Ken Applegate from Fisher Funds on doing business with the Chinese

At Euroasia, we have the privelege of meeting talented New Zealanders who do amazing things in their day jobs. For today’s blog entry, we have Ken Applegate, who has been learning Mandarin with us since early last year to share his views on the Chinese economy, why he’s investing there, and his experience in working with the Chinese.

Ken is the Senior Portfolio Manager for the Fisher Funds International Fund, a specialist New Zealand-based fund manager with assets under management of NZ$1billion spread across more than 30,000 clients. Thanks Ken for sharing your story with the Euroasia community.

Fisher

As a global investor we have the ability to invest anywhere in the world and our allocation to Chinese companies has ranged from 20-40% of the fund. We have a long term structurally bullish view on the Chinese economy. This is not just our opinion; it is based on fact and history. China has been a global economic powerhouse more than once in history. Countries like the US and the UK have dominated the world economy once before and even Rome was ‘great’ once. Just a little more than 200 years ago China’s economy comprised approximately 1/3 of global GDP and it is on the rise again. To quote Warren Buffett, a legendary investor, “the 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly“. I firmly believe most people underestimate how important this shift is and the significance of its implications.

China dominated the world economy 200 years ago

China_gdp

I have worked as a global fund manager for more than 15 years with the majority of my experience gained while living in California. I first visited China in 2000, and I now travel to China 2-3 times per year. In addition, I speak with Chinese companies and local investors/analysts on a weekly basis and often meet with Chinese companies when I attend investment conferences throughout Asia, especially in Singapore and Hong Kong. I have described below two examples of investments made in China which highlight some of the many challenges I have encountered and learned from over the years.

I also believe in continued learning and my latest pursuit has been learning Mandarin. I began taking a weekly class at Euroasia language school in Auckland in early 2010. I have experienced first-hand the difference between speaking Chinese and thinking Chinese. While I have spent a good deal of the last 10 years trying to understand the Chinese way of doing business, I decided that learning the language could be another way to bridge the gap between cultures. Many Chinese attempt to learn English so out of respect why shouldn’t we attempt to learn the most widely spoken language in the world?

China’s future will be driven by urbanisation and the emerging middle class

China_urban

It is critical to understand that while China is one country there are significant regional differences. One way to gain a holistic picture is to travel to a variety of locations throughout China. While Shanghai and Beijing are the financial and political centres, they comprise less than 5% of the Chinese population. The real future of China, in my opinion, lies in the emerging middle class so I have made an effort to travel to tier 2 and tier 3 cities. In addition to Guangzhou in the south, I have been as far west as Chongqing and Chengdu and as far north as Changchun. I like to visit similar locations every few years to see how things are developing. The reason for my travel is to visit company management at their headquarters. I have found they are much more open to a dialogue and it forms a lasting impression if a fund manager from New Zealand makes an effort to come and spend a day with them on their home turf.

This is the welcome I received from Cao Zhao Hui, the CEO of Wasion Group, when I visited them at their headquarters outside of Changsha in 2009

Ken_applegate

The first example is an investment that didn’t work out. One way we generate our investment ideas is through quantitative screening of financial metrics. We discovered a company called Dapai, China’s leading branded backpack and luggage company. I was attracted to the company because of its leadership position in its industry and cheap valuation. The valuation of the company was low because the company had made some decisions that did not fit the mold of a ‘typical’ high quality publicly traded company.

After significant research on the company and numerous conference calls with company management I believed that this was an investment worth pursuing. We are strong believers in quality management so I travelled to Quanzhou, Fujian Province, to spend a day with the CEO and Chairman at their facility. I also conducted research by interviewing customers at shopping malls (including the competition) to gauge the perception of the company and brand.

As mentioned previously the cheap valuation was due to subpar decisions the company had made in regards to how the stock and company was perceived. I believed these decisions were made in naivety. During my meeting with the CEO I highlighted how to change their perception which could lead to significant wealth creation. I offered my assistance and facilitated a conversation with a public relations firm and numerous specialised brokers and made myself available for discussion on any decision-making if required. They responded positively and we celebrated a fruitful day and good relationship over dinner.

