The Straits Times / The Business Times News on OSIM

China risks: S'pore firms unfazed by problems

They keep trying their luck despite losses or no profits

THE promise of China with its burgeoning middle classes continues to draw Singapore companies there to sell their goods and a stumble now and then is unlikely to put them off.

OSIM International, well known for its massage chairs and body trimmers, may have suffered its first quarterly loss since it was listed in July 2000, partly due to problems in China, but the company is unfazed.

'We are spending more time developing China because it's a fundamentally strong market, a very good consumer market which is still in its infancy,' said Peter Lee, OSIM's chief financial officer.

Last week, OSIM posted a $9.8 million loss for the third quarter ended Sept 30 and also its first quarter of revenue slide for North Asia, which accounts for 60 per cent of group revenue.

Sales slowed by 5 per cent because of adverse publicity from imitation products of OSIM's best-selling uZap body trimmer.

Mr Lee said that sentiment towards the industry turned negative following news in Taiwan and Hong Kong about the copycats' inferior quality and unsubstantiated performance claims.

'But as a long-term player, we will ride it out,' he said.

OSIM has been in China for 13 years and pays more than $1 million annually for its signboard displayed prominently along the famous Shanghai Bund, alongside all other international brands, Mr Lee said.

Cerebos is another Singapore company that perseveres in China, although it has yet to post a profit.

Some of the issues Cerebos faces include high management turnover and inconsistent enforcement of regulations.

Cerebos, which sells its household health supplement Brand's Essence of Chicken and Brand's Birds Nest in China, posted a loss of $2.1 million for its China business in the third quarter due to a change in distributors in the Guangdong region.

'Our faith in PRC (People's Republic of China) remains strong - it will eventually be our largest market,' said Daniel Quek, Cerebos' corporate affairs manager.

Although it is still not profitable, it should break even in next few years and progress strongly from there, he said.

Since last year, Cerebos' group chief executive Eddie Koike has taken personal charge of the China operations.

Part of Cerebos' problems in China is that it follows the industry regulations as any good corporate citizen would, but local companies seem to behave differently.

'We are limited in terms of communications of Brand's benefits despite the strong scientific evidence due to regulatory requirements; the law limits our benefit claims,' Mr Quek said.

'However, local companies do not seem to be limited in their communications,' he added.

Cerebos is now using promoters to educate consumers and organising health events to showcase its products, Mr Quek said.

Another Singapore company trying its luck in China is luxury watch retailer Sincere Watch.

It has been appointing dealers in Shanghai, Dalian and Hangzhou, but the bulk of its PRC customers shop in Hong Kong where Sincere has 10 independent dealers operating at 29 locations.

China promises to be a huge market, but the problems that businesses face there are pretty tough too. Importers of luxury goods also have to deal with the country's formidable taxation system.

'We're all jostling with Chinese tax laws, import taxes and consumption taxes,' said Sincere chief financial officer Soh Gim Teik.

He does not expect to make money in China - at least not for some time.

Profits are finally coming in for Asia Pacific Breweries (APB), which continues to dream about the 1.4 billion throats for its Tiger and Heineken beers.

Last year, APB set up a regional headquarters in Shanghai, Heineken-APB (China) Management Services, with an initial registered capital of US$6.1 million.

It has brewery operations and joint-venture companies around the more affluent provinces such as Shanghai, Guangdong, Jiangsu and Hainan, but the profits from China are nothing like what the company gets from Vietnam.

For its latest third-quarter results, Indochina remained APB's highest profit contributor, delivering nearly 40 per cent.