China can grow your business 5-10x times faster than Australia: investor
Link copied to
Chao Yao, the youthful face of his family’s Australian mortgage funding and property development company, believes the outbreak of coronavirus — COVID-19 — means many rich Chinese will be thinking seriously about investing overseas.
“For the past month they have been locked down in their house, basically doing nothing,” he told Stockhead.
Australian investors have been starry-eyed about China for many years.
The immense population and the developing country-sized growth rates have supported all kinds of companies from $11bn A2 Milk (ASX:A2M) to XPD Soccer (ASX:XPD), a company which claimed it would make soccer boots in China.
But while the virus outbreak has pumped up the fortunes of a few stocks, a spotlight has been shone on the risks of betting it all — supply chain and customer — on a single country.
Chinese business people like Yao’s father long ago read the tea leaves and added a second, or third country to their ‘geographic portfolio’.
Today, while still captivated by the China opportunity they’ve preferred to trade supercharged growth for rules-based stability, and have timely insights into how business works in the motherland.
Founder Australia Hotel Group, established 2012
Revenue: $20m per annum
Wei arrived in Melbourne on a whim in 2002 — a friend had asked him to go Australia and “send back iron ore”. He’d originally planned on heading to Canada or the US.
The iron ore didn’t work out, but after spending five years working in the hotel industry while earning a Master’s degree, Wei started a hotel chain, a sector his family was involved in at home in Hunan province.
He has a long-term plan to open hotels under his new brand in China, but says there are pros and cons to doing business there.
“Friends who started businesses in China around the same time as I did [got better results in the same timeframe]. The time we spent, the money we invested in two different countries got different results. In China your business grows faster, about five to 10 times faster,” Wei said, simply because of the population.
On the other hand, it’s networking that will get things done.
“In China it’s a different way to do business, you have to build your relationships with governments, with your friends, with relevant people,” Wei said.
“But here it is simple. You do your job right and you get what you want. You are really really hard working, you get more.”
Wei dismisses theories that companies and countries will “decouple” from the Chinese industrial complex or rethink investment plans.
“China is the biggest market, and has the biggest potential,” he said.
“No one is going to stop that, you can slow it down but no one is going to stop because this is the trend.
“No one can stop history.”
Founder, SMCovered, established 2013
Revenue: $30m per annum
General manager, Ausway Investment Group, established 2014
Yao was a Forbes 30 under 30 listee in 2019 for his startup, a student health insurance company based in San Francisco, but his family’s business is based out of Melbourne and Chongqing.
His father came to Melbourne in 2012 on the advice of friends, and decided he liked the lifestyle enough to expand his Chinese property development business into Australia.
A restaurant chain was added to keep one son, a chef, in the family business and Yao prodded the group to move into mortgage funding as well.
Yao says China is a much faster place to do business.
“It is crazy. [In China my father] can build a whole apartment with 30 levels within 18 months,” he said.
“Here it’s quite different, it would take us four years. It drags the IRR down by a third.”
Companies considering transplanting a business model that works here into China need to be wary, as the size difference means an Australian model may not immediately work in China.
And it’s essential to find the right partner to open those doors, because once you’ve shaken hands the relationship is exclusive: if it turns out they don’t have the connections needed, it’s too late.
Yao says political pressures such as the US-China trade war or the fearful rhetoric coming out of Canberra does not impact on trade. But it does mean he will think twice before investing in areas that could be sensitive, such as telecommunications or computer parts.
General manager Homart, established 1992 by founder Lynn Yeh
Sales: $60m in FY2020
Lynn Yeh was as ahead of the curve as you can get.
She came to Australia with her family over 30 years ago and after doing a Master’s in marketing settled on a health business selling Australian made products into overseas markets.
The general manager of her company, Homart, Ross Norris says Yeh has used her extensive network in Australia and China to create connections with private companies, government organisations, and create opportunities for the business.
“By focusing on those business relationships she’s been able to open a lot of doors overseas,” he says.
Norris says the political rhetoric around China in Australia is not affecting trade at their level.
“We don’t see it genuinely holding trade back,” he says, citing five takeover deals by Chinese companies of Australian dietary supplement makers in the last five years as evidence.
Homart is a manufacturing and trading company, making and selling the hot ticket dietary supplements, milk powder and skin care products to mainly China.
Norris says each product has different pathways to market, different regulations and therefore different companies to navigate that course.
It means that while having a relationship with distributors and trade organisations in China opens new avenues for new categories of goods, new products need a whole new branch of relationships.
“We see a lot of brands that have only popped up in the last two to three years,” he says.
“On one day you see an ASX announcement pop up that they’ve done this deal or bought that, and then a few months later you see there’s been regulatory issues and a profit downgrade.”
They have found, particularly after coronavirus wiped out their Chinese tourist trade in Australia, that selling into multiple countries as well has insulated them against market risk.
There have been a lot of challenges getting the online-bought products the last mile to Chinese customers, however, even though they are desperate for Australian immunity health supplements right now.
The content of this poll is not selected, modified or otherwise controlled by Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this poll.