Asian Markets and Strategic Transitioning Away from China - with Pilar Dieter

7 mei · Asia Business Podcast

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Full show Transcript below Summary and Timestamps

Overview

In this episode of the Asia Business Podcast, host Art Dicker interviews Pilar Dieter, CEO of YCP Solidiance, an Asia-focused strategic advisory firm. They discuss the challenges and opportunities in the Asian market, focusing on China’s decreasing foreign direct investment (FDI) and the strategies for diversifying supply chains due to geopolitical tensions and supply chain resiliency. Pilar provides insights into the factors leading to net capital outflows from China, the impact of global perceptions on investment, and the shift toward domestic consumption driving growth in China. The conversation also covers the trend of businesses de-risking by moving operations from China to Southeast Asia, India, or nearshoring to places like Mexico, and how YCP Solidiance facilitates this transition. They delve into industry-specific shifts, the increasing interest of Chinese companies in outbound investment, and the importance of strategic and post-merger integration services in navigating the complexities of the Asian market. The episode wraps up with how companies can reach Pilar and YCP Solidiance for strategic advice and support.

Timestamps

00:00 Welcome to the Asia Business Podcast with Pilar Dieter

00:57 Deep Dive into China's Business Landscape

01:49 Navigating Supply Chain Resilience and Diversification

03:21 The Future of Foreign Direct Investment in China

06:05 De-risking Strategies for Global Supply Chains

11:20 Exploring New Markets: The Shift in Asian Investment Patterns

23:09 The Role of Strategic Advisory in Global Business Expansion

28:07 M&A Trends in Asia: Insights and Opportunities

36:03 Closing Thoughts and Contact Information

Transcript

Art: [00:00:00] Welcome everybody to another episode of the Asia business podcast. I'm your host, Art Dicker. And today we have the true pleasure of welcoming Pilar Dieter. She is the chief executive officer at YCP Salidians. YCP Salidians is an [00:00:15] Asia focused strategic advisory firm with 17 offices worldwide, predominantly in Asia.

Art: Welcome, Pilar.

Pilar: Thank you, Art. It's a true pleasure to be here. Thanks for having me.

Art: Yeah, we've talked about [00:00:30] doing this for a while now. And we both had recent visits to China. And so I think we've got plenty to talk about. We're gonna I think China is going to be a big part of what we talk about today.

Art: But as we said at the top, your firm is a big presence all throughout Asia. And I think it's [00:00:45]going to be interesting to do a bit of comparison between different parts of that region and see what's going on. So I'm happy to get into it today and really looking forward to it.

Pilar: Absolutely. I'm looking forward to the exchange as well.

Art: Great. Let's off maybe with With China. And I [00:01:00] know you guys work a lot with the sort of the top fortune 500 companies there. But also you work with them throughout Asia and beyond. And we've seen a lot of statistics come out lately where looking at the net capital outflows from China after [00:01:15] years and years of inbound investment increasing year after year.

Art: And do you see that trend reversing anytime soon? And if so, the trend of the negative outflows, negative inflows, I should say. Do you see that trend reversing [00:01:30] anytime soon? And if so, what sectors might it reverse in?

Pilar: I think the way to determine whether or not this is something that would reverse is it's first important to understand why that F.

Pilar: D. I. into China has decreased over the last few years. So there's a couple, [00:01:45] I would point to three things. Two are obvious, one might be a little less obvious. So I would point to number one, really the supply chain resiliency move. This concept of. Diversifying supply chains. This isn't a sudden thing.

Pilar: We can track [00:02:00] this back to really 2016 2015 era, even before trade tariffs were starting to come into play. So a lot of conversation around why diversification matters in supply chains. That's 1 of the reasons that you're starting to see a little bit of that [00:02:15] decline in F. D. I. The other one, another obvious element is the geopolitical tension.

Pilar: Lots of media attention that's driving and easily influencing the way that U. S. corporations or multinational corporations are really viewing China with a bit [00:02:30] more of a fine tooth comb before making really readily decisions to make big investment into China because of the beauty of the growing market and the size of the market.

Pilar: But I'd say the third and maybe less obvious. Point that would be directed to why [00:02:45] FDI in China is decreasing is when you actually talk to some of the bank leadership in China, they will actually point to a decrease due to companies moving liquid capital out of China as a result of interest rates coming down [00:03:00] markedly And that, I think, when we looked at what was happening during COVID times, China interest rates were obviously quite high compared to other countries, making it a little bit more of an attractive play.

Pilar: So now, with the decrease continuing that seems to be something that [00:03:15] others, especially domestically or regionally, that I was talking to when I was in Shanghai a couple days ago or weeks ago were also pointing to. But to your point about, Given these realities of why FDI has declined, do I see this trend reversing?

Pilar: My short answer is [00:03:30] no, not in the short term and for the USA, most decidedly, not in this election year. The two main reasons I would point to for this, though, would really be, while China still would like to maintain strong performance on [00:03:45] investment, when GDP numbers and their aggressive growth target of 5 percent that's been stated by Xi Jinping.

Pilar: What we end up seeing is the investment lever of GDP is something that has been a big driver for them achieving their growth rates. But at this point in [00:04:00] time, the investment lever is taking a back seat. To some of the consumption activities that they're trying to really influence and push.

Pilar: So I would say, looking internally in China, they're really going to be focused more on domestic consumption to be able to drive that [00:04:15] growth. And then the second reason why I would say that the trend might not be reversing, at least within this next year, Is US companies are just continuing to face more scrutiny within their own organizations.

Pilar: Whenever I see clients trying US [00:04:30] clients in particular, trying to make decisions on deeper investment in China, whether that's through acquisition or through basic investment into greenfield or brownfield plants, or even finding new supply base that might actually be Chinese based. [00:04:45] It's coming with a very high higher bar in terms of scrutinizing whether or not it's the right partner.

Pilar: So bottom line not reversing I would say within the foreseeable future being at least 12 to 18 months out

Art: Yeah, and I'm [00:05:00] sure you got this question a lot when you visited China as well, both even from friends and business people in China, asking you maybe when, when do you think things will get better as far as the investment there and stuff.

Art: I certainly got that. I just got back and got that a lot. [00:05:15] And I agree. It's part of it is it's. It's perception and reality, right? The reality is the Chinese economy is not doing well. And so that probably, as you said, might be the biggest factor, even beyond anything we read about in the news [00:05:30] and the headlines and the politics of of of, not great relations between the U S and China right now.

Art: And at the same time I hear what you're saying too, with some of my own clients getting internal pushback for any, anything that, you know, because, and again, [00:05:45] that might be more of just as much perception of what they see in the headlines of the wall street journal or whatnot, and say why are we investing there more?

Art: I thought it was getting harder, whether or not that's true or not. That's at least we can say that perception is there, and that's not going to help make [00:06:00] that fight any to get increased investment any easier internally, like you said. You see then, I guess it goes without saying that companies are de risking from China and moving either to Southeast Asia or India, if [00:06:15] it's manufacturing or even coming back closer to home let's say, Mexico.

Art: Do you, are you actually with, internally at your firm trying to position yourself? As a bridge for that that de risking, where clients say we've [00:06:30] really valued all the advice you've given us in China we see you have offices all throughout Asia.

Art: How have you guys been helping clients through that process a lot recently?

Pilar: It would be relatively [00:06:45] relatively easy to say absolutely a hundred percent. I think that it wants, we want to caveat this a bit because I think the question oftentimes when our clients come to us and say, hey, here's our direction.

Pilar: We've decided we need to de risk or sometimes the [00:07:00] terminology becomes anti fragility and that concept really means putting us putting our company or the client in a state where we are not subjected to the exogenous effects of any global economic player. [00:07:15] That could impact our business so detrimentally.

Pilar: So put another way. Make us bulletproof, help us figure out what can we do, whether it's, taking these out of China and putting them into Southeast Asia, bringing things [00:07:30] nearshore, reshore, friendshore, back over to Mexico. Those are the common go tos. But what we have found is it helps to actually bring the client before they come to us with, here's our decision.

Pilar: We want to take factories or [00:07:45] take suppliers out of China and move them to somewhere else in the world. We say let's take a step back and try to understand what is your objective here? And a lot of times when you really peel those layers back, what you're starting to hear the client say is we don't want to have another [00:08:00] COVID impact our complete business.

Pilar: We also don't want another, whether it's a pandemic or it's a landshoreman strike in Los Angeles, or it's some kind of labor union strike in Europe, or it's pirates [00:08:15] in the Panama Canal, all of these global realities is what's causing us to reconsider. Are we securely operating and supply chain is the natural 1st place to go.

Pilar: When you hear companies jump immediately to, we need to. [00:08:30] de risk and reshore. I think those can actually they're not mutually exclusive, so when you can separate them, you can actually unpeel a lot more on this de risking piece as opposed to the reshoring piece. But to come back to the [00:08:45] specifics of your question, are we seeing clients wanting this?

Pilar: Yeah, definitely. We have one client, for example, in Furniture manufacturing, right? So a sector that is very well entrenched in China, they had been sourcing probably 70 percent of [00:09:00] their products out of China maybe doing some sub assembly in places like Mexico, and this was an American company and what they decided, and this was probably about a year or two after COVID lockdown ended and they said, [00:09:15] we really want to figure out a way to.

Pilar: Bring this back home. So we want to double down on our investment in Mexico. Now, as you rightedly pointed out at the onset, we're more of an Asia based firm, but because we recognize the need for this [00:09:30] kind of pivot, we made a small investment in Guadalajara, Mexico, where we now have a small team that supported specifically these kinds of requests.

Pilar: And this example on the furniture company is not, is only one, but I think it highlights the point where we took this [00:09:45] client and said Okay. What are the components or products that are coming out of China for you? We did the cost arbitrage of which products were the most expensive to relocate versus those that might be easier to relocate and wouldn't disrupt their supply chain too dramatically, but bring them additional cost [00:10:00] savings.

Pilar: And in doing that, we ended up going through a, an MNA process in Mexico to help them find not just suppliers, but actually some manufacturing footprints that they could. Absorb and take over and move on. So in that example, I would argue that it [00:10:15] wasn't so politically driven. There wasn't the motivation was more on cost management.

Pilar: China is no longer the cheapest place to source furniture. Not to say that Mexico is significantly cheaper, but when you put the landed cost calculations into play, [00:10:30] you do start to see. Some benefits there.

Art: Yeah. And shipping, like you said, the risk of factory shutdowns, that's not necessarily a political risk.

Art: China, I guess everything can be somewhat political but that's the, The supply chain disruptions, [00:10:45] that, that's something that is maybe wasn't as much of an issue, but you're seeing your clients and helping your clients price that additional risk into their calculations and then it's at a place like Mexico makes more sense.

Art: I wonder if that's going to be, or, if you're seeing that as a trend for not just. [00:11:00] traditional multinational companies, American or European based, but even Asian companies and even Chinese companies realizing, Hey maybe this whole, the potential for supply chain disruption, obviously it affects our business as a Chinese manufacturer just as [00:11:15] much.

Art: Maybe we need to diversify our own supply chain out into other parts of the world. And are you seeing that directly or indirectly? And how would you describe that phenomenon?

Pilar: Yeah, I would. And I think it's very industry specific. So [00:11:30] what you find is when these companies that are the larger players decide to make any kind of further investment outside of China, their ecosystem that they have spent decades truly building up in China, which is what makes China such a [00:11:45] beautiful manufacturing prowess because they did masterfully put together complete communities really in certain industries that would be pockets for Supporting those large manufacturers take.

Pilar: Automotive is the easy go to [00:12:00] example. So when you have the large, the starting point of those big companies saying, okay we've been manufacturing in Chongqing for decades, and all of our component suppliers are conveniently just [00:12:15] kilometers away from us. We now are going to make our next investment.

Pilar: We're not shutting anything down. We're not moving anything away, but we're making our next investment in Fill in the blank, Vietnam, India, Indonesia, wherever. And as a result of that, we are asking you, Mr. [00:12:30] Supplier, to make a move as well. Are we seeing this mass exodus of complete comprehensive supply chains not evacuating China and moving elsewhere, but making their further investment overseas?

Pilar: Yes, I would say that from our firm's standpoint, [00:12:45] we're seeing an uptick in the inquiry. About how to make that possible. We also have seen an increase in our clientele mix. Normally our clients were predominantly Western clientele with certain. A lot of [00:13:00] Japanese and a lot of Indian domestics also as our key clientele, but not so many Chinese.

Pilar: Native domestic clients up 2 years. That and their inquiries are all about export opportunities. Where can I [00:13:15] be outside of China that can also be a market opportunity for me to serve these customers that have always been part of my ecosystem and are now possibly opening up a whole new market for me to be a part of?

Pilar: So I would say that we [00:13:30] are seeing that as far as the companies that we're finding, looking for overseas, going outside of China Japan is another one. So we at YCP, our founder is Japanese. We were born [00:13:45] in Japan. We are publicly listed and traded on the Japanese stock exchange. And our largest revenue contributor in terms of our firm is our Japanese office.

Pilar: Given that I'm now coming at you with a perspective of the [00:14:00] Japanese mindset and what their businesses are starting to do and looking at the Asia, Asia picture. And when they look at that Asia map, a lot of our Japanese clients are starting to have an elevated focus in [00:14:15] expanding artifi, not China.

Pilar: There's a Japanese India corridor that's starting to open up. You can see with Kishida just here last week all of the increased investment ambition that they have, that Japanese have for for the U. S., which [00:14:30] is not to be understated. And really what you're finding there are some very salient examples that we work in more in the retail and consumer goods categories, as well as food and beverage, that these Japanese companies are seeking [00:14:45] outbound opportunities.

Pilar: Amen. And I'd love to hear your thoughts on this to art, but I think one of the One of the examples we have with some Chinese companies, and I'm going to give you to illustrate how Chinese [00:15:00] companies without that whole ecosystem example, I laid out in the beginning on the automotive case, but how some Chinese companies are starting to view outbound investment.

Pilar: And. The first thing I would highlight is one of our clients is in the artificial intelligence and [00:15:15] technology sector, and clearly, AI plays a very sensitive role, especially when you're talking about Chinese AI looking to invest outside of China. But in this case they, we are working with this company to find joint venture partners [00:15:30] because their ambition to get out of China is exceptionally high because they are worried that the market cap in China is already too low for them as well as already quite inundated with domestic players that have more [00:15:45] government influence. The 2nd indicator I would share with you. The 2nd client I would share with you is no surprise in the energy sector, a solar panel manufacturer in China. Who is eagerly exploring where they can be moving [00:16:00] to in what markets are going to be welcoming and accepting of their equipment and products.

Pilar: In the US and Europe. So couple that with a lot of the, you have Janet Yellen just recently returning from her visit and making a very pointed [00:16:15] statement about no anti dumping. We don't need your overcapacity problems to influence us. And solar panels is right up there on the list. So this is an example to where you can see the overcapacity element, [00:16:30] which is a structural challenge.

Pilar: China has is another factor. That's going to play into more Asian companies seeking those outbound investment opportunities. I would say.

Art: Yeah, that mirrors like you alluded to that that mirrors what I'm seeing too. What you [00:16:45]described is in your role as a strategic consultant is very similar to my role as a legal consultant.

Art: It's that, that shift from have starting to see Chinese companies have more and more interest to go outbound and needing professional advice. [00:17:00] And, willing to pay for that professional advice, which is, was not as in the old days was a little bit harder. So that's an an interesting development.

Art: And I also think that the similarly, like clients are coming to the U S or out of China, not [00:17:15]so much because because as you said, China is so competitive, right? And so it's actually. Maybe the second example you use is better with the solar panels or where there's a more less competition and more.

Art: There's at least some margin to have in the US being a high [00:17:30] margin place for a lot of different products still compared to China. That seems to be the biggest push that I've seen for companies as well.

Art: And it's interesting you mentioned the AI case. I totally get that. That's. Yeah, that for a lot of reasons, I could see that there be there would [00:17:45] be limitations on what they can potentially, their ceiling in China, what they can do there.

Art: And so that makes if they have the fundamental technology that may totally make sense that they would be looking to move out or sooner rather than later. Yeah. And it also begs the question where, you know, The whole [00:18:00] domicile of these companies and, like moving around, is it Singaporean companies and Chinese company?

Art: You can, of course you can say the same thing about U. S. companies, right? That so many multinational quote U. S. companies get less than half their revenue from the U. S. And so [00:18:15]what does that make them, right? So many French. Fashion companies make much more money in China than they make in Europe.

Art: So are they a Chinese fashion brand or are they, L'Oreal or something like that? Certainly if you ask them, they would never say so, but knowing some people that work at L'Oreal [00:18:30] but yeah I, it's, And I guess that gets to my, my, my next question, of the the solar panel example and the potential for dumping anti dumping countervailing duties on on exports to the U S and [00:18:45] E and EU potentially, how much, cause that's so much of a must be so much of what goes into your analysis of, for your, and advice for your clients.

Art: Do you ever, Market that as [00:19:00] it's not necessarily like a standalone like service Hey, we also offer this political risk advisory bucket of us as a service, or it's just always part of what you do. You don't have to break it out as a separate kind of business line or separate cut because there are firms that's [00:19:15] clearly this do that, right?

Art: So I don't know if you're thinking of integrating that kind of a service into what you already do.

Pilar: Yeah, I wouldn't say we do it to the degree of the risk factors that a company like control risks, for example, might do, or even a law firm [00:19:30] like yours. But when you talk about a go to market strategy, you will oftentimes find that the pestle analysis and what's going on with, political instability and perceptions of a Chinese entity coming into a certain [00:19:45] market. What? How will that withstand the test of time and built on that macroeconomic perspective on the industry and that market we then go ahead and build out some of the detailed strategic plan of how do you bring your product to [00:20:00] this market?

Pilar: Who are the distributors? What's the channel? Who are the customers? The competition? Typical strategy engagement. What I will share, and I think that this is actually quite fascinating, is I recently had a Chinese client who was exploring the [00:20:15] U. S. market, and they asked us, as part of our go to market roadmapping, and again, like I shared in the beginning, We aren't extensive in the U.

Pilar: S. But when we have Chinese clients who are working with our China team, and they have a U. S. element, they bring in our small team in the U. S. [00:20:30] to help them with this. And this client on a call, Chinese executive said, now, tell me when we're going through the site selection phase of this project.

Pilar: We really need to understand what regions in the U. S. are [00:20:45] amenable to working with Chinese people. very much. And where are the risks the highest because of gun policy, these were, it didn't necessarily take me back, but it just it was not a typical question [00:21:00] when doing these kinds of risk analyses and.

Pilar: Ability to work in a certain country, those are things that you just don't think of people being so concerned with, but it was a legitimate fear and a legitimate. Component that went into the decision [00:21:15] making process for this company of where do we even want to go? Is it Texas, Alabama or Minnesota?

Pilar: And. The reasons we're not just, an Excel spreadsheet rationale of a cost savings benefit analysis. So it comes into a lot [00:21:30] more of the social factors of how these. Foreign companies are starting to invest to

Art: well, that's interesting. I have, I don't know if I've heard exactly that kind of a question, but I have heard that kind of it's I'm no longer [00:21:45] surprised if that came up either in a client inquiry, you and I probably think why is that so relevant?

Art: We're not to diminish the, not to diminish that there is a real, Problem there with crime and gun violence and all of that sort of thing, but wouldn't necessarily. Yeah, [00:22:00] you and I wouldn't think of that as being a material factor in deciding, like you said, site selection. But yeah,

Pilar: more generally,

Art: yeah, things have changed.

Art: There's a couple things there. One is I think there's probably a sensitivity more broadly to, [00:22:15] especially from Chinese companies or any international companies of how they'll be perceived in the local community, right? And so culturally they'll fit in. And so for that, so that's relevant. Whereas maybe we wouldn't think that should be relevant.

