10 Things I've Learned from Doing Business with Chinese Billionaires hungry to Invest

1.  

 

 

You value the relationship over the transaction.

 

At all costs.  At every stage.  Period.  End of story. 

 

 

Background: 

 Relationships are those of friends – or family.

 Often you are doing business with a family business. 

 And the business is an extension of family. 

 

           To call a blue chip corporation like Li Ka-Shing’s Hutchison Whampoa, or his Cheung Kong Holdings a family business –well, each is a business, and is family-run.  But to call either corporation a family business is like saying Berkshire Hathaway is Warren Buffett’s family business.

            The founder as patriarch – a Li Ka-Shing, a Cheng Yu-tung, a Run-Run Shaw—remains a hands-on, active manager in his flagship corporation even when the new generation takes up executive roles. 

           If there is a good team in place, then you will not see the nepotism that constrains the ambitions and limits the achievements of good managers in an American, family-run enterprise.  In Greater China, good managers will not be displaced by the founder’s children.   For instance, Canning Fok, George Magnus, and Ian Wade kept their key positions with Li Ka-Shing even after his sons came of age and assumed executive roles in his companies.   

            Personal relationships are crucial.  They are paramount.  And this makes perfect sense in a commercial arena where politics is interwoven with business.  Corporate leaders with a knack for politics will not only survive here -- they will prevail.

           The competitive arena in which control of the future is being fought is commercial -- but it is not business-as-usual.  It is personal, and it is gladiatorial -- where the gladiators happen to be self-made billionaires.  The energy of their personal, entrepreneurial imperative – their drive – meets, satisfies, and draws wealth from their society’s need for order. 

           For instance, when engineer Gordon Wu  offered to build a major expressway linking south China with Hong Kong— he used as his model the construction of railroads in 19th-century America, and, as he told me, he secured huge development rights along both side of the highway along much  of its length in return for building it.  That megabillion vision—and execution—earned him a billion dollars, brought Guangdong's transportation into the twenty-first century,  and put his firm, Hopewell, on the globe as a major engineering firm.

 

 

2.  

You treat him as a potential partner, 

and he will treat you as a real one.

 

 

           Yes, you can cold-call a billionaire.  

           You need no introductions.  You have something of value.  You can speak one on one. 

           He is Chairman of his company.  So you need to be chairman of yours -- as a matter of his saving  face before those who are watching—

           And everyone is watching – and to lose face is to be like a tree that loses its bark.

           Let us assume he is accustomed to risk free returns of 30% at a 15% tax rate.  You find yourself presenting a venture that would offer higher returns.  (Although it doesn't need to-- the returns are not the only measure of merit.)                   

            The timing is optimally now--.  It offers serious synergies for his company -- meaning that the value of his existing assets would increase if he makes this acquisition-like investment.   In essence it is acquisition accounting:  just as the value of assets change from book value to fair market value after a takeover -- here it is not so much a take-over as a taking in, an ingestion of undervalued or appreciating assets.

           If you find yourself feeling this strongly -- then champion it, own it.  

           Assume that he is opportunistic.  

           That means he makes it his business to respond to whatever good opportunities come to him that are relevant to his core business. 

           (It works in America, too--- just think of the banquet where Brian Roberts sprang up and challenged his host Bill Gates to invest one billion dollars into his proposition.  Within thirty days, Gates did—and Comcast had its expansion capital.)

 

            Most of all— you come to him offering an opportunity to join with you.

           You come to him as a potential joint-venture partner – not as a broker, or a finder, or an agent – but as a person, a company, a force, a connection valuable to know in your own right. 

            This bears repeating:  you greet him as potential partner, you do not descend upon him like a broker.

 

I don’t care if he has fifty billion dollars:  

he treats you as a potential partner,

the same way you treat him. 

 

 

3.  

Start-up investments are based on the founder,

not the venture.

 

           Let us say you are promoting a business opportunity.  A new venture. 

           In America, you raise the money based on the market -- and the cash flow. 

           In England, you raise the money based on the strength of the company involved. 

           In Switzerland, you raise the money based on introductions and based on the absence of any danger of any risk whatsoever.

            In China you raise the money based not on the absence of risk, not the presence of introductions, nor the outrageous growth of the market, not even based an appraisal of the proprietary and leading-edge technology involved.  In China, you raise the money and inspire confidence based on the person.  It’s not about the venture—it’s all about you. 

           Like Y. C. Cheng and his family backing James Ting’s plans for Semi-Tech- –  "We had a family meeting and we said, ‘Let’s take a chance on this guy.' ”  Within two days they invested the millions Ting needed.

            Such an investor will invest in a new venture even if he realizes it will likely fail----- if he has faith in the person,  “just so I can be around for the next time.”

            He invests in the person, even more so than the proposed venture. 

 

4.    

   

You position a new investment

as a continued investment

in his company’s core business. 

 

           Focus on the Core Business.  This is his touchstone of whether to pursue a joint venture:  does it relate to our core business?

