Brits Get Rich In China - Debate

The mentioned below series provoked some good debate... as follow...


On Jul 18, 2008, at 5:30 PM, Duncan wrote:


You say Vance and Tony should go upscale rather than compete on price. For the usual reasons, less risk, same return or higher for less effort. If I were starting in either of these two industries I would do as you suggest, but I think these two may have the right strategy for their situations. Kitchens and cushions are basically commodities and there's not much innovation possible (ok, you may argue this..). The main point is they both have the capital, the know-how, and the customers to go big, all of which severely reduce risk. It might be a bigger risk for them to go upscale, in fact, because all their know-how and customers are large. They'd be entering a new market.

***They have some capital, know how and customers... but not enough to compete on price at the level they intend... thus they will lose what customers they have... success is not up to them, it is up to the customers... when they fail, it will be for the reasons of lack of customer interest...***


I think Tony has to compete on price because... he has top class knowledge of the cushion industry, and buyers willing to buy due to his previous business, and contacts... he just needs to hit a certain price point that became impossible by producing in England. So I don't see much risk getting orders, only that things go smoothly setting up and running the factory. Maybe it would've been better to reduce risk by doing what Nike does and deal with manufacturers' agents. However he has a Chinese partner with skin in the game.

*** He gave the partner 30%, which is hardly skin... she will end up with 100%...***

Vance's all about competing on price. You say better for Vance to go upscale in UK and Europe. I happen to know that Vance does very well selling in the UK, competing on price, why would he disrupt his business, lose his customers and go after new ones by going upscale?

***Here is the problem... when you say you know he does well, have you reviewed his financial statements, or is it that he appears to be doing well...?***



All three make the fundamental mistake of trying to control matters in china. they have neither the skill, nor is the direct intervention necessary to achieve the goals they seek.
You mean they should do as Nike does, by dealing with manufacturers' representatives and let them do all the China negotiations etc? Sounds easier and less risky. I don't know how much of a margin Vance saves by owning the factory vs dealing with manufacturers' representatives, and I know that at the small business level owning your own factory is an unecessary risk. But at a certain point, when you get big enough, it may make financial sense to cut out the middleman. Obviously, Nike chooses not to.

***Nike is not big enough yet, or is your premise flawed?***


Also, I notice that the production processes are quite specific, uses his own machines from England, so this is part of his competitive advantage which could only really be achieved by owning his own factory. Plus you're saying business is an extension of you, your passion. Vance's passion is to get in the trenches, and if he's passionate he'll be good at it, so why shouldn't he?

***It is up to the customers... my argument is the customers he seeks he cannot serve as well as far larger companies. He got others' machines cheap in the UK... he should ahve let the chinese decide if THEY wanted to buy them...***

All three have partners to who they entrust large amounts of money. The film makes clear in all instance these investors have overpaid for what they get. Not mentioned but inevitable is the question of how the money will be recouped.

(It won’t, these efforts will fail, none of these Brits have any rights in China, the building will go surplus and pass to the Chinese. Same story going on over the last 30 years... why people still fall for it, I don’t know.)
Really? Can you give some examples, this is really interesting?

*** I should do an article on this... it happens in waves... the factories come in, the conditions change, the owners are wiped out, and then the factories are acquired... back circa 1980's it was tens of companies (in fact, it happened to NIKE 1.5 times), then in the late 80's another wave it was hundreds of companies... in the 90's it was thousands.... it will happen again with tens of thousands.... for a tip as to why, here is a recent article... http://www.business-in-asia.com/location_for_factory.html ... REad LaDany on Chinese law... LAW AND LEGALITY IN CHINA, and check out a municipal code...http://english.linyi.gov.cn/optimize.htm ***


The funny thing is, if their plans have merit, it could all be accomplished without investing a dime in China. I personally know a pillow importer who is doing quite well in China, without having invested a dime. She has been doing that for the last 20 years selling in usa, and doing exceptionally well at the small biz level. She leaves china to the chinese, and there is more than enough to do dealing with usa markets for her to bother with managing the Chinese.
I assume her business isn't as big as Tony's, though?

***How big is Tony's...? he is busted in the UK and starting from zero in China... he is in the hole several hundred thousand right? she is profitable with a considerable income and none of his problems... again, I'd like to see a follow up in a year...***



But fundamentally all the plans are flawed because although they all invest considerable mounts of money, none have the buying power and resources of the big biz who can and will undercut them toot sweet.
Vance and Tony? Aren't they pretty much amongst the biggest fish in their industries? Basically Vance and Tony are the conservators in their industry, no? They're not really doing what we're doing, no? Would another company really place an order larger than an entire cushion factory coudl push out? Or would a kitchen manufacturer contract as many factories as Vance does, or owns, and still make significant savings, even iwth the manufacturers' agents cut?

