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Private firms need transformation to survive

08-05-2010 13:41 BJT

BizAsia special on private investment >>

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Time now for our series on private investment in China. In this forth and final installment, we look at how private enterprises might take advantage of opportunities arising from the new policy.

It was the unforgettable sound of the World Cup. It overcame the roaring enthusiasm of football fans. They were trumpets mostly made in China and they created a success for Chinese makers.

The Ninghai Jiying Plastics Factory, based in the eastern Chinese coastal city of Ningbo, is one such manufacturer that raked in profits from vuvuzelas.

Wu Yijun, General Manager of Ninghai Jiying Plastic Factory said "From January to April this year, we were producing 250-thousand vuvuzelas every day to fill containers that were exported from Ningbo port. The market demand just surpassed our production capability."

Sales benefited, but profits didn't see much change. The profit margin for Chinese vuvuzela producers was 5 percent. But the retail price of a vuvuzela sold in South Africa was almost 30 times as its factory price.

"It was really a triumph for vuvuzelas during the FIFA World Cup in South Africa. But now the game ends, so does the life of this trumpet. And people will never know its brand name. This is a common predicament that Chinese private companies find themselves in."

Han Zhifeng, Official of National Dev't & Reform Commission said "Although private investment accounts for more than half of China's fixed assets, it's mainly concentrated in downstream industries, like processing, manufacturing and retail services. Besides, companies with high pollution and low technology mainly belong to the private sector. It's time to change."

But some have simply fared better than others. Beijing-based Xueda Education has been working on a unique service model since its establishment in 2001. Its one-to-one tutoring service has gained great popularity among students. And its self-developed student evaluation system has been well received. Xueda now has set up around 130 tutoring centers around China. Speaking of the success, Jin Xin, the chief executive officer, points to the company's persistence on products upgrades and innovation.

Jin Xin, CEO of Xueda Education said "Since the beginning, Xueda has been investing in product research and development. Now we have 100 researchers undertaking this process. And our annual investment has reached over 1 million yuan."

And all the effort has paid off. Xueda is expanding at an annual growth rate of 200 percent. And through innovative practices, it's built up its brand image. That's widely regarded as the right track for private businesses, especially small and medium-sized ones.

Betty Ku Wun-Shim, Regional Head of Standard Chartered (China) said "The future of China SMEs is not in low cost processing, because the days of low-cost processing have gone. The future is on very good branding. To create this branding, a business needs innovative products and services."

The government's support now makes this future more possible. The recent policy promoting private investment looks to support product upgrades, investment in emerging industries, as well as overseas expansion.

But it's still up to the private sector itself to make it all happen. Will the year of 2010 be the start of a booming private economy? We'll just have to wait and see.

Editor:Xiong Qu |Source: CNTV.CN

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