I had continued conference calls with management and while the company did make some positive steps forward they were only baby steps. Unfortunately the key decisions continued to be poor in spite of my advice. This was frustrating as there was no logical rationale for the decisions. The decisions were actually made for reasons other than purely financial reasons, which meant sacrificing

their own business in the short term to maintain relationships with distributors. I understand this is important, but it was still

frustrating as management had committed to change. While I do understand how Chinese think, I am ultimately a westerner, especially when it comes to business, and our way of decision-making does not always prevail.

Touring the Dapai factory with the CEO, Chen “Perry” Yong

Dapai

The second example involves a more positive outcome. The company is China Automation Group, a leading company in safety equipment for the petrochemical and rail equipment industries. It is similar in structure to the first example where my research and relationship was developed over a 6-month period. The major difference in this example is that I already had relationships with a number of players in the rail equipment industry. This added depth and meaning to my relationship with this company.

We first invested capital in China Automation Group in mid 2008 and while business for the company continued to be positive, the stock took a dive in 2008. This was frustrating for the company and for me. I remember meeting with Xuan Ruiguo, the Chairman of China Automation Group, in Hong Kong in October 2008 when the stock price was HK0.60/share.

To put this into context we bought our first shares at HK$2/share. The good news is that now the shares are trading at more than Hk$6/share. We showed our confidence and belief in the company by buying more shares and it was this day that defined our relationship. I had breakfast with the Chairman in March this year and he recalled my support during that challenging time and said that he always has time for me.

Summary

I have always believed in a long term approach to investing and this is a mindset that is critical when it comes to doing business in China. The best lessons I have learned have not come from reading books but from my own experiences on the ground. This will continue to be the focus for me in the future. We shouldn’t overestimate the ability to change others’ mindsets and this is not a sustainable outcome anyway. We need to adapt if we are to conduct business in their country, and both parties in a relationship must be satisfied. This requires a long term approach – it’s not just about trying to make a short term profit.

The best piece of advice I give people who want to try and understand China is to go there. I tell them to spend some time in one of the big cities and then travel inland to a smaller city. I have offered numerous times to provide assistance to those interested in an attempt to make the process seem less daunting. Seeing is believing. It takes time to develop an understanding and time to create relationships. Confucius said “A journey of a thousand miles begins with a single step”…and the long term rewards can be unlimited.

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How you can benefit from learning a second language

Most of us at some point or another have wanted to learn a second language. Some of us have learnt French or Japanese at high school. But most of us are still surprisingly monolingual (around 80% of Kiwis).

Some New Zealanders still think English is the lingua franca of the global village, only to be surprised when they visit faraway towns in Europe, South America or Asia. However, learning another language is useful not only because it opens up great travel possibilities. Learning a foreign language also helps give us an understanding of and appreciation for people that are different from us. Your understanding of the world will be enriched by gaining access to resources not available in English.

And as far as careers go, you don’t have to be an aspiring United Nations diplomat to learn a second language.

In our global village today there is almost no career that you could enter where second language skills wouldn’t come in handy at some time.  Even the big metropolitan cities – New York, London, Paris, Sydney etc. – which were once homogenous – now have sizeable populations of people who speak English as a second language. Being able to say on your CV that you have attempted to learn a second language would certainly make you come across as someone who is adventurous and serious about understanding people from other cultures. If you’re already doing business with people who speak a foreign language, you should at least be able to say a few words in the language of your business counterparts. You will no doubt win their respect, and in time this will translate into business deals.

Before you book your air ticket for that

trip to Europe or Asia this year, consider learning the local language to enrich your holiday experience.

Euroasia Language Academy offers programmes in French, Spanish, German, Italian, Chinese, Japanese and Korean. Call Cedric now on 0800 387627 or visit www.euroasia.co.nz for information on courses starting 26 April in Auckland and Christchurch.

