BC Business
B.C. entrepreneurs find their niche in the Hong Kong market
With $13 billion spent on a lofty plan to become one of Asia's key gateways to North America, you'd expect B.C. to have a strong presence on the ground
There are days when Randy Heward envies his buddies back in Vancouver, the ones who shared his enthusiasm for business but weren’t plagued by the burning desire to launch a firm in a foreign land.
When North American toy makers began frantically yanking their Chinese-made products from store shelves this past fall? That was one of those days. But aside from the six weeks he and his family spend at their Kerrisdale home every summer, this hard-charging B.C. entrepreneur makes a living in the cauldron of capitalism that is the city of Hong Kong.
Heward, 47, has built a thriving business helping North American companies outsource their manufacturing to low-cost factories in Asia. “Our clients want to focus on what they’re good at: designing and marketing their product lines,” he says during an interview at his company’s Hong Kong headquarters.
“Some of the groups we work for don’t come over here at all. They don’t understand this part of the world and want to work with someone who does.”
Heward’s company, TMax Group Ltd., is an agent for about 20 American, Canadian and Australian manufacturers. In 2007 it shipped US$150 million worth of toys, power tools, electronics, pet supplies and even condominium interiors from factories in China. And despite the toy setback, demand for Heward’s middleman services has never been stronger.
Countless other foreign-owned companies eyeing the massive market and manufacturing potential of China have established base camps in Hong Kong, unofficial window to the world’s largest consumer market.
Hong Kong boasts one of the most sophisticated financial service sectors anywhere, a business-tax rate of 16 per cent and seven million residents. Bordering Guangdong province in the north and surrounded by the South China Sea, it has the world’s sixth-highest per-capita GDP, impressive considering the lack of any measurable resources or industry.
This former British colony, which began its economic life as a 19th-century trading port, is also home to more corporate HQs than any other Asian metropolis. All of these bona fides make it the “gateway” to the continent. As Steve Tait, head of HR Asia-Pacific for the Hongkong and Shanghai Banking Corp. Ltd. (HSBC) and former Tsawwassen resident, describes it, Hong Kong “touches everything that flows into the region and skims a bit off the top.”
When you’re the doorway to China, that’s no small bit.
Across town in Hong Kong’s bustling Sheung Wan district, Mick Verjee leans on a large desk in a crammed corner office with an impressive view of Victoria Harbour. Sprinkled with ferries and sailboats and surrounded by mountains in the distance, the scene could pass for downtown Vancouver on a misty fall morning.
But it’s late afternoon in Hong Kong and that’s pollution, not fog, obscuring the view. The permanent haze and the sooty smell in the air don’t seem to faze the dynamic 46-year-old. Neither, apparently, does the fact that this late-afternoon interview with a journalist from his hometown is his sixth meeting in as many Asian cities (plus a trip to the Richmond office) that he’s crammed into the past week.
Verjee, a Vancouver furniture-maker who moved his company from Richmond to Hong Kong, exudes passion and presence. An Ismaili Muslim, Verjee is a Canadian citizen, born in Kenya, who spent his early school years in England, went to high school in Vancouver and then university at UBC. Since joining the family business in the early 1980s he’s turned the bankrupt Richmond-based Hamilton Spill Furniture Group his father picked up at an auction into a global conglomerate.
“Things are moving quickly and we’re here, we have an infrastructure here and ship a majority of our products from here direct to retailers,” Verjee says. He won’t disclose revenues, but the company now delivers 1,500 shipping containers of furniture a month to retailers such as Costco Wholesale Corp. and The Brick Warehouse LP. In the 1980s, it was moving just two.
Heward and Verjee both left Vancouver for Hong Kong more than two decades ago. By local standards – Hong Kong’s GDP is US$259 billion versus B.C.’s $180 billion, and it has 6.9-per-cent annual economic growth compared to B.C.’s projected 3.3-per-cent growth for 2008 – their intensity is hardly remarkable. No one punches out early to run the seawall here. People work until 8 p.m. then meet business colleagues for a drink in the Mandarin Oriental’s smoky lounge, where their lungs fare as well as they would in a jog in this smog.
