Saare Erek is a construction and production company from Saaremaa, which has been operating in its current form since 1990 and opened its first wooden house factory this September in Jingmen, China. Kaarel Väer, Board Member of Saare Erek, spoke about what to keep in mind while doing business in China and how Saare Erek managed to make it that far from its home island.
Where did Saare Erek get the idea to enter the Chinese market?
The idea originated in June 2014 when we visited China with a delegation of the wood industry with support from Enterprise Estonia. It took us four years to open up a factory, which is not necessarily a long time given the scale of China, but it gave us an opportunity for thorough preparation. Until then, the growth of the wooden house industry had been driven largely by orders from the Scandinavian market, but we then noticed that Asia has tremendous opportunities for long-term expansion. Timing was essential as well, because while South-Korean and Japanese markets have been familiar with high-quality wood materials for decades, the emerging middle class of China, which has only recently begun to rapidly grow, is only just discovering this area of construction. Therefore, the potential is enormous.
What were your first steps once you had established your strategic target in terms of China?
The same as usual, we started with a market investigation. After that, we began mapping possible partners and tried to find partners with whom we had already successfully collaborated over the years. We received great help from the Asia Information Centre of Enterprise Estonia during when conducting our background investigation and thanks to various meetings, we were able to find a local representative, with whom we are very compatible and get on really well. In regard to China, the determining factor is distance, because remote management is difficult and it is certainly necessary to establish a local office. Production is only part of our activities and in terms of sales, it is essential to establish a sort of headquarters on the target market.
Have you experienced any unforeseen situations during the process? What risks should be considered?
On the one hand, it can be said that everything about China is surprising to our people. However, on the other hand, we have not experienced anything extraordinary or unpleasant. Attitude is key – competence in the field and credibility in partnerships are essential. One should not expect to achieve rapid results in China. When visiting China in October, first orders should not be expected by November. In the land of great opportunities, expectations and results are realised through years of hard work. And patience is crucial. Rushing gets you nowhere in China and may even lead to losing focus.
Generally, our risks are the same as in any other company. Handling large orders and quantities, as well as the risk regarding commodity prices, as the price of wood is increasing everywhere. Fortunately, finding labour force has not proven to be an insurmountable obstacle on the Chinese market. A successful entrepreneur can anticipate risks and resolve them accordingly.
What is the competition like in your area in China? What competitive advantage do Estonian entrepreneurs have on such a large-scale market?
Competitors and other producers existed in China way before we entered the market, especially in the area of log house production. Chinese government has implemented several support programmes for environmentally sound management, under which the construction of wooden houses is greatly encouraged. Our competitive advantage stems from the involvement of great engineers, having very competent employees, high-quality materials and extensive experience in the area of construction as well as production. Saare Erek is backed by a strong corporation called the Tuule Group, which provides us with the necessary assurance to expand our activities on foreign markets. A competitive advantage is achieved when all factors tie in with each other.
Was the logistical distance from Estonia the determining factor for establishing the factory in China? Why was the city of Jingmen chosen as its location?
The great distance between Estonia and China definitely affects transport costs, however, the area of customs procedures was even more important to us in this case, as there is a big difference in whether completed elements or construction materials for producing such elements are sent through customs. It is important to us to be as close to our clients as possible, in terms of production as well as sales. This way we can react to changes and special requests quickly. Our long-term vision is to hopefully export our produce from the Chinese factory to other Asian markets as well, but we have taken a step by step approach to this.
Jingmen is a historically important industrial city in the central part of China, providing great access to qualified labour as well. We were happy with the location, the selection of employees and, of course, great support offered by the local government for our activities.
What sort of national support have you received from Estonia as well as China?
Both countries have been of great help to us. Enterprise Estonia has contributed by providing a grant for our development plan, while the local government in China has welcomed us with open arms and offered various tax advantages. We have also received strong support from embassies, with which we have organised several events, and ambassadors have personally lent a helping hand for us in organising meetings. To the credit of Estonia, it must be said that national visits have greatly contributed to establishing contacts between Estonian entrepreneurs, local Chinese entrepreneurs and state officials. The state means everything in their business culture and the presence of an ambassador, minister or the president opens a lot of doors. Estonian entrepreneurs are eagerly awaited in China, so it is definitely worth to set your sights on China, however, do not approach it just to try it out but with thorough preparation and readiness for a lot of work.
“Estonian entrepreneurs are eagerly awaited in China, so it is definitely worth to set your sights on China, however, do not approach it just to try it out but with thorough preparation and readiness for a lot of work.”