Georgie Yam – founder and chief executive officer of Dragonfly Therapeutic Retreats – noticed a surprising gap in the sophisticated city’s spa industry after being posted there to represent a line of European hair care products in 2001.

“You could get a massage for 30 to 40 yuan at a roadside parlor with no ambience and no quality control whatsoever,” Mr Yam said. “Or you could spend between 800 and 1,500 yuan for a massage at a five-star hotel. There was nothing in between.”

After discussing the issue in depth with a local employee of the same hair care firm, Mr Yam decided to open a stand-alone spa targeted primarily at expatriates. “I sold her on the idea of a mid-range to high-end retail concept with five star treatments at three-star prices,” he said. “But neither one of us had ever started a business before. Careful planning was vital.”

The first – and most difficult – step was finding a suitable location with heavy expatriate foot traffic at an affordable rent. Then came such issues as obtaining a license, the recruitment and training of staff, and educating staff about the expectations of Western customers. No surprises, for example, was key, and adherence to consistent quality standards was crucial. “I truly believe that everyone must have the same technique so that if customers cannot get their favorite therapist they can still experience a massage that is at least 95 per cent the same,” Mr Yam said. “I personally test each therapist to make sure that they can do this.”

When it came to decorating the retreat, special attention was paid to creating the right ambience. The five Chinese elements – water, fire, metal, stone and wood – were all carefully integrated into the design. There would be spa music. And TV was absolutely out of the question. Customers would even be forbidden from using their mobile phones within the premises.

Because Mr Yam was introducing an unknown quantity to an untested market, marketing was a challenging issue. “No one had ever heard of us,” he said. “I spent a lot of time thinking about this. I finally decided on co-marketing the spa with established brands.”

Approaching relocation companies, travel agents, retail shops and restaurants, Mr Yam found that not everyone was willing to risk their own reputation by cooperating with a neophyte. In the end, he found some upscale restaurants – mostly French, Italian and Japanese – that allowed him to put vouchers or postcards on their tables. Under the system, diners spending a certain amount at the restaurant would be entitled to a free massage. “We attribute about 40 per cent of our business during the first four months to that scheme,” he said.

Other promotional strategies included direct marketing to law firms and consulates as well as using VIP lists. Advertising was also placed in English and Japanese language magazines targeted at expatriates. “It was very expensive,” Mr Yam said. “We spent about 90,000 yuan a month on advertising alone.”

After graduating from high school in Hong Kong in 1977, Mr Yam left for London, where he studied at the Vidal Sassoon School of Hairdressing. Upon graduation, he worked at a Sassoon salon in the city until 1980. He then moved to Singapore, where he was involved in a number of salon projects. He moved into spas in 2000, helping to set up spas at two five-star hotels. He moved to Shanghai in 2001.

Mr Yam must be doing something right. He opened his first Dragonfly outlet in early 2003 in Shanghai’s former French concession. It took just eight months to recover his initial investment. Since then an additional ten outlets have been opened in the city. There are also three branches in Beijing, one in the historic Chinese city of Suzhou, and one in Oslo, Norway. There are plans to expand into other European cities mainland Chinese cities as well as Hong Kong.

“Mid-term we are looking to build the Dragonfly brand into worldwide chain of retreats with an Oriental touch,” Mr Yam said. “In the long term I see three options. The first is to grow the company ourselves, making our staff partners. The second is to sell to a multinational looking for an established mass customer base. The third is to have the company listed on the Hong Kong stock exchange.”