Tag: Business

Singapore brands continue to eye growth in China despite increased domestic competition, higher costs and a slowdown in the world’s second-largest economy.

For some, China provides an alternate avenue for growth in sectors such as property and retail, helping to buffer lower-performing regions.

Other Singapore companies in sectors that have taken harder hits recently, such as manufacturing, have been reassessing and realigning their business models to stay competitive.

China is, after all, “too large a market for ambitious foreign investors to ignore” despite having lost some shine, said Mr Chio Kian Huat, CEO of accounting and business advisory group Stone Forest.

This is especially so as the central government continues its crackdown on corruption and improves the transparency and predictability of doing business in China, said Ernst & Young Asia Pacific transaction advisory services leader, Harsha Basnayake.

For CapitaLand, diversification in China has provided “respite from weakness in the Singapore property market”, said Maybank Kim Eng analyst Derrick Heng.

The real estate developer has increased its presence in China over the years with the country accounting for 45 per cent of its asset base today, up from just six per cent in the early 2000s, Mr Heng told The Business Times.

“With robust China home sales in recent years… we expect strong earnings contribution from the country in the next one to two years,” he said.

CapitaLand Retail China Trust Management Limited (CRCTML), the manager of CapitaLand Retail China Trust, announced its 2016 Q4 net property income (NPI) on Jan 26, bringing the NPI for the whole of 2016 to a total of RMB669.8 million (S$139 million) – 4.1 per cent higher than in 2015.

“We remain positive that CRCT’s portfolio of family-oriented shopping malls will continue to benefit from China’s growing urban population and rising retail sales,” said CRCTML chairman Victor Liew.

Singapore-based beauty products seller Best World International is also projecting growth in China, its second largest market.

China contributed 30 per cent of the group’s revenue as of the third quarter of 2016, after growing more than 200 per cent year-on-year, and the company is aiming to grow its sales in China eight-fold from 2016 to 2020, said Maybank Kim Eng analyst John Cheong.

“Demand for Best’s products has not been impacted by the general slowdown, its products continue to gain traction from a low base, market expansion in China and increase in popularity from the recent approval of its direct selling licence,” he said.

In announcing the licence approval in November, which allows Best World to conduct direct selling in Hangzhou, group co-chairman and president Doreen Tan said Best World is “cautiously optimistic” about its China growth prospects in the next five to eight years.

“We will continue to expand the geographical coverage of our direct selling licence, drive membership growth through more marketing activities and introduce new products and services,” she said.

Those in manufacturing have not been as fortunate – labour costs in China have been increasing at an average of 20 per cent annually for the past four years, and other rising costs such as electricity and natural gas are also eroding margins, said Mr Chio.

Singapore design manufacturer Koda would know.

The company was forced to shut down its manufacturing facilities in China in the last few years and has shifted its focus to its furniture retail arm, Commune, “to cater to the rising middle class”, Koda chief financial officer Joshua Koh told BT.

“Commune is well received by this younger and more design-savvy generation and we still have a positive outlook on growth in this segment.”

The China arm has been “growing consistently” and has “helped to buffer the drop in sales from our other markets like Malaysia, which has suffered due to the uncertain economic situation and reduced margins”, he added.

Over in the food and beverage sector, stiffer domestic competition and changing consumer demands have translated into a race to deliver fresh tastes.

BreadTalk, for one, has been working on new concepts for its stores to continually engage and excite customers, said a company spokesman. The company’s first store in China, which opened in 2003, has since undergone “its fifth round of renovations with a brand new concept”.

BreadTalk has grown its total number of outlets from 453 across the mainland and in Hong Kong as of end 2015 to “about 500 outlets in 50 Chinese cities” today.

Annual reports show that the company’s business in Hong Kong and mainland China contributed about 42.7 per cent of total revenue in the 2015 financial year, up slightly from 41.3 per cent in 2012.

“Despite the slowing economy, the growth of consumerism and influx of new brands in China remains unabated,” said the BreadTalk Group spokesman.

“Consumer spending continues with the desire to try new products and experiences all the time. Brands will always need to present exciting and engaging offerings to attract consumer loyalty with competition being stiff in such a diverse market.”

For restaurants, establishing a niche product is the key to good business, said Mr Basnayake.

Singapore’s Jumbo Group of chilli crab fame may be one such example of building success on a signature dish that continues to draw crowds of Chinese diners.

Jumbo had percentage revenue contribution from its restaurant operations in Shanghai increase from eight per cent in the 2015 financial year to 15 per cent in 2016, and intends to expand its brands to other major Chinese cities, CEO and executive chairman Ang Kiam Meng told BT.

China’s economy may not be expanding at the rate it was a decade ago – the Chinese Academy of Social Sciences forecast economic growth to dip again this year to 6.5 per cent, which would be the slowest pace in more than 25 years – but Mr Ang is among those who are confident that business opportunities remain.

So, too, is Citi’s chief China economist Liu Li-Gang.

“It is no longer as easy as in the past for foreign investors to make money… but in many areas there should be many investment opportunities, especially in the service sector,” said Dr Liu, noting that China is progressively liberalising its healthcare and financial services.

Stone Forest’s Mr Chio said: While China is no longer a low-cost producer, there is a still a “huge market for services and products that cater to the needs of its growing middle class.”

China is also making strides in technology and other emerging sectors, he added.

“These factors, along with China’s growing middle class and their increasingly sophisticated demand, mean that businesses need to look at the Chinese domestic market for opportunities and not depend on low cost production to succeed.”