ASK small and medium enterprises (SMEs) about their expansion plans, and chances are that China and India will crop up in the conversation. United Texmac (Unitex) is one company that has already entered those markets - and managing director Benny Pua is keen to tell SMEs that doing business there is not as simple as it seems.
Mr Pua: Expansion is about customers, not costs
Founded by Mr Pua in 1996, Unitex makes machinery for textile companies, specialising in circular knitting machines. In 1998, during the Asian financial crisis, Unitex took the bold step of taking its operations to China.
The move paid off. 'For the next four years, China was actually supporting the operations in Singapore,' said Mr Pua. Yet the situation there has changed, he added, and SMEs should think twice about entering China just for the sake of cutting costs.
'China is not cheap now,' said Mr Pua, citing the rising yuan, export rebate reductions, increasing labour costs - particularly in coastal regions - and China's increased focus on environmental issues as factors which have made it harder to do business there.
Nonetheless, Mr Pua said: 'We still have to be in China, because China itself is a big domestic market.'
Accordingly, Unitex's strategy in China has changed. Five years ago, estimates Mr Pua, half of its output in China was exported, and the rest sold domestically. Now, domestic sales account for some 90 per cent of revenue there.
Only the precision parts of Unitex's machines are made in Singapore. The rest are made in overseas plants, of which two are in China and another in India - which Unitex entered in 1999.
That was 'a whole different ball game', said Mr Pua. It took Unitex about three years of servicing the market in India before business there picked up.
Operations in India were helped by the fact that the company's preferred bank, ABN-Amro, has a strong presence there. Because of that, said Mr Pua, 'the time taken to transact your business is very fast'.
Banking with an established firm also mitigates the financial risks in India, which are higher than in China, he added. SMEs should not have the idea that entering China and India is a case of doing what they want to do, said Mr Pua. Rather, they should look at the opportunities already available in those markets.
'If you're going there just to cut costs, because Singapore is expensive, then don't waste time,' said Mr Pua. 'In everything today, we have to create value in the eyes of the consumer.'
After all, Unitex chose to expand geographically so that it could get closer to its customers and give them greater assurance, while also saving on logistical cost.
And Unitex has expanded in scope as well - once more for the sake of their customers. The company offers not just knitting machines, but dyeing and finishing equipment, and even water treatment facilities.
'We are providing a value-chain,' said Mr Pua.
Unitex's strong branding enabled it to find suitable joint venture partners, which include a Greek firm that Mr Pua refers to as 'the Rolls-Royce of dyeing machines', and a Malaysian technology firm which helped develop a hanger system that minimises human intervention.
But Unitex's choice to enter the water treatment business is perhaps the best demonstration of the company's dedication to its customers. Unitex built its first water treatment plant to help out a long-time customer in India, whose operations had been shut down due to new environmental regulations.
Fabric manufacturers produce toxic effluence during the dyeing process in particular, explained Mr Pua. The customer hence needed a water treatment and recycling plant that was built by specialists in the textile industry, who would be familiar with the chemicals involved.
After the success of that first plant, Unitex now designs and builds water treatment plants for various clients, mainly in India. 'I think this is going to be a very fast-growing business for us,' said Mr Pua.
When Unitex won the Enterprise 50 award in 2001, it had $20 million in revenue and 46 employees. Now its turnover is between $38 million and $40 million, and it employs about 380 people.
Unitex's next stop is the Middle East. Mr Pua hopes to set up a Cairo office by year-end.
