Tjaara, a Singaporean startup, has secured a US$20mn trade loan in a bid to connect Chinese manufacturers with Middle Eastern wholesalers.
The finance comes from Senjō Group, a payments systems operator and fintech investor, which also invested US1.5mn in equity in the company. As part of the agreement, Tjaara will piggyback on Senjō’s systems and using its geographic reach.
Initially, though, its target is the Saudi Arabian market, where it hopes to connect SME wholesalers to Chinese manufacturers.
Using a model called consolidated buying, Tjaara uses partners on the ground, such as logistics companies and shippers, to connect it to buyers. It takes the order and pools it with the orders of other, similar companies. This allows it to place a bulk order with a Chinese manufacturer, enabling it to use economies of scale to offer a discount to the buyer, commission to the partner and to take a cut for itself.
GTR spoke to the co-founder of Tjaara, Fred Then – a serial entrepreneur who has been involved with eight start-up companies – to find out more about the company and its ambitions in the trade space.
GTR: How did Tjaara come into being and why did you choose the China-to-Middle East trade route?
Then: There are three founding partners and the idea for the company came from one of our sons, who started helping the other kids buy football shirts over AliBaba. Because the boy spoke Mandarin, he was able to buy the jerseys for his friends and make a few extra bucks for himself.
We saw there was an interesting opportunity there and we started Tjaara looking at wholesalers. As you know SMEs never get the big economies of scale larger retail streams do. For buying stuff from China or somewhere else they don’t get the best prices. There’s also the language barrier with China and lots of other difficulties. That’s how we started. These SME wholesalers have the most difficulty and benefit from a consolidated buying model, which is what Tjaara is all about.
Our first target is the Middle East. When we were looking for our first investment in 2016, we saw a change happening in the Middle East market. In the past they were very brand-conscious. When things were going well, if they were buying air conditioning, they would only go for Mitsubishi, Samsung, LG. If it’s not a brand, they weren’t interested.
But today it’s a different situation. They are looking for quality, but also a good price. They don’t care so much about the brand. In that part of the world, Chinese brands are doing very well now because of the low price point. We were initially worried about the recession coming in 2017, but it seems to be helpful for our business. People are out there looking for a price point, which helps our model.
GTR: How do you encourage buyers and manufacturers to work with Tjaara?
Then: With buyers and manufacturers, making new relationships is sometimes a little bit dicey. The manufacturer often looks for the money up front, while the wholesaler asks for a sample first. The manufacturer says ‘your first 1,000 units is the sample’. These are the challenges the SME wholesaler faces. Because he’s not big, there’s a lot he can’t get. He’s worried about putting his order in: for him it’s big, but it’s nothing to the manufacturer.
We’re seen as the big boy and will pre-negotiate things such as samples with the manufacturer, even to the point of inspection. A lot of wholesalers get excited by our quality controls process: we can inspect the goods when they leave the factory floor, from there to the container, to the port, all the way to the country.
GTR: But you must also be placing large enough orders to interest the manufacturer?
Then: One of the reasons for working with wholesalers and not consumers is that they buy for online and physical orders. So they have much larger orders. As much as we want to be everything to everyone, that’s not really possible. So we are targeting certain market segments; the health and wellness space, childcare, toiletries and, it’s not so glamorous, but we’re doing things with toilet seats and bowls too.
We want to make sure we get a good network of wholesalers in these spaces. The whole thing about consolidated buying is it all depends on the network of wholesalers: you need a larger network for it to work.
GTR: Can you explain how the partnership with Senjō Group came about?
Then: Basically, we presented and the folks at Senjō loved the idea. They’re very focused on Asia and we operate in a part of the world they have an interest in. They also believed in our potential sales volume, which played to their existing strategy of investing in companies that make use of their payments systems. This is a market segment that isn’t maxed out. There are companies in there, but there’s room for growth.
GTR: So you expect to be using Senjō’s payments systems as well?
Then: This is my eighth start-up: having done start-ups already, I know that if you can take a shortcut you should take it. Senjō offers us a good shortcut in terms of payment systems and where they operate. The Middle East is the first market but we plan to hit the US, Europe, and even go back to Asia.
GTR: What will the trade finance be used for, and will you be looking for more financial backing?
Then: Sometimes one of the big issues in this business is that buyers and sellers don’t trust each other. The orders are not small: you’re not talking about a couple of thousand dollars. Easily some of the stuff could be six figures, for a few container loads. We literally have an order for four container-loads of toilet bowls.
Very often in the first few deals of a relationship, there’s not enough trust, so we may need to step in and offer loans. This doesn’t happen all the time, but at the beginning of the relationship when they don’t know each other or don’t know us.
We’ll definitely be looking to our backers for support. Senjō is a very serious investor and we’ll turn to them when we have to expand. And as the business grows, we’ll be looking for other investors. Not just for money, but also for strategic partnerships. That could be if an investor operates in a specific region that can help Tjaara or something like that.