Getting a grip on China

Getting a grip on China

The slowing down of China's economy, the world's second largest after the United States, might worry investors and policymakers alike.

A generational leadership transition, a potential property market bubble and a growing gap between the rich and the poor adds to uncertainties.

But OSIM International's Ron Sim is unperturbed.

"If people think China is going to collapse, they are in for a big loss," says the founder, chairman and chief executive of the lifestyle products firm that has over 270 OSIM outlets in the country.

China generates more than a fifth of the company's revenue, remains a very profitable market, and will be a key focus for OSIM in the next 10 to 20 years, he says.

Domestic demand is high and the potential for credit to drive spending has not yet been unlocked, he says, noting that 95 per cent of his Chinese customers use cash to buy his products - such as massage chairs, foot massagers and nutritional supplements.

As for the much talked-about slowdown, Mr Sim says that bad economic news is being "flushed out" now so China's new leaders next month have a clean slate to start their term on.

He expects more government stimulus policies next year to build up the infrastructure of second- and third-tier cities, to ensure wealth is better spread out there.

"That would create the kind of cash flow that's needed in the market right now. So we expect that China will be in a better shape next year. That's why we're putting in all our effort there.

"China is still a growth market. They are in a correction phase, they will get better. I'm optimistic about the first tier cities and I'm even more optimistic about the second and third tier cities.

"It's quite obvious that this market is so sizeable, so infant, so hungry. The vibrancy is crazy."

Driven by hunger and ambition

The hunger that Mr Sim sees in China could also be reflected in the oft-told story of how he started his own company in 1979 and grew it to a 4,000-strong outfit today.

Its latest third quarter results show a 49 per cent increase in net profit to $19.6 million, compared to a year ago. This is OSIM's 15th consecutive quarter of profit growth.

From January to September this year, revenue was $447 million. And the company is in a net cash position of $185 million.

At the beginning, Mr Sim just wanted to make a living. He quit school after his O Levels and become a household appliance salesman after his National Service stint.

He set up his first company in 1979 with four partners, which did not work out. He then started R Sim Trading Company, a retailer of household goods such as knives, hand-held massagers and foot reflexology rollers.

He was hit hard by the 1985 recession and learnt a lesson: The Singapore market was too small and the company had to build an external market.

Ambition to grow his company and the need to brand and develop his own products drove him.

In 1986, Mr Sim expanded his business to Hong Kong. The following year, Taiwan. In 1990, Malaysia, and in 1993, China. His company was renamed OSIM International in 1994. The letter "O" added the globe to his surname Sim, symbolising his global aspirations.

He went into China in November 1993 with Japanese retail chain Yaohan, which has since gone bust. He sold massage chairs, foot rollers and back massagers in a department store in Beijing.

At that time, China was poor and undeveloped, he recalls. "China was really communist, everybody is green, grey and blue, you know? The market just opened up, you're only selling to extremely rich people. People were buying combs, TVs, phones, cars.

Chairs were not the main priority yet."

But sales were "shockingly" good - US$100,000 in the first month, he says.

In 1994, OSIM opened its second store in Beijing. More followed in the next few years.

"Once you do well you build a reputation. People invite you to open up in their department stores," he says.

OSIM did well in China in the first few years, but struggled in the next couple of years as it faced a market downturn in the aftermath of the Asian financial crisis in 1997.

But over the last six years, there was a boom for OSIM as China's economy grew along with its buoyant property market.

There are now 274 OSIM stores in 45 cities, and more than 30 stores in Beijing alone.

Mr Sim says that he is careful to open stores with the right developers, and close them when they are underperforming. "If we wanted to be aggressive we'd have 1,000 stores by now. But we want quality stores that deliver. Sales per square foot is more important."

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