Ventura Opens Office in China

A Chinese teenager in Guangzhou scrolls through the mobile website of a Conejo Valley-based beauty brand. She sees something she likes, puts it in her online shopping cart and completes the purchase through a digital payment platform. Within 24 hours, the item has traveled from California to her doorstep. That’s the scenario Jay Tsao envisions for the future. As the lead advisor behind the new Shanghai office of the Economic Development Collaborative of Ventura County’s Small Business Development Collaborative, or SBDC, he is determined to make such commerce the norm through trade partnerships between Chinese companies and local businesses. “What we want to do is create real, substantive relationships in which transactions occur,” Tsao told the Business Journal. “If it’s a (local) supplier that’s looking for a product from China, we want them to find their right manufacturer and start generating purchases. If it’s an investor in China that wants to invest in a clean tech company here in Ventura County, we want to see them strike a deal.” China is already a major trading partner for California firms on both a state and regional level. The Oxnard-Thousand Oaks-Ventura metropolitan area did around $2.1 billion in business with the country in 2010, according to a report by the Brookings Institute, a Washington, D.C. think tank. California exports to China increased by nearly 40 percent to $13 billion between 2006 and 2016, the U.S.-China Business Council found. Tsao believes those figures will grow immensely in the coming years. China’s rapid adoption of e-commerce, its expanding middle class and its increased interest in U.S.-made products make the nation’s consumers a lucrative market, Tsao explained. As advances in technology and transportation rapidly shorten the supply chain to support international direct-to-consumer selling, establishing an overseas presence will ensure that the coming windfall flows in the direction of Ventura County. “The demand for companies (in China and the U.S.) to work together is absolutely there,” Tsao said. “We want to be facilitators that can really help businesses take advantage of this growing trend.” Small business market The Ventura County SBDC is conducting outreach efforts through the California Trade and Investment Office in Shanghai, which was established in 2012 through a partnership between the Bay Area Council, a San Francisco economic policy association, and the Governor’s Office of Business and Economic Development, or GO-Biz, a stakeholder in the Ventura County SBDC. As a U.S. Small Business Administration program, the initiative is required to match every dollar it receives from supporters with financial results from those who use the services, said Ray Bowman, director of the Ventura County SBDC. “We tell clients that their tax dollars pay for us, but you report your outcomes and they are an outcome of our program,” Bowman explained. “Our big core value is providing technical assistance.” Local retailers wanting to enter Chinese markets can look to the SBDC to help facilitate cross-border trade. The program offers resources to assist business owners in tracking down manufacturing partners, setting up payment platforms to work with Chinese financial institutions and optimizing marketing campaigns to appeal to the country’s consumers. Domestic companies that reach Chinese customers still face obstacles once their products have arrived in the country. For instance, the density of Chinese cities makes efficient delivery especially challenging, Bowman said. “The biggest barriers are things like the ‘last-mile problem’ – actually making deliveries in tight urban areas,” Bowman said. “Here it’s spread out, but there you have lots of messengers making lots of deliveries very quickly.” That is why domestic exporters should take advantage of Tsao’s expertise, Bowman added. A serial entrepreneur whose most recent venture is global e-commerce platform BridgeArc, Tsao is particularly interested in using his experience in supply chain logistics and international trade to create thriving cross-border partnerships. “There isn’t a demand problem, but it really does take time to establish…yourself and your product,” Bowman said. He hopes that the SBDC will help clients avoid the roadblocks encountered by “accidental” international exporters – companies that manage to engage contacts in another country but fail to develop strategies for long-term sales growth or wider expansion. Invest in VC On the other side of the spectrum are Chinese companies that want to invest or expand operations on U.S. soil. Foreign direct investment from China to the U.S. grew 30 percent to hit a new record of $45.6 billion in 2016, a joint report released by Rhodium Group concluded late last year. California was by far the largest recipient of Chinese funds, taking $16.6 billion. “There are so many companies that want to come here and invest their money,” Bowman said. “We’re setting up a pipeline to identify those businesses as early as we can.” The same regulations that many domestic startups struggle to understand are even more confusing to foreign investors, he added. Successfully teaching Chinese entrepreneurs on topics like permits and employment law is a worthwhile endeavor for both countries, Bowman explained. “They don’t know how to navigate the climate here, but they can bring substantial jobs and investments – things we want to see in the economy,” he said. The U.S. economy is already benefitting from Chinese firms that have taken the leap across the Pacific, with logistics warehouses and manufacturing facilities springing up across the country. BYD Motors Inc., the U.S. subsidiary of Chinese electric bus maker BYD Co. Ltd., is in the process of expanding its Lancaster manufacturing facilities, where it already employs 600 workers. The construction is slated to be completed around the same time as Tianyuan Garments Co.’s new metal fabrications plant in Arkansas, where the Suzhou, China-based apparel company will hire another 400 workers. High-profile real estate developments like downtown L.A.’s Hotel Indigo – built by Greenland USA, a subsidiary of a Chinese firm – generated more than 3,000 temporary construction jobs and employs a staff of 150. The majority of the deals facilitated through the SBDC’s Shanghai offices will likely be small but still substantial, Bowman said. Business owners looking to open companies or subsidiaries in the U.S. typically have the capital to pay competitive wages, he added. “It’s not always about the huge greenfield investments or putting up a factory and creating 300 jobs,” he said. “We’re mostly seeing companies that are really more like under 50 employees, but that doesn’t mean they don’t have big impacts.” Industrial-scale opportunities Whole industries in Ventura County could potentially benefit from deals facilitated by the SBDC, Tsao explained. Automotive production, agriculture and green technology will likely be Ventura County’s most attractive assets to Chinese companies, he predicted. The Port of Hueneme has already felt a bump from trade with China, according to Director Kristin Decas. Exports to China increased to $517 million in 2013, up from $278 million in 2012, according to the port’s latest figures. Its “roll-on, roll-off” business, which includes automobiles and tractors, has been particularly active with exports to the region. “We are seeing an increase in demand, and I think that has to do with the changing demographics in China,” Decas said. Nationwide, annual disposable income for Chinese households increased by 6.3 percent in 2016, according to the Chinese government’s National Bureau of Statistics. By 2020, the country that boasts the world’s largest number of billionaires will also count 76 percent of the population as middle-class, a 2013 report by consulting firm McKinsey & Co. stