Taiwan’s frozen food producer is thriving on the mainland Without the Chinese mainland market, would it have been possible for a small Taiwanese dumpling maker to evolve into China’s No. 1 frozen food brand?
Longfeng Foods Co. Ltd. now has seven factories and 25 affiliates on the mainland, with more than 3,600 employees and a sales network covering more than 50 cities around the country.
In 2005 alone, Longfeng’s sales on the mainland topped 400 million yuan, accounting for 80 percent of the company’s total turnover. Last year, it sold 3.5 billion dumplings on the mainland. At present, Longfeng has a 14 percent share of China’s frozen food market, ranking first among such businesses.
Longfeng was among the first Taiwanese companies to invest in the mainland in the early 1990s.
“Four reasons convinced us to select the mainland as our major market,” explained Longfeng’s President, Hector Yeh. “First, people across the Taiwan Strait are part of the same nation who share the same language; second, we share the same eating habits; third, the mainland has a population of 1.3 billion, and fourth, the mainland in the early 1990s had not been open to the outside world for very long and thus was a market with great potential.”
Arriving on the mainland
With an initial investment of $3.3 million, Longfeng opened a factory in Shanghai, its first on the mainland, in October 1992. At that time, the quick-frozen food industry on the mainland was just beginning.
The Shanghai factory began production in September 1993, with sales of 350,000 yuan in its first month of operation; in the second month sales jumped to 1 million yuan. By the third year, sales exceeded 40 million yuan.
The initial success in Shanghai encouraged Yeh to pay more attention to the vast market outside Shanghai.
In 1994, Longfeng began to sell the products made in Shanghai in Beijing, where the business also proved to be quite successful. One year later, the company established its second production base on the mainland in Tianjin, mainly serving the markets in Beijing, Tianjin and other cities in north and northeast China.
More Longfeng factories have been set up in Guangzhou, Chengdu and other areas since 1998.
In 2000, Longfeng adopted the ISO (Inter-national Organization for Standardization) quality management system for the food and drink industry and the HACCP (Hazard Analysis and Critical Control Point) food safety system. In October of that year it was certified under both systems, becoming the first Chinese frozen food enterprise to do so.
Longfeng considers the development of new products critically important. In the early days, Longfeng’s Shanghai factory only produced traditional “salty” dumplings (jiaozi), but Yeh found that people in Shanghai prefer sweet dumplings (tangyuan). This inspired him to readjust the company’s product lineup by increasing the proportion of tangyuan.
“However, two products are not enough to support the smooth development of the business,” Yeh said. Therefore, the company began to make other kinds of frozen foods, even while its dumplings continued to sell very well.
Yeh also found that people in different regions on the mainland favor different food flavors. In the south, people like sweet food, in the north, salty food, in the east, sour food and in the west, hot. Based on this, Longfeng sells jiaozi in north China, tangyuan in east China and stuffed steamed buns (baozi) in south China.
Each factory has a research and development department, whose mission is to develop products catering to local people’s eating habits. Now, Longfeng produces a wide variety of products designed to appeal to different tastes.
Looking internationally
According to Yeh, many Chinese food products can be frozen, so they are expected to gain more of a share of the international market. For example, frozen bread sticks and clay oven rolls produced by Longfeng are sold in areas with a large Chinese population in Japan, the United States, Canada and other countries.
Realizing that people are paying more attention to nutrition and health, Longfeng is also trying to develop new, healthy products.
Yeh said Longfeng is trying to produce dumplings that can be heated in a microwave oven. “Our objective is to sell our dumplings to Western families, where microwave ovens are seen in almost every household.”
Another goal is to open more fast food shops on the Chinese mainland, so that dumpling restaurants will be like McDonald’s and KFC, offering instant service. Yeh said better living standards and the quicker pace of life mean a promising future for fast-food businesses.
Yeh said he hopes that the “three direct links” of mail, trade and transport services across the Taiwan Strait will happen as soon as possible. At present, more than 60,000 Taiwanese companies have invested in the mainland, and nearly 1 million Taiwanese work and study here.
Yeh believes the mainland can provide great opportunities for Taiwanese businesses. These businesses so far have chosen eastern coastal areas as their base, but China’s western region has abundant resources and business opportunities. Thus, Taiwanese businesses may venture into the vast western region, encouraged by favorable government policies, he said.
“If the ‘three direct links’ become a reality, businesses from Taiwan will become more competitive in the mainland market,” said Yeh.
He explained that many raw materials Longfeng needs are brought from Taiwan, but they have to transit via Hong Kong before reaching Shanghai. The six-hour journey actually can be cut to two hours if there is a direct air link, which will help to save quite a lot of time and money.
Every year, the mainland receives more than 3 million visitors and business people from Taiwan. Direct links are expected to save them 8.4 billion yuan every year. In terms of sea transportation, each year a large amount of raw materials is shipped from Taiwan to the mainland. A direct sea link would reduce the high shipping costs and produce faster profits on merchandise, all of which would help to promote the competitiveness of Taiwanese businesses.
Dumpling Fortune
Longfeng’s President Hector Yeh was born into a poor family in Kaohsiung in 1951. His father was a stevedore at the Kaohsiung port and the sole support of the family. Since cargo handling at that time was done manually, work stopped whenever it rained. Without a stable daily income, the family lived in the shadow of hunger.
During his summer and winter vacations, Yeh worked in a factory run by his brother-in-law, which produced noodles and dumplings. Yeh thus became very familiar with the whole process of dumpling making.
After graduating from university in 1977, Yeh declined the opportunity to work as a computer engineer in a research institute in Taipei because of the low salary. Instead, he decided to sell dumplings in Kaohsiung, where he started building up his own business.
Yeh began making dumplings in his home, and found that he made more money than he would have received as a computer engineer. The business grew steadily, and in 1984 he was able to open a factory, followed by a second one in 1989.
Longfeng became a well-known business in Taiwan in the early 1990s, enabling Yeh’s family to become wealthy. Economic growth in Taiwan began to slow down at that time, however, and Longfeng also felt the negative impact of the saturated market there.
Yeh realized that the Taiwan market was too small and in 1991 he began to look for markets outside the island, such as Thailand and Singapore. Eventually he decided on the Chinese mainland.