Far East Forum Special Report from Suqian, China: Refining Small Business Development in China- (Posted by 任翔 on behalf of 安东武 )

Refining Small Business Development in China

ZHANG CAIJUN

So I've never set foot inside a developing-world corn oil refinery until today, but after an hour climbing fractured sheet metal staircases to various levels of gleaming freshly-installed machinery, I now have a basic understanding of both the production process and the business challenges facing its ebullient and ambitious owner. At this point a lack of business and management training are pretty much the only hurdles between Zhang Caijun and his goal- selling his own corn oil brand directly to customers. He has already secured access to a line of microcredit through Opportunity International (OI) China's Suqian branch, where I'm working this summer.

Zhang demonstrated the function of each machine in the factory with intimate familiarity, for he had singlehandedly overseen their purchase and installation, and is primarily responsible for their operation, maintenance and replacement. He seemed to take almost a father's pride in sharing the production process with us, from start to finish.

Running at full capacity the factory requires only five additional employees, whom he trains personally. At this point he conducts every administrative aspect of the of the business himself. The result is forty tons of kitchen-ready corn oil per day, which is sold at rock-bottom prices to distributors, slapped with their label, then shipped and sold at much higher cost to supermarkets and food manufacturers. Starting as an uneducated corn oil peddler, Zhang was able to build the factory from the ground up and secure a series of loans to purchase new equipment (the hardware) and refine his product, yet he lacks the training and expertise (software, as he described it in Mandarin) to transition into a company capable of marketing and distributing its own brand.

Zhang's dilemma is how to cut out the middlemen (distributors), when the only public advertisement he has bearing his own label is printed on the sign above the factory, and his brand recognition is limited to a handful of tenants who rent property on the compound during the off-season to help him make ends meet, along with a small cohort of ten part-time* workers.

OI CHINA

Visiting the workplaces of OI China's microfinance clients affords a unique look into business in its infancy- all of the genetic material is present for evolution into a larger and mature entity, but things are underdeveloped, awkwardly proportioned, in need of guidance- often in the form of financial support and professional training.

The CEO of OI China- a personable Australian of Chinese descent and stalwart Christian faith named Aaron White- privately compared his microfinance philosophy to the holistic approach of traditional Chinese medicine. Western medicine and capitalism tend to favor the scalpel: isolate and remove the harmful or unproductive elements, then prescribe and administer an external cure based on what has empirically proven to work best for the greatest fraction of test cases.

Aaron's strategy (paralleling Chinese medicine) evaluates the subject as a holistic individual, determines what is out of balance, and then patiently sets to work remedying that imbalance. Operationally, this can be accomplished through small loans with conditions and repayment plans tailored to the unique business cycle of the client's industry, through financial or management training from volunteer consultants*, or to insurance policies which help hedge against drought and other factors not commonly covered by commercial financial services. (Microfinance institutions (MFIs) abroad often also collect savings, which helps both client and MFI, but government regulations at the state and provincial levels currently prohibit this in the PRC.)

When I ask the clients we meet why the choose OI China as a business partner, their first response usually concerns the flexibility of repayment options, followed by the personal relationships developed through frequent check-ins and visits, and finally the training services offered by the organization. Many clients lack collateral or are seeking such small loans that banks aren't interested in them as profitable customers, so microfinance providers may be their only option. Competitive interest rates relative to the MFI competition, and the use of innovations like mobile banking (using vans to reach more remote clients; when they reach sufficient scale they will look into partnering with China Mobile to provide cell phone banking), are helping OI China to quickly expand into rural areas.

That's all for now out of Suqian. Until next time,

安东武

*I've learned from other site visits that production in many of the areas rurally-based industries is spotty during the harvest season, because higher relative wages (or the farmers' own family demands) gathering wheat, rice, and other crops pull laborers out of the factories.

*One consultant, David Mumma, accompanied us to Zhang Caijun's oil factory- he was involved with shoe manufacturing factories throughout East Asia until retirement. The other intern here in the office with me is Tracy Quek, a former journalist for Singapore's Straits Times and current master's degree candidate at Johns Hopkins' SAIS in DC.