “driver for SMEs to come to China was their larger business partners, namely multinational corporations, when they started manufacture in China and wanted their supply chain to be here with them. It was like a command,” he said.
China came onto US entrepreneurs’ radar in the late 2000s as more SMEs became interested in the country’s economic growth and the US’ performance remained lackluster, Wingo said.
The greater Shanghai region, including neighboring economic powerhouses Jiangsu and Zhejiang provinces, has proven attractive for smaller businesses due to its accessibility for global businesses, said Zhou Zhendong, president of Jiangsu Eastman Heavy Machinery Co Ltd.
“Shanghai and the rest of the Yangtze River Delta region boast a strong network of distribution, suppliers, executives and engineers that are valuable to our business,” said Zhou, whose company is a Sino-US joint venture.
Zhou said companies sourcing in the area tend to avoid top supply-chain risks such as infrastructure, bureaucracy, intellectual property rights and corporate transparency, and Shanghai has a record of being the most business-friendly city in the country, he said.
“Here you see a concentration of equipment-rental houses, construction projects as well as component suppliers,” Zhou said. “It’s easy for global customers to come visit and easily attract skilled labor, including managerial-level candidates.”
In the bigger picture, a shift occurred when more Western manufacturers pulled investment out from China’s coastal regions and moved either inland or to lower-cost markets within the Association of Southeast Asian Nations. ASEAN’s 10 members include Myanmar, Vietnam and Cambodia.
The American Chamber of Commerce’s survey showed US SMEs preferred to enter the service sector, with 76 percent reporting services as their main activity, compared with 43 percent for larger ones.
That trend has partly coincided with Shanghai’s evolving structure of economic output, with over 62 percent of its gross domestic product being generated by the service sector. It also means opportunities in the segment are much more wide-spread than in manufacturing, said Simon Northcott, principal consultant of Competitive Capabilities International China.
“The trend in the last 15 years is that big MNCs come here for manufacturing and for export,” Northcott said. “Now that the Chinese market is changing together with the demand of the Chinese themselves, we see better shots in the service industries such as insurance, medical care and consultancy.”
CCI’s business was buoyed by companies’ growing willingness to invest in improving productivity, Northcott said. More companies in Shanghai are increasingly sophisticated, and their demands on promoting services are rapidly rising, he said.
Robert Theleen, CEO of the ChinaVest Ltd and chairman of the American Chamber of Commerce in Shanghai, said China’s commitment to economic liberalization through initiatives such as the China (Shanghai) Pilot Free Trade Zone show it’s only natural more firms are setting up in the country.
“When you combine this improving infrastructure with the decades of experience that American businesses now have in this market, it’s easier for US companies to profit from China’s growth, regardless of their size,” he said.
Wingo from China Sage echoed that. Proposed policy changes, including facilitating trade and allowing financial liberalization, could eventually afford big benefits to foreign SMEs. That may include available, reasonably priced financing for capital investment and business transactions and a more efficient import process at a lower cost.
“SMEs should be able to focus more on the business at hand and less on inefficient maneuvering to get things done,” Wingo said. “You can imagine the increase in operational flexibility that theoretically could be enjoyed within the FTZ.”
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