Entrepreneur Kevin McCabe on the rules for doing business in China 24/10/17, 4)32 am

Strategy

Entrepreneur Kevin McCabe on the rules for doing business in China

The Scarborough Group founder on networking, long meetings and avoiding Maotai

Kevin McCabe at the Middlewood Locks development in Manchester © Jon Super

NOVEMBER 8, 2016 by Andrew Bounds

Kevin McCabe is so excited about a new type of coffee he is selling in China that he hands me
a packet to take home to try. The only problem is that I do not have an espresso machine.
“Take one with you,” he says, grabbing a shiny new model from his company’s Leeds office
lobby.

I explain the Financial Times’ strict rules on gifts and the machine is returned. But the
episode goes some way to illustrating the Sheffield-born entrepreneur’s success around the
world: charm, persistence and an impulsive drive to exploit the next opportunity.

Mr McCabe, 68, was one of the first British property developers in China. He travels there
frequently and enthuses about his upmarket Espuma coffee house chain developed with the

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Novell family from Barcelona.

“Do you know how many cups of coffee the Chinese drink on average?” he asks, eyes lighting
up. “Five a year. There are a billion of them, imagine how much you could sell!”

He admits there is competition from Starbucks and other multinationals but is undaunted.
The three Espuma bars are more like restaurants and pitched upmarket with premium prices.

At a subsequent meeting at his office in Manchester — he has them dotted across the UK —
he says he developed his business “by instinct”. “If I have an Achilles heel it’s probably always
wanting to have a go at what’s put in front of me. Did I ever plan for the group to be as varied
and as large as it is? No, not really. Things happen.”

His company, Scarborough Group International, encompasses property interests in

continental Europe, Canada, Australia, Hong Kong and India and owns football clubs
including Sheffield United, his home cityclub, and Ferencvarosi of Hungary.

United — known as “the Blades” after Sheffield’s steel industry — played a crucial part in the
international reach of Mr McCabe’s business.

In 2002 a juice company called Desun from Xian in China made enquiries about sponsoring
United’s shirts — the company did not retail in the UK but English football was shown on
television in China. Negotiations had stalled. “I said I’d go and sort it out myself,” explains
Mr McCabe.

Expecting a drab industrial city, he was astonished by the pace of development there and in
Beijing. He clinched the shirt deal and set up an office for his Scarborough property business
in Shenzhen, a southern city, and another inHong Kong.

It lost a “bob or three” he says, before finding a

suitable local partner in Top Spring, a developer
You spend a long time in
that has worked on 21 projects across China
meetings just grinning
including Hidden Valley, a complex of villas in
while others talk
Shenzhen.

“You need partners who really have contacts at

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government level, can put teams together,” he says.

Sheffield is twinned with the Chinese city of Chengdu and Scarborough Group owns the
Chengdu Blades football club. Scarborough also has a joint venture with the state-owned Avic
group, which operates more than 50 shops in China for Spanish retailer Cortefiel.

According to Mr McCabe, being treated as the token “white man” helped open doors in China.
“You spend a long time in meetings just grinning while others talk.”

Networking is essential to operating in China and it could be several long meetings before any
business is done. But he says it is best to avoid Maotai, the fiery grain liquor that is a staple of
such events — one of his staff makes sure his glass is topped up with green tea instead: “I ain’t
drinking that rubbish.”

Kevin McCabe (centre) visiting the Chengdu Sports Center Stadium in 2006 © Getty
So far, he has stuck to mainland China’s secondary cities rather than Beijing and Shanghai.
Projects include a new suburban centre in Changzhou covering 5.6 sq km. It has a five-star
hotel, large shopping centre, arts and cultural centre, youth recreation centre along with
offices and apartment blocks. In Chengdu the group has built a new office district with
55,000 sq m of offices and 47,000 sq m of retail space.

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Mr McCabe’s partners also include Metro, a listed Singapore developer. More recently he
teamed up with Hualing Group, which is involved in controversial mining projects in the far
northern province of Xinjiang, where human rights groups say the Muslim Uighur minority is
persecuted and there have been violent clashes with police. George Osborne, the former UK
chancellor, was criticised for going to Urumqi, the region’s capital, last year. Mr McCabe says
he has seen no evidence of abuses. The city, he says, is affluent.

Hualing is now investing in housing in the north of England with Scarborough, as is Top
Spring. “The pendulum has swung,”says Mr McCabe, with Chinese companies looking to
diversify into UK investments.

This year Scarborough also formed a consortium with state-owned China National Electric
Engineering for the €230m upgrade and extension of the Loznica gas-fired power station in
Serbia.

It is a long way from Mr McCabe’s start in a property company in Teesside in north-east

England, where he was a director by the age of 25. But, thinking that he could do better
himself, in 1976 he borrowed £10,000 from the Bank of Scotland and began his own business
refurbishing and selling on properties in Aberdeen and Edinburgh.

In 1980 he founded the Scarborough Group, naming it after the Yorkshire resort in which he
lives. The group mainly worked for Bank of Scotland and the two businesses rose together,
with Mr McCabe advising, or even taking over, property portfolios the bankhad lent against
when the group got into trouble.

The relationship became strained during the financial crisis in 2008 when Halifax Bank of
Scotland, as it had then become, had to be rescued from collapse by a merger with Lloyds
Bank.

Mr McCabe had sold some of Scarborough’s assets to Valad Property Group of Australia for
£865m in 2007, picking up about £150m net profit.

But it still had to sell its London properties to pay off the bank. Mr McCabe would not say
how much he owed except the bill was “more than Paul Pogba” the midfielder Manchester
United has recently bought for £89m.

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He has now sold 50 per cent of Sheffield United to Prince Abdullah al-Saud of Saudi Arabia.
But he gets to most games, and such is his loathing of local rivals Sheffield Wednesday that
he orders special diaries with the word removed from every week: “They have Tuesday A and
Tuesday B. I hate Wednesdays.”

His two sons now work in the business. Simon handles property while Scott looks after the
other interests. But he remains chairman and “chief pot and bottle washer”.

In accounts for the year to February 29 2016, the Scarborough Group made a pre-tax profit of
£625,000 on turnover of £59.5m. In the same period last year it posted a pre-tax loss of
£1.4m on turnover of £24.8m. He declines to put a value on the company, which he says may
list in the next few years — but independent estimates begin at £90m.

Mr McCabe believes Chinese investors will continue to come to the UK even after it leaves the
EU.

“One has to say the best country in Europe is the UK. We may have some problems but . . . I
can only think of two strong nations in Europe, that’s ourselves and Germany.”

Second opinion: ‘A true entrepreneur’

Steve Pateman met Mr McCabe a decade ago when he brought his
business to Santander, where Mr Pateman then worked. “I liked him
straight away. He is smart and has built a good business. He takes a long-
term view,” says the chief executive of Shawbrook Bank, an alternative
lender.
Mr McCabe is expert at spotting property opportunities, he said, and
helped Santander develop distressed assets. “He has never let me down. I
have said no when he has pushed me farther than I want to go on lending
and he accepts it. He’s a true entrepreneur.”

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