The Straits Times, JUL 18, 2015
Former 3M exec left to start his own company in China, where costs are low
In 2001, Mr Lennon Tan had just been promoted to replace his own boss, who had been with the American multinational 3M for some 20 to 30 years. But he was unhappy and the restructuring exercise set him thinking about his future.
“What if this happens to me at age 40 or 50? I needed to make sure that I was ready when or if that happened to me,” he recalled.
So he decided to give himself two years to start a business.
“I thought if I failed, I should still be able to find a job at age 36 or 37,” said Mr Tan, who is now 47.
Armed with savings of $300,000, he told his parents that he may not be able to contribute to the family for a while and took off to the booming city of Guangzhou in China.
Previously, as a jet-setting executive with 3M, he covered 14 markets in the Asia-Pacific. He had witnessed the exponential growth of 3M’s business in China.
“If there was any place that I wanted to be, it would be China. In terms of costs versus potential, Singapore could never make the maths.”
China, being a low-cost business environment, was a place where Mr Tan could make his start-up capital last. And operating a business selling security solutions with a local Chinese partner, and three Chinese employees, also meant that his overheads were low, he said.
“I had very little money, so the business model was to sell someone else’s products.”
But he soon realised the stark difference between doing business as a representative of a big MNC like 3M and striking out on his own.
BEING STUBBORN HELPS
“At 3M, we were conducting our business through the distributors, and all we had to do was to press the distributors to meet the sales targets,” he said.
“On my own, I had to cut the business deals myself, and unlearn some of the things that I learnt at the MNC. I also had to adopt the local way of doing business.”
And of course, Mr Tan was no longer operating under the well-known name of his MNC employer; he was helming a company which no one had heard of – Jing King Technology Holdings. “It was a very different perspective. I had to work a lot harder. I had no track record and I wasn’t local. People were wondering, scratching their heads, ‘What’s this guy doing here?'”
He eventually won over the Chinese with his relentless persistence. He recalls staking out at a prospective client’s front door in Beijing for three days in order to clinch a deal. “(The client) kept telling me that he was busy, so I would show up every day to wait for him. Every time he walked in and out of the building, he would see me at the reception, waiting to see if he had a moment to spare. Finally, after three days, he decided to see me.”
Although valued at only 1.5 million yuan (S$330,000), it was Mr Tan’s first big deal after two years. This client was a good showcase for his fledgling firm and was instrumental in helping him grow his business in its early years.
Today, with 2,000 employees, Mr Tan still believes in being very hands-on with his business.
“It’s important for me to get my hands dirty, to find out for myself the real situation on the ground.”
Chief financial officer Marvin Tan said Mr Tan’s down-to-earth yet persistent and persuasive personality played a big part in helping the firm cut deals in China.
His hands-on management style also helped him command the respect of employees, right down to the rank-and-file factory operators.
“He understands the operations of the company better than anyone else,” said Mr Marvin Tan, 35, a Singaporean who joined Jing King in 2008.
$200,000 SPENT ON MEALS
Starting out in a society that places a premium on interpersonal relationships meant that Mr Tan had to spend a lot of money on travelling to cities such as Beijing and Shanghai and buying meals for prospective clients. Mr Tan estimates that he had spent a good $200,000 on meals just to kick-start his business.
He also lets on that in his desperation to meet more prospective clients and contacts, he had fallen prey to the so-called “deal-fixers”.
“They claimed that if I paid them, say 50,000 yuan, they could help us meet certain who’s who (in the business community). We didn’t know any better, and these people seemed savvy and well-connected. So we spent the money,” he said.
But often, he would go to those lunches or dinners only to find out he was buying meals for the driver or cousin of certain businessmen. Needless to say, nothing came out of the meetings.
MOVING UP THE VALUE CHAIN
After achieving success as a distributor of security equipment for American brands, Mr Tan said he was “paranoid enough” to see that he had to switch out of the middleman business model before it was no longer lucrative.
“We started seeing the brand owners coming to China on their own without telling us, so I thought it’s time for us to start manufacturing something of our own,” he said.
But instead of starting from scratch, he bought a card-making business, producing membership cards, scratch cards and phone cards. With the low cost of labour in the mid-2000s, he could enjoy margins of 30 per cent in his contract manufacturing business. But as the yuan began appreciating, profit margins slid to 10 to 12 per cent.
This prompted Mr Tan to move into the high-tech space to produce high-security credit, debit and smart cards. “My margins went back to 30 per cent after I switched to making bank cards,” he said.
He recently expanded his manufacturing base beyond China, setting up a data-writing facility in Singapore. His firm acquired 90 per cent of DataPost, the data-printing and mail-processing arm of SingPost, last month.
NAVIGATING THE CHINA MARKET
Making friends with the Chinese is the key to being successful in China, stressed Mr Tan. “You need to have local friends.” Although he had aced his Chinese language examinations at both O and AO levels, Mr Tan learnt his proficiency in the language was “far from okay”. Being thick-skinned is very helpful when he socialises with the locals.
He also debunked the common misconception among Singaporeans that “the Chinese are all cheats”. While he got into some trouble when he started, losing some US$30,000 when a client did not pay up, he blamed it on his own trusting nature.
“We grow up in a sanitised environment in Singapore, where 99 per cent of the time, our clients will make good on the contracts signed.
“In China, they won’t read the contracts and will sign anything. But if you end up in a contractual dispute, there’s usually very little legal recourse,” he pointed out.
However, reputation is also very important in China, so one must work with clients that are known to be trustworthy. “You can’t just trust the clients first, and give credit. You can’t afford to do that in China. You must make sure you study and understand the clients well enough. If you end up losing your capital, it’s really your judgment that is wrong,” he said.
FEW SINGAPOREAN BUSINESSMEN
In his 14 years in China, Mr Tan said he has hardly met Singaporean business-owners, as many Singaporeans there are working for MNCs.
“Being generally risk-averse and having to contend with the high cost of living make it hard to start a business,” he said. Some Singaporeans also give up easily when things don’t go their way, he added.
He estimated that up to 90 per cent of the new businesses in Singapore close down before their second anniversary. “You need at least two years to establish yourself. But most people won’t have enough savings to last two years,” he said.
His solution? “Choose a cheaper environment, and you could last longer,” he concluded.