Hong Kong’s business opportunities are as palpable as its ever-present pollution. It might be a wild ride, but there’s more than enough for anyone willing to climb aboard.
But besides Heward and Verjee and a cluster of Vancouver-bred entrepreneurs, where’s B.C. in this picture? Given the $13 billion in public and private funds already poured into B.C.’s Asia Pacific strategy, the province’s deep cultural ties with the region and Prince Rupert’s much-touted geographical advantage as the closest North American port to Asia, why aren’t we on the radar?
Stats that might reveal how much business B.C. companies do in Asia are heavily skewed by resource exports, but Hong Kong insiders say any corporate presence is negligible. According to a BCBusiness/IE Market Research survey conducted late last year, Vancouver trails four U.S. cities as Asia’s most viable gateway to North America.
If you ask David Armitage, a North Vancouver native who co-owns an IT consulting firm in Hong Kong, no presence at all might be better than the reputation our business crowd has earned. “Canadians here are seen as looky-loos – ‘Oh, that’s nice, very interesting, yes, we should talk’ – and then they never hear from them again,” says the spirited Armitage. “Name one B.C. company that is doing anything out here. Can you give me an example – just one?”
Verjee speculates that many of his B.C. peers are reluctant to make the leap because – for now, anyway – the U.S. market remains easy pickings. “The last thing they want to think about is going to Hong Kong and starting over,” he says. “They can barely keep up with the success at home.” It’s a short-sighted, dangerous view, Verjee warns, especially if the U.S. enters a recession. “I tell them all the time, ‘Guys, it’s not going to last forever.’ This is the time they should be thinking about expansion.”
Verjee still relies on American sales, but he predicts the balance will shift in five years. The company opened a Mumbai office in 2007, works with a partner in Australia and plans to sell into China by next year. “It’s a very competitive market and will be a huge animal to take on,” Verjee says of the latter.
Whether they’ve booked a flight or not, many B.C. execs must be – or should be – considering how to tap Asia’s potential. As Heward, Verjee and four other former B.C. entrepreneurs now working in Hong Kong will attest, the risks can yield great rewards. Some of these bold souls target niche markets while others have built businesses that bridge Asia and North America. They’ve lost money, watched deals go south and questioned their wanderlust more than once.
When Mick Verjee’s father Mansoor bought a small furniture business at an auction in 1974, he knew the one thing he didn’t want to inherit was the dead weight. “He actually stopped the auction halfway through and said he’d buy the whole company,” Verjee recounts. “And then he made the owners tell the workers that he was just an employee, and that’s what he did – worked in the factory all day talking to the employees, and then after 5 p.m. he’d meet with the owners.”
After three months, Verjee’s dad came clean, let 20 workers go and kept about eight. This results-oriented style rubbed off on Verjee and has contributed to his company’s global reach today.
Verjee joined Hamilton Spill in 1983, the year the firm got union-certified. He watched a lengthy fight with the union drain the energy out of his father. “Everything became a battle,” Verjee says. “So I got on a plane and went right to Taiwan, found an agent to take me to factories and basically started buying.”
The goal was to pick up anything the company could resell into the North American market. “We didn’t have enough volume or buying power to drive our own designs, so we were an importer for many years,” Verjee says.
In the beginning, Hamilton Spill was shipping two container-loads of furniture a month back to Canada. By 1986 the company had closed its manufacturing facility in Richmond and had enough volume to drop the importing and start contract-manufacturing its own designs at low-cost Chinese factories. “Some of these factories are so big the manager has to ride around in a golf cart,” Verjee says. “They’ll have 10,000 people on sewing machines in one room at one time – you can’t even see the end!”
Over the years, Hamilton Spill has ramped up production, adding new warehouse facilities in China, Thailand and Vietnam. Today it ships 1,500 containers a month to North America’s largest furniture retailers, and more to new markets in Europe, the Middle East and South Africa. Of the firm’s 400 employees, 100 work in Richmond – North American sales headquarters – and 50 at its sales HQ in Hong Kong.