Art: But these days, it maybe it [00:22:30] is. And so some states, like you said, Texas might be a little more open these days to foreign to, to companies coming in with foreign investment than others. And then you've got, That's would go back to what we said more at the top of this whole perception [00:22:45] versus reality.

Art: Again, got crime and gun violence is definitely a problem. That's that is a reality. But maybe the perception in, let's say, China of how bad things are in the US, it could be even worse. So that we're [00:23:00] all somewhat of and we're the same way here. We're all a bit of a victim of. Where we get our information from, right?

Art: So

Pilar: absolutely.

Art: Yeah. I was, cause, cause I've, I, we've talked about some of the clients that you've worked with anonymously. We've talked about some of the [00:23:15] clients you've worked with before since stories I've heard one to one talking with you over coffee, but I thought it would be great if you could share with our audience any more specific examples of.

Art: How you walk the client through the whole process, [00:23:30] right? Because I think What you do, of course, is very valuable, but still, there's probably, and I expect, especially with Chinese clients, there's still some, a bit of a learning curve for them. On how the value they get from working with you.

Art: So I'd be curious [00:23:45] how you what's the typical process, especially for a new client coming on board, how you help them solve the strategic problem.

Pilar: Yeah thank you for the question. I think. With the clientele makeup that we have, as I mentioned before, Western clients, and I put [00:24:00] Japan in that bundle and let's just for argument's sake, put India in that bundle too, probably represent about 80 to 90 percent of our clients.

Pilar: So our volume of Chinese clients is small, but growing mightily which I'm very proud of. So taking it from the perspective of [00:24:15] that larger massive clientele who come to us, they typically come to us and their problem statement is, I need to grow. The only region geographically that's growing for our industry is Asia Pacific.

Pilar: Help me figure out how to crack [00:24:30] that. And many times, especially with multinationals, they've got a very solid footprint already. It's not as if they need the one on, what is India's GDP and population? What they're really after is, you know, help me [00:24:45] understand how to compete locally, and this is becoming more and more relevant for our China clients as well.

Pilar: So the kind of services that they are looking for that we often are being asked to support them in is both [00:25:00] formulating that strategic plan. And then actually delivering it, so what that turns into is sitting down with the client and saying, let's get a both an inside out and an outside in perspective.

Pilar: Let's understand your business operations, [00:25:15] understand your business model. Look at what your core services are. How do we expand that core and grow beyond it? Whether that means other products, other geographies, other partners, and then how do we even go well beyond that core for the [00:25:30] future, 10 to 15 year vision?

Pilar: And that might be, going into something that is so foreign to what they are today. If they're an HVAC company, for example, going beyond the core might mean, okay, let's go from, Heating and venting and just air conditioning units [00:25:45] into something like building security. That's adjacent, but then what would be way out there?

Pilar: Maybe we can start getting into, artificial intelligence for temperature controls in cities where [00:26:00] climate change is affecting the way in which those the air quality and pollution is working. But, that's moonshot. So we, they come to us and say, how do we grow the core, expand the core and go well beyond the core?

Pilar: And what are some of those immediate? [00:26:15] Activities that we need to take on. So those initiatives take anywhere from, 2 to 4 months and it's very intensive because like I said, inside out means we talk with client outside in means we're going out and doing field research. So we're speaking with their [00:26:30] customers and competitors to really get a perspective of the market, because as I like to say, to my clients, your opinion on what you should do while possibly interesting is totally irrelevant.

Pilar: The market is what matters. So we're always [00:26:45] telling our client. You have to understand what your customers are after and where they're going instead of just forcing your opinion, which is probably very closely aligned to be fair, but you really need that outside in. Once we have that whole [00:27:00] map identified, we build out the whole execution plan.

Pilar: We then go into delivery mode and that delivery mode looks a lot like a business transformation exercise. It's. Activating anything from a sales and marketing [00:27:15] perspective. It's implementing some organizational changes, adopting a new digital strategy and technology innovation program within that company as well.

Pilar: And that's all done under kind of our guidance and leadership to carry that through. And that's really [00:27:30] where the value is. We have a tagline that you'll find on our website that's called Strategy Delivered. And that's exactly what it is. It's the delivery of that strategy or a strategy they've already defined elsewhere.

Art: Got it. Okay. [00:27:45] That's fantastic because I, I can I can tell just by going on the website that you have these wonderful testimonials, which I'm sure it didn't take too much prodding to get from your clients because they've seen, they all seem quite happy with the work that you've done at this.

Art: That's what [00:28:00] struck me as I don't see many firms with that many amazing kind of testimonials on their site. So it's just a tribute to the work that you guys do. And the last thing I wanted to touch on because I know speaking of your firm, I know historically so much of The work that you've done over the years has been M.

Art: N. A. [00:28:15] Related and, and the testimonials also speak to that. So I wonder if you could comment a bit about obviously M. N. A. or globally has slowed down. As you mentioned, the interest rates changing, increasing over the last few years, and [00:28:30] I'm sure that's 1 of the primary factors. D.

Art: What are you seeing? Any trends in the region as far as M. N. A. Activity and. And who is active and who and how things may or may not change in the near future.

Pilar: Yeah, no, I think you've hit on [00:28:45] it and just, 1 of the things I was looking into is just as far as Chinese M& A deals and how they have slipped.

Pilar: It's been pretty severe. So when you look at M& A deals in 2023, they were at about 2, 500, according to [00:29:00] S& P. When you look at 2022, the year before, they were. At 2, 598. There it's just, it's a small decline, but it's definitely directional and going in that area. And in 2019, they were the lowest for [00:29:15] the whole decade at.

Pilar: Just at 2, 500 this seems to be the sweet spot number for the last 5 years. What. We anticipate is we do see a little bit of uptick in our M and a practice. But it is, again, industry [00:29:30] centric, so some of the categories where we see it is energy. So some of our clients in the energy space, whether it be oil and gas, new energy, battery storage and energy transmission and then also on [00:29:45] the telecom media and technology, the sector that seems to be driving as well.

Pilar: There's also, in terms of our anecdotal experience, automotive, we're seeing quite a bit, and we would actually bundle the EV piece under there, more so [00:30:00] than energy, but on that mobility piece, just to give you a case example, we are working right now on 2 separate deals tied to China, and it's 1 of them is, On the buy side, the other on the sell [00:30:15] side.

Pilar: So on the buy side, it's in the automotive aftermarket, and this, sheds light on foreign companies open to and willing to invest in acquiring Chinese players. Not opposed to finding a Chinese [00:30:30]company that would be a good fit from, A product standpoint for export, a product standpoint from getting deeper into the market.

Pilar: So it's to hit both. The valuations

Art: are probably pretty attractive these days, especially for Chinese. That are pegged to the Chinese [00:30:45] capital markets for P ratios and stuff, so forth.

Pilar: Exactly. Exactly. And then, on the sell side example, we've got one company that does have a plant there and in.

Pilar: Latin America, and they are in the process [00:31:00] of trying to explore not for geopolitical reasons, purely just owner ready to exit. They are also looking to explore potential buyers from anywhere in the world, and they have their hypothesis is we believe the buyer should be a Chinese buyer. [00:31:15] And that's been an aggressive play on the sell side.

Art: And, for those kind of I'm curious how you work with folks because a lot of these companies in Asia that you might be working with and are acquisitive [00:31:30] in these days are they green at all? Do you have to walk them through more of the process as far as, how you, you think about going about a deal and on, then on the backend, getting ready for the, the post merger integration.

Art: How has your team traditionally [00:31:45] helped companies, let's say maybe that are a little less experienced in M& A.

Pilar: Yeah, there's, there is a bit of the not just on The tactics of acquisition and deal transaction, but also on the on the landscape of the markets that we're [00:32:00] talking about.

Pilar: So sometimes when the remit or the mandate is a pan Asia, and we showcase Indonesian company, a Thai company, a Chinese company, and a Japanese company, there's a separate section outlining, here's a Japanese. [00:32:15] that you need to be aware of on top of, everything else. So that's something to be thinking about with regards to helping companies do this.

Pilar: It's actually quite common that the individuals within these organizations that are working [00:32:30] on these deals come with enough background in, in transactions, whether they're bankers themselves and they've just gone in house. Or that they've done deals within the company before and they just get it.

Pilar: Or a third example is they may be private equity owned. And so they're [00:32:45] having the PE guys get involved in the project. So either way, the amount of education possibly needed and how the transaction works isn't necessarily something that we're finding ourselves having to do. I will share though, that on the post merger [00:33:00] integration, that's a key core competence of ours.

Pilar: And that's, Essentially, when you look at our founder and I started, I gave you that whole Japanese background, but our founder, Japanese gentleman by the name of Yuki Ishida, he actually is former Goldman Sachs guy. [00:33:15] So he's Columbia university educated, spent a lot of time in the States, but has that knack for investments.

Pilar: And so when YCP was first started, it was all on the concept of Taking M& A deals [00:33:30]and then helping them implement and integrate and realize the synergies that they went after in the first place. So we go through and do PMI all the time with clients. And what I think is most telling is we ourselves are quite acquisitive and [00:33:45] having done, on record, I think we've probably finished about.

Pilar: three, maybe four deals in the last two years. So we ourselves walk our talk. We have a very structured methodology. How does the first hundred day plan go? How many BD [00:34:00] interactions do you have? What's the HR and the closing activities? So it's it's kind of part of our DNA. But when talking about, what are clients doing in China right now with regards to M& A, I think that there is definitely heightened interest again and it's [00:34:15] encouraging to see because, like you said, the valuation is there, but I would argue that it's probably some of the smaller sized companies that don't have to go through so many hoops to jump through in the boardrooms at your fortune fifties, where they've got a little bit of a concern around [00:34:30] making deeper investment in China.

Art: That makes sense. But no, nevertheless, you guys are well positioned I think, I would guess, especially because you have your DNA in Asia and the deep experience there and that focus there. I imagine the PMI is, so much of it is [00:34:45] just as much kind of the cultural integration as it is anything else, and that put, I can't think of anyone, more focused than you guys on in Asia.

Art: So I think that's probably, it's another thing that makes you guys stand out. To help on that part of the process.

Pilar: [00:35:00] Thanks.

Art: Yeah I think. Pilar I think people listen to this, there's going to be no shortage of people that want to reach out and it could be anywhere from an inquiry, about potential, potentially helping them or or, other ways to work with you.

Art: What is [00:35:15] traditionally the best way people can reach out to you? Is it LinkedIn or go to the, your website or how should people contact you?

Pilar: Yeah, that's a great question. And both are very valuable. So my LinkedIn is publicly available. I encourage people to follow up with [00:35:30] me.

Pilar: I'm quite responsive there. And then also, yes, our website does have. Direct access with reforms to to reach our team and your inquiries, if they are specific to a certain geography or a certain industry. Are directed to the [00:35:45] most appropriate partner within our firm. As you mentioned, there's about 400 plus people in our organization and we've got well over 20 partners.

Pilar: So there's a lot of industry specialization and there's also a lot of geographic specialization. And I'm always happy to make sure that you're [00:36:00] connected to the right folks as well.

Art: Great. Thanks Pilar for joining. It's been fascinating. I think we hit on a lot of topics that, that are really hot and in the news these days.

Art: And I think the audience will get quite a bit out of listening to this episode.

Pilar: Art, like I said at the beginning, I was, I've been looking forward to [00:36:15] this. So thank you for making it happen. And we're excited to be partnering and collaborating with you.

Pilar: So congratulations on this great podcast program. You've been developing and driving for the last few years.

Art: Thanks. Much appreciated. Thank you again for coming on the show.

Producer

Jacob Thomas

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Manufacturing in Asia: Challenges and Opportunities Beyond China with Jeffrey Goldstein
10 okt· Asia Business Podcast
Manufacturing in Asia: Challenges and Opportunities Beyond China with Jeffrey Goldstein
Join us for an insightful episode of the Asia Business Podcast where we had the pleasure of interviewing Jeffrey Goldstein, CEO of Onward Global. This episode explores the complexities of supply chain management in China and beyond, providing expert advice and identifying future trends for businesses looking to diversify their manufacturing bases.
Connect with Jeffrey Goldstein
Visit Onward Global
Meet Jeffrey Goldstein
Jeffrey Goldstein is an industry leader with 15 years of experience based in China and eight years at the helm of Onward Global. His expertise in managing and scaling supply chain operations for U.S. brands across Asia provides valuable insights for businesses navigating the evolving landscape.
The Current State of China's Supply Chain
Jeff highlights that despite changes, China's supply chain remains competitive due to its diversity, flexibility, and cost-effectiveness. However, two macro changes impacting this landscape include:
Financial instability within China's economy, leading to factory bankruptcies.A labor shortage due to demographic changes and shifts in young workforce preferences.
Goldstein emphasizes the significance for brands to understand the financial health of their suppliers amidst these challenges.
The Geopolitical Landscape and China Plus One Strategy
With geopolitical tensions and trade policies affecting sourcing strategies, Goldstein stresses the growing trend of the "China Plus One" strategy. This approach involves maintaining China as a primary manufacturing hub while diversifying production to additional countries to mitigate risks. He notes that while some relocation has occurred, it presents strategic and operational challenges.
Emerging Manufacturing Hubs
Jeffrey points out that Vietnam, Cambodia, and India are becoming key manufacturing destinations, each with their strengths and weaknesses. He elaborates on the growing sophistication and diverse capabilities within Vietnam's supply chain, Cambodia's focus on apparel exports, and India's potential despite its domestic-market-focused factories.
Risks and Challenges in New Markets
While sourcing in these emerging hubs presents opportunities, Goldstein warns of the risks involved, such as the complexities of unknown markets and the challenges of building new relationships. He stresses the importance of applying best sourcing practices, thorough market research, and building local relationships as companies venture into new territories.
Best Practices for Successful Supply Chain Diversification
Goldstein advises businesses to practice due diligence, from verifying potential partners and understanding local legal frameworks to engaging with local experts. He emphasizes the need to be realistic in terms of time, cost, and resources required for effective diversification.
The Future of Global Supply Chains
Looking forward, Jeff predicts an acceleration of the current trends: reduced capacity in China's manufacturing sector and increased interest in developing supply chains in other Asian countries. For smaller companies, he highlights the importance of starting preparations early to stay competitive amidst these shifts.
Conclusion
For more information or to connect with Jeffrey Goldstein, visit Onward Global’s website or reach out via LinkedIn.
Timestamps
00:00 Introduction and Guest Welcome
00:23 Jeffrey Goldstein's Background and Onward Global
01:18 China's Supply Chain Evolution
03:59 Geopolitical Tensions and Trade Policies
05:08 China Plus One Strategy
08:12 Challenges of Sourcing Outside China
20:35 Best Practices for Sourcing
24:12 Automation and Labor Costs
29:29 Successful Supply Chain Diversification
35:33 Future Trends and Final Thoughts
38:20 Conclusion and Contact Information
Producer
Jacob Thomas
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Chinese Companies Going Global: Challenges and Opportunities with Guoli Chen
26 sep· Asia Business Podcast
Chinese Companies Going Global: Challenges and Opportunities with Guoli Chen
Welcome to another exciting episode of the Asia Business Podcast! Our host, Art Dicker, invites us on a fascinating journey with esteemed guest Professor Guoli Chen from INSEAD in Singapore. Professor Chen, a strategy expert and author of the book Seeing the Unseen: Behind Chinese Tech Giants' Global Venturing, offers an in-depth look at the rapid growth and global expansion of Chinese companies.
Connect with Guoli Chen
Understanding Chinese Companies' Rapid GrowthKey Factors behind Domestic Success
The conversation kicks off with a discussion about why Chinese companies grow so swiftly in domestic markets, and a significant question: Is this growth due to a looser legal framework allowing for faster advancement? Professor Chen clarifies that while government policies play a role, deeper factors contribute to this phenomenon.
Professor Chen provides insights into his research on corporate governance and strategic leadership, focusing on the phenomenal growth of consumer tech companies like Alibaba, JD, Tencent, and TikTok. He explains that one of the primary reasons for their rapid growth is the unique market conditions within China that foster quick adaptations and innovations.
Challenges of Going Global
We examine whether the complexity of the Chinese market makes it easier or harder for these companies to adapt to Western standards and regulations.
Professor Chen points out that the successful business models developed in China do not always translate well abroad due to different market ecosystems, supply chains, and customer behaviors. For instance, Tencent’s WeChat ecosystem is deeply integrated into Chinese daily life, which does not easily replicate in other countries.
Opportunities and Constraints for Chinese Multinational CorporationsSupply Chain and Operational Efficiency
Professor Chen emphasizes the strength of Chinese supply chains, particularly in manufacturing. Companies like Shein and Pinduoduo leverage China's powerful production capabilities and seamless integration to deliver goods to global markets efficiently. This operational efficiency is a competitive advantage that is tough for others to imitate.
Data Utilization and Consumer Insight
Chinese tech firms excel in harnessing data to understand and predict consumer behavior. Companies like Shein and Tmall use sophisticated algorithms to adapt quickly to market demands, offering tailored solutions to consumers, which enhances their global competitiveness.
Leadership Styles and Organizational Culture
The conversation takes an insightful turn as the hosts delve into the differences in leadership styles between Chinese and Western companies. Professor Chen points out that many Chinese leaders adopt a low-profile, authoritative style, setting clear directions for their teams. This contrasts with the more visible and charismatic leadership common in Western tech firms.
However, this authoritative style also poses challenges, especially when expanding globally. The ability to manage diverse teams and integrate different cultural perspectives is crucial for international success. Professor Chen stresses the need for Chinese multinational corporations (MNCs) to embrace diversity and cross-cultural management practices.
Adapting to Global Markets: Lessons and StrategiesIterative Market Approach
Nico brings up an interesting point about Chinese companies' iterative approach to market feedback. Instead of relying heavily on focus groups, Chinese firms often launch products quickly and iterate based on real-time consumer feedback. This method allows for rapid adjustments and continuous innovation.
Integrating Global Talent
The importance of integrating non-Chinese talent into Chinese MNCs is another crucial topic discussed. Professor Chen emphasizes that for Chinese firms to succeed internationally, they must attract and retain local talents who understand the specificities of foreign markets.
Conclusion
Professor Chen leaves us with a thought-provoking insight: while Chinese companies have shown incredible growth and innovation, their ability to adapt and navigate the complexities of global markets will determine their long-term success. Continuous learning, adaptability, and embracing a global mindset will be essential for these enterprises as they compete on the world stage.
Timestamps
00:00 Introduction and Guest Welcome
01:18 Understanding Chinese Business Dynamics
04:00 Challenges for Chinese Companies Overseas
10:24 Successful Chinese Business Models
21:57 Leadership and Organizational Culture
33:43 Future of Chinese Companies Globally
38:13 Conclusion and Farewell
Producer
Jacob Thomas
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Revolutionizing Language Teaching with AI: The Cathoven Story
24 aug· Asia Business Podcast
Join us as Josh Lee, Co-founder of Cathoven, shares how their AI-powered platform is revolutionizing language teaching. From discussing Cathoven's core technology to its global impact, learn how they're reshaping the language learning industry and driving change in education.Producer