For those of you super-busy people, there are two additional options:

  • if you are keen to learn as much as you can within a short timeframe, consider the 2-week Fasttrack 2 programme, starting 13 April,
  • if you can’t make it for class every week at one of our centres, you can still sign up for the online language buy propecia 5mg online uk course – delivered live by a language teacher from our centre in Auckland.

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2010 New Year Resolution: Learn a language

In recessionary times, it’s even more important to keep improving and to consider learning a second language. Now is the time to be upskilling to future proof yourself. The ability to speak

a second language puts your business or your job prospects one step ahead of the competition. You are also demonstrating to future employers that you have what it takes to stick to something. Employers realise that people who embark on language learning have some key characteristics that are highly valued in such times: commitment and dedication being some key ones. Part of what makes knowing a language a great skill to have is simply because it’s not that easy for someone to acquire fluency. If it was, it would quickly lose it’s value and won’t be treasured as much. Some of you would already have mastering a second language set as a 2010 New Year resolution.

How do you ensure you achieve your 2010 New Year resolution? Your goals have to be SMART. The reasons people give for not learning a language include lack of time, the cost involved and the difficulty of the subject area. The good news is you can craft a SMART plan to overcome the obstacles mentioned, to achieve your goal of speaking a foreign language by the end of 2010.

1) Specific

What does “speaking a foreign language” mean? Should your goal be to know enough French in order to survive in a remote town in France without relying on interpreters?

We have a specific learning outcomes for people who enrol for courses at Euroasia. For example, at the end of the Level 1 French course with Euroasia, you should know enough to “get by” in French: you will be able to cope with the most common everyday situations by asking and answering simple questions, and you will be able to understand people when they speak to you about the situations covered.

2) Measurable

How do you know you’re on track with your goal? You need some objective measure of your progress. This is the main reason why self-help language courses don’t work. This is because learning a language is not like studying history. You need constant feedback from experienced teachers who know how to provide constructive suggestions and correct you when you make mistakes. CDs and software programs can’t do that as well as humans. You need to be regularly “tested” either formally or informally so that you know you’re making progress. Language schools follow lesson plans that introduce progression over time. As long as you keep on top of the coursework, you will keep improving.

3) Attainable

Your goals have to be realistic. Sometimes we get calls from people who need to master a language within a matter of weeks because of an impending transfer offshore, or because they have to meet the future-in-laws who don’t speak any English. Learning a language, like everything else, takes time. There are certainly people out there who promise the world, and will tell you that you do not have to put in the hard yards and yet will emerge fluent within a short timeframe, simply by spending an hour a week listening to CDs or playing some games on your laptop or iphone. This is obviously appealing, in the same way that expensive infomercial weight-loss programmes are. The real secret to learning a language (and weight loss, saving money etc) is having a realistic plan and keeping to it. At Euroasia, we follow a language learning programme that allows people to realistically gain fluency over time. If we did have magic pills that make clients instantly fluent in Spanish, we would be selling them at a thousand-a-pop and not bother investing so much money in establishing and running a school.

4) Relevant

Why are you wanting to learn a foreign language? If you’re just wanting to learn Italian for fun so that you can order a beer and have a simple chat with hot locals as you roam around Rome, then your goal should be to complete Level 1 or Level 2 with Euroasia. A Level 1 course can be completed within 2 weeks, 5 weeks or 10 weeks, depending on how intense you want it to be. If on the other hand, you wish to conduct business negotiations with your suppliers in China, then a Level 1 course is not sufficient, and realistically it would take a year or two to get a point where you can engage in everyday conversation, comparing your life in New Zealand with other people’s lives overseas; discussing matters of interest, including politics and economics. The more solid your reason for learning a language, the longer the staying power. Visualise your end-goal. When the going gets tough, keep reminding yourself of how it feels to be able to ultimately converse freely with locals. What would also help is if you have career-oriented language goals such as planning to gain a foreign language qualification. If your goal is to pass a formal certification exam like DELE (Spanish), DELF (French) or HSK (Chinese), then you are also more likely to have stronger motivation.

