B.C.’s Chinese Commerce Connections

Local entrepreneurs are establishing a foothold in China’s vast market, but it helps to have friends – particularly if they’re from Richmond.

Dale Buote, False Creek Design Group | BCBusiness
Dale Buote says that personal relationships with China-based organizations make all the difference in finding success there.

Local entrepreneurs are establishing a foothold in China’s vast market, but it helps to have friends – particularly if they’re from Richmond.

Given China’s epic demand for natural resources, it isn’t surprising that major B.C. companies dealing in lumber, mining or energy are finding significant new customers there. But it would seem less likely that small local companies operating outside of such favoured fields would get much traction in China’s vast, ultra-competitive market. After all, even global retail-product giants like Procter & Gamble have famously seen their initial China forays go frustratingly – and expensively – awry, before finally tapping the country’s mega-profit potential.

Nevertheless, a handful of local entrepreneurs have not only had a real go at making it in China but are, in fact, punching well above their weight and are eyeing even brighter prospects for the future.

One is the False Creek Design Group Ltd., a company that has been quietly building a reputation as a go-to, full-cycle interior designer on commercial and residential small-building projects in Vancouver and Seattle for about 18 years. Managing associate Dale Buote says False Creek Design’s success has been rooted in knowing its market well, having some imagination and having the right people, such as principal Jim Toy, one of Vancouver’s leading light designers. But although Toy is Chinese by heritage, this wasn’t material in launching the company’s China gambit. Rather, the move into China came about almost by accident.

The first job that False Creek Design executed under its own name in China involved a wood-frame building in Beijing, in 2003. The company had been introduced to the client by a Vancouver contact who knew of a company there that was looking for a design firm familiar with wood-frame construction. “We went to Beijing to present our portfolio and, after a series of meetings requiring two trips, we were hired to design this building from the ground up,” Buote recalls. The finished structure served as the sales and presentation centre for a luxury development called Forest Hills, close to Chaoyang Park on Beijing’s Fourth Ring Road. The building is still in use as the development’s amenity centre. For False Creek Design, which was contracted to a building company named Dreamhouse, working in tandem with a developer (Beijing Tai He Reality), it marked a real arrival in the market. But the company’s initial foray into China also proved a baptism by fire, with False Creek Design learning a lesson in China’s rather flexible notion of intellectual property. “Prior to this we had done some consulting work for a design firm in Beijing,” Buote notes, “but none of the work was credited to our name.”

The real takeaway on the Dreamhouse project, says Buote, was the chance to get up close and personal with organizations in China such as Export Development Canada, the B.C. Trade & Investment offices in Shanghai and Guangzhou and the government of Canada foreign affairs and international trade offices there. These connections were the by-product of a long campaign by the B.C. and Canadian governments to ease the way for much bigger B.C. businesses into game-changing possibilities in China and, in fact, throughout Asia. As B.C. Minister of Jobs, Tourism & Innovation, Pat Bell explains: “The model we have now, where we have a significant contingent of staff on the ground in China with connections into the Chinese government and senior executive ranks into the big companies there, allows us to support virtually anyone from here. Because we’ve been able to develop those relationships on behalf of the larger companies, it has enabled us to extend that service and provide it to smaller entities, as well.”

After its initial success in China, False Creek Design got busy in Vancouver and Seattle for a few years and left its China plans on the back burner. Following the recession of 2008, which hit U.S. real estate development particularly hard, the company re-opened talks with the B.C. government and trade representatives it had met earlier, and they once again proved helpful. “That led to our participating in various trade and industry conferences, both as attendees and presenters,” explains Buote. “And this, in turn, smoothed our way in expanding a growing network of Chinese contacts and colleagues. We were trying to build a little guanxi,” he notes, referring to the Chinese word that loosely translates into “relationships.” While connections are important anywhere, they are particularly useful in China, where the rule of law is less assured and key relationships may provide the only available wiggle room.

In False Creek Design’s case, partnerships grew out of already-established Vancouver clients who had a link to China. For example, one client immigrated to B.C., but their work in the Lower Mainland is at a branch of a Chinese company headquartered in Hangzhou. Another partnership grew from a B.C. client with a similar story who hails from Chengdu. These have become “our guys,” as Buote puts it. And they are a big part of why Buote expects the Chinese component of False Creek Design’s business to grow from about five per cent at present to as much as 20 per cent down the road.