The company recently opened a 35,000-square-foot private showroom in the growing industrial city of Dongguan in central Guangdong province. “Right now product shows are in the U.S., but in five years they’ll all be in Shanghai,” Verjee predicts.
The next furniture frontier for family-owned Hamilton Spill is India. “We’re in at the beginning working on brand recognition,” Verjee says. “Before, 99 per cent of the furniture purchased in India was from a carpenter, and there’s 1.1 billion people there. I mean, this is just huge.”
Tom Folinsbee packed his bags and moved to Hong Kong in 1996 after a classmate told him that with the Canadian Securities Course, a person could earn $100,000 a year working as a broker.
The 40-year-old still buys and sells stocks, but it’s always been a means to an end. His passion is spotting an opportunity and creating a business around it. These days, when he’s not short selling or going long, Folinsbee is working his magic on mushrooms.
He got the idea after seeing his Japanese wife Sachiko’s ecstatic reaction when he gave her a basket of matsutake – wild pine mushrooms – harvested by friends in Roberts Creek on B.C.’s Sunshine Coast. The mushrooms are a delicacy in Japan, especially, and other Asian countries.
Having spent time with friends on the Sunshine Coast, Folinsbee knew the mushrooms were plentiful if you knew where to look. He had some shipped to Tokyo, where he began selling them to a restaurant supplier, but spoilage was a problem. Folinsbee now sells dried product direct to restaurants from three regions in B.C. (he also works with harvesters in Alberta and Saskatchewan) and is working on building the brand of Canadian wild mushrooms. Today the couple’s company, Wild Gourmet, markets the B.C.-harvested mushrooms to high-end chefs in Hong Kong restaurants and Folinsbee says they plan to expand to other Asian cities as supply allows.
“I had never done anything like this before, so it didn’t work out perfectly,” Folinsbee says in his unassuming way. “But I like trying to make things happen.”
Turning a hunch into a nice side business hasn’t been smooth, but Folinsbee wouldn’t have it any other way. “It’s like an orchestra getting all the pieces to work together.”
Growing up in North Vancouver with a zest for travel, Armitage had always felt pulled toward Asia. So when his wife Ulana Switucha took a transfer to Hong Kong with Scotiabank, he quit his marketing job at Royal Dutch Shell PLC and headed west. After arriving here in 1995, he networked furiously, led the local Canadian Chamber of Commerce and eventually laid the foundation for his own regional IT consulting venture.
Armitage, 50, recalls falling under the city’s entrepreneurial spell. “There are very few places in the world that have as many switched-on, sharp people as Hong Kong,” says the straight shooter during an afternoon interview at his company’s buzzing headquarters. “And the amazing thing is anyone will see you – any one of them will give you at least one meeting to talk about an idea.”
With a French-Canadian partner, Armitage started Velocity, which was originally geared to helping Hong Kong firms integrate technology upgrades. “I became like a CIO for those companies,” he says of his clients, most of whom were outposts of North American businesses. Then the dot-com crash hit, then Y2K, then SARS. “We all looked around and thought ‘It can’t get any worse,’ and that’s right when it turned.”
In 2003 Armitage brought an Australian partner into the business, Peter Maruff, who replaced his previous partner and branched out into IT resourcing and management. Unwilling to disclose revenues, Armitage says his company has grown 50 per cent annually in recent years. Half of his clients are local and half are regional offices of foreign multinationals.
According to Armitage, there are two ways to take advantage of Hong Kong’s boundless opportunities. “Get big enough that you can open your own regional office here – you’ll need a couple million bucks and take two or three years of losses. The other thing is to just come and make it happen, like I did. That’s harder.”
Calvin Mak was born in Hong Kong but is well known in Vancouver, where he lives part-time. Mak owns Rhombus International Hotels, a Hong Kong-based hotel management and consulting company that also owns a resort in Chilliwack. Right now he’s spending half his time in Hong Kong heading up the opening of two new hotels for Asian clients, including the exquisitely designed Hotel Panorama in Kowloon.
Over coffee in the Panorama’s swanky restaurant, the stylish Mak says one of his strengths is helping Asian hotel owners incorporate an international flavour. “I bring a balance between Asian and Canadian, and they need that here,” he says. “The owners of this hotel wanted a foreign brand. Staff need to welcome guests in the international standard, and one thing Canada has is the smile! In Asia they are very robotic. You know, they are trained to bow.”