5) Time-bound

What’s your plan in order to achieve your goal? Where do you want to be in 3 months? 6 months? An ineffective resolution is “I will be rich someday”. An effective resolution is “I will save $20K

by December 2010″. You then break this down further into quarterly and monthly targets. In the same way, you would set targets for yourself in learning a language. You may wish to complete the Euroasia Gold Package (4 courses) by the end of 2010.

We wish you all the best in setting SMART goals for 2010!

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Working with China – key tips

I came across a good story in the Summer issue of Bright, the NZTE magazine that goes out to people interested in international business.

Key stories in this issue include coping with the international credit crisis; insights on trading in the Middle East; tips on perfecting your sales pitch; the world's growing bioeconomy; interviews with two members of NZTE’s China Advisory Board; carbon-labeling of exports; staying sharp in the adventure tourism market.

I want to highlight some salient points from the  interviews with the 2 members of NZTE’s China Advisory Board, who have in-depth China market knowledge and have lived and worked in China for a long period.

chinaIf you have some time, do read the article. The 2 guys interviewed are:

David Mahon, Chair of NZTE’s China Advisory Board.

  • Worked in Beijing for 25 years, heading a private  equity firm Mahon ChinaInvestment Management Limited.
  • He says change in China has been so great though that he says it’s largely his last two years’ of experience that are relevant to clients.

Andrew Browne, partner in a corporate communications advisory company, Beijing Brunswick Consultancy Ltd.

  • Advises clients on business development acquisition and listing strategies.
  • Previously worked for Reuters for 20 years and in 2007 won a Pulitzer Prize.
  • Grew up in Hong Kong.

Some quotes from Mahon:

  • “If you’re looking around the world and trying to see sources of global growth, China is one of the bright spots”
  • “Brand New Zealand is strong but we lack unity. There are all these meat producers and wine producers selling fragments. We need to approach in a unified way – then Brand New Zealand can be protected.”
  • “Language is important”. “I learned five words a day – no one can afford not to learn five words a day.”
  • “Too often you see companies with a product in China and it doesn’t do well. China demands products unique to Ch

    ina. For example, media is very culturally sensitive.”

Quotes from Browne:

  • “What is it that China

    needs? They need brand, technology, marketing and sales channels. You’ll see a very serious shopping expedition going out in search of all those things.”

  • “It’s a truism that China is a complicated country”
  • “We each have a vision which is only a tiny slice of the whole. For all New Zealand companies, it’s critical that they meet as many people as they can and get as broad a view as possible. The secret of doing well is asking the right questions.
  • The economy has been far too focused on exports and heavy industry. The low-end sweat-shops
    along the coast have resulted in excessive use of raw material and energy. In that sense, the old
    model has run its course and was looking unsustainable before the credit crisis hit.
  • “Would you advise a top Chinese company manager coming down to New Zealand to learn a little English? The notion you can send a senior manager to China without language is ridiculous. China is changing so quickly. Language gives you a feeling of engagement and
    learning about the market.”
  • “If you’re an architect, there is nowhere in the world doing building like China,”
  • “Take parks. China needs parks; in the West, all the parks are there. Companies in the West that have long become dormant have sprung back into life in China. China is not something
    to fear at all. China is creating vast opportunities across the manufacturing and service sectors.
  • “If you’re a banker, China is your big opportunity. I’ve watched the private equity funds
    of the world trooping through the lobby of CICC China Investment Corporation with their hats off.”

Also want to highlight an opportunity for Kiwi businesspeople to connect with Chinese investors and businesspeople at an upcoming event on 30 March 2009 – known as the International Sustainable Cities Forum. A delegation of high-level business and government leaders will be in New Zealand for 4 days to explore partnership opportunities.

It's the perfect opportunity for those wanting to do business with the Chinese to attend.