Just as important as developing relationships, False Creek Design’s mentors among Canadian and B.C. government representatives pointed out some strategic considerations, such as the enticing – and politically favoured – possibilities in China’s second-tier urban markets. These same advisors made sure that Buote climbed the steep learning curve regarding the culture and practices of Chinese real estate development.

“A couple of years ago, I didn’t know anything about Chengdu, much less local developers there,” Buote admits. Again, happenstance worked in False Creek Design’s favour. Its Canadian government contacts also played a proactive matchmaker role, leading the Vancouver design firm to a clutch of Chinese development and architectural firms focused on the Chengdu-Chongqing corridor in China’s southwest. False Creek Design found that while its Chinese counterparts had interesting, approved projects on the drawing board, they also had most of their needs covered – except for interior design.

Buote notes that as his company became more active in the China market, differences of language and culture did not prove the barrier westerners might expect. “The culture gap seems to look after itself as long as westerners are open to experiencing the culture from a social standpoint,” he notes. “And my experience is that food is the most important facet of Chinese culture, and the one around which all things eventually orbit.”

False Creek Design’s competitive edge turned out to be its western design sensibility. Buote notes that Chinese interior design tends to be a little flashier, a little richer, with a little more glitz. “But as China has westernized, so has this feeling that all things from the West are good. Thus, a lot of developers there are looking for marketing tools, and having good western designers on board is a good marketing tool,” he explains.

Of course there are cost issues as well; because so many things come so much cheaper in China, clients balk at western prices. False Creek Design’s way of dealing with this challenge – and of ensuring profitability – is to focus on selling its concepts, but outsourcing the technical drawings that it would normally do in-house. The company remains hands-on in overseeing contracts to make sure the designs are executed as conceptualized. Taking this approach has worked well enough that False Creek Design is now planning to open an office in China, targeting the Chengdu-Chonqing area.

Image: Phillip Chin
Eronne Foster’s educational website took off when
she soft-pedalled “touchy-feely” lessons for more
utilitarian ones.

Making inroads in China

Cackleberries Entertainment Inc. is another B.C. business making inroads in China. As its name hints, the company is a one-of-a-kind operation: under the banner “Where Learning and Fun are One,” the animated, online Cackleberries.com, – and the folks behind it – are as much an attitude as they are a business. Which is not to say they don’t have huge ambitions: nothing less than becoming the Disney of the new millennium.

The company is the brainchild of founder and CEO Eronne Foster. Her original motivation was a reaction to the labyrinth of dead ends, violence and despair she’d witnessed after years of being a kind of surrogate mom to a slew of street kids – friends of her son – in their Lower Mainland home. Most came from sundered or dysfunctional families, and Foster concluded that the lack of proper adult supervision led to an unhealthy focus on the non-stop violence on TV and the even more pernicious influence of Internet offerings for young children. So, even though she’d worked as an accountant until age 50, she decided to take the plunge and made an investment in launching an enterprise that she hoped would make a difference.

The result was Cackleberries, originally a kid-focused educational website offering lessons about empathy, understanding and kindness through role models. “But we soon learned this wasn’t enough,” Foster recalls. “Nice as it is, parents really don’t care all that much about it. Their focus in education is giving their kids a leg up. So for us, while the touchy-feely element is still very much in, it’s not the dominant focal point any more. That’s shifted to reading, writing and arithmetic.”

Foster’s fast boat to China was the result of an animated ESL program Cackleberries developed through a subsidiary, Cackleberries International Language Corp. Foster had taken careful note of the Chinese government’s insistence that the Chinese learn English. Cackleberries’ Language Program is the first of the company’s educational curricula. An online program presented in a schoolhouse in the online virtual world of Oville, it’s a three-year program designed to ensure that English communication skills are developed as fast as possible. The child logs into the classroom through a desktop icon and watches that day’s language video. Three sets of exercises must be completed, and Master Hoobee, the avatar teacher, encourages students to practice with clickables throughout the classroom. Successful completion opens the door to Oville, where students practice their English in a realistic immersion world.