Mak says British Columbians – especially those of Asian ancestry with ties to the region – are in high demand here if they’re willing to move. “One of the problems here is that after work there’s nothing to do,” says Mak, who has a home in Vancouver where his two sons live. “You go out and eat, you shop, but how much can you do that? In Vancouver I go to the golf course, go outside. The worst thing here is the air, I can’t take it.”
One of 17 children, Vincent Wan says he had an inferiority complex when his family moved from China to Hong Kong in 1949. The Communist Party had just taken over and Wan’s father, a landlord, was forced to leave Mainland China. “I couldn’t speak English or the local dialect, so I was a real introvert,” Wan says. In 1989 he left for Canada to make a better life for his family. “I wanted my kids to have a more liberal education that allows them to tackle problems where there are no schoolbook solutions.”
Wan started in Edmonton and then moved to Vancouver. After a few years, he went back to Hong Kong to pursue business leads – the same reason his two sons have since returned. “Canada has less opportunities than Asia now. They [my sons] are aware that they could be a good bridge.”
Wan became head of production for Levi Strauss & Co. in Asia, worked as an auditor for KPMG and then headed up Nestlé Waters’ Perrier rollout in Asia. He then started his own company, working as an organizational consultant and recruiter for Asian companies.
Today Wan also runs Wellness Village, a website that helps his corporate clients keep their workforces healthy and happy. He estimates that he spends 60 per cent of his time in Hong Kong and 40 per cent elsewhere in China, the country he says has the most to offer B.C. entrepreneurs. “It’s trying to move its whole economy up to the next level, so they need made-in-the-West solutions and ideas. That means technology transfer, management skills upgrades, accountants, lawyers.”
Randy Heward owes much of his success to other companies’ reluctance to tackle Asia directly. TMax represents North American companies that don’t have Asian offices but have outsourced most of their manufacturing to the region. It takes orders from clients – one of the largest is Toronto-based Itoys Inc. – and then manages the engineering, product development and manufacturing in 250 factories throughout Mainland China.
When Chinese-made toys started getting pulled from stores last fall, though, business took a hit. “Some orders did come off,” Heward admits.
Heward, 47, studied business at Western University and finished up in Taiwan, where he went to study the language. At 23 he landed a job at the Taiwan office of the former Woodward’s Department Store’s office. In 1990 Heward began working with a toy manufacturer in Hong Kong; five years later, when the company was sold, he scooped some of its staff, opened an office and started TMax.
Although toys remain TMax’s bread and butter, the company has aggressively moved into other business lines. Its AirCo division makes power tools and all of Rona Inc.’s private-label lawn and garden products, while another wing makes pet merchandise. And with Toplight, his latest venture, Heward is tapping B.C.’s construction boom from half a world away.
Toplight manufactures assembled, ready-to-install condominium interiors for some of Canada’s largest residential building developers. On a separate floor from the toys, rows of cubicles have been cleared away to make room for a striking, low-lit display suite complete with granite countertops, bamboo flooring and a stunning kitchen. “Some developers are moving away from only using wholesalers in Canada, and they’re looking to China as a supplier for building materials,” explains Heward in between a conversation in Mandarin with nearby employees. Around the corner, workers on the building-supply line huddle over blueprints for orders destined for condo projects in Edmonton, Squamish and Vancouver, including the Woodward’s building in Gastown.
The condo interiors are built from scratch in TMax’s Chinese factories. “We have a team up in China with a lot of experience in Vancouver and they know what developers are looking for,” Heward explains.
One of the biggest hurdles for B.C. expats working in Asia is figuring out the rules of business and landing the right partner. “You hear horror stories – and we’ve been involved in some of them – where factories disappear or they’re not going to support the plan originally agreed upon,” Heward says.
John Woodward’s nephew David, who manages several TMax lines, also offers words of caution. “Just to come in and set up in China and cross your fingers – it might work sometimes, but the lack of legal recourse is tough.”