Real Estate Matters | The dirtiest word in Macau; Diversification The impossible task…

Juliet Risdon

We published an article in February this year that touched on the issue of diversification and what it means to Macau.
Diversification here means creating services and products not directly dependent on or related to Casinos. Make no mistake, diversification in Macau is almost impossible under the current circumstances.
Why? A small business in Macau needs 5 things in order to establish itself.

1. An entrepreneur to conceive, create and launch the business
2. Money to fund the business
3. A place to start the business
4. People to work in the business
5. The ability to anticipate bureaucratic government requirements

Anyone who has ever tried to start a business knows how hard it is.
Want to start a restaurant in Macau? Well you may be confident that, as an award-
winning chef, you stand a better chance than most. Now you have to find the money.
In other countries, go and talk with the bank. In Macau, the banks will not fund a new business.
They already know what the outcome will be in 95% of the cases, so they don’t lend money to new business.
BUT, money is arguably relatively easy to solve in Macau, and credit where it’s due, the government do attempt to support small business financially (quite possibly the ONLY way in which they truly support small business).
Anyway, lets say that you find someone who has more money than sense, and likes your cooking. He agrees to put up some money.
Now the fun really starts. You need premises.
Rents are very expensive, and landlords know that once you have spent a small fortune fitting out the place, they have you over a barrel. Every renewal the rent is going up.
In business school across the world, a rule of thumb is that rent should be a maximum of 10% of your revenue. Good luck.
If you overcome this hurdle, you still have the most difficult challenge. You need people. Where are they going to come from? The 1.9% unemployed ? No. What about some work permits? Sure, how many Macau ID holders do you already employ…?
If, and it’s a huge ‘if’, you have now managed navigate your way through the minefield described above without ‘blowing up’, you can now enjoy the administration process.
Your premises will have to obtain a license, which will require inspections. Oddly, you will not be able to obtain a comprehensive list of requirements beforehand. Thus you will have to hire an architect, a lawyer or consultant to work on your behalf…
Anyone who has inside information on the ‘process’.
During the application period, the submission of documents, forms, supporting evidence, personal information and everything else that is required, no business can be done. Rents must be paid, staff must receive a salary, but no income.
How long can it take? Sometimes, with a little luck and the right person working for you, it can be a matter of weeks. But mostly, it takes months. This does not take into account the ongoing requirements of each industry.
The energy of the entrepreneur should be on the business. In Macau, it is fighting bureaucracy.
As we pointed out before, it is worth bearing in mind that it’s easy to be critical, especially in hindsight when everything becomes 100% clear.
Forecasting and solving issues proactively is far more difficult and goes mostly unnoticed since ‘problems’ are solved before they hit the radar of the general public. However, Macau will need to improve its systems dramatically if it wants to diversify the reputation.

Options and possible solutions (in no particular order);
1. Use public land to create a subsidized retail and commercial space to allow new business to launch and test for a finite period of time, two years for example. Business must move after the fixed period, and if it cant work in that period of time, there is no chance of it going further.
2. Spouse dependent work permits. Macau has so few resources, why let those at its disposal go to waste? Secondary work permits for spouses would allow those people who are currently here going crazy to work. Making the work permit on the primary permit will mean that the person cannot stay independently, but at least they can work whilst they are here.
3. Realize that poor service is a major reason for non-returning customers. When staff are not motivated to do a great job, the company and service levels both suffer. Over protection of jobs creates a dangerously indifferent workforce and service levels suffer. Instead, why not operate a dual tax and benefit system that heavily favours Macau ID holders and encourages employers to look for ID holders FIRST, but also makes it easier to employ work permit holders at a higher cost.
4. Look at Government admin procedures. Closing down a businesses during a license renewal period KILLS the business. Issuing a temporary license with a time scale for obtaining a new one does not. Eliminating moronic and idiotic, anti-business administration practices will go some way to change the reputation of Macau from a laughing stock to a place that at least WANTS to be taken seriously.

Juliet Risdon is a Director of JML Property and a property investor.
Having been established in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

www.JMLProperty.com
info@JMLProperty.com