***IN both vance and tony's industries, there are companies employing hundreds of people just in sales and distribution... not to mention home depot and walmart will bury them... the premise that a person with a load of cash can make a killing in china is just plain wrong...***


By the way what did you think of Tony's concerns over others stealing his cushion designs? If it goes on there to such a scale it must be something to be concerned about, no?

*** He is right... tony offers at $7.50 presently... since he plans to compete on price, other larger chinese factory owners with far better orgs will watch the film and find out who it is placing the order with tony in NYC and offer him the exact same thing at $6.50. The $400,000 savings will go straight to the buyers bottom line. Competing on price is not a game a one-person show can handle... the real problem is, these guys command hundreds of thousands in capital... and going up against people who command tens of millions... they will lose...***

I don't understand why Peter doesn't sell in western countries, seems far easier.

Everybody thinks... "gee, if I could just sell 10% of the chinese, I'd get rich..." McDonalds has been at it in china for 30 years, with about 1000 stores, has sales less than $2 billion, 75% of that done by franchises.. they know what hey are doing... and that is all they can get... guys like peter are delusional.. it is the "get rich" that is the downfall of these guys... they'll just get poor. The old joke, "You know how to make a small fortune in China? Start with a big fortune."


On Jul 19, 2008, at 3:32 AM, Duncan Keir wrote:

You're arguing that Vance and Tony should retrench themselves into the high end, while they've been serving the mass market previously.

***How well were the serving the mass market if they both went bust doing so?***

In Tony's case the argument is, he can no longer produce in the UK at a price to serve the mass market, so he shouldn't go to where he can. In Vance's case we don't know whether he could just use manufacturer's representatives in China and maintain sufficient margin, although I expect he could given the markups he was talking about. He's just after more margin, that's what seems to get him going, that's why he's going into China himself. In both cases they could probably use manufacturer's reps in China, not invest a penny, and continue to serve their current markets, don't you agree?

***If they had slowly folded in Chinese products 20 years ago they might have acquired to infrastructure, trained employees, relations in China, improvements in China to grow to big biz by now. Both are starting from zero right now... just as if you or I were to do so... it might have worked over time, but not shock therapy like this... also, both grew during the real estate boom and its attendant profligacy... the coming storm may wipe out their customers... I'd trim the sails and sail upstream.... also, I can almost predict... they WILL get large orders, but have extreme difficulty collecting receivables after the sale, if at all...***

Sure, if we're starting out in this industry we'd serve the high end like you say.

***Yes, but I say in effect they are starting at zero.***

So they've both taken on unecessary risk by building their own factories and meddling directly in China, as Nike, and your other examples demonstrate. That's not to say it won't succeed though, is it?

***Sure, I've been wrong plenty of times...***

Just that at their size and capitalization it is unecessary risk and probably poor strategy. But like you say passion trumps... I really think in Vance's case he's perfectly suited to muscling around China, although he may lose his shirt, who knows. I agree with you that it's generally bad advice to build factories at their level though.

***Here is the problem... people watch these films and say "O, is that what it is like? I wanna do that. " and some people say "O, is that what it is like? I 'll do something else. " These antics tend to shoo away the good and encourage the foolish. None of these three look remotely like the people who actually thrive in biz. They were all caricatures.... then we have the problem of the generally disinterested majority smugly agreeing with regulators and tax collectors that biz people are scamsters and unworthy so whatever the govt does is ok. That is a core complaint for me...***

All depends on how much it costs, and the potential payoff. He's going for mega returns by buying forests, etc, and the cost doesn't seem to steep £30k for example.

The idea that a foreignor can by a quarry or a forest in the PRC is absurd. He was taken before he got going. There is a wonderful Chinese film about scamsters recruiting impoverished city dwellers to work in communes, kill them in an industrial "accident" and then have outraged "relatives" come in an promise to denounce the operators to the central committee... the party underlings would pay off for fear of the upperlings... anyway, if scamsters did this during the reign of Mao, just think how common it must be now. Vance may find himself in the hoosegow for something he nothing to do with...***

Take this and him buying machines for £20, it appears that there are always opportunities and hidden value for he who's prepared to look for it and go the extra mile. And this strategy suits Vance's temprament, so he should be good at it. I'm sure we can find out how they fared just by contacting them directly and asking them in the future.

***There is a canadian news report on 3 small biz in textiles, which strike me as precisely how it really works... I am begging them for the clip right now... we who actually do business provide all of the food, housing, security, defense, clothing, communications, etc... that those who would regulate and tax us claim they provide. There is a radical benefit natural to business, and a symbiotic relationship between small and big business that works very well... but is interfered with to the detriment of all. The extra mile is what people do who love their work, so maybe Vance will pull it off. AS for contacting them in the future, good idea.***


Duncan.



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