The city that is ready, willing and able

Wenzhou's culture of entrepreneurship is a powerful drawcard

It may come as a surprise to some that many of China's larger companies are experiencing financial hardship and are even losing money. For example, the profits of Li Ning, a long-time beacon of Chinese consumer goods producers, fell 85 percent in the first half of last year, and there is already talk of losses this year.

So China's army of small and medium-sized enterprises now shoulder even more responsibility if the country's economic emancipation is to continue at such impressive pace.

Key to any substantial emergence among SMEs is the right partnership with another SME. But where does selecting an ideal partner begin?

What better place to start than Wenzhou, in Zhejiang province, with its culture of entrepreneurship and multitude of small and medium-sized, innovative enterprises. Venture capitalists in Europe and elswhere need look no further than this hotbed of business.

While most Chinese business people remain wedded to a corporate culture based on Confucian values, Wenzhou's army of creative yet market-oriented organizations set a benchmark of modern business for the rest to emulate.

In fact, the reputation of business people in Wenzhou stretches far beyond China. Across large parts of Europe and the US the entrepreneurs of Wenzhou have an enviable reputation for their business acumen.

Furthermore, recent finance and investment reforms in the city have made businesses there an even more attractive partner for international SMEs seeking an entry to, or expansion across, the Chinese market. As a result of recent initiatives by the central government, Wenzhou's entrepreneurs now have the freedom to set up small banks among themselves, possibly reducing or even eliminating the reliance on the country's larger banks and financial institutions, which are often out of touch with the latest business trends and commercial opportunities.

Even more exciting is the initiative allowing Wenzhou's entrepreneurs to make overseas investments directly in Chinese yuan. European finance houses should take note.

Allowing private investors more freedom to set up small banks is a welcome move, as is permitting individuals to make overseas direct investment in yuan.

So, where does this Wenzhou culture of entrepreneurship come from and will it endure?

Undoubtedly Wenzhou's coastal location and proximity to Shanghai has played a role. However, the city's appetite for aptitude in business dates back centuries. So Wenzhou's reputation has not accrued just since China's reform and opening-up policy began in the late 1970s.

Once renowned for light industry and portable products, Wenzhou's entrepreneurs have now built successful businesses, most of which trade internationally as well as nationally, across the full range of manufactured goods and services.

Clearly, the Wenzhou entrepreneurial and enterprise culture is here to stay, so European and US small and medium-sized enterprises and entrepreneurs need look no further than it.

Finding the right partner has always been, and will probably always be, key to success on the Chinese mainland. Smaller companies often find this even more difficult with fewer financial and human resources to enable a thorough search. Partnerships between large and small enterprises are notoriously prone to failure, given the imbalance in power between participants. Wenzhou's small businesses are also acutely aware of the challenges facing smaller companies throughout the country.

Market opportunities will increase nationally, especially in second and third-tier cities. But success in these cities is even more challenging than in the first-tier cities, and flexibility and a suitable Chinese partner are all important.

Wenzhou business partners will prove ideal at decoding consumers and other aspects of the business environment across China's lesser-known towns and cities

Despite these compelling reasons, a note of caution is needed in considering any kind of tie-up with a small business in Wenzhou.

Many of them continue to pursue a low-cost, low-price business model in which short-term profit and speed of distribution dominate. Long-term investment in building premium brands rarely takes place. Hence the vulnerability to even slight downturns in economic conditions and consumer purchasing power.

That means that with European and US export markets struggling, Wenzhou's businesses are in even greater need of a suitable European or US business partner.

Selecting a partner in the city should not just look at financial criteria but at the attitude toward training and adapting to a more modern, brand-oriented business culture.

It is likely that Wenzhou's small companies have been influenced by the dominance of China's largest, mainly state-owned, organizations and their outdated, conservative approach to business. The city's entrepreneurs have not just earned a reputation for spotting a market opportunity but have also demonstrated agility and adaptability in the process. This can be seen in the vast array of products and services on offer.

Possible tie-ups with Wenzhou business partners should not just be seen as an exciting opportunity for joint expansion across China. Wenzhou partners will be extremely interested and able to provide investment in any attractive business opportunity in any market.

The author is a visiting professor at the University of International Business and Economics in Beijing and a researcher at Nottingham University's School of Contemporary Chinese Studies. The views do not necessarily reflect those of China Daily.