Singapore is a model of how bring services to the mainland China market

----By Mark Godfrey

Singapore has lately been marketing itself as a gateway to China for Westerners. That's appropriate, given that the wealthy city-state, with its 75 percent ethnic Chinese majority, can offer Western comforts and bilingual services all within three hours of southern China.

Perhaps because of its heritage, Singapore has also been adept at tapping a demand for international-quality services in mainland China among local customers and multinational firms. Companies from the city-state have notched up successes in retail, logistics and industrial park management in China.

Singapore, which relied on logistics for 9.6 percent of its GDP in 2006 and boasts the world's busiest cargo port, has cornered a valuable niche in mainland China's burgeoning logistics sector. The number of Singaporean logistics firms active in the market has doubled in the past seven years to 20, explains Ho Chee Hin, director of the Shanghai office of International Enterprise (IE) Singapore, formerly the Singapore Trade Development Board.

Aside from native logistics operators, the city-state also serves as the Asia-Pacific headquarters for 10 of the world's largest third-party logistics (3PL) firms, including DHL, which uses Singapore as a transhipment hub for Asia. Multinational companies and 3PL firms prefer to ship through Singapore because of the bilingualism and efficiency of local operators, explains Ho. "We know their standards and the key performance indicators which multinationals usually insist on."

China's WTO accession prompted an opening up of the local logistics market but local players have yet to develop the service standards demanded by multinational corporations which are increasingly outsourcing their logistics operations. "Our companies have lots of niche capacities," says Ho, who points to Singaporean expertise in modern logistical services such as vendor-managed inventory (VMI) and cold-chain management.

When Singaporean logistics group YCH took on Motorola's logistics operations in Tianjin it streamlined them from six warehouses to one main hub using a vendor managed inventory system, explains Ho. The company's US$15 million (€11 million) Distripark in Tianjin now handles Motorola's global supply chain, taking components to factories in Brazil.

China, the biggest spender in an Asian logistics market worth US$1 trillion is, continues to draw manufacturing investments. With WTO-driven trade liberalisation making for ever more complex supply chains Singapore is pushing its advantages in the Chinese logistics market in more ways than one. The Logistics Institute - Asia Pacific (a collaboration between the National University of Singapore and the Georgia Institute of Technology in the US) turns out "professional logisticians," as Ho terms them. "Many of these graduates now run the in-house logistics operations of multinationals in China."

Daily bread

Singapore has also proven its mettle in importing smart food and beverage retail concepts to China. Bread Talk sells Western-style baked goods with a Chinese twist in malls across the land. The country's middle class is the main target market of the chain of bakery-cum-restaurants, says Ricky Lim, managing director of Bread Talk China, which operates 48 outlets in 15 Chinese cities.

The chain proved successful in Singapore and Taiwan by offering convenience atypical of other typical bread shops: Customers can eat in store, though most take out. Middle-aged women make up 60 to 70 percent of the company's clientele in China, says Lim. Families are also a priority market here - customers have responded well to a "ni hao' smiley face in cake products.

Good locations in China's fast multiplying shopping malls have not been hard to find for Bread Talk. "They come looking for us," says Lim. While rents have climbed 20 percent in the past three years, it's not yet time to go beyond the malls and into residential neighbourhoods. "China is still price-sensitive," says Lim. A Bread Talk in Beijing's Oriental Plaza sees between 1,000 and 1,500 customers on an average day, with RMB24 (US$3.20, €2.30) spent per head. Customers at McDonald's, many of whose outlets are based in residential areas, spend an average RMB20.

Copycat stores have opened, though they're partly welcomed by Lim. They grow the market for bread products, but can't match the original's recipes or product diversity - each store sells 200 constantly changing products. "They can copy the outlet but not the recipe. Ingredients are our weapon."

Training is another: it takes up to three months to train cashier staff and two years to train a baker. A head baker with 15 years experience flies in from Singapore to train staff. The company's 100 square metre Oriental Plaza store is staffed by 25 bakers and 10 cashiers.

Product innovation is another advantage over local competition. A licensing deal with Japanese lifestyle brand Hello Kitty, which allows Bread Talk to use the famous cat imagery so popular with Chinese teenagers, has been a hit, says Lim. By the end of 2007 Bread Talk plans to expand into three new cities: Xi'an, Qingdao and Dalian. China is the company's fastest growing market - by contrast it has two stores in India. Of the 48 stores, 24 (10 in Beijing, 14 in Shanghai) are franchised.

Park rangers

Another Singaporean success story, industrial park management specialist Ascendas, has expanded fast in China by sating a local hunger for quality office and factory space. It has US$553 million worth of assets in China, but will triple this amount over the next five years, says Tay Eng Kiat, CEO of Ascendas China. The launch in August of two funds, the Ascendas China Industrial and Business Park Fund and the Ascendas China Commercial Fund, will "definitely fuel our business strategy," says Tay.

The Ascendas China Commercial Fund will invest in a portfolio of high-quality commercial properties in first-tier cities. Industrial park customers in second- and third-tier cities come, "who have got used to Ascendas service standards," often come to the company for office space in first-tier cities, says Tay.

Ascendas maintains a discerning, if expansive, approach to China's frothy real estate market, he says. "It is unlikely for us to focus on commercial property in second-tier cities where industrial/business parks are our major products."

Active on the mainland since 1994, Ascendas's industrial parks in Suzhou and Dalian have been popular among tenants for their on-site services and Singaporean trained management staff. The company retains an edge in China over copycat local parks which have emerged since the pioneering Suzhou Industrial Park opened in 1997, says Tay. An expertise honed across Asia in "financing, planning, managing and marketing' real estate differentiates the company from competitors.

"More than just four walls, we create a total business environment for people to share ideas and inspiration with like-minded companies and individuals," says Tay.

Rents are justified by premium products and services. Regional expertise, plus "strong local insight and established relationships with local authorities' mean customers get value for their money, says Tay. Local government officials like to see Ascendas coming. "Our contribution to China's infrastructure and choice industrial tenants database will help bring quality investment to the country."

Executive comforts

Even as apartments and hotels multiply across the country, economic growth is driving demand for high-end serviced accommodation in China. Set to open in 2010 the Fraser Suites Chengdu are part of Singapore-based Frasers Hospitality's quest to accommodate busy executives moving between China's most prosperous cities. Frasers' chief operations officer, Bhupesh Yadav, sees a growing demand for hotel-standard executive apartments in China.

EuroBiz: What is your pricing system in mainland China?

Bhupesh Yadav: Frasers' prices are comparable to internationally operated hotels. [We rent] penthouses from US$8,000-10,000 a month while smaller apartments range from US$3,000-6,000 a month.

EB: Do you have any domestic Chinese competition yet?

BY: There are many good domestic operators; however none of them have the same expertise and experience offered by Frasers Hospitality.

EB: What percentage of residents in your new Beijing and Chengdu operations will be Chinese?

BY: We expect 20 to 30 percent of our residents to be local domestic travellers who are well-heeled and seek an international level of products and services. We expect 70 to 80 percent of our clientele to be expatriates and see an increase on domestic Chinese travellers. There will also be a tremendous increase in travel from Singapore to China following on the increasing collaboration of the Singapore and China governments.

EB: What's next for Fraser in mainland China: expansion to more cities?

BY: Frasers Hospitality will continue to expand our three brands; Fraser Suites, Fraser Place and Fraser Residence in each of the key gateway cities such as Shanghai, Beijing, Guangzhou and Shenzhen. Moving forward, we will continue to expand in secondary cities of China with strong receipts of foreign investments, like Dalian, Tianjin and Shenyang.