Center Links Firms with Foreign Partners

As China's government seeks to open up the economy and ease it away from leaning on state-owned heavy industry and a massive manufacturing base, the role of small and medium-sized enterprises has become more important.

Opportunities are springing up for many companies, established and new, but equally, many are struggling to cope with the rapidly changing economic landscape.

Nowhere is this more evident than in Shanghai. The city may be the regional headquarters of more than 1,000 multinational corporations, but it is also home to 340,000 SMEs. They represent 96.7 percent of all business in town and are responsible for providing 54.6 percent of job opportunities.

No wonder then that support for SMEs has long been recognized as vital. But now it is more crucial than ever as many find themselves pushed against the proverbial wall by rising costs, dwindling overseas orders and the relentless appreciation of the yuan, all sapping their confidence and competitiveness and eroding their profit margins.

Help and support for SMEs has arrived in various forms from local and central government. One that is getting results is the Shanghai Small Enterprises Center and its associated incubator programs.

The center, set up in 2011 by the Shanghai municipal government, is proving particularly resourceful in linking local small companies with foreign business.

Since he became head of the international cooperation office at SSEC to meet the soaring demand from SMEs for a global presence, Dai Jie has been putting in a lot of overtime.

Home to about 500 SMEs, the center currently oversees 50 industry associations in Shanghai and handles several exchange programs for Chinese and foreign companies every week.

"We try to link local small companies with their international counterparts in the hope that efficiency, energy and creativity will blossom," Dai says.

So far, more than 100 firms have benefited from the exchange platform, either getting special funds or locating foreign partners.

One such company is Shanghai Guangyu Automobile Air Conditioning Compressor Co. Established in 2002 by veteran car engineer Dong Rongyong, the family-owned company wants to build a homegrown brand of automobile air conditioning compressors.

Dong, a former employee at the State-owned Shanghai Automotive Industry Corp, realized that even a company as big as SAIC was failing to master leading compressor technology, leaving the domestic market firmly controlled by foreign manufacturers.

Family business

To endure, a family business must be willing to reinvent itself, Dong says. After introducing the first production line from Japan, Dong hired more than 30 researchers and a plant with 300 employees to focus on research and development.

Today, the company boasts more than 30 patents and holds half of the market share in the domestic commercial car sector.

While Dong's push to build a local brand drove the company to innovate, it also led to an unexpected problem - its own reluctance to compromise on foreign partnerships.

"When we were on track to form a partnership overseas, the president insisted that we be the controlling party of the joint venture, so negotiations reached an impasse," says board secretariat Dong Yaojun, who is Dong Rongyong's nephew.

It was then the company turned to the SSEC, which had just started organizing regular international fairs for specific industries to bring local and foreign SMEs together. The center awarded Guangyu 4 million yuan (US$627,000) as an incentive to develop core technologies.

The younger Dong soon became an active member, joining a group trip to Japan and South Korea, where he made numerous valuable contacts.

"The SME center knows our needs, and they are good at matching us with good contacts without sacrificing our interests," Dong Yaojun says.

Similarly, it was thanks to SSEC that Shanghai SIIC Zhen-tai Chemical Co Ltd managed to anchor an overseas expansion in a turnaround battle for its domestic market.

With just 200 employees, Zhen-tai produces about half of China's magnesium oxide products for manufacturing companies, including special silicon steel grade magnesium oxide, widely used to isolate coating material.

Quality awareness

Although winning quality awards and owning a wide range of patents, its once-dominant market share fell in the 1990s after it lost expert personnel to rivals and suffered technological leaks.

"One effective action was to make a foray into foreign markets, and partner with recognized industrial heavyweights," says Zong Jun, Zhen-tai's general manager.

That proved difficult because Chinese brands, especially small and medium-sized enterprises, have yet to win trust among global customers.

But the SSEC put them in touch with Israel-based Dead Sea Works, the world's leading producer of magnesium oxide.

Zhen-tai's cutting-edge technologies and local research quickly impressed its partner, allowing it to take new orders and manufacture on behalf of Dead Sea Works.

The cooperation has since helped Zhen-tai accrue 80 percent of the overseas market share. Its global reputation led to it winning orders from domestic steel giants including the Shougang Group.

Orders from both domestic and overseas clients have picked up since mid-2013, and Zhen-tai is planning to take on more employees, says Zong.