Jacob Thomas

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Navigating Cross-Border Investments and Family Offices with Danye Wang
6 aug· Asia Business Podcast
Navigating Cross-Border Investments and Family Offices with Danye Wang
In this episode of the Asia Business Podcast, we are privileged to have Danye Wang as our special guest. Danye is the managing partner at UniGlobe Capital, an institutional advisory firm focused on international allocation and family offices, as well as cross-border investments. Your host, Art Dicker, delves into a comprehensive discussion with Danye about her professional journey and the burgeoning family office landscape in Asia.
Introduction to Danye Wang
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Visit UniGlobe
Danye Wang has an illustrious career trajectory that began in China. She moved to the United States for her college education and graduated during the financial crisis of 2008. Against the odds, she secured a role at BlackRock, which has now grown to be one of the world's largest asset managers. At BlackRock, Danye held a client-facing role, dealing with central banks, sovereign wealth funds, and insurance companies.
Through her career, Danye has gained profound insights into the evolving investment landscape and the myriad opportunities and challenges within it. She brings a wealth of knowledge and experience, particularly in the context of international investments and family offices.
The Growth of Family Offices in Asia
Asia has witnessed substantial growth in the number of family offices over recent years. According to recent stats, about 9% of the world's 20,000 family offices are located in Asia. This number is set to surge as Asia's ultra-high-net-worth individuals (UHNWIs) grow by almost 40% from 2022 to 2027.
Danye notes that family offices in Asia are relatively new, with around 40% of them being established post-2010. Several factors encourage the creation of family offices, including significant exit events, generational transitions, and the need for diversification. Family offices can handle an array of activities from investment and tax planning to philanthropy and family governance.
Navigating Investment Opportunities
The conversation takes an insightful turn as Danye delves into why UHNWIs would set up family offices. The discussion encompasses several key aspects:
Separation of Legal Entities: To ensure accountability and professionalism in their financial activities.Proactive Investment Behavior: Whether they set up single-family or multifamily offices, Danye emphasizes the proactive nature of these entities in sourcing investments.Diversification: One of the primary drivers behind setting up family offices is the diversification of investments to manage risk and explore new opportunities beyond traditional sectors like manufacturing and real estate.
Art Dicker touches on a stereotype that Asian investors often want safety, liquidity, and high returns all at once. Danye confirms that while such expectations were prevalent in the past, the landscape is shifting toward more realistic and sophisticated investment strategies.
Single vs. Multifamily Offices
The debate between establishing single-family offices versus joining multifamily offices is a significant consideration. Danye explains that the choice often boils down to factors such as costs, expertise, and control. Single-family offices offer greater control and emotional attachment, but they come with higher operational costs. The general guideline suggests starting a single-family office only with assets above 50 million USD, ideally 100 million USD.
Multifamily offices, on the other hand, offer economies of scale and access to diversified investment opportunities. They often attract professionals from private banking backgrounds, bringing a wealth of experience and networks.
Investment Screening and Talent Acquisition
An essential part of managing a family office is talent acquisition and the structuring of investment strategies. Danye emphasizes that screening quality investments requires understanding the team, strategy, and track record. For family offices, hiring talent from investment banks, private equity, and asset management firms is crucial for maintaining a robust investment strategy.
The Singapore vs. Hong Kong Dilemma
Towards the end of the discussion, Danye sheds light on the trend of family offices setting up in Singapore vs. Hong Kong. While Singapore has seen a huge influx of family offices due to its stable political climate and international connectivity, Hong Kong offers a robust financial sector with access to top global banks and asset managers. Despite recent scrutiny over asset flows into Singapore, it continues to be a preferred destination for many family offices.
Conclusion
The comprehensive discussion with Danye Wang underscores the dynamic and evolving nature of family offices in Asia. From understanding the factors driving their establishment to navigating investment opportunities and talent acquisition, the episode offers a wealth of insights for anyone interested in the world of family offices.
For more in-depth discussions and industry insights, make sure to subscribe to our podcast and stay updated with our latest episodes!
Timestamps
00:00 Introduction and Guest Welcome
00:33 Danye Wang's Background and Career Journey
04:53 Growth of Family Offices in Asia
10:17 Setting Up and Managing Family Offices
26:48 Direct Investments vs. Fund Allocations
37:53 Choosing Between Single and Multi-Family Offices
48:34 Hong Kong vs. Singapore for Family Offices
53:37 Conclusion and Contact Information
Producer
Jacob Thomas
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Strategies for Investing in Latin America from an Asian Perspective with Edmond Hui
26 jun· Asia Business Podcast
Strategies for Investing in Latin America from an Asian Perspective
Welcome to another episode of the Asia Business Podcast! In this episode, host Art Dicker engages in an in-depth conversation with Edmond Hui, the founder and managing partner of Acacia Venture Capital Partners. Acacia is an early-stage VC fund focusing on emerging markets, particularly Latin America. Edmond shares his insights on the evolving investment landscape in Latin America, drawing parallels with the development patterns in China.
Introduction to Edmond Hui
Edmond Hui is a well-known figure in the venture capital space, particularly for his efforts to bridge the investment corridors between Asia and Latin America. A graduate of the London School of Economics and Political Science (LSE) and a seasoned graduate from the Global EMBA and AMP program at CEIBS, Edmond has a wealth of experience to share.
Why Latin America?
Kicking off the discussion, Art and Edmond dive into why Acacia Venture Capital Partners has chosen to focus on Latin America despite being based in Asia. Edmond explains, "Latin America has immense potential to catch up with China's growth trajectory. The region's expected GDP per capita rivals that of China, providing fertile ground for emerging markets."
Identifying Great Founders
Art delves into the challenge of identifying great founders in Latin America, a region that traditionally lacks a deep pool of entrepreneurial talent compared to the U.S. or China. Edmond highlights the unique approach they take by looking for founders with extensive educational backgrounds and entrepreneurial experience, regardless of whether their past ventures were successful or not.
Talent and Infrastructure Challenges
The conversation turns to the well-documented shortage of engineering talent in Latin America. Edmond notes an emerging trend where individuals who study abroad in the U.S. return to their home countries, bringing valuable skills and knowledge with them. Additionally, he mentions various educational programs similar to the Lambda School that are nurturing the next generation of tech talent.
Investment in Infrastructure
Art and Edmond discuss the significant opportunities that Latin America's infrastructure gaps present. Edmond shares insights on how Acacia has invested in logistics and FinTech companies, leveraging the growth in e-commerce and the rapid adoption of smartphones.
Mitigating Political and Economic Risk
Addressing the elephant in the room, Art asks how political and economic instability in Latin America affects Acacia's investment strategy. Edmond explains that while they avoid extreme cases like Argentina and Venezuela, they focus on the microeconomics of businesses in more stable countries like Mexico, Colombia, and Chile.
Sourcing Deals from Asia
Given that Acacia is based in Asia, Art queries how the firm sources deals in Latin America. Edmond reveals that the digital shift brought on by COVID-19 has tremendously minimized geographical barriers. Regular Zoom meetings and bi-annual trips to Latin America help maintain strong relationships with portfolio companies.
The Role of Pattern Matching
One of the core strengths of Acacia's investment strategy lies in leveraging their extensive experience in China to identify potential winners in Latin America. They apply a unique pattern-matching approach, comparing emerging sectors in Latin America with those that have matured in China. This strategy helps them foresee trends and potential outcomes, providing a competitive edge.
Overcoming Depressed Valuations
The current environment of depressed startup valuations presents a golden opportunity for contrarian investors like Acacia. Edmond explains how their rigorous investment process ensures they identify and invest in high-potential companies at attractive valuations, positioning themselves for future growth.
The Path to Exits
Finally, Art and Edmond discuss the critical aspect of achieving successful exits. Edmond outlines various exit strategies, including trade sales and IPOs, emphasizing that macroeconomic conditions and robust market fundamentals in Latin America make it possible to achieve substantial returns.
Conclusion
As the episode draws to a close, Art thanks Edmond for sharing his invaluable insights into the opportunities and challenges of investing in Latin America. Edmond's expertise and Acacia's strategic approach make a compelling case for the tremendous potential that lies in this dynamic region.
For anyone interested in learning more about how emerging markets like Latin America are reshaping the global investment landscape, this episode is a must-listen. Thank you, Ed, for coming on the show and enlightening us with your perspectives!
Timestamps
00:00 Introduction and Guest Welcome
01:13 Why Invest in Latin America?
02:18 Identifying and Supporting Great Founders
05:29 Addressing Talent Shortages in Latin America
07:00 Infrastructure and Financial Opportunities
11:06 Navigating Political and Economic Instability
13:56 China-Latin America Investment Corridor
17:11 Acacia's Investment Process
22:48 Leveraging China Experience for Latin America
29:42 Current Market Valuations and Opportunities
31:42 Exit Strategies and Market Potential
35:56 Conclusion and Final Thoughts
Producer
Jacob Thomas
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Bridging Healthcare Innovations Between Europe and China with Chenchao Liu
13 mei· Asia Business Podcast
Connect with Chenchao Liu on LinkedIn
Visit SILREALs website
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Full show Transcript below Summary and Timestamps
Overview
In this episode of the Asia Business Podcast, host Art Dicker interviews Chenchao Liu, the founder of SILREAL, a management consulting firm focusing on healthcare and Sino-European business exchanges. Chenchao shares his journey from China to Germany, his transition from science to business, and the mission of bridging the healthcare sectors between China and the West. They discuss the unique collaboration opportunities in pharmaceuticals and healthcare services between China and Europe, navigating political barriers, and the impact of regulations like IP protection and data sharing laws. The conversation delves into the challenges and trends reshaping the industry in China, including the aging population, health consciousness post-COVID, and the dynamics of foreign companies adapting to China's volume-based pricing system.
Timestamps
00:00 Introduction to the Episode and Guest
00:41 Chenchao Liu's Journey from China to Germany and Founding SILREAL
01:49 Bridging Sino-European Business in Healthcare
02:54 Exploring Recent Projects and the Impact of SILREAL's Work
05:03 Opportunities for China-Europe Collaboration in Healthcare
08:20 Navigating Political Barriers in Sino-European Relations
16:23 The Impact of Regulations on Cross-Border Healthcare Collaboration
21:15 Macro Trends Shaping the Healthcare Industry in China
31:16 Concluding Remarks and How to Connect with Chenchao Liu
Transcript
Art: [00:00:00] Welcome everybody to another episode of the Asia Business Podcast. I'm your host, Art Dicker. Today we have the absolute pleasure of being joined by Chenchao Liu. Chenchao is the founder of SILREAL, a management consulting firm specializing in the healthcare sector [00:00:15] and fostering Sino European business exchanges.
Art: Welcome Chenchao.
Chenchao: Thank you, Art. Thank you for having me.
Art: Yeah, we've been talking. We've been talking a few times over the last couple of years or so, and [00:00:30] it just seemed natural that we do a podcast. We've had long conversations, the two of us just talking about some of these things we're going to get into.
Art: So it's, like I said, it's natural. We just record an episode about it. And, you were born in China, but you've lived in Germany for more than 20 [00:00:45] years now. And I was wondering if you could share a bit about your own kind Your own story behind the founding of SILREAL and then also help the audience understand a bit more kind of work you do to bridge the European Chinese markets in life [00:01:00] sciences.
Chenchao: Yeah, thank you, Art. Thank you for really inviting me and I respect and follow your work for a while and appreciate that I could share some of my story here. Yeah, as you mentioned, yeah, I was born in [00:01:15] China in Qingdao, historical city connected to Germany. And I came to Germany when I was 13. So I went to elementary school, and I studied chemistry in Munich.
Chenchao: And had very devoted concentration interested into [00:01:30] science and was very active. I high school already for Olympics and later for Mustang Institute ATH. But I realized later that due to the internship I did with consulting firms that I'm really belong to the business world.
Chenchao: I [00:01:45] want to work with people. I want to be in real impact making. And yeah, so I after graduation, I went to consulting firm, I did a lot of projects for hospitals and also for private equities [00:02:00] in 2017 when I realized that I wanted to Do more things with China. I said to myself look into the mirror.
Chenchao: You cannot just look like this way. It's better that you could do something content wise with the country [00:02:15] where you're from. And yeah, I started to advise some Chinese firms who come to Europe and vice versa. And yeah, and what is really entrepreneurial journey. Nobody has taught me how to build business, so really try and [00:02:30] arrow and yeah, I think it's combination of hard work, persistent and also support of others.
Chenchao: We have thright and have again, some traction, have project from federal menstrual health and the state governments help some big [00:02:45] pharma like AstraZeneca. And yeah, I really want to be the bridge in life science healthcare between China and the West.
Art: And can you talk a bit about some of the sort of the projects that you've worked on recently and[00:03:00] or so, some, so give the audience a really some context for some actual to the extent you're allowed to talk about it, but I know also we'll get into it.
Art: You've got quite a. Number of wonderful endorsements on your websites from the projects you've worked on, but just [00:03:15] to give the audience a bit of wrap their heads around the actual kind of consulting work and so forth that you do.
Chenchao: Yeah, thank you, Arthur. So basically, we have three main sectors of industries.
Chenchao: We serve for health [00:03:30] care, life science and public sector. We have done digitalization project for health care providers in Germany. I helped them to modernize their 6000 employee. System of hrs and consolidate over [00:03:45] 20 entities. And also to transform how they track employee working time and management of the post recruitment retention.
Chenchao: So other project we have done is really to bring [00:04:00] public and private sector together to tackle Corona diseases. To learn from each other between German China when it's come to for example, COPD. I think the strengths we can bring here is really to understand the [00:04:15] policy, understand the legal justice nature.
Chenchao: But also to bridge, what does it make the difference between how Germany and China handle different disease areas. And lastly, as I mentioned for the government public sector we do [00:04:30] oftentimes delegation trips for ministry level for experts from insurance for hospital representative to really to understand how big countries like China, Israel and the U.
Chenchao: S. Playing around in the [00:04:45] digitalization. And that's why I think it's very crucial especially in this age to have a active dialogue because I do think, as you mentioned, the before the trip for by the chancellor, there's this avenue of collaboration [00:05:00] is still very strong within the healthcare.
Art: Yeah, let's jump into that, jump ahead into that question. The, in an ideal scenario, devoid of political barriers, and we'll get into those, maybe some of those political barriers in a 2nd, but, what are some of the [00:05:15] unique opportunities for collaboration between China and Europe in the, pharmaceuticals, biotechnology.
Art: Health care services, because it seems like there's you've already hit on it a bit. There's naturally a lot of synergies. There's just by listening to some of the projects [00:05:30] you've supported so far. So without politics in the mix, what would be the, some of the more of those kind of natural synergies between between China and Europe in these sectors?
Chenchao: Yeah, thank you. I think due to a large population, 1. [00:05:45] 5 billion in people in China, and it's already is the second biggest market in healthcare and pharmaceuticals and it's posed to become the biggest one but if you look at the per capital expenditure China is still lagging very [00:06:00] far behind.
Chenchao: It's only around 10 percent or less, Of that expenditure per capita compared to European level. So there's a lot of to catch up and I think aging population China and also very high pressure for, [00:06:15] a younger generation birth rate. So there's a lot of issues within the society and also the plague by the chronic diseases in various forms.
Chenchao: I just mentioned COPD, but there's also other ways and the cancer [00:06:30] and, uh, heart related diseases. And I think this is also very important after the COVID, like how to also in the community diseases are prevented. Measurement and the very [00:06:45] important role China can have. So I think this is really laid the ground for multinationals to really look into China and the force of their expansion.
Chenchao: And despite all the attention we have touched on, I think there's a lot [00:07:00] of company. Are just announced even further and stronger presence in China, like as Seneca's new research facility in Hong Kong. In Heim also mentioned the billion of investment [00:07:15] going on. So there is still very strong sense that the market due to the high population, due to also the infrastructure because China is still at home.
Chenchao: of a very strong, supplier for biosimilar and and [00:07:30] APIs for big pharmaceuticals around globe. So it's very crucial to have a healthy relationship with China to keep supply chain safe and secure.
Art: Yeah, and that's actually in contrast a little bit to what's been going on in the U. S. [00:07:45] these days.
Art: It's more and more Chinese companies are potentially Congress is in an election year here in the U. S., as is looking at more and more Chinese companies. And now that's extended to the bios and pharmaceutical sector as well, which is, I guess people thought might [00:08:00] happen, but maybe not so quickly.
Art: So that's it seems like Europe is not it is quite different, which is I guess not surprising but that's been in the news here in the U. S. too. And it's living here in San Diego, California, where I know a lot of those, the Chinese companies and U. S. companies, [00:08:15] this is a place where they work together.
Art: It's I don't know, a little bit disheartening to see that happening, but but I guess there's. Anyway, I won't get into the concerns but now that we do put let's say, we put politics to some of the tensions into the mix. How is that starting [00:08:30] at all to influence cooperation between China and Europe?
Art: Like I said, China in the US, I think that's already definitely having an impact, but do you see that having an impact at all between China and Europe? Yeah, definitely. Are there are [00:08:45] big impacts. The question is like how, long term and how quantifiable other impacts. I think everything is put into perspective.
Chenchao: I think compared to other industries health care amount climate are still Thank you. [00:09:00] Very strong, constructive avenue of collaboration, but I do agree with your assessment. There's a difference between US China, European China relationship, and I think underlined by the trip by Chancellor Scholz from [00:09:15] Germany with three ministers and all state secretary level people, three days.
Chenchao: Very long stay. So it's a really strong signal not only to China, but to the rest of the world that we need a very strong dialogue. We need a very [00:09:30] strong, and the Stanford, even we cannot agree on everything on every issues. But I think this kind of. Very pragmatic approach that we need China also to solve major conflicts in Middle East in Ukraine, Russian conflict, [00:09:45] and others.
Chenchao: I think this is just to serve, the best interests of the people who ultimately, At the say in the democracies in the West. So I think when it's come to industry politics I do believe that, of course [00:10:00] Europeans want to, have the access to Chinese market. At the same time, it's very critical.
Chenchao: Look at at, also from the legislative and legal point of view, China. The IP laws, the cyber security laws, and also the [00:10:15] limitation data transfer. These are all the problems, especially also for R& D intensive industry like pharmaceuticals, biotech. And so this is a strong position for European part to get China more to create [00:10:30] a, a fair competition environment.
Chenchao: So this has been a very strong agenda of the trip as well. I personally, as I said, I was organized of the delegation trip myself for the ministry level. And last year I was [00:10:45] invited for the delegation trip by the climate minister from Germany. So I do see a very strong willingness to collaborate.
Chenchao: And to willingness to, to collaborate in field where common dialogue is [00:11:00] possible. And I'm very hopeful to see, and just to stay by Germany in June the economy, Mr. Habeck is going to China as well. So I do think that's within this year very crucial both to the election, as you mentioned, yes.
Chenchao: [00:11:15] But also some very highly watched elections within the states in Germany. So yeah so China West relation has always been very significant.
Art: Yeah, that's, I think there's, that's a great point. Look at that three days and high [00:11:30] level visits like that. And that's really, I don't think there's many other countries that do that.
Art: So of course, certainly not the United States, but there's, that's that As you said, really would show a sign of commitment to the relationship and the markets [00:11:45] opportunities both ways even. And I did also read that Chancellor Schultz said that IP protection, you hit on it.
Art: There is was maybe the chief concern of German companies. And I wonder if. We can get into that as a bit of a side [00:12:00] topic. Is that a is that still a concern for German companies in these sectors we've been talking about? Or is that more, let's say, in some of the traditional auto or other sectors that German companies have been also quite strong in is that I'm [00:12:15] talking about IP protection in China.
Art: I know, because, of course, I practice law cross border there, and I can certainly. The audience, if they've been listening to me, know that I think that IP protection in China has gotten significantly better than it was [00:12:30] when I first started going over there. But I, like I said, Chancellor Schultz said that's still a primary concern for German companies.
Art: Do you see that in your industries as well?
Chenchao: I think one say it's reputation is hard to build but easy to lose, [00:12:45] right? So once you have a not very good reputation when it comes to IP protection, IP enforcement, and it's very hard to build back the reputation. I do agree on legislative level, China has already made progress and [00:13:00] had also You know enforce the law and to punish some of the companies who infiltrate the IP so I think I totally agree with your assessment, but the other hand, when it's come to all our confidence in Chinese market, when it's come to [00:13:15] IP, it is still very low slope recovery. So that's concern remains. And because there's also the effect of those high pace of regulatory changes in China, right?
Chenchao: So we, we see A new laws coming in rapid [00:13:30] speed, there's no time to read, to digest, to understand the comment, not like the legislative cycles we know from the democratic system in the U. S. or in Europe, in the European Union. Everything's slower, people have time to debate, to [00:13:45] comment, and to see the final draft of the law might be totally different.
Chenchao: In China, you have to really keep up the pace to understand the new laws, what is impact for the business. And I think the other very current issue art is also [00:14:00] when it's come to espionage law in China, and this has also direct. Impacting the pharmaceuticals company because the audit and the inspections for this kind of factory and sites who are [00:14:15] producing products directly for the European U.
Chenchao: S. market are scrutinized. And but not in the direct way. It's just, as I said, a lot of confidence, fear of to be imprisoned, fear of to be Questions on the [00:14:30] airport that's why many inspectors are refusing to fly to China to do their audit job, which is very concerning because even there's nothing happened alone, this kind of angst, this kind of uncertainty is not very good [00:14:45]confidence for business.
Chenchao: And we know if their sites and the manufacturer entities are not a certified, they are not allowed to sell products in the board. And. This doesn't only harm business, it just can harm patient's health, safety, [00:15:00] and patient care. So we really have to act fast and to come to a really good pragmatic agreement.
Chenchao: So there's reinstalled the confidence. I think at the end of the day, we cannot regard business or economic ize only on paper, [00:15:15] on legal. But rather on people's perception, we have to regain the confidence we have to regain that China is a reliable partner and not just being said, not just put on paper, but lived by [00:15:30] example.
Chenchao: I think this is also an effort we, both sides, need to make an effort.
Art: Yeah, and I see that on the U. S. China side as well, there's a perception and, it's hard to say exactly [00:15:45] what the reality is, but there's a perception. That recently, especially that it's not safe for executives to travel to China.
Art: And even the U S state department has put out a travel advisory last year about that did warning executives [00:16:00] to, from, for traveling from the U S to China that they may get questioned or may not be able to come back on the exact flight they had originally planned and so forth. So even if those concerns, or even if that's not exactly the way it is in reality.[00:16:15]
Art: There's those perceptions, like you said, and that affects real business decisions and planning for investments and audits, like you said it does affect things. And I'll stick with regulations because you mentioned the anti espionage law and, a lot of that has also to do with [00:16:30] some of the.
Art: The data regulations that come out, and those have also come out and been implemented very quickly and almost the regulators are trying to catch up because companies have concerns. How do I implement the PIPL in my business? And this doesn't [00:16:45] add up and this doesn't make sense. And the regulators, particularly the cyber security administration there, they've had to.
Art: Been in catch up mode, I think, especially the last couple of years. So how have these regulations, of course, Europe is very in Germany, and I'm very familiar with [00:17:00] GDPR and how have these regulations for especially the PIPL in China, the data protection law, how has that affected cross border healthcare collaborations and data sharing recently?
Chenchao: Yeah. Thank you, Arda. I think this is [00:17:15] very crucial questions. I think in that field is very also innovative, new, of course, the get challenged by the industries, big tech companies but the AI act, digital market act. So there's a lot of initiative [00:17:30] legislations where your European union employs to be very on the frontier of the regulation of the digital era.
Chenchao: GDPR has been for a long time. I think it is very restrictive law. It's protects [00:17:45] the data very strongly, and it's also becomes even, people criticize to be very bureaucratic to be very, noisy. But somehow in the international level, it's also receives a positive [00:18:00] example set by the European Union.
Chenchao: This is when it's come to China, also some positive thing to, to tell about the China because the privacy law. It has been improved, has been introduced, and also follow some of the [00:18:15]patterns by GDPR as a good leadership in that regard. But again, the law is only has its value when it's enforced, right?