“To us, China and the ESL program was by far the easiest access to a sizeable revenue stream,” explains Foster. “Our bigger long-term goal is to create and produce TV and movie content. But doing that in Canada is a tough road, with lots of people wanting to put their fingers in the creative pie.”

Having decided to take a serious punt on going east, Foster and her team needed funding. But she reports that when they approached obvious choices here in Canada, including government, the uniform response was that Cackleberries’ plans were too overwhelming, that they’d set their sights too high. So, Foster hit on a by-now familiar idea: seek local private investors with Chinese roots. She found them in Richmond, and through them found the company’s first distributors in China. “A trip over there in May 2011 cemented the necessary relationships and gave us a better insight into the market,” she recalls. “But it really has been a case of build it and they will come.”

The first distributor to help Cackleberries penetrate the China market was CKB168 Ltd. in Hong Kong; this firm bought the exclusive rights for Hong Kong, Malaysia and Singapore four months before the program was launched. Then an associated company, WIN168 Biz Solution Ltd., signed an agreement for China shortly after. “CKB168 sells this program in a package that includes a memory program for US$1,380, of which we receive $180,” Foster explains. The results have been encouraging, Foster says, with Cackleberries selling some 8,750 programs in its first six months in China. She says she has just signed with another distributor who is pursuing a deal involving China’s Ministry of Education and some television networks. “All the ethical principles we’re still building into Cackleberries don’t really matter to them,” Foster explains. “It’s just money. They just want to buy it.”

Her takeaway lesson? “You pay for everything there.” Foster explains that Cackleberries is looking to expand to other parts of Asia, and that throughout the region “there are five layers of commissions to pay. And as soon as I accepted that, everything went smoothly.”

Richmond-based Epic Data International Inc.’s Chinese market entry was carefully planned, but like False Creek Design, it benefited from fortuitous tailwinds. President and CEO Robert Nygren decided to bet on the Epic brand and the story underpinning it; and the result, over two to three years, has been a new business stream so vibrant that he has restructured the company to accommodate it.

Epic Data sells software and hardware for manufacturing operations, specifically the systems used to track materials and people on production floors. At least, that’s the boilerplate description. In reality, like many tech ventures, the company has been buffeted over the years by the need to reinvent periodically. Epic Data first opened its doors in 1975 and currently has 21 employees locally, another six in the U.S. and seven in the U.K. That compares to about 300 employees 10 years ago. It has traditionally worked on a “one trick pony” basis, Nygren says, riding one tech cycle until it petered out and then scrambling to find another one and do the same again. It had been in serious decline for eight to 10 years when the company hired another CEO in June 2008. “I’m number 12, I think,” Nygren confides with a chuckle. He knew he was faced with a tough turnaround.

It soon occurred to him that there may be an opportunity for new information technologies in the Chinese manufacturing sectors, given China’s new status as the workshop of the world. Epic had always been involved with manufacturing, but mostly in North America and Europe. So, in mid-2009 Nygren flew to Baoji in Shaanxi province, two hours west of Xi’an, deep in the Chinese interior, to test his idea. He came to the stark realization that the prospects weren’t just good, they were massive, especially for Epic’s specialty manufacturing execution systems (MES) suite.

“I visited a number of truck factories with a prospective IT partner from Beijing and didn’t see the type of information technology systems that one would expect to see in a similar truck factory in the west. He was able to pinpoint the scale of the MES opportunity quite well,” Nygren recalls. But he also realized he’d have to change Epic’s ownership structure and morph the business into a Chinese-Canadian company in order to give the small outfit a fighting chance in the Chinese market. “I knew that if I couldn’t make that transformation, there was no point in going,” he says. “I’d have a lot of nice lunches and dinners, but I’d never make any money.”

Nygren also realized that he’d have to raise significant funding for this new thrust, and thought Chinese people here in B.C. were the best bet, particularly in Richmond, where the publicly traded company is based. The first up to bat was Epic’s accounting manager at the time, Cathy Ju, who also sat on the Epic board; her husband was pursuing business interests in China. Backing quickly grew from there, through her friends and friends of friends. Nygren leveraged Epic’s 35-yer legacy of work with tier-one aerospace and defense-sector customers to jump-start marketing in China. Results were far beyond expectations, Nygren says: within three years the company forged partnerships with important Chinese companies and institutions, more or less on brand strength alone.