           Control the perception of the investment sought.  Once again, you position any new investment of capital as a continued, follow-on investment in his company’s core business.

           Because in his mind is the continual question, while he and his advisors and his family are avalanched with proposals:

           how is this consistent with our core business interests? 

           How it might fit, like the elusive keystone piece of a jigsaw puzzle, into the overall enterprise that he has been building all his life -- an arch bridging the market opportunities of East and West. 

 

 

 

5.

 

The Strategic Enterprise

Trumps the Tactical Business Unit. 

           

           Take the case where your billionaire is a major shareholder in a telecommunications company.  Headquarters are in Hong Kong; active revenues flow in from all over China.

           R&D develops a mobile phone whose features make it ideal for users in the United Kingdom.  It’s still just a device – but R& D would turn it into a product. And this is a company where the basic issue us to get results.  You have an idea -- you implement it – so long as you get results. 

           At other companies, engineers may have the opportunity to come up with ideas and to implement them -- but do not get the chance to bring in the results. 

            So:  what would your investor do? -would he invest corporate group resources into dominating the market for mobile phones in England?  -Or. use funds to further expand activities in the core market geographically, in greater Hong Kong and China?    

           Think like your investor.  And (barring a directive to "Sell China and Buy Europe") you'll see that he will generally choose to expand in the core market.  

           Chinese business networks have emerged to control market uncertainties.  And risk-tolerance instincts have evolved to prefer those investments that are closer to one's core business -- and to the market networks that one controls.  

 

“Jack Ma’s on the line for you.  Again. 

What do you have for him?”

 

6.  

Invest enough

to dominate the position. 

 

 

 

This investor's strategic aim is solid domination.  

 

           It makes sense in Asia – Hong Kong, Ningbo, Bangkok – am surprised it doesn’t make more sense in America. 

           For instance, when the owner of a number of huge parking garages came to me to structure immigration-related investments selling them one at a time – my investor out of Thailand wanted to buy them all --  so that overnight he would control one-third of all the parking garages in Manhattan.  The Yankee seller's attorney could not understand –envision—imagine ---such a strategically acquisitive mentality.  But in the Pacific Rim it is normal, for:   

            Competition in China is based on control of the distribution channel much more so than  competition based on the brand.

 

7.  

 

If you're an American, treat a Chinese businessman

as you would an American businessman. 

 

 

           

           There is a difference operationally – but not strategically.

– except, more so. 

          More competitive, and less cultural restraint on being ruthlessly competitive. 

           No difference -- other than that -- no restraints, none at all..

 

8.   

          Converse with a billionaire like Gordon Wu, or Henry Cheng, or David Li, or Victor Fung, or the late Run-Run Shaw, or Lee Shau-kee, or Stanley Ho, or Richard Li – as I have  -- and you encounter gentlemen with multi-faceted personalities.  I don’t find that with billionaire investors in New York.  I don’t find that in Zurich.  I don’t find that in Abu Dhabi.  But I find that in Hong Kong, Chengdu, Beijing, Shanghai.

 

           For thousands of years, Chinese business culture has celebrated the well-rounded, multi-dimensional man.  The man with dimension beyond the business arena. 

                And such a man may have a Midas Touch, but he does not just run his company like a money machine.   So for instance, while pursuing a globalization strategy in the energy business, the Hutchison Group’s corporate manager overseeing everything from integrated oil production in Canada to power generation in Hong Kong to future investments in Europe – George Magnus, Chairman of Hong Kong Electric as well as a key director at Hutchison -- made sure to be responsive to the needs of its less well-off customers.  

                For instance, Magnus kept power rates in Hong Kong unchanged for seven years -- first for the underprivileged, then for the elderly on public assistance, then, for basic power needs for single-parent families, and the unemployed.  And, he created a fund to subsidize half of their basic power costs. He reduced the burden on lower-income customers while honoring his fiduciary responsibility to shareholders. Quite the balancing act:  balancing the needs of consumers with the expectations of shareholders, while keeping the firm strong, and growing, and providing reliable, environmentally-friendly electricity. And, keeping the Group poised competitively so it would be able to grow by acquisitions, from power grids in Scandinavia to wind farms in Portugal.

                   He demonstrated that you can be socially responsive while maintaining a worldwide search for suitable investment opportunities that maximize shareholder value consistent with future prospects.

 

 

9.  

 

Do business directly – principal to principal. 

           

             As a consequence, expect Quick decisions – on major projects

             On a Canary’s Wharf-scale project – 15 minutes not 15 days; 30 minutes not 30 months.   One phone call -- maybe two -- not ten.

 

 

10.  

 

These men and women are big enough to trust

their key advisors and to assign them deal-making authority.    

 

Numbers are used to confirm a decision

to invest, not to make the decision.  

 

 

           If in the States attorneys are key to due diligence–  in China it’s the accountant.

           Get accustomed to the accountant or the Executive Secretary having the authority to green-light a $250 million investment.  

 

In one phone call.   

Once they know you.