Chenchao: So this is a discrepancy, I think, not only a problem China faces, but in many countries [00:18:30] as well. But in that regard, China is definitely doing better. But, and also there's a concession, I think, also due to the recent diplomatic warm up that China allows data outflow again of company related data for big [00:18:45] companies.
Chenchao: I think this is very important to rebuild the trust, rebuild the confidence. I think, similar to the topic of the capital outflow, very sensitive, but also very important topic. And because China need to [00:19:00] have confidence and the favorite investors and company. So I think this was the right step.
Chenchao: And I do think this has to be even more in the long term to be rebalanced, renegotiated. When it comes to other legislations as you mentioned, [00:19:15] espionage law, I think in general speaking they are very, of course follow a certain pattern of, what happens in the U. S.,
Chenchao: Following the 9 11 Patriot Act. So China tries also to have very strong [00:19:30]regulations and legislative, toolboxes to, to survey and also monitor citizens, companies, and to have very strong executive powers in case of unseen danger for the national security.
Chenchao: But the [00:19:45] law is, it's very expensive and very widely weak interpreted. And this is also led to the suspicion and also the threat and by people who read the law just to be very hard to [00:20:00] appropriate when which case applies, which not, I think it does need more concretized formulation to make sure that, no more operations, especially in the very crucial areas in pharmaceutical [00:20:15] manufacturing are not hindered and prohibited.
Chenchao: And because I think China as a nation of a modern industry is very keen to become a leadership in digital [00:20:30] health in, in, in clinical trials providers. And also to be, very strong out licensing production site. So China itself need to say a very open environment. And I think the government is more and [00:20:45] more keen to understand that it's not just do a favor for a foreign company, but more and more it's actually very imperative for China.
Chenchao: For the Chinese firm to succeed on the global stage,
Art: that's a good point. That's a [00:21:00] good way of putting it that, that, maybe in some ways it felt like the regulations are there to protect local Chinese companies, but at some point you don't want to keep protecting them if it means, if it prevents them from becoming globally competitive.
Art: So we, and we [00:21:15] touched on the. The market opportunities a bit and some of the macro trends that are shaping the industry and the opportunity there in China. But I wanted to go back to that a bit still. There's an aging population in China and there's also a global increase in kind of [00:21:30] the health consciousness post COVID, especially in China.
Art: I noticed when I was living there. So what macro trends do you believe are continuing to reshape the industry in China and pulling. Foreign companies to, to keep working there and keep looking for [00:21:45] opportunities.
Chenchao: Yeah, I think China has been facing multiple fronts of challenges, right? I think the big factor you just mentioned is the COVID wave which the implication repercussions are still to be failed and to be seen [00:22:00] and to be recovered.
Chenchao: And we have a lot of issues within this company and, we have very strong loss confidence in the stock market in Hong Kong. Almost two digits trailing off value was webbed out and [00:22:15]we have a problem with the company who don't want to go IPO at all. We have property market is collapsing which makes up to almost a one fifth of the GDP.
Chenchao: So there's a lot of big issues within the [00:22:30] company within the country. And we have a declining population, we, the population already picked and not only that the number, but also, especially we're talking about an area in India, the population is still very young there under [00:22:45]30 where here is aging very rapidly.
Chenchao: And and then also, I think this is something which people hardly want to talk about. Is, we know that the government is very powerful, where it's strong and very directive. But [00:23:00] once you come to people's reproduction the limitation is also to be observed, right? So you cannot dictate everything.
Chenchao: And so it's very important to create a society and environment where people feel safe, feel protected, feel [00:23:15] supported to have children. And also to cope with the fact, okay, what do we do as government, as a society, if the birth rate is not increasing, so we have to make people more productive to make sure that we create the opportunity [00:23:30] for people, especially in the health care sector, when it comes to care nursing, I think.
Chenchao: And we have a lot of things to catch up when it comes to the systematic education where already a lot of things have been, transferred and learned from the West, especially when [00:23:45] it comes to machinery and automobile, but now it's have to shift more to health care and service areas. And which is already taking place, and this is why China needs open dialogues, open collaboration [00:24:00] with us.
Chenchao: It's not only just keep the markets open, but keep the people safe, keep the patients served. And this is something we have to have a longer run, longer view to make sure this is happening. I think this is a very, [00:24:15] pressing issue the Asian population. But I do think, we, we can create a system where it's also the, questions linger in the second level when it's come to the problem of who call, the residency.
Chenchao: There's [00:24:30] come to the issue like universal income, and it's a very big disparity of wealth disparity of big. So this are all connected dots, when it's come to the question why people don't want to give birth, why we don't have confidence in [00:24:45] the country to thrive and So I think this is take a long run to, to rebuild everything.
Chenchao: But I think it's very good start to really, to ensure very valuable and needed jobs like nursing, healthcare professionals, [00:25:00] and also to tackle the problem of youth unemployment.
Art: Yeah, lots of macro challenges there. And it's you're right. The, also the government there, it takes some somewhat of, I guess you could call it like a [00:25:15] paternalistic kind of approach in some ways it doesn't, in some ways it's very hands off, maybe two hands off, but one way it does take the a very, It does get very involved, and especially compared to the U.
Art: S. where, the U. S. where health care costs are pretty, pretty out of [00:25:30] control. China has this volume based pricing system to try to control health care costs as best as it can. I know I've used the public health system in China and some of the public hospitals, and I'm amazed at how inexpensive the costs [00:25:45] are.
Art: Now, of course, if you're looking, if you're going into the hospitals there in Shanghai, you see they have this very expensive equipment. But they're using it at a mass production kind of scale. You use a CT scan there. It's like a factory. They're getting people in and out. [00:26:00] So I wonder for at least maybe going back to the volume based pricing that a lot of the government requires for firms, including foreign firms that are doing business there.
Art: How have foreign firms, let's say from Germany or the EU how have they [00:26:15] struggled with that policy? In, in, In their market approach in China, or maybe they've just learned to adapt to it, right? Maybe it's more similar to some of the pricing policies that they've faced in Europe. The US, of course, is [00:26:30] those companies probably face less of that.
Chenchao: Yeah, I think this is a very interesting and impactful for questions. And when it comes to access to healthcare providers and [00:26:45] access to the best solution, innovation and pharmaceuticals. So I think when it comes to procurement strategy, Chinese government, and this is also where you see, central government's power compared to capitalism driven forces in the U.
Chenchao: [00:27:00] S. Where, 18 percent GDP are spent on healthcare, where a lot of money is spent, but the outcome is not where we, good compared to much of the cheaper system in the European Union. But when it comes to China, I think there's a lot of reforms happening, [00:27:15] for decades.
Chenchao: We have different reforms of Chinese FDA to national it got products and administration. So a lot of things have been changed. And I also, over the 30 provinces in China have been also consolidated to [00:27:30] one central pricing negotiation scheme within central government, which also voice.
Chenchao: It's a provincial government competing each other and to set a different level of pricing, which can not be benefiting the patient or [00:27:45] hospital system. So the power of central government negotiates on pricing is very huge. And in China, for many in therapeutic areas, we already see the lowest price.
Chenchao: Globally, even lower than some [00:28:00] African countries. So China is very strong when it comes to pushing the price down over 90%. Did a deduction reduction is not a rare. So the questions as you ask, what does it mean for their foreign companies? I think [00:28:15] still many companies, of course, they fall. They say, okay, under certain price, we don't want to play anymore.
Chenchao: But big names and the big companies still being not only, I think, just to be in the [00:28:30]market, to please the government, to really be not screwing in nice. It's also because a question of how long the view you took at it. So because I think big companies operating the more strategic long term in decades, not in [00:28:45] years.
Chenchao: So they know that it's very important to stay within the system. And they also know the system can work against them in short term, but it can also improve in favor of them in short term. Because Chinese systems is always [00:29:00] dynamic and very flexible. And and also to be fair Chinese population is huge.
Chenchao: And that's why even the price is low, even the, perfect margin percentage wise is low, but the absolute number is still [00:29:15] enormous. And I think the second point, Art, is also to mention, because we have observed a strong censorship in China, of course, but, of course, the people and patients can still access a lot of [00:29:30] information outside of China.
Chenchao: And they learn and know a lot about innovation happening in China. In the pipelines and the new introduction of drugs, and they want to get it, and they want to say, Hey, why we don't have it. Why is only [00:29:45] access in the Europe and American market. It's a pressure come also from bottom, and this puts the government also in the position to even they don't want to let in maybe too many foreign drugs because they want to promote [00:30:00] the domestic brands, domestic company, also because they're expensive, they don't want to, pay from the, insurance scheme, though, but I think this is very good.
Chenchao: Dynamics to help to balance the power to not [00:30:15] only one side to dictate what is sold on the market, but also to make sure and, compared to the extreme in the U. S. That only let the market a player in company to dictate the price and the scheme. So [00:30:30] I think this is what China needs, a balanced approach.
Chenchao: I think Europe has a pretty good example to set when we look at Denmark, Germany where it, there's a market dictation, but also government [00:30:45] monitoring. And I think this is a way to go.
Art: Yeah, that makes sense. And that's a very good point. You mentioned about it's not just necessarily a top down approach from the Chinese government that they have to be responsive to what [00:31:00]their consumers or the constituents want and they hear about drugs overseas and say, why is that not available here?
Art: That's a great point. I think by this interview, you've made it very clear with the audience that this is a topic you can speak very clearly about [00:31:15] and very and a real depth. And I wonder if, 1st, I would encourage again, people to check out your company and website, this great testimonials and endorsements from the companies that you've worked with.
Art: It's really impressive, very big name companies. So I can tell the work you're [00:31:30] doing as a. Has a big impact and is getting results. And I wonder if people want to reach out to you. After listening to this show, what's the best way for people to reach out to you? Is it LinkedIn or is it go to your website or all of the above?[00:31:45]
Chenchao: Yeah. for for asking. Yeah. I think I'm very easy, accessible to be found on LinkedIn or very easy [email protected]. Yeah, happy to hear your [00:32:00] feedback and your comments also on the conversation right now I'm having with art and also have help to any endeavors that might come across.
Chenchao: very much.
Art: Yeah, that's great. We'll put a link up to the site on the show notes as well. [00:32:15] And and I'm sure people will reach out to you. So once again, Chen Chao, thank you for coming on. It's been a pleasure talking with you.
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Jacob Thomas
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Asian Markets and Strategic Transitioning Away from China - with Pilar Dieter
7 mei· Asia Business Podcast
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Full show Transcript below Summary and Timestamps
Overview
In this episode of the Asia Business Podcast, host Art Dicker interviews Pilar Dieter, CEO of YCP Solidiance, an Asia-focused strategic advisory firm. They discuss the challenges and opportunities in the Asian market, focusing on China’s decreasing foreign direct investment (FDI) and the strategies for diversifying supply chains due to geopolitical tensions and supply chain resiliency. Pilar provides insights into the factors leading to net capital outflows from China, the impact of global perceptions on investment, and the shift toward domestic consumption driving growth in China. The conversation also covers the trend of businesses de-risking by moving operations from China to Southeast Asia, India, or nearshoring to places like Mexico, and how YCP Solidiance facilitates this transition. They delve into industry-specific shifts, the increasing interest of Chinese companies in outbound investment, and the importance of strategic and post-merger integration services in navigating the complexities of the Asian market. The episode wraps up with how companies can reach Pilar and YCP Solidiance for strategic advice and support.
Timestamps
00:00 Welcome to the Asia Business Podcast with Pilar Dieter
00:57 Deep Dive into China's Business Landscape
01:49 Navigating Supply Chain Resilience and Diversification
03:21 The Future of Foreign Direct Investment in China
06:05 De-risking Strategies for Global Supply Chains
11:20 Exploring New Markets: The Shift in Asian Investment Patterns
23:09 The Role of Strategic Advisory in Global Business Expansion
28:07 M&A Trends in Asia: Insights and Opportunities
36:03 Closing Thoughts and Contact Information
Transcript
Art: [00:00:00] Welcome everybody to another episode of the Asia business podcast. I'm your host, Art Dicker. And today we have the true pleasure of welcoming Pilar Dieter. She is the chief executive officer at YCP Salidians. YCP Salidians is an [00:00:15] Asia focused strategic advisory firm with 17 offices worldwide, predominantly in Asia.
Art: Welcome, Pilar.
Pilar: Thank you, Art. It's a true pleasure to be here. Thanks for having me.
Art: Yeah, we've talked about [00:00:30] doing this for a while now. And we both had recent visits to China. And so I think we've got plenty to talk about. We're gonna I think China is going to be a big part of what we talk about today.
Art: But as we said at the top, your firm is a big presence all throughout Asia. And I think it's [00:00:45]going to be interesting to do a bit of comparison between different parts of that region and see what's going on. So I'm happy to get into it today and really looking forward to it.
Pilar: Absolutely. I'm looking forward to the exchange as well.
Art: Great. Let's off maybe with With China. And I [00:01:00] know you guys work a lot with the sort of the top fortune 500 companies there. But also you work with them throughout Asia and beyond. And we've seen a lot of statistics come out lately where looking at the net capital outflows from China after [00:01:15] years and years of inbound investment increasing year after year.
Art: And do you see that trend reversing anytime soon? And if so, the trend of the negative outflows, negative inflows, I should say. Do you see that trend reversing [00:01:30] anytime soon? And if so, what sectors might it reverse in?
Pilar: I think the way to determine whether or not this is something that would reverse is it's first important to understand why that F.
Pilar: D. I. into China has decreased over the last few years. So there's a couple, [00:01:45] I would point to three things. Two are obvious, one might be a little less obvious. So I would point to number one, really the supply chain resiliency move. This concept of. Diversifying supply chains. This isn't a sudden thing.
Pilar: We can track [00:02:00] this back to really 2016 2015 era, even before trade tariffs were starting to come into play. So a lot of conversation around why diversification matters in supply chains. That's 1 of the reasons that you're starting to see a little bit of that [00:02:15] decline in F. D. I. The other one, another obvious element is the geopolitical tension.
Pilar: Lots of media attention that's driving and easily influencing the way that U. S. corporations or multinational corporations are really viewing China with a bit [00:02:30] more of a fine tooth comb before making really readily decisions to make big investment into China because of the beauty of the growing market and the size of the market.
Pilar: But I'd say the third and maybe less obvious. Point that would be directed to why [00:02:45] FDI in China is decreasing is when you actually talk to some of the bank leadership in China, they will actually point to a decrease due to companies moving liquid capital out of China as a result of interest rates coming down [00:03:00] markedly And that, I think, when we looked at what was happening during COVID times, China interest rates were obviously quite high compared to other countries, making it a little bit more of an attractive play.
Pilar: So now, with the decrease continuing that seems to be something that [00:03:15] others, especially domestically or regionally, that I was talking to when I was in Shanghai a couple days ago or weeks ago were also pointing to. But to your point about, Given these realities of why FDI has declined, do I see this trend reversing?
Pilar: My short answer is [00:03:30] no, not in the short term and for the USA, most decidedly, not in this election year. The two main reasons I would point to for this, though, would really be, while China still would like to maintain strong performance on [00:03:45] investment, when GDP numbers and their aggressive growth target of 5 percent that's been stated by Xi Jinping.
Pilar: What we end up seeing is the investment lever of GDP is something that has been a big driver for them achieving their growth rates. But at this point in [00:04:00] time, the investment lever is taking a back seat. To some of the consumption activities that they're trying to really influence and push.
Pilar: So I would say, looking internally in China, they're really going to be focused more on domestic consumption to be able to drive that [00:04:15] growth. And then the second reason why I would say that the trend might not be reversing, at least within this next year, Is US companies are just continuing to face more scrutiny within their own organizations.
Pilar: Whenever I see clients trying US [00:04:30] clients in particular, trying to make decisions on deeper investment in China, whether that's through acquisition or through basic investment into greenfield or brownfield plants, or even finding new supply base that might actually be Chinese based. [00:04:45] It's coming with a very high higher bar in terms of scrutinizing whether or not it's the right partner.
Pilar: So bottom line not reversing I would say within the foreseeable future being at least 12 to 18 months out
Art: Yeah, and I'm [00:05:00] sure you got this question a lot when you visited China as well, both even from friends and business people in China, asking you maybe when, when do you think things will get better as far as the investment there and stuff.
Art: I certainly got that. I just got back and got that a lot. [00:05:15] And I agree. It's part of it is it's. It's perception and reality, right? The reality is the Chinese economy is not doing well. And so that probably, as you said, might be the biggest factor, even beyond anything we read about in the news [00:05:30] and the headlines and the politics of of of, not great relations between the U S and China right now.
Art: And at the same time I hear what you're saying too, with some of my own clients getting internal pushback for any, anything that, you know, because, and again, [00:05:45] that might be more of just as much perception of what they see in the headlines of the wall street journal or whatnot, and say why are we investing there more?
Art: I thought it was getting harder, whether or not that's true or not. That's at least we can say that perception is there, and that's not going to help make [00:06:00] that fight any to get increased investment any easier internally, like you said. You see then, I guess it goes without saying that companies are de risking from China and moving either to Southeast Asia or India, if [00:06:15] it's manufacturing or even coming back closer to home let's say, Mexico.
Art: Do you, are you actually with, internally at your firm trying to position yourself? As a bridge for that that de risking, where clients say we've [00:06:30] really valued all the advice you've given us in China we see you have offices all throughout Asia.
Art: How have you guys been helping clients through that process a lot recently?
Pilar: It would be relatively [00:06:45] relatively easy to say absolutely a hundred percent. I think that it wants, we want to caveat this a bit because I think the question oftentimes when our clients come to us and say, hey, here's our direction.
Pilar: We've decided we need to de risk or sometimes the [00:07:00] terminology becomes anti fragility and that concept really means putting us putting our company or the client in a state where we are not subjected to the exogenous effects of any global economic player. [00:07:15] That could impact our business so detrimentally.
Pilar: So put another way. Make us bulletproof, help us figure out what can we do, whether it's, taking these out of China and putting them into Southeast Asia, bringing things [00:07:30] nearshore, reshore, friendshore, back over to Mexico. Those are the common go tos. But what we have found is it helps to actually bring the client before they come to us with, here's our decision.
Pilar: We want to take factories or [00:07:45] take suppliers out of China and move them to somewhere else in the world. We say let's take a step back and try to understand what is your objective here? And a lot of times when you really peel those layers back, what you're starting to hear the client say is we don't want to have another [00:08:00] COVID impact our complete business.
Pilar: We also don't want another, whether it's a pandemic or it's a landshoreman strike in Los Angeles, or it's some kind of labor union strike in Europe, or it's pirates [00:08:15] in the Panama Canal, all of these global realities is what's causing us to reconsider. Are we securely operating and supply chain is the natural 1st place to go.
Pilar: When you hear companies jump immediately to, we need to. [00:08:30] de risk and reshore. I think those can actually they're not mutually exclusive, so when you can separate them, you can actually unpeel a lot more on this de risking piece as opposed to the reshoring piece. But to come back to the [00:08:45] specifics of your question, are we seeing clients wanting this?
Pilar: Yeah, definitely. We have one client, for example, in Furniture manufacturing, right? So a sector that is very well entrenched in China, they had been sourcing probably 70 percent of [00:09:00] their products out of China maybe doing some sub assembly in places like Mexico, and this was an American company and what they decided, and this was probably about a year or two after COVID lockdown ended and they said, [00:09:15] we really want to figure out a way to.
Pilar: Bring this back home. So we want to double down on our investment in Mexico. Now, as you rightedly pointed out at the onset, we're more of an Asia based firm, but because we recognize the need for this [00:09:30] kind of pivot, we made a small investment in Guadalajara, Mexico, where we now have a small team that supported specifically these kinds of requests.
Pilar: And this example on the furniture company is not, is only one, but I think it highlights the point where we took this [00:09:45] client and said Okay. What are the components or products that are coming out of China for you? We did the cost arbitrage of which products were the most expensive to relocate versus those that might be easier to relocate and wouldn't disrupt their supply chain too dramatically, but bring them additional cost [00:10:00] savings.
Pilar: And in doing that, we ended up going through a, an MNA process in Mexico to help them find not just suppliers, but actually some manufacturing footprints that they could. Absorb and take over and move on. So in that example, I would argue that it [00:10:15] wasn't so politically driven. There wasn't the motivation was more on cost management.
Pilar: China is no longer the cheapest place to source furniture. Not to say that Mexico is significantly cheaper, but when you put the landed cost calculations into play, [00:10:30] you do start to see. Some benefits there.
Art: Yeah. And shipping, like you said, the risk of factory shutdowns, that's not necessarily a political risk.
Art: China, I guess everything can be somewhat political but that's the, The supply chain disruptions, [00:10:45] that, that's something that is maybe wasn't as much of an issue, but you're seeing your clients and helping your clients price that additional risk into their calculations and then it's at a place like Mexico makes more sense.
Art: I wonder if that's going to be, or, if you're seeing that as a trend for not just. [00:11:00] traditional multinational companies, American or European based, but even Asian companies and even Chinese companies realizing, Hey maybe this whole, the potential for supply chain disruption, obviously it affects our business as a Chinese manufacturer just as [00:11:15] much.
Art: Maybe we need to diversify our own supply chain out into other parts of the world. And are you seeing that directly or indirectly? And how would you describe that phenomenon?
Pilar: Yeah, I would. And I think it's very industry specific. So [00:11:30] what you find is when these companies that are the larger players decide to make any kind of further investment outside of China, their ecosystem that they have spent decades truly building up in China, which is what makes China such a [00:11:45] beautiful manufacturing prowess because they did masterfully put together complete communities really in certain industries that would be pockets for Supporting those large manufacturers take.
Pilar: Automotive is the easy go to [00:12:00] example. So when you have the large, the starting point of those big companies saying, okay we've been manufacturing in Chongqing for decades, and all of our component suppliers are conveniently just [00:12:15] kilometers away from us. We now are going to make our next investment.
Pilar: We're not shutting anything down. We're not moving anything away, but we're making our next investment in Fill in the blank, Vietnam, India, Indonesia, wherever. And as a result of that, we are asking you, Mr. [00:12:30] Supplier, to make a move as well. Are we seeing this mass exodus of complete comprehensive supply chains not evacuating China and moving elsewhere, but making their further investment overseas?
Pilar: Yes, I would say that from our firm's standpoint, [00:12:45] we're seeing an uptick in the inquiry. About how to make that possible. We also have seen an increase in our clientele mix. Normally our clients were predominantly Western clientele with certain. A lot of [00:13:00] Japanese and a lot of Indian domestics also as our key clientele, but not so many Chinese.
Pilar: Native domestic clients up 2 years. That and their inquiries are all about export opportunities. Where can I [00:13:15] be outside of China that can also be a market opportunity for me to serve these customers that have always been part of my ecosystem and are now possibly opening up a whole new market for me to be a part of?
Pilar: So I would say that we [00:13:30] are seeing that as far as the companies that we're finding, looking for overseas, going outside of China Japan is another one. So we at YCP, our founder is Japanese. We were born [00:13:45] in Japan. We are publicly listed and traded on the Japanese stock exchange. And our largest revenue contributor in terms of our firm is our Japanese office.
Pilar: Given that I'm now coming at you with a perspective of the [00:14:00] Japanese mindset and what their businesses are starting to do and looking at the Asia, Asia picture. And when they look at that Asia map, a lot of our Japanese clients are starting to have an elevated focus in [00:14:15] expanding artifi, not China.
Pilar: There's a Japanese India corridor that's starting to open up. You can see with Kishida just here last week all of the increased investment ambition that they have, that Japanese have for for the U. S., which [00:14:30] is not to be understated. And really what you're finding there are some very salient examples that we work in more in the retail and consumer goods categories, as well as food and beverage, that these Japanese companies are seeking [00:14:45] outbound opportunities.