“Mostly we’ve hooked up our products with what they’ve already got going on,” Nygren says, explaining that “it’s not like they have any pressing need to acquire technologies outside of China. They’re very capable of doing everything themselves. It’s more that a good story is still a good story.”

Convinced that the window for western companies won’t extend much beyond the next five years, Nygren has moved quickly. The company started launching Chinese projects in December last year, after a marketing exercise of about a year. And Epic has paid particular attention to partnering, aiming to channel about 20 per cent of what it does in China through its direct operations, which are set up in Shanghai and Wuhan, while working the remaining 80 per cent of its business through partnerships.

Perhaps the most promising of Epic’s partnerships is its joint venture with the Wuhan-based Huazhong University of Science and Technology (HUST), an institution focused on basic and applied research. In fact, Cathy Ju has just relocated from Richmond to Wuhan to be the general manager of this joint venture.

Nygren is also encouraged by the determination of the Chinese central government to stamp out piracy and corruption, specifically in such areas as intellectual property rights and business practices. “This just makes my world so much easier,” he explains. “When it’s being pushed so hard from the top, it’ll get done. It’s only a question of time, and that’s not an advantage you enjoy in most other developing countries.”

As for China’s impact on Epic Data’s business and profitability, only a couple of years ago it was zero. But Nygren expects sales there will start having an impact on company revenues this year, and is hopeful these will comprise perhaps 50 per cent of the total within a couple of years. Moreover, Nygren notes that securing viable business in China facilitates winning more business in the West.

George Wang is Chinese, at least by birth, but that hasn’t played a big part in the success of his firm, Pelesys Learning Systems Inc., in China. It only meant language considerations in business talks would be less onerous. Headquartered in Richmond, Pelesys grew out of its founder’s previous work managing the now defunct Canadian Airlines’ flight operations and training facility at the Vancouver International Airport. When Air Canada bought its smaller competitor, Wang decided to go his own way, starting Pelesys and bringing in experts to help with content. He focused on providing training for the airlines and other aviation companies. “With airlines training, the requirements dictated by the authorities are pretty rigid,” Wang explains. “Everything has to be deployed and tracked on time. You can’t miss anything or you can’t fly.”

Pelesys’s business today has two parts: the management systems side, and the company’s flight-training content library, which Wang claims to now be the largest in the world, exceeding those of Boeing and Airbus. Pelesys’s China push materialized over the past couple of years, and last November the company concluded a deal – witnessed by Premier Christy Clark, as part of the B.C. government’s Jobs Plan initiative aimed at creating more work in the high-tech sector – with Chinese national aircraft manufacturer Commercial Aircraft Corp. of China Ltd. (COMAC).

Despite a general slowdown in airline and aviation industries in the developed world, Wang saw potential in providing countries like China and India with technical-training products that meet international standards. “The hardware in China is very good, as you can see with the railways, the buildings and so on,” Wang says. “If you spend enough, you can certainly build. What’s lacking, though, is the software, the management part of things. And when I say ‘software,’ I don’t just mean the computer software. I’m also referring to the soft-skill management concepts. These things are hugely lacking.”

B.C. government workers in China played an important role in helping Wang capitalize on the opportunity, he says. “Frankly, we’re a small business . . . so for us to get to talk to people at the most senior levels would be quite difficult, because unless you know the person you need to see, it’s very hard to get an appointment. Our government reps were very effective in connecting us with those high-ranking officials.” After the initial introductions, COMAC sent some of its people to Richmond, partly to assure themselves that Pelesys was a real company, Wang says drily, and partly to evaluate its products. That all culminated in the Shanghai signing last November.

Wang sees broader possibilities for Pelesys in China. For example, its systems can be applied to industries other than aviation in which training is also critical, such as China’s railroads, and could also be applied outside of transportation industries, in insurance and financial services, for example.

When small B.C. businesses takes a shot at the Chinese market, and its cornucopia of opportunities, and achieve some success, it doesn’t just build bottom-line revenues, but seems to have a transformational effect, opening an expanding universe of possibilities unseen from a B.C. vantage point. As B.C. government minister Pat Bell concludes, “If we are half as successful as I think we can be, it will make for a tremendous decade in front of us.”