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Why bother with Spanish lessons?

Spanish classes are very popular amongst Kiwis. Many choose to kick off the year with some Spanish lessons, in preparation for an upcoming trip to South America or Spain. Some choose to learn Spanish because of business reasons. At Euroasia, we are often asked why Spanish lessons are so popular. Here are some reasons.

  • Spanish is unquestionably one of the world’s most important languages, spoken not only in Spain but also in most of the Americas, from California to Cape Horn!
  • The Spanish-speaking countries are exciting places: the cities offer a round-the-clock buzz, while the great outdoors has huge potential for adventurous outdoor activities.
  • Within the Spanish-speaking world, there is an enormous range of exciting places to visit: in Mexico and

    Central America, the cities of the Maya and the Aztecs, and resorts such as Acapulco and Cancún; in South America, the cities of the Aztecs (including Machu Picchu), the colourful Andean cultures of Peru and Bolivia, the strikingly varied landscapes of Chile and Argentina, and the cosmopolitan excitement of Buenos Aires.  Although some English is spoken, getting around is much easier with a little Spanish.

  • Spain itself is one of the world’s most popular tourist destinations, famous not only for its Mediterranean beaches, but also for its stylish cities, its well-preserved small towns, and, in the south, its

    unique Moorish heritage.  Not to mention Ibiza, with the hottest nightclub scene in Europe, if not the world!

  • The Spanish language has been the vehicle of great writers, from both Spain and Latin America.  Both areas have also been the home of world-renowned artists and, more recently, film-makers.

  • New Zealand is increasingly looking to South America for trade links, especially Chile, the most prosperous of the South American states, and the one closest to New Zealand.  Spanish speakers will be in demand in the future (in fact right now we have Kiwi businesspeople doing business in South America learning Spanish at Euroasia).
  • Young Kiwis can work in Argentina, Chile or Uruguay for one year under a working holiday scheme.  A knowledge of the Spanish language would obviously make a huge difference to anyone’s job prospects.

Find out more about Spanish lessons at Euroasia.  Or to enrol for a Spanish course, check out the Spanish timetable!

2-week intensive Spanish language courses start this week (20 January intake) and the once-a-week option kicks off early Feb. Enrol now.

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New Year resolutions in times of recession

Many of you would be spending the first few weeks of January thinking about your new year resolutions. According to the United States government website USA.gov, the most popular new year resolutions are:
* Lose Weight
* Managing Debt
* Save Money
* Get a Better Job
* Get Fit
* Eat Right
* Get a Better Education
* Drink Less Alcohol
* Quit Smoking Now
* Reduce Stress Overall
* Reduce Stress at Work
* Take a Trip
* Volunteer to Help Others

I can't help but notice that “finding a husband/wife” is not on the list.

Another worthwhile resolution that should be on the list is “to learn a language”. In recessionary times, it's even more important to keep improving and to consider learning a second language. Now is the time to be upskilling to future proof yourself. The ability to speak a second language puts your business or your job prospects one step ahead of the competition. You are also demonstrating to future employers that you have what it takes

to stick to something. Employers realise that people who embark on language learning have some key characteristics that are highly valued in such times: commitment and dedication being some key ones.

The reasons people give for not learning a language include lack of time, the cost involved and the difficulty of the subject area. Part of what makes knowing a language a great skill to have is simply because it's not that easy for someone to acquire fluency. If it

was, it would quickly lose it's value and won't be treasured as much.

Let's think about it this way. What if you manage to land a big business deal in Asia or Europe, or secure a great job, because you speak a second language? What if you get yourself out of a sticky situation in a foreign country because you speak the local language? What if you find the love of your life as a result of your language learning journey? I've certainly seen these things happen in my time at Euroasia.

I would suggest that a worthwhile New Year resolution in 2009 is to learn a second language.