Pilar: Amen. And I'd love to hear your thoughts on this to art, but I think one of the One of the examples we have with some Chinese companies, and I'm going to give you to illustrate how Chinese [00:15:00] companies without that whole ecosystem example, I laid out in the beginning on the automotive case, but how some Chinese companies are starting to view outbound investment.
Pilar: And. The first thing I would highlight is one of our clients is in the artificial intelligence and [00:15:15] technology sector, and clearly, AI plays a very sensitive role, especially when you're talking about Chinese AI looking to invest outside of China. But in this case they, we are working with this company to find joint venture partners [00:15:30] because their ambition to get out of China is exceptionally high because they are worried that the market cap in China is already too low for them as well as already quite inundated with domestic players that have more [00:15:45] government influence. The 2nd indicator I would share with you. The 2nd client I would share with you is no surprise in the energy sector, a solar panel manufacturer in China. Who is eagerly exploring where they can be moving [00:16:00] to in what markets are going to be welcoming and accepting of their equipment and products.
Pilar: In the US and Europe. So couple that with a lot of the, you have Janet Yellen just recently returning from her visit and making a very pointed [00:16:15] statement about no anti dumping. We don't need your overcapacity problems to influence us. And solar panels is right up there on the list. So this is an example to where you can see the overcapacity element, [00:16:30] which is a structural challenge.
Pilar: China has is another factor. That's going to play into more Asian companies seeking those outbound investment opportunities. I would say.
Art: Yeah, that mirrors like you alluded to that that mirrors what I'm seeing too. What you [00:16:45]described is in your role as a strategic consultant is very similar to my role as a legal consultant.
Art: It's that, that shift from have starting to see Chinese companies have more and more interest to go outbound and needing professional advice. [00:17:00] And, willing to pay for that professional advice, which is, was not as in the old days was a little bit harder. So that's an an interesting development.
Art: And I also think that the similarly, like clients are coming to the U S or out of China, not [00:17:15]so much because because as you said, China is so competitive, right? And so it's actually. Maybe the second example you use is better with the solar panels or where there's a more less competition and more.
Art: There's at least some margin to have in the US being a high [00:17:30] margin place for a lot of different products still compared to China. That seems to be the biggest push that I've seen for companies as well.
Art: And it's interesting you mentioned the AI case. I totally get that. That's. Yeah, that for a lot of reasons, I could see that there be there would [00:17:45] be limitations on what they can potentially, their ceiling in China, what they can do there.
Art: And so that makes if they have the fundamental technology that may totally make sense that they would be looking to move out or sooner rather than later. Yeah. And it also begs the question where, you know, The whole [00:18:00] domicile of these companies and, like moving around, is it Singaporean companies and Chinese company?
Art: You can, of course you can say the same thing about U. S. companies, right? That so many multinational quote U. S. companies get less than half their revenue from the U. S. And so [00:18:15]what does that make them, right? So many French. Fashion companies make much more money in China than they make in Europe.
Art: So are they a Chinese fashion brand or are they, L'Oreal or something like that? Certainly if you ask them, they would never say so, but knowing some people that work at L'Oreal [00:18:30] but yeah I, it's, And I guess that gets to my, my, my next question, of the the solar panel example and the potential for dumping anti dumping countervailing duties on on exports to the U S and [00:18:45] E and EU potentially, how much, cause that's so much of a must be so much of what goes into your analysis of, for your, and advice for your clients.
Art: Do you ever, Market that as [00:19:00] it's not necessarily like a standalone like service Hey, we also offer this political risk advisory bucket of us as a service, or it's just always part of what you do. You don't have to break it out as a separate kind of business line or separate cut because there are firms that's [00:19:15] clearly this do that, right?
Art: So I don't know if you're thinking of integrating that kind of a service into what you already do.
Pilar: Yeah, I wouldn't say we do it to the degree of the risk factors that a company like control risks, for example, might do, or even a law firm [00:19:30] like yours. But when you talk about a go to market strategy, you will oftentimes find that the pestle analysis and what's going on with, political instability and perceptions of a Chinese entity coming into a certain [00:19:45] market. What? How will that withstand the test of time and built on that macroeconomic perspective on the industry and that market we then go ahead and build out some of the detailed strategic plan of how do you bring your product to [00:20:00] this market?
Pilar: Who are the distributors? What's the channel? Who are the customers? The competition? Typical strategy engagement. What I will share, and I think that this is actually quite fascinating, is I recently had a Chinese client who was exploring the [00:20:15] U. S. market, and they asked us, as part of our go to market roadmapping, and again, like I shared in the beginning, We aren't extensive in the U.
Pilar: S. But when we have Chinese clients who are working with our China team, and they have a U. S. element, they bring in our small team in the U. S. [00:20:30] to help them with this. And this client on a call, Chinese executive said, now, tell me when we're going through the site selection phase of this project.
Pilar: We really need to understand what regions in the U. S. are [00:20:45] amenable to working with Chinese people. very much. And where are the risks the highest because of gun policy, these were, it didn't necessarily take me back, but it just it was not a typical question [00:21:00] when doing these kinds of risk analyses and.
Pilar: Ability to work in a certain country, those are things that you just don't think of people being so concerned with, but it was a legitimate fear and a legitimate. Component that went into the decision [00:21:15] making process for this company of where do we even want to go? Is it Texas, Alabama or Minnesota?
Pilar: And. The reasons we're not just, an Excel spreadsheet rationale of a cost savings benefit analysis. So it comes into a lot [00:21:30] more of the social factors of how these. Foreign companies are starting to invest to
Art: well, that's interesting. I have, I don't know if I've heard exactly that kind of a question, but I have heard that kind of it's I'm no longer [00:21:45] surprised if that came up either in a client inquiry, you and I probably think why is that so relevant?
Art: We're not to diminish the, not to diminish that there is a real, Problem there with crime and gun violence and all of that sort of thing, but wouldn't necessarily. Yeah, [00:22:00] you and I wouldn't think of that as being a material factor in deciding, like you said, site selection. But yeah,
Pilar: more generally,
Art: yeah, things have changed.
Art: There's a couple things there. One is I think there's probably a sensitivity more broadly to, [00:22:15] especially from Chinese companies or any international companies of how they'll be perceived in the local community, right? And so culturally they'll fit in. And so for that, so that's relevant. Whereas maybe we wouldn't think that should be relevant.
Art: But these days, it maybe it [00:22:30] is. And so some states, like you said, Texas might be a little more open these days to foreign to, to companies coming in with foreign investment than others. And then you've got, That's would go back to what we said more at the top of this whole perception [00:22:45] versus reality.
Art: Again, got crime and gun violence is definitely a problem. That's that is a reality. But maybe the perception in, let's say, China of how bad things are in the US, it could be even worse. So that we're [00:23:00] all somewhat of and we're the same way here. We're all a bit of a victim of. Where we get our information from, right?
Art: So
Pilar: absolutely.
Art: Yeah. I was, cause, cause I've, I, we've talked about some of the clients that you've worked with anonymously. We've talked about some of the [00:23:15] clients you've worked with before since stories I've heard one to one talking with you over coffee, but I thought it would be great if you could share with our audience any more specific examples of.
Art: How you walk the client through the whole process, [00:23:30] right? Because I think What you do, of course, is very valuable, but still, there's probably, and I expect, especially with Chinese clients, there's still some, a bit of a learning curve for them. On how the value they get from working with you.
Art: So I'd be curious [00:23:45] how you what's the typical process, especially for a new client coming on board, how you help them solve the strategic problem.
Pilar: Yeah thank you for the question. I think. With the clientele makeup that we have, as I mentioned before, Western clients, and I put [00:24:00] Japan in that bundle and let's just for argument's sake, put India in that bundle too, probably represent about 80 to 90 percent of our clients.
Pilar: So our volume of Chinese clients is small, but growing mightily which I'm very proud of. So taking it from the perspective of [00:24:15] that larger massive clientele who come to us, they typically come to us and their problem statement is, I need to grow. The only region geographically that's growing for our industry is Asia Pacific.
Pilar: Help me figure out how to crack [00:24:30] that. And many times, especially with multinationals, they've got a very solid footprint already. It's not as if they need the one on, what is India's GDP and population? What they're really after is, you know, help me [00:24:45] understand how to compete locally, and this is becoming more and more relevant for our China clients as well.
Pilar: So the kind of services that they are looking for that we often are being asked to support them in is both [00:25:00] formulating that strategic plan. And then actually delivering it, so what that turns into is sitting down with the client and saying, let's get a both an inside out and an outside in perspective.
Pilar: Let's understand your business operations, [00:25:15] understand your business model. Look at what your core services are. How do we expand that core and grow beyond it? Whether that means other products, other geographies, other partners, and then how do we even go well beyond that core for the [00:25:30] future, 10 to 15 year vision?
Pilar: And that might be, going into something that is so foreign to what they are today. If they're an HVAC company, for example, going beyond the core might mean, okay, let's go from, Heating and venting and just air conditioning units [00:25:45] into something like building security. That's adjacent, but then what would be way out there?
Pilar: Maybe we can start getting into, artificial intelligence for temperature controls in cities where [00:26:00] climate change is affecting the way in which those the air quality and pollution is working. But, that's moonshot. So we, they come to us and say, how do we grow the core, expand the core and go well beyond the core?
Pilar: And what are some of those immediate? [00:26:15] Activities that we need to take on. So those initiatives take anywhere from, 2 to 4 months and it's very intensive because like I said, inside out means we talk with client outside in means we're going out and doing field research. So we're speaking with their [00:26:30] customers and competitors to really get a perspective of the market, because as I like to say, to my clients, your opinion on what you should do while possibly interesting is totally irrelevant.
Pilar: The market is what matters. So we're always [00:26:45] telling our client. You have to understand what your customers are after and where they're going instead of just forcing your opinion, which is probably very closely aligned to be fair, but you really need that outside in. Once we have that whole [00:27:00] map identified, we build out the whole execution plan.
Pilar: We then go into delivery mode and that delivery mode looks a lot like a business transformation exercise. It's. Activating anything from a sales and marketing [00:27:15] perspective. It's implementing some organizational changes, adopting a new digital strategy and technology innovation program within that company as well.
Pilar: And that's all done under kind of our guidance and leadership to carry that through. And that's really [00:27:30] where the value is. We have a tagline that you'll find on our website that's called Strategy Delivered. And that's exactly what it is. It's the delivery of that strategy or a strategy they've already defined elsewhere.
Art: Got it. Okay. [00:27:45] That's fantastic because I, I can I can tell just by going on the website that you have these wonderful testimonials, which I'm sure it didn't take too much prodding to get from your clients because they've seen, they all seem quite happy with the work that you've done at this.
Art: That's what [00:28:00] struck me as I don't see many firms with that many amazing kind of testimonials on their site. So it's just a tribute to the work that you guys do. And the last thing I wanted to touch on because I know speaking of your firm, I know historically so much of The work that you've done over the years has been M.
Art: N. A. [00:28:15] Related and, and the testimonials also speak to that. So I wonder if you could comment a bit about obviously M. N. A. or globally has slowed down. As you mentioned, the interest rates changing, increasing over the last few years, and [00:28:30] I'm sure that's 1 of the primary factors. D.
Art: What are you seeing? Any trends in the region as far as M. N. A. Activity and. And who is active and who and how things may or may not change in the near future.
Pilar: Yeah, no, I think you've hit on [00:28:45] it and just, 1 of the things I was looking into is just as far as Chinese M& A deals and how they have slipped.
Pilar: It's been pretty severe. So when you look at M& A deals in 2023, they were at about 2, 500, according to [00:29:00] S& P. When you look at 2022, the year before, they were. At 2, 598. There it's just, it's a small decline, but it's definitely directional and going in that area. And in 2019, they were the lowest for [00:29:15] the whole decade at.
Pilar: Just at 2, 500 this seems to be the sweet spot number for the last 5 years. What. We anticipate is we do see a little bit of uptick in our M and a practice. But it is, again, industry [00:29:30] centric, so some of the categories where we see it is energy. So some of our clients in the energy space, whether it be oil and gas, new energy, battery storage and energy transmission and then also on [00:29:45] the telecom media and technology, the sector that seems to be driving as well.
Pilar: There's also, in terms of our anecdotal experience, automotive, we're seeing quite a bit, and we would actually bundle the EV piece under there, more so [00:30:00] than energy, but on that mobility piece, just to give you a case example, we are working right now on 2 separate deals tied to China, and it's 1 of them is, On the buy side, the other on the sell [00:30:15] side.
Pilar: So on the buy side, it's in the automotive aftermarket, and this, sheds light on foreign companies open to and willing to invest in acquiring Chinese players. Not opposed to finding a Chinese [00:30:30]company that would be a good fit from, A product standpoint for export, a product standpoint from getting deeper into the market.
Pilar: So it's to hit both. The valuations
Art: are probably pretty attractive these days, especially for Chinese. That are pegged to the Chinese [00:30:45] capital markets for P ratios and stuff, so forth.
Pilar: Exactly. Exactly. And then, on the sell side example, we've got one company that does have a plant there and in.
Pilar: Latin America, and they are in the process [00:31:00] of trying to explore not for geopolitical reasons, purely just owner ready to exit. They are also looking to explore potential buyers from anywhere in the world, and they have their hypothesis is we believe the buyer should be a Chinese buyer. [00:31:15] And that's been an aggressive play on the sell side.
Art: And, for those kind of I'm curious how you work with folks because a lot of these companies in Asia that you might be working with and are acquisitive [00:31:30] in these days are they green at all? Do you have to walk them through more of the process as far as, how you, you think about going about a deal and on, then on the backend, getting ready for the, the post merger integration.
Art: How has your team traditionally [00:31:45] helped companies, let's say maybe that are a little less experienced in M& A.
Pilar: Yeah, there's, there is a bit of the not just on The tactics of acquisition and deal transaction, but also on the on the landscape of the markets that we're [00:32:00] talking about.
Pilar: So sometimes when the remit or the mandate is a pan Asia, and we showcase Indonesian company, a Thai company, a Chinese company, and a Japanese company, there's a separate section outlining, here's a Japanese. [00:32:15] that you need to be aware of on top of, everything else. So that's something to be thinking about with regards to helping companies do this.
Pilar: It's actually quite common that the individuals within these organizations that are working [00:32:30] on these deals come with enough background in, in transactions, whether they're bankers themselves and they've just gone in house. Or that they've done deals within the company before and they just get it.
Pilar: Or a third example is they may be private equity owned. And so they're [00:32:45] having the PE guys get involved in the project. So either way, the amount of education possibly needed and how the transaction works isn't necessarily something that we're finding ourselves having to do. I will share though, that on the post merger [00:33:00] integration, that's a key core competence of ours.
Pilar: And that's, Essentially, when you look at our founder and I started, I gave you that whole Japanese background, but our founder, Japanese gentleman by the name of Yuki Ishida, he actually is former Goldman Sachs guy. [00:33:15] So he's Columbia university educated, spent a lot of time in the States, but has that knack for investments.
Pilar: And so when YCP was first started, it was all on the concept of Taking M& A deals [00:33:30]and then helping them implement and integrate and realize the synergies that they went after in the first place. So we go through and do PMI all the time with clients. And what I think is most telling is we ourselves are quite acquisitive and [00:33:45] having done, on record, I think we've probably finished about.
Pilar: three, maybe four deals in the last two years. So we ourselves walk our talk. We have a very structured methodology. How does the first hundred day plan go? How many BD [00:34:00] interactions do you have? What's the HR and the closing activities? So it's it's kind of part of our DNA. But when talking about, what are clients doing in China right now with regards to M& A, I think that there is definitely heightened interest again and it's [00:34:15] encouraging to see because, like you said, the valuation is there, but I would argue that it's probably some of the smaller sized companies that don't have to go through so many hoops to jump through in the boardrooms at your fortune fifties, where they've got a little bit of a concern around [00:34:30] making deeper investment in China.
Art: That makes sense. But no, nevertheless, you guys are well positioned I think, I would guess, especially because you have your DNA in Asia and the deep experience there and that focus there. I imagine the PMI is, so much of it is [00:34:45] just as much kind of the cultural integration as it is anything else, and that put, I can't think of anyone, more focused than you guys on in Asia.
Art: So I think that's probably, it's another thing that makes you guys stand out. To help on that part of the process.
Pilar: [00:35:00] Thanks.
Art: Yeah I think. Pilar I think people listen to this, there's going to be no shortage of people that want to reach out and it could be anywhere from an inquiry, about potential, potentially helping them or or, other ways to work with you.
Art: What is [00:35:15] traditionally the best way people can reach out to you? Is it LinkedIn or go to the, your website or how should people contact you?
Pilar: Yeah, that's a great question. And both are very valuable. So my LinkedIn is publicly available. I encourage people to follow up with [00:35:30] me.
Pilar: I'm quite responsive there. And then also, yes, our website does have. Direct access with reforms to to reach our team and your inquiries, if they are specific to a certain geography or a certain industry. Are directed to the [00:35:45] most appropriate partner within our firm. As you mentioned, there's about 400 plus people in our organization and we've got well over 20 partners.
Pilar: So there's a lot of industry specialization and there's also a lot of geographic specialization. And I'm always happy to make sure that you're [00:36:00] connected to the right folks as well.
Art: Great. Thanks Pilar for joining. It's been fascinating. I think we hit on a lot of topics that, that are really hot and in the news these days.
Art: And I think the audience will get quite a bit out of listening to this episode.
Pilar: Art, like I said at the beginning, I was, I've been looking forward to [00:36:15] this. So thank you for making it happen. And we're excited to be partnering and collaborating with you.
Pilar: So congratulations on this great podcast program. You've been developing and driving for the last few years.
Art: Thanks. Much appreciated. Thank you again for coming on the show.
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Security in an Evolving Asia Business Environment
18 apr· Asia Business Podcast
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Full show Transcript below Summary and Timestamps
Security in an Evolving Asia Business Environment
In this episode of the Asia Business Podcast, host Art Dicker interviews Ron Efron, the director of BluOcean Security, about the comprehensive security services they offer multinational clients across the Asia Pacific. Ron shares insights into the origins and rapid growth of BluOcean Security, detailing their specialization in physical security systems like electronic security components and access management. He discusses the unique security needs of Fortune 500 companies, the impact of COVID-19 on security definitions and practices, and the increasing shift towards cloud-based security solutions. Ron also addresses the challenges and opportunities arising from geopolitical changes and migration strategies of multinationals out of China. The conversation touches on the complexities of navigating regulations, the adoption of facial recognition technology, and the importance of being agile and prepared for the future in the security industry.
Introduction
Welcome readers to an in-depth exploration into the realm of BluOcean Security, a premium security firm reshaping the landscape of security services across Asia Pacific. In this blog post, we delve into an exclusive conversation with Ron Efron, the director at BluOcean Security, shedding light on the company's journey, services, and the evolving dynamics of security in today's interconnected world.
The Genesis of BluOcean Security
Ron Efron, with a rich history in the security industry dating back to the late nineties, leads the charge at BluOcean Security. Founded in the end of 2018, the company swiftly established itself as a trusted partner for multinational clients seeking top-notch security solutions in the Asia Pacific region.
Unraveling BluOcean Security's Offerings
BluOcean Security stands out as a physical security systems integrator, specializing in safeguarding clients' assets and facilities through a wide array of security solutions. From electronic security components to comprehensive security consulting, the company caters to clients who prioritize security and compliance with international standards.
Navigating Security Risks and Client Needs
In the quest for fortified security measures, BluOcean Security collaborates closely with clients, especially Fortune 500 companies with operations spread across Asia Pacific. The company aligns its offerings with the unique security risks and compliance requirements of each client, ensuring a tailored approach to security solutions.
Adapting to the Shifting Security Landscape
As the world witnesses monumental shifts in how businesses operate post-pandemic, BluOcean Security underscores the significance of staying ahead in the security domain. From remote working challenges to the surge in cloud migration, the company emphasizes the crucial role of evolving security practices to meet the demands of a changing world.
Embracing Technological Advancements and Privacy Concerns
In the era of emerging technologies like facial recognition and AI, BluOcean Security remains vigilant towards the sensitivities surrounding data collection and privacy. The company navigates the fine balance between leveraging advanced security technologies and respecting privacy boundaries, showcasing a nuanced approach to modern security challenges.
Navigating Global Security Standards and Regional Dynamics
With a firm foothold in multiple Asian markets, BluOcean Security is adept at tackling diverse security challenges across borders. The company's agility and expertise shine through as they assist clients in navigating the complex web of security standards, compliance regulations, and regional nuances prevalent in the dynamic security landscape.
Embracing Growth Opportunities in the Security Sector
As the security sector witnesses continued growth and transformation, BluOcean Security stands poised to embrace new opportunities and expand its footprint across emerging markets. By offering cutting-edge security solutions and unparalleled expertise, the company positions itself as a trusted partner for clients seeking to fortify their security measures in an ever-evolving world.
Conclusion
In conclusion, BluOcean Security, under the leadership of Ron Efron, exemplifies a beacon of innovation and reliability in the realm of security services. With a commitment to excellence, a keen eye on emerging trends, and a penchant for navigating complex security landscapes, the company continues to carve a niche for itself as a leading security solutions provider in the Asia Pacific region. Stay tuned for more insights and updates from BluOcean Security as they continue to redefine the contours of security in a rapidly changing world.
TIMESTAMPS
00:00 Introduction to the Episode and Guest
00:44 Exploring Blue Ocean Security with Ron Efron
02:19 The Core Services and Clientele of BluOcean Security
06:31 Adapting to Security Needs in the COVID-19 Era
09:22 The Shift Towards Cloud-Based Security Solutions
13:43 Navigating Data Security and Compliance Challenges
18:59 Emerging Technologies and Privacy Concerns
25:49 Global Trends and the China Plus One Strategy
30:41 Closing Remarks and Contact Information
TRANSCRIPT
Art Dicker: Welcome, everybody, to another episode of The Asia Business Podcast. I'm your host, Art Dicker.
Art Dicker: Today, we have the wonderful pleasure of having Ron Efron join us. Ron is the Director at Blue Ocean Security, a premium security firm offering comprehensive services including security consulting, systems integration, and security management to multinational clients throughout the Asia Pacific.
Art Dicker: Ron, welcome.
Ron Efron: Thank you, Art. It's good to be here.
Art Dicker: Yeah, and you have a podcast of your own, which we'll give you a chance to talk about in a minute and tell us a little bit about. For the audience, what Blue Ocean Security does, what it's about, and you're relatively new, but I know you've grown quickly and had quite a lot of success right off the bat.
Art Dicker: So give us a little bit of an intro about the company.
Ron Efron: Sure. Blue Ocean Security is what you would call a physical security systems integrator, and we provide services that revolve around that. So what it basically means is that when you walk into a building today, you'll see electronic security components such as cameras, turnstiles, or various access locks to doors. We're essentially protecting the perimeter, the facilities, and access to those facilities in various ways. That's what we're doing for multinational clients in Asia Pacific. To be more specific, we focus on clients that take their security seriously. Not all companies prioritize security, and we specialize in those that do. We serve clients with facilities across the Pacific, and we've been quite successful at that. Blue Ocean is relatively new. We started at the end of 2018. Personally, I've been in this business since the late nineties, started my first business in Beijing, and grew that business across Asia Pacific. I sold that and exited in 2015. Then we started Blue Ocean Security with a group of my ex-employees, and myself. We decided to get back into the business because we saw that there were still opportunities. So, we got the band back together, so to speak.