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Recession: The best time to learn a language

Recently I wrote that Britons are missing out on jobs at home and abroad because of their inability to speak languages other than English. Leonard Orban, the EU commissioner for multilingualism, says that small- to medium-sized companies in the UK are increasingly turning to foreign nationals to fill jobs that call for more than one language. In previous articles, I’ve explored the reasons why people need to learn a second language.

In recessionary times, it’s even more important to keep improving and to consider learning a second language. Now is the time to be upskilling to future proof yourself. The ability to speak a second language puts your business or your job prospects one step ahead of the competition. You are also demonstrating to future employers that you have what it takes to stick to something. Employers realise that people who embark on language learning have some key characteristics that are highly valued in such times: commitment and dedication being some key ones.

The reasons people give for not learning a language include lack of time, the cost involved and the difficulty of the subject area. Part of what makes knowing a language a great skill to have is simply because it’s not that easy for someone to acquire fluency. If it was, it would quickly lose it’s value and won’t be treasured as much.

Let’s think about it this way. What if you manage to land a big business deal in Asia or Europe, or secure a great job, because you speak a second language? What if you get yourself out of a sticky situation in a foreign country because you speak the local language?  What if you find the love of your life as a result of your language learning journey?  At Euroasia, we’ve seen these things happen, and we certainly deem it a privelege for us to play a small role in ensuring the success of our clients.

The economy may be going through recessionary times, but your personal life shouldn’t. This is the time to be preparing yourself

for the next boom.

There is one final opportunity to enrol for a language course in 2008. Euroasia has an intake starting 10 Nov.

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Learn languages or lose out on jobs

Britons are missing out on jobs at home and abroad because of their inability to speak languages other than English, the European Union commissioner for languages has warned. I came across an interesting article that is perhaps informative for us here in New Zealand.

Leonard Orban, the EU commissioner for multilingualism, says that small- to medium-sized companies in the UK are increasingly turning to foreign nationals to fill jobs that call for more than one language.

His comments came as it emerged that the European Commission is facing such a severe shortage of native English-speaking interpreters that meetings are being cancelled. The commission also warns that it may have to cut the number of documents it translates because of the dwindling number of British students with degrees in French and German.

Since 2002, member states have been committed to a policy of working towards all citizens speaking their mother tongue plus two other languages. A league table to be in place by 2010 will show the competence of students in different EU countries at the end of compulsory schooling. It is widely accepted that Britain will be near the bottom.

If British graduates are missing out on jobs because they are on the whole monolingual, then surely this is true, if not more so, for New Zealand graduates as well. The tragedy is that we live in ignorance of this fact. I have yet to see any local publication talk about this issue.

Does this mean we should force everyone to start learning a second language? No.

Not everyone is into language learning, in the same way that not everyone is into algebra. However, students who are keen to explore language learning should be given the opportunities and encouragement to do so.

Increasingly, knowledge of a second language is not just something that's nice to have, but an economic imperative.

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Want to go overseas but can't speak the language?

Recent government research published in the UK showed that two thirds of teenagers intend to work abroad in Europe or Asia when they leave school even though most of them speak no foreign language.

This from Times Online:

More than half (58 per cent) of 11-18 year olds say they have no foreign language skills whatsoever, yet 66 per cent are planning to work for up to two years in Italy, Spain, France or China.

The research is further evidence that most young people assume they can get by in a foreign country by speaking English, and comes just weeks after official GCSE data showed the number of children taking formal exams in foreign languages has fallen yet again.

I think the figures would be similar in New Zealand. Practically ev

ery New Zealand kid wants to do the overseas experience (OE).  My colleague Peter wrote an excellent article in May 08 about why learning a little bit of language is better than nothing.

Even Air New Zealand is now giving preference to people who can speak other languages. This from their flight attendant recruitment website:

Languages
Special attention is given to the cultural and language needs especially relating to the Airline's key markets such as Asia, Japan and Europe. A second language is preferred and priority will be given to applicants who are fluent in Japanese, Cantonese, Mandarin, German, French and the languages of the South Pacific.

I bet you didn't know that…

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