Art Dicker: Yeah, and like I said, you've done very well and you've expanded rapidly to different locations throughout the region. Can you, now that you've given us a nice introduction of what the company does, what are clients looking for when they're coming to you? At a high level, can you walk us through some of those chief security risks? You mentioned physical security and stuff like that, but what's often a trigger point when a client comes to you? What's usually the first thing that they're worried about?
Ron Efron: First of all, we focus a lot on multinationals, primarily Fortune 500 companies that have operations around Asia Pacific. For most of these companies, they not only have concerns about security, but they also have certain standards they need to comply with—internal standards or otherwise. They generally know what their needs are and they need to tailor-make those needs to the facilities in different countries. So, they take a standard that may have originated in North America or Europe and adapt it to comply with the standards in New Delhi, Jakarta, or China. Maintaining an international level of expertise and service across Asia Pacific is really our specialty. Additionally, we merge those local risks into the design. When we start working with a client, they'll come to us with a new facility. We'll work with them to do a full design and list of equipment needed, then procure the various components and move on to installation, programming, and commissioning. Every project is different, and risks and needs vary as well.
Art Dicker: How do you handle cases like the ones where, let's put it amusingly, cameras need to survive explosions? Do you ever encounter such non-routine requests and wonder where to find such specialized equipment?
Art Dicker: Are you tapping into a similar set of suppliers and vendors you usually work with, or do you sometimes need to find very specialized ones, like in that example?
Ron Efron: Yeah, we've been in the business for a long time, so we know where to find that. Occasionally, we have to resort to custom-made solutions. But even then, we work with suppliers who can meet the required standards. Take, for instance, explosion-proof housing for cameras. That's a very unique product type that needs to comply with specific standards. There are various levels of explosion protection, similar to bulletproof glass, with standards dictating thickness and capability.
Art Dicker: We talked about this before recording, but as with any business, COVID has changed things. One of the most obvious examples is remote and hybrid working, but other aspects have been affected too, including supply chains. How has COVID impacted your industry, particularly regarding the multinational clients you serve? What changes have been most notable?
Ron Efron: COVID has significantly broadened the definition of security, encompassing issues such as pandemics and business continuity planning. It's raised questions about the responsibility for employee safety when they're working remotely. Also, concerns emerged about safeguarding data when employees are working from home, ensuring the same level of security as in-office setups. There's also a growing trend around employee well-being intersecting with security. Security departments are now collaborating more closely with HR, legal, and cybersecurity teams, even occupying a seat at the C-suite table to advise on navigating this new landscape.
Art Dicker: You mentioned some of the data and security aspects. Obviously, there's been a huge trend, speaking of COVID, changing the way we work and so forth. There's been a huge trend towards migrating everything to the cloud. Is that something that you've been dealing with as well with your customers and some of the security challenges there?
Ron Efron: For sure. Yeah, and we can talk for hours just about this subject alone. Yes, and it is the normal evolution of technology. If you think about it on the IT side, there's already been a lot of migration to the cloud. A lot of the tools we use everything from Microsoft Office to Teams or your ERP system, be it Salesforce or NetSuite or anything else, it's already on the cloud. Security being a bit more conservative, it's just taking them longer to adapt to a lot of those cloud technologies. And that's normal. We've seen it also in the past when there is a change between analog video to digital video back in the early 2000s, for example, there's the same kind of transition process. With the cloud, a lot of it really comes down to people's perception that it is perceived to be less secure than having everything hardwired in your facility. And in most cases, that's just a perception and in most cases, that's not true. So you have to deal with that. And there's a lot of education around that as well, but we're seeing a lot of trends of companies moving more and more into the cloud. It's starting with smaller companies and slowly being adopted by those larger multinationals as well. And there's no way around that. You cannot not make that move to the cloud. We also see some real challenges, for example, like in China with the great firewall and how companies deal with that sometimes, and there's ways to deal with that, but that trend is here and it's pretty much here to stay and we embrace it. We are always recommending it or at least components or parts of security to be more cloud-based. And basically what this means is that companies can avoid having a server on their premise. Server is actually in Azure or AWS and Amazon or some other cloud facility. And another part of it is the database is maintained on the cloud. And in many cases, video is being more and more recorded and stored on the cloud as well. That's where you're seeing that.
Art Dicker: Which I guess from what I'm hearing, it's all much more secure and actually than anything that server is sitting in the office is actually, it's actually a prime liability or vulnerability.
Ron Efron: Exactly. So if you're a medium-sized company there's pretty much no way that your cybersecurity is a higher level than Amazon and AWS or Microsoft Azure. Or the amount of money they spend on security on their data centers. The physical security around data centers and their cybersecurity around data centers and all the tests and penetration tests and everything to do around that. There's really no way most companies can have that same level of security. And then it comes down to people engineering, right? So people try to get through that through other ways like phishing scams otherwise you can't get you. You're right. So you can't the degree of cybersecurity will never be at the same level. Therefore, and then you need to, so it is worth it to move down to the cloud from that point of view, actually more secure in many cases. It's also cheaper. And it's just becoming more and more cheaper but there's other things around cybersecurity that you can be more worried about and concerned about, and that's more around the human elements.
Art Dicker: Yeah, you mentioned though that, that, it started that trend of the cloud started with small companies and that really was, AWS, right? That was why should I pay for, you pay what you use as far as software licenses and. And storage and computing power and so forth. Interesting that and I imagine security, right? People probably were educated and recognize that, um, and speaking of security, cybersecurity and data security are obviously very important and as the kind of the value of data increases what it can be used for and so forth. How has the importance of data to a company increased the demands for your business from a security perspective?
Ron Efron: It depends on the company in many cases as well. So some companies, they take their data, they're more data-centric, they take that more seriously than other companies, but there are two trends here. One is the general security trend where we're seeing more and more hacking and ransomware attacks and other types of phishing attacks, which are real practical risks that companies of all sizes have to deal with on a day-to-day basis. You also have an increase in regulations and compliance needs that companies also need to be increasingly complying with. And in your world as known on the law side, on the legal side of things, we're seeing that pretty much every country in the world, everything from Europe's GDPR to China's PIPL. And so you have to have certain measures in place that have some basic safeguarding of data. So even if you're not worried about it too much, there's an increasing need to be compliant with those regulations. A third part is that if you're working with other companies that take their data seriously, if you have any contractual relationship with them, you'll likely see more and more increased incidents where there are cyber-related clauses in your contract, things that you need to do and insurance that you need to buy, and it's not cheap to have an extra layer of security there so those are all multiple forces that are pushing people to take this issue more seriously.
Art Dicker: I do. And I see that in contracts. You're absolutely right and whether it's a rep and warranty or specifically calling out sys, standards that need to be met or requirements for reliability and both from the server being up and standpoint and so forth. And that's the world we live in. And maybe 10 years ago, people didn't pay nearly as much attention to it, but they do. And I wanted to I wonder in your world, how much you have to stay on top of that, right? Even maybe even thinking a step ahead, right? Regulations coming out that are starting to slowly come out, for example, on artificial intelligence or obviously, for the longest time we saw in China that, we, the legal world goes to China doesn't have a comprehensive data, data privacy law. Now it does. And we saw it coming. So I imagine that's probably a big part of what you're, you don't want to be reacting to a trend right on the regular regulatory side. So how much do you have to stay on top of that, see regulations coming out and say, Oh, that's a compliance challenge that they're gonna have to come to us for. Right.
Ron Efron: Look, it's just smart business, to be honest, we want to be. Within our organization, we have people that are constantly looking at the future in terms of trends and technology. So that's one side of things like what's evolving around technology. What are things going to look like in the future? How can we be a better consultant to our customers where we're offering them a system that's. What we try to say future-proof that it won't be obsolete in a couple of years and have to buy a new one. So that's one side. The other side is, of course, the regulation side. It's not just the regulations around data, but it's also other types of regulation that any business would be interested in. But of course, we want to understand that and then be ready for the other side to your question is that it helps us to be more ready when we're being pulled in that direction by our customers as well. So when a customer comes to us and says, Hey, we're worried about this. We don't want to start stumbling over ourselves to try to answer that. We want to be ready with an answer. I said no, this is what we're seeing. This is what some of our other customers are doing that is some of our partners are are telling us, for example, in China, around the PIPL, we do have some existing relationships with some law firms that specialize in this as well, that we can refer clients to if we need to work with them together, to be honest, a lot of our larger customers, they have large legal teams in place and what we do is we help educate the security teams around that so that they are being able to work better with their internal legal departments. And when they need to put something together, that they're better prepared for that. So for example, in the security world, if you have a global database of your employees and you're, that's moving digitally between China and other countries, there are certain legal processes that you need to go through now in China with their new with their new privacy laws. So that's something that we can try to help adapt the system to better suit their needs in their specific situation.
Art Dicker: And speaking of it, it certainly touches on China to some extent, but not exclusively to China. Are there sensitivities speaking of sort of personal data, one of those personal data is facial recognition, right? At least indirectly. Are there any sensitivities you've encountered with this or other emerging technologies where you're it may for your clients? And I imagine it's a sensitive issue, not just for you, but for your clients as well, where it might enhance these things from a security perspective. But again, you have to be cognizant of sensitivities around some of the data you're collecting and your system is collecting, right?
Ron Efron: Yes, for sure. And again, different companies have different cultures and different backgrounds and different ways of dealing with that. Excuse me. So for example, European countries and companies are going to be more sensitive to such issues, whereas Asian companies might be less sensitive to that just culturally. And the U.S. is somewhere in the middle. We have some international schools as clients that are also very worried about that, and there are various ways of dealing with that. So the facial recognition technology is not necessarily keeping your record of people's faces. It keeps other signatures. So there are other ways to deal with that and be sensitive to people's privacy and all that. But in terms of adoption and in terms of perception, that it really comes down to those their home culture biases. In many ways, but it's, that's not the only type of technology that's out there, but it is becoming more and more widespread. Another thing is that it's not cheap. It's actually quite expensive to have facial recognition. So that's also another inhibitor to its widespread adoption, but it's just one more technology out there. Like here in Asia and Singapore, for example, the airport is full of it. You, every gate that you pass, every inspection point is done with facial recognition today. It's not done with people looking at your passport and your. You're seeing it more and more in office buildings as well. That being said, in China, it is pretty much everywhere. Oh yeah. So every visitor management system, if you go into a building and you're visiting a client or a supplier, you're going to go through a process where they scan your passport, they take a photo of you and everything, and then to get into the actual elevator bank, you have to pass through a turnstile that's probably looking at your face. And it captures that. For Chinese citizens, it's even a step more where it's all linked to their Alipay accounts and sometimes they can do a transaction just by looking into a camera without even using their phone at all, which is pretty scary.
Art Dicker: You beat me to it, but
Ron Efron: what we are seeing though, is that some of these technologies that are in China are evolving within China and not outside of China, even to a point that we, once we approached a Chinese facial recognition product company, and they told us straight out that they're not selling outside of China, that they're just, there's not doing that market.
Ron Efron: Yeah.
Art Dicker: It's big enough market in China, for that anyway but yeah, maybe I can see why not.
Ron Efron: That is true, but I am worried that longer term, there might be dual standards in the world. There's going to be a China standard and a global standard for various things, not just security, you see it also, there might be on communication network protocols. There might be other aspects that the China, Chinese government are going to try to have their own for various reasons.
Art Dicker: Does that present a challenge for your clients? Having to be on both sides of the Great Firewall, for example, and having dual standards for things?
Ron Efron: It hasn't got to the point where you need to, at the protocol level, that things are different.
Ron Efron: No, I haven't seen that yet. But I think at a larger global geopolitical element, China is trying to be more of an influencer on global standards. And, due to their size, they, you can understand that, most of our customers, they're trying to be compliant with like international norms.
Ron Efron: So a way you might have seen this in news recently were in the past where some CCTV products were banned in the U.S. government, at least. So that has trickled down to some companies as well. And we're not trying to push that one way or the other. If a client comes to us and says they don't want, they want to exclude certain brands from their design, that's okay. And others, that's not an issue for them. They want to see all the options. So we cater to them and based on their needs.
Art Dicker: That begs the question. And to, to what extent. Obviously, because so much so many things are manufactured in China, right? What extent.
Art Dicker: I'll use that extreme example, in here, and I'm sure you caught this in the port up in Long Beach. They're talking about tearing down the cranes system that I think it's a real story because of this perceived security risk with the, the operating system, essentially, for the cranes is the part or all the cranes are made in China, including that operating system, and that's seen as a national security risk.
Art Dicker: So they're thinking of ripping out the cranes and replacing them with American made cranes. I don't know if America even makes those kinds of cranes for docking and transporting the things on and offshore. But that's an example of where Chinese hardware, right? Or, and I guess software as well is. is seen as less trustworthy.
Art Dicker: Has that been an issue with your, with any of your clients so far?
Ron Efron: Only for those specific brands that have been added to that formal list of products, that's really to the extent of it. Other than that, if a product is owned by an American company, but made in China like an Apple phone, for example,
Art Dicker: we don't really see.
Art Dicker: Everything is made in China, right?
Ron Efron: That is changing to, to, to a degree but yes that, that's less of a concern than it just comes down to that brand and their reputation and all that. Yeah, what you touched on, who knows if that's, it could be true, is it based on true security risk or not, that might be a different question.
Ron Efron: There are certain things that, it's, would be legitimate for governments to be worried about. And there are certain things that it might, there might be other interests involved, paranoia
Art Dicker: there, yeah.
Ron Efron: Or other business interests, maybe there's a local crane company that that's, a benefit to get
Art Dicker: that business.
Art Dicker: That's hard.
Ron Efron: It's harder to unpack.
Art Dicker: Yeah, that's fair. Yeah. Who has lots of motivations, potentially. Um, speaking of China, and I wanted to, This is a big question, so I wanted to, to. To end on this 1 I imagine you've got a team working with a lot of multinational companies in China, but as we all know, when we talked in this podcast before there's a bit of a migration or a de risking.
Art Dicker: From China. It's been there for a while. The whole China plus one strategy. But that seems to be accelerating quite a bit in the last few years, especially coming out of COVID going to Vietnam or elsewhere, especially in, those other countries where you're operating. And I wonder to what extent you're continuing to work with those clients as they move and help them with that planning from a security perspective.
Art Dicker: How has that trend impacted you and your business and how you're serving your clients?
Ron Efron: So the trend is definitely clear out of all the countries who work within Asia. We're seeing the least amount of growth actually in China and a lot more activity in countries like Vietnam, like the Philippines, like India, for sure.
Ron Efron: Even here in Singapore and even in Japan, which kind of surprised me last year. Yeah. It's understandable due to the geopolitical sort of wins that are happening and COVID a lot of boardrooms around the world are saying, wait, we don't want to have all our eggs in one basket. We need to have some contingencies in place.
Ron Efron: What if something happens again? What can we do? So due to that, you're seeing strategies where the supply chains are less centralized, in China, and it is a bit more thinking going on. On top of that, you also have their own domestic markets in Asia, also in high growth mode. So India obviously is the big, the bigger one, but Vietnam, the Philippines Indonesia, all of these are potential new markets as well for consumers, not only to manufacture, but also to sell.
Ron Efron: And for example, with Apple. Not only are they starting to make phones in India, but they just opened their first Apple store in India. So if that trends continue, there'll be a lot more growth there as well. And that's also due to the government in India have changed some of their regulations around retail laws.
Ron Efron: And they're a bit more pro business, or business friendly compared to the past. But the bottom line is for us, that just means more opportunities. Yeah. So companies are growing, building more facilities, building more factories around the region. And that's business that we like to help our customers with in terms of challenges.
Ron Efron: It's what we know from the past that we know how to operate in Asia. So it's the normal challenges of building your capacity, hiring good people, making sure they know, how to do their job well and having all the infrastructure in place so that you can grow with your customers. The challenge that actually becomes a challenge.
Ron Efron: And it's much harder than you think, like doing a project or simultaneously doing projects in Tokyo, Sydney, Jakarta, and in Bangalore is not that easy. And because you're dealing with very different environments, very different people and different challenges, but that's, No, that's what we know. And that's what we we're pretty good at actually.
Art Dicker: I was going to say, that's probably, that's gotta be your advantage, right? That you can seamlessly work across different geographies like that. That's gotta be a selling point for you and a competitive advantage for you guys.
Ron Efron: For sure. And then our largest competitor in this space is is my old company.
Art Dicker: Yeah. So you've got, But, and I imagine too, you're also quite, you know, you're easy to open up in new markets and it's because you're, you're a private company, right? You're young in your DNA, right? You're experienced in your, in the management team, but as a company, you're young in your DNA.
Art Dicker: So you're probably more, more nimble, right? I guess is what I should say.
Ron Efron: I would hope so. And the fact that COVID started pretty much after, when we started our company, we were, even when we started, we had, we envisioned that would be more spread out and take advantage of the newer technologies at the time to be able to work across a region in a very efficient way.
Ron Efron: And then COVID came, it just really forced that even faster upon everybody, but we were ready for that in some way. And that helped us. To even sharpen our skills further. So that we ended up coming out stronger from that. I think,
Art Dicker: yeah, no, I can tell. And and I think the audits can tell just listening to you that, that, that.
Art Dicker: That you're that's a challenge that's actually been good for your business and you've met that challenge. Oh, Ron if people listening in the audience want to reach out to you for maybe they have they're at a multinational company and they're looking, they're going to a new country like India, Indonesia, or one of these other markets that you're in, how is the best way for them to reach out to you, LinkedIn or another way or the website or, What's the best way?
Ron Efron: Sure. Our company website is blueoceanssecurity.com. Blue is B L U, ocean security. And you can find my LinkedIn as well. And I'm sure you can add a email in your show notes. Yep,
Art Dicker: absolutely. Feel
Ron Efron: free to reach out to me. It's funny, we just when we came up with our name today, when you're starting new companies or new domain names It's getting harder and harder.
Ron Efron: Yeah. You have to drop valve. It does get
Art Dicker: harder. Yeah. But I like it. It's a little more,
Ron Efron: unique.
Art Dicker: It's a little, it not edgy, but it's, it's a little more unique. But you have to be unique, as you said, to for these days. Registering company or a, or website. It's a
Ron Efron: bit.
Ron Efron: It's a bit play on the words of that book, The Blue Origin Strategy, where we're trying to not work in a very competitive environment, but come up with products and services that, you we're not competing directly on with competitors. And that's part of the vision there.
Art Dicker: Okay. Hey, Ron, it was a real treat to have you on and and I'm sure the audience will love listening to this.
Art Dicker: It's a topic that I think is not talked about enough. And so that was definitely a reason why we had to do this episode. I thank you, want to thank you for joining us and I'm sure the audience got a lot out of this. Thanks Ron for coming on.
Ron Efron: Thank you
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The Evolution of Chinese Investment in the United States
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Full show Transcript below Summary and Timestamps
Introduction:
In a recent podcast episode featuring John Ling, an expert in Chinese manufacturing investment in the US, valuable insights were shared regarding the challenges and opportunities faced by Chinese entrepreneurs venturing into the American market. With years of experience and a deep understanding of the dynamics between China and the US, Ling provided a comprehensive overview of the mindset of Chinese investors, the factors influencing their decisions, and the strategies for success in this competitive landscape.
Understanding Chinese Manufacturing Investment:
Ling emphasized that Chinese companies venturing into the US market are often among the best in their industry, driven by competitiveness honed in the challenging business environment of China. Despite facing initial setbacks such as trade wars and market disruptions, these companies demonstrate resilience and long-term vision, making them well-positioned for success.
Challenges and Strategies:
One of the key challenges highlighted by Ling is the cultural and operational differences between China and the US. Chinese entrepreneurs must navigate unfamiliar territory, including regulatory frameworks, labor markets, and business practices. However, by building strong relationships with local communities and government entities, as well as seeking partnerships with experienced US companies, they can overcome these challenges and thrive in the American market.
The Importance of Communication:
Effective communication emerges as a crucial factor in the success of Chinese manufacturing investment projects. Ling emphasized the need for clear communication channels between stakeholders, including investors, local governments, and community members. By fostering open dialogue and addressing concerns proactively, Chinese entrepreneurs can build trust and collaboration, essential for long-term success.
Building Name Recognition:
Another important aspect discussed by Ling is the significance of name recognition in attracting Chinese investment. States and communities that proactively position themselves as attractive destinations for manufacturing projects can capitalize on this trend. By offering incentives, streamlining regulatory processes, and fostering a welcoming environment, they can attract investment and boost economic growth.
Conclusion:
In conclusion, John Ling's insights shed light on the complex dynamics of Chinese manufacturing investment in the US. By understanding the mindset of Chinese entrepreneurs, recognizing the challenges they face, and implementing effective strategies for collaboration, states and communities can leverage this opportunity for mutual benefit. With the right approach, Chinese investment can drive economic growth, create jobs, and foster cross-cultural understanding.
Timestamps
0:00 - Introduction to the Episode and Guest
1:29 - John Ling's Journey and Chinese Investment in the U.S.
6:20 - The Evolution of Chinese Companies in the U.S. Market
14:30 - Understanding the Operational Success of Chinese Companies in the U.S.
21:30 - The Role of Local Teams and Cultural Differences
30:45 - The Importance of Local Partnerships and Government Engagement
39:50 - Concluding Thoughts and How to Connect with John Ling
Transcript
Art Dicker: Welcome everybody to another episode of the Asia Business Podcast. I'm your host, Art Dicker. Today we have the absolute pleasure of being joined by John Ling. John is Managing Director at LinVest LLC. LinVest is a boutique investment advisory firm doing strategy, site selection, lending services, and incentive negotiations for inbound foreign investors into the United States, particularly specializing in the greater China market.
Art Dicker: Welcome, John.
John Ling: Thank you, Art. Good morning. How is the sunny San Diego? It's always beautiful every time I went there.
Art Dicker: There are a few clouds in the sky today, but yes, normally it's picture-perfect here. And how are things in South Carolina?
John Ling: It's nice, a beautiful Carolina blue, as people say here, and it's warm and nice.
John Ling: And so enjoy catching up. Yeah.
Art Dicker: Perfect weather for a podcast. Yes. Yes. Yeah. So you have so much experience. We met at the SelectUSA conference, which is just a great event that helps foreign investors come, and lots of folks that work with foreign investors coming into the United States. And I know that's what your business is all about.
Art Dicker: And with the particular focus on greater China, like we said, so I think there's going to be plenty of things to talk about. You and I have talked earlier about the, there's quite a few Chinese companies coming to the United States these days for various reasons. So we're going to get into that in a lot of detail.
Art Dicker: My first question for you is if you can walk the audience through a bit, how we've gone over the years in different phases maybe of Chinese investment in the United States. Let's put, let's say maybe the last 20 years or so, what's a kind of a rough timeline of the types of investors and the types of investments that Chinese investors have been making over the last 20 years or so into the United States?
John Ling: Sure, Art, I don't know about you, but I'm not someone who really ever tried to plan ahead and I never thought about a so-called career path. So I came to this country in '91, and my first job was to market pre-engineered metal buildings to China. Every one of our clients at that time was a manufacturing project.
John Ling: So my first encounter with inbound Chinese investment project was a company by the name Fuyao glass. Oh yeah. They are the largest auto windshield maker in the world. I met them in '95; actually, their first project in the U.S. was in Greenville, South Carolina, where I currently live, and my wife's first job in the U.S. happened to work for the company, and the company was only less than $100 million a year in revenue. But yet the owner had quite some ambition to go abroad. He invested, I don't remember the exact dollar amount, but he was building a 130,000 square foot building, mostly for distribution and warehousing.
John Ling: And also thought about going into a joint venture with Saint-Gobain, which is at that time, probably the largest auto windshield maker in the world, a French company. It never worked out. So they failed in that first effort. And, but having said that there, the gentleman or the company was featured in a documentary.
Art Dicker: Oh, yeah, I know. Yeah. And I think the name of the movie is that American Factory, if I remember right. And they even won some kind of Oscar documentary film award. And now they employ about, I would say 3,000 or so employees in the U.S. in multiple States. Right. Including Ohio, Illinois, and South Carolina, maybe one or two more.
John Ling: And my real first greenfield manufacturing project was Haier, the home appliances maker who later bought GE home appliances for $5.3 billion, and they were one of my clients in China. So they thought about coming to the U.S. in the late '90s to build a refrigerator factory. And of course understandably at that time people in China or in this country were wondering how in the world a Chinese company did do they just lose their mind coming by coming to the U.S. to build a factory? It should be another way around and remember in the mid or late '90s, you might as well say it's several generations ago in China. When you talk about, actually, there were hardly any so-called wholly-owned multinational company in China, but most say it's so-called joint venture.
John Ling: And so they were, as far as I can remember, I think they are the first greenfield Chinese investment coming to this country, and I joined South Carolina Department of Commerce in January 2000. At the beginning of this century, and I worked at the head office for 5 years, and then they saw the opportunity in the Chinese market.
John Ling: The governor and his commerce sector at that time, it was actually their idea upon seeing what's happening in China, and what kind of companies or opportunity I have introduced them to. So, they basically decided to set up a state office in China, and the state sent me to Shanghai in '05 to open the state office.
John Ling: The first five, six years, there were some activities, but nothing shaking or big. I think, to me, I think the turning point was in around 2012. I think that's as we may remember, that was after the financial crisis here, and the economy globally was not in great shape. The Chinese government at that time seemed to have handled it better during that period.
John Ling: So the economy seems to have sustained that hit. And also as Chinese business people travel to the world, they saw some opportunities and they saw, they also noticed the cost of manufacturing between the West, or in this case, the U.S. and China has been have been narrowed. So, they, so there are several companies that started the move.
John Ling: So, I think that's why I think 2012 is a turning point as we start seeing. Projects ranging from tens of millions or hundreds of millions. Coming to this way, and I work with quite a few of them, uh, in the following years, COVID shut down a lot of things. So for about two, three years, nothing much happening, but the past two years, contrary to most people's thinking, when we see what's happening around the globe, and especially in terms of the geopolitics.
John Ling: Or really the relationship between China and the U.S. most people may have thought this can. This could have almost stopped the inbound. Projects from China or great China region, but. What I have been seeing is that again, I have never seen such a strong pipeline. Never seen this many projects, so we are actively engaging with many different projects by taking them to visit different parts of the U.S. to help them to find the most suitable location for their project.
Art Dicker: That's a great introduction. That's, you've lived the timeline that I was trying to get the audience to understand. So that's, so you're the perfect person to talk about it, and amazing. And you mentioned Haier that you worked with there.
Art Dicker: It's not surprising that they're one of the first to come to the U.S. I know their CEO and founder was famous for taking a sledgehammer to break the refrigerators in the factory in the early days when it was moving over from a state plan company to a private company. Set the tone. And so it's not surprising that that founder would have the energy and creative thinking to come to the U.S. so early.
Art Dicker: And that's a wonderful success story. You mentioned they bought the GE appliance brand, and they were able to maintain the quality because it's a wonderful brand that they make good things. And then you also mentioned one thing I wanted to emphasize for the audience. You mentioned around 2012, there was a switch where Chinese companies realized that the cost differential was not so big anymore between the U.S. and China.
Art Dicker: And I guess that's largely because not so much anything that changed in the U.S., but China was becoming more expensive in labor costs and things like that. That's correct.
John Ling: Again, me and my family lived in Shanghai at that time. And as I talked to many business people, they, no matter, they either came here for business or for leisure. And as I go, say, go to a department store, a restaurant, and very often they find. That it's really reasonable, a lot of things they are purchasing. And as they talk to their counterparts here or customers here and ask different questions, they find out actually for most parts, yes, there are still a gap between the wages in China and the U.S., but at the professional level, especially at the management level, there's Actually, the gap is even narrower.
John Ling: So, when you consider, of course, when you are planning a project, you just don't look at the wages. You look at the overall picture. I guess my selling points at that time is that. When you think about how expensive. Then price is in China in Asia. And how hard for you to secure even a parcel of land, the utility costs, especially the electricities and the shipping costs, the freight costs, especially these days, duty.
John Ling: Yeah, of course. At that time, nobody knew what happened in the following years or decade. I, again, I'm not taking pleasure in saying this, but every project I have WordPress. At the moment, up to today, every one of them is very glad that they made the move because say a few projects even told me that had they not made the move, their whole company might have gone by.
John Ling: Now I am talking about, for example, one is a company that invested 200 million dollars in South Carolina, making the most basic goods, which is cotton yarn. And the owner told me had they not come the company, at least there is yarn spinning business in China. You know, is that actually, so he's very happy to have made that move.
John Ling: I also have another client. They make the. What do you call that? Drill? It's an industrial drill. And some hand tools they bought us. They bought a company here in 2009 for about right under 30,000,000 dollars and. That was again, they were trying to, they saw some opportunity in this country after or during the financial crisis.
John Ling: They went ahead and made a, to them, that's a huge purchase because it's not a big company. They actually just sold the business last year. I'm quite sure they made 10 times more, actually much more than that. And however, their, their business in China actually had not been growing as fast as they had hoped.
John Ling: So by coming to this country and by Really taking advantage of the market opportunities they saw and also being able to export to other parts of the world. from their U.S. operation, add a lot of value to their overall company planning.
Art Dicker: Let's unpack that a bit. That's very insightful. Let's unpack it a bit.
Art Dicker: As far as a lot of people might assume still that the U.S. has drill bit manufacturers and Cotton industry equipment and and all kinds of like appliances like G used to made in the Haier example And what is it that Chinese companies have so is it that US companies are not in this industry anymore Anyway, so they've lost some of that competitiveness or know-how Versus China where as we all know China is super competitive, right?
Art Dicker: And so it very much weeds out the weaker companies and the ones that can survive in China You I assume are already globally first in class these days. And so what is it that allows a Chinese company to land here and be able to operate so successfully from a cost perspective or from an operational perspective?
Art Dicker: Okay.
John Ling: Again, when I answer questions, I usually want, want to use one of my projects to explain where I come from. So. Again, years ago, when we look at this, when we look at us, we look at this as a country, the most industrialized country in the world, the most competitive market. And, um, but here most us business, we.
John Ling: Especially the publicly traded. We have to look at each quarter, how we perform, how the stockholder would react. And we, if we cannot compete in that certain segment over time, we'll try to walk out. The, the small, medium-sized company, again, this is a much more mature market. So the growth for small, medium size.
John Ling: Is with limited resources, it's hard to grow, like in some of the developing market. And unless you have some cool technology or know-how, otherwise for small-medium size, it's hard. Having said that, I'll use one of the projects I landed in Georgia. They make some, a product called TPE. I don't know how to describe it.
John Ling: It's something between plastic and rubber. offers you the strength but also flexibility. So it's about 2 billion market in both U.S. and China. Yet in China, you have 1,200 some factories making this product at different scales or levels, while in the U.S. there were about eight factories. So my project owner at that time, he was supplying to the domestic Chinese market, as well as some multinationals that have operations in China, such as Colgate.
John Ling: Lines and so on. So his thinking is that if I can be top two or three in the Chinese market, sure enough, I should be able to make a living among eight of us. And also his multinational clients are really trying to tell him he should come here to serve their operation. So that's why he did. Another thing I have noticed is that.
John Ling: Among over 2 billion worth of manufacturing projects that I landed in the U.S. from China today, every one of them is making money. Uh, I'm not suggesting they never lost money. Actually, the operation I mentioned earlier, that yarn spinning mill was a 200,000,000 dollar investment, almost 400 jobs. They lost money for the first three, four years left and right.
John Ling: And I feel so bad about that. And I told the chairman, I said, "Oh, come on. I'm sorry. I got you here. Now we are in such a mess." What happened was that the original idea was to produce yarn here, taking advantage of the cotton price here, as well as electricity costs. And ship these products to China. So when there was a change of administration from camp to the office, there was an escalated trade war between the two countries.
John Ling: So China slashed some high tariff imported US cotton yarn. So almost from the time they went into operation, they got shut out of the Chinese market. Now they were struggling to find customers in North America, Central America, South America, and, uh, it takes time as we know. So I still remember what the chairman told me.
John Ling: He said, he called my Chinese name and he said, "Unless one day I cannot afford this, otherwise I'm going to tough it out. I believe in the trend and when we do manufacturing, we don't look at the next quarter, next two, three years. We look at over time what's happening." He obviously believed in what he said. So now every time we met, he is, "Hey, you remember what I told you?"
John Ling: We are doing good now. So I think that's, I also want to make a point here, which is as people may or may not know export out of China has been mostly handled by multinationals and private Chinese companies. Few state-owned companies ever bothered to do that. Number one, not mentioning trying to come to this country to set up a manufacturing operation.
John Ling: They are smarter than that because that's a big risk to take for anyone, but especially for a state-owned company boss. So no matter during the time when the two countries were having a normal or more civilized relationship, or now, obviously a much more challenging environment, hardly any state-owned companies bothered to come here, unless I think for a short few years, there might be some trading firms, state-owned trading firms, or real estate.
John Ling: I don't even think real estate can, but anyway, so every one of my projects was by a privately owned Chinese company. And I guess some mentality is such that you have seen so much in China, the competition, the big rivalry, and they are used to it again. Still, it's not for it's still for those that are willing to explore and take a certain amount of risk.
Art Dicker: And when they come here, that's interesting because we're starting to get a sense of like the economic business rationale for coming here. And some of the most competitive companies and the experience they have from China. If they make it there, they can make it anywhere. When they come here to the U.S., what do they typically look for as far as a local team? You mentioned in some ways actually the talent here in the U.S. For the senior-level people, it's not so different than China where that's quite valuable as well. So is there a certain type of team that they look for knowing that, let's say that team has to work in two different cultures, for example?
John Ling: Uh, yes and no, it's no different from you and me. If we set up our operation here, we always want to find people who are willing to work. Um, that's probably the basic that you are expecting from whoever you want to work with. And unfortunately it's not always easy, especially in the past few years during the pandemic.
John Ling: And we hear companies as large as BMW, Boeing to mom-and-pop shops or small restaurant owners. Everyone is complaining about how difficult it is to find any labor, any willing labor. And also, I think they would like to, they are used to how in China from the senior management to the production workers, they really work hard and they are willing to put the extra effort into their daily work and that's I don't know.
John Ling: Sometimes that might be a cultural difference or what or the fact that. When countries climb up on their income level, you, over time, you lose a drive. And that happens to many countries actually. And I think China is probably facing the same challenge as the, what do you call that, the population age. And, and also really as a company is becoming more prosperous.
John Ling: That's something that I think for many of the Chinese companies. Companies coming here, they are having a little bit of a struggle to understand.
Art Dicker: Yeah, I was going to say, I often think about that too. Is it a cultural thing? I don't think it's controversial to say that Chinese workers work really hard and both at the management level and at the kind of floor level, and I agree with you, I lived there for 16 years.
Art Dicker: I could see it up close in some ways. I ascribe it to the fact that it, China has developed so fast, but it's really still just a generation. Yeah. Right. So it was only, it was only a generation ago that people were much more uncertain about their economic future. And even though in some ways, so many people there have quote made it and you think could live a more comfortable life.
Art Dicker: There's still that, I don't know, but if it's an anxiety or just that hardworking DNA doesn't get shut off in just one generation. So I think it's that way as well. And that explains a lot of it. Whereas the U.S., like you said, it's been a developed country for a while now, but yeah, I know that's, I've heard as well.
Art Dicker: It can be a bit of a challenge. How about the founders themselves? We talked about it a little already, but is there a certain mindset that a founder has coming to the U.S.? Do you, when, let's say, for example, someone comes to you, maybe the CEO doesn't have to be the founder, but a management team comes to you.
Art Dicker: Do you see some things in the when you're talking to them in the early stages? Are there certain signs or other characteristics about the team and the founder that you see that you say? Okay, I think this is more likely to work. Because I see this quality in them or not.
John Ling: Yes, actually, I for a few times as I take my projects to visit different states or communities.
John Ling: Um, they heard about my work with these types of projects. Some even tease with my project, right? Oh, Mr. Lin has his own screening process. Or vetting process, and so, as I spend the past 2 decades or longer working with these types of projects, I, yes, I think there are certain things I'm paying attention to.
John Ling: One is that I think. You may agree with what I'm saying, which is for any Chinese company that even dare to explore the possibility of setting up an operation, I'm talking about again, production operation in the U.S. They tend to be among the best in the industry, no matter is by the so-called Chinese standard or by really global standard.
John Ling: They have to be very competitive. Otherwise, You know, it's just impossible for anybody who's willing to do this. And so if you were, I don't know, investment fund or private equity fund in the U.S. actually, I know sometimes when you look at different projects to invest or co-invest, I think these types of companies would pass a first initial test in terms of their competitiveness in the industry.
John Ling: So during the period of time that the two countries had a fairly normal relationship with what they have observed or experience in China when you have people or capable team, or when you are well finance company, you can solve the world's problems. Problem. You shouldn't worry about a thing for quite a while.
John Ling: Most of the Chinese projects, they didn't think they need a third-party consultant to help them. They feel with. Our own team was, uh, help from the state and county government and we'll. And again, that's another thing. In China, when they do such a project, they always talk to the local government, the industrial park authority or whoever.
John Ling: And in China, as we know, government do have more influence or power in allocating things or in deciding things, but it's not always the same here. We definitely have a very different system. Again, most projects didn't understand that at that time. So, unless it's a project worth hundreds of millions of dollar.
John Ling: They may, but even with that, they may not these, uh, hire a consultant. Uh, that has quickly change and I think they understand the, it's a much more. Different environment in everything every aspect. It's also a very. Challenging time in terms of the relationship between the two country, which adds a lot of uncertainty for any project.
John Ling: Coming to from China, and so they are much more cautious. They ask a lot of questions. Which they should have done anyway, even years ago. So they, they do have a lot of concerns and worries. And by having said that, the U.S. has always been the largest market for almost any products.
John Ling: So what drives them to come here really is the size of the market. And also nowadays, very often. It's our customers in the U.S. whom they have a long-term relationship, basically telling them, "Please, could you come here? So we don't run into some. Situation like we experienced over the past few years, the interruption supply chain, the high ocean free cause the uncertainty."
John Ling: I think business around the world, they are very used to up and downs. It's a nature of any economy, but they just. If they can, they want to avoid the uncertainties. And also in the past customers in the U.S., we're not so willing to pay for a certain premium to avoid that or reduce that uncertainty. But now more than ever customers here in the U.S. are willing to pay for that premium if that gives them more certainty. I mentioned about the, in the years past, they were not willing to consider a 3rd party consultant. Another thing they were not so interested was to find a local partner. I'm talking about to do this together. Because again, that went back that goes back to the fact that they are big, they are competitive, they feel they can conquer the world.
John Ling: But now I think they are much more willing to, uh, uh, have a joint venture with a local partner. It could be in the same industry. It could be an equity partner. They are much more willing to. Sometimes they are even willing to take a minority ownership.
Art Dicker: It's almost somewhat similar to what foreign investors in China went through a similar cycle, right?
Art Dicker: In the beginning, there was either a government preference or a lot more people started out forming joint ventures and stuff. Of course, in the auto industry, you had to, and then there was a preference for woofies and setting up your own, doing things on your own. But now it has also gone back and come back full circle again, where maybe not a traditional joint venture, But you might have a local company take over, license the technology or the brand even to them.
Art Dicker: And so it's interesting. Yeah. Somehow people have learned their lessons that that actually might work better these days. Yeah. Got it. And you mentioned working with local government here in the U.S. and that's the last topic I wanted to get into a bit. And that's where your work really is important, but maybe the most important part of what you do.
Art Dicker: The, and that is the engagement process with the local government, whether it's from fact factoring into site selection and maybe some incentives and so forth, what is, what has been your experience as far as which state, I don't want to get you in trouble, but which state governments are more receptive Or what the process is like and your role in the process, helping that engagement.
John Ling: again, I spend a total of 19 years working for two state economic development agency, 15 years with South Carolina, four years with Georgia.
John Ling: So I used to sit on the other side of the bench, um, talking about project like this. And now I'm in the private sector trying basically to do the same. I think what again, it doesn't matter if it's a Chinese project or any international project. People just want to go into a community that feel they are being appreciated or welcome and, uh.
John Ling: Also, the Chinese culture is such that they value the relationship and they want to build a good relationship. And especially when they come to a not so familiar environment, they are much more sensitive to a lot of things. For example, even I saw yesterday I was sending a request to real estate broker.
John Ling: On behalf of 1 of my project, they are looking at a facility. In the South seas to acquire and 1 question they ask is about the wind direction. That's coming and ask me, like. Why they are asking this question so I said they. There's 3rd slide you might not even have noticed a slide. Older and there's some noise.
John Ling: I don't believe it's actually us. We were standing at 1 facility during their visit in December from distance. They were surprised about the noise level, so to speak. They were like, Oh gosh, if it were in China, this plan will be shut down now. And, but I think they are much more sensitive to, to be a team player, so to speak, and they want to be part of the community.
John Ling: So they are very sensitive to this. And so what I had done, and I think what had worked. Again, because of the travel restriction over the past few years, it's hard to do that. And hopefully that's going to come back at some point, which is, I remember when I was with South Carolina, every year we'll organize.
John Ling: Maybe one or two group visit that sometimes composed by elected officials, private business, company owners, lawyers, accountants, you name it. And actually, they started going there in almost as soon as we set up an office in Shanghai around 06. They pay their own time. I don't think you know, they get rewarded immediately because for quite a while there were hardly any project and I was struggling to line up visit for them when they visit there.
John Ling: Obviously, everyone wants to visit active project, but I didn't have hardly any to show for.
John Ling: And another thing is sad. Again, that's about state politics. When a group from certain part of the state cam, sometimes I was told you shouldn't favor one region over the other. So I wasn't supposed to take them to visit active project.
John Ling: Anyhow, anyway, and then by the time I mentioned around 2012, when projects start happening and there were much more come project visits. These group of people have the, how should I say, understanding or a little bit more understanding about the country as a whole in China, about their people, culture, at least you find some topics to talk about.
John Ling: and I think communication on any project is so critical. And it doesn't matter where was where this community is or state is, I think it's just how you make a project feel comfortable. And feel welcome, and I think that's important.
John Ling: Another thing I want to. Add is that it's no different from a company that wants to open the international market.
John Ling: It may take a while to get you there to position. Well. Uh, in that market, and you want to be able to position yourself early, especially in the growing market. And once you build your name recognition. It's difficult to lose that. So, South Carolina for a while, because of the fact that they position themselves ahead of every almost every other state.
John Ling: They build a name recognition among Chinese project as a state. To locate the manufacturing project again, it's not because the state is better than. Any other states or more competitive, but rather it's, it's a name recognition of people. Do you talk to each other, especially when you are trying to decide.
John Ling: For a project like this, and you do Internet search, you talk to the actual project. And so now most people find us through Internet search through my previous project or current projects. And by having said that, that's why I think it's important for any state and community. That if you are interested with the economic development project, we look at this project.
John Ling: We. Try to understand the profile of the project, what they are looking for. And 1 thing I, again, I normally would recommend is that. If a community, if a project became interested with your project, you are in the final. 2 or 3 would make the effort to travel there to see their operation to to have a better understanding.
John Ling: And I think that will position. Uh, this community at a much stronger position during the process.
Art Dicker: Interesting. Yeah, that's very helpful. I think the, the audience, I think is whole journey. You've taken the audience through about the mindset of Chinese men and Chinese founders and what they're coming from in the, in China, it's such a competitive environment and what they can bring here.
Art Dicker: Like you said, they make it there. They can make it anywhere. And even temporary economic challenges are not enough to throw them off. They're in it for the long haul. So that's a great, I don't think that's such an obvious, those are such obvious points at all. And from people just hearing about the headline numbers of what it takes and the investment amounts and so forth, John, it's been totally a thrill to have you on.
Art Dicker: And I just think that some people are going to listen to this and maybe want to reach out to you. I'm not sure exactly. For what? Either for a project, or maybe they're a state, they're a state officer hoping to attract investment for their state, or for whatever reason, if someone wants to reach out to you, is LinkedIn a good way to reach out to you?
Art Dicker: Or is, what's, how should people? That will be good. Yeah, we can put your LinkedIn up on the website and we also post this on LinkedIn. So hopefully that'll be easy for people to find you. I just want to thank you so much for joining us. This has been again, very helpful. And I do think our audience is going to get quite a lot out of this episode, just from the decades of experience you have doing this.
Art Dicker: And it's a fascinating topic. John, so much for joining us.
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Jacob Thomas
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Building Teams and Nurturing Talent as a General Counsel
23 jan· Asia Business Podcast
From our sister show, the China Business Law Podcast:

Craig Katerberg discusses managing a team of over 120+ people, keeping top talent happy, and how lawyers can improve their communication and understanding of company strategy to be more effective.
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Jacob Thomas

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Building the Community of the Future
11 jan· Asia Business Podcast
We have a conversation with Jill Tang on building a community of fans and advocates that can help corporations on their purpose and sustainability goals. She gives insights on her journey of building Ladies Who Tech, one of the leading social enterprises in China focused on the STEM industry.Producer

Jacob Thomas

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Developing Better Digital Solutions for Chemical Industry
11 jan· Asia Business Podcast
In our conversation with Jessica Yu, the International BD Director of In-Road, we delve into In-Road's approach to helping chemical clients digitize their manufacturing processes, all while highlighting the current trends and challenges shaping the ongoing digitization journey within China's chemical landscape.Producer

Jacob Thomas

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Bring the Smart Money to Emerging Market Startups
11 jan· Asia Business Podcast
How can early-stage startups raise funds successfully? We talk with Davide Calì, the founder of CrossFund, on their venture platform to help startups win angel investment, and the importance of "follow up" to achieve more success with smart money.Producer

Jacob Thomas

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Launching a Software Business in China
6 nov 2023· Asia Business Podcast
We talk with Chris DeAngelis, Partner at Alliance Development Group (ADG) on how Western software companies, particularly SaaS businesses, can enter the China market. We discuss some of the unique local license and data compliance issues, corporate structure options, and real-life lessons on how teams are best setup for internal alignment and operational success as a software business in China.Producer

Jacob Thomas

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Afleveringen

Manufacturing in Asia: Challenges and Opportunities Beyond China with Jeffrey Goldstein

Chinese Companies Going Global: Challenges and Opportunities with Guoli Chen

Revolutionizing Language Teaching with AI: The Cathoven Story

Navigating Cross-Border Investments and Family Offices with Danye Wang

Strategies for Investing in Latin America from an Asian Perspective with Edmond Hui

Bridging Healthcare Innovations Between Europe and China with Chenchao Liu

Asian Markets and Strategic Transitioning Away from China - with Pilar Dieter

Security in an Evolving Asia Business Environment

The Evolution of Chinese Investment in the United States

Building the Leading Indonesia Venture Capital Fund

The Positive Story of Chinese Investment in the US

China’s EV Industry Goes Global

Effectively Communicating With Clients

Running a Global Compliance Program from Shanghai

Law and Tech - Changing the World One Step at a Time

Building Teams and Nurturing Talent as a General Counsel

Building the Community of the Future

Developing Better Digital Solutions for Chemical Industry

Bring the Smart Money to Emerging Market Startups

Launching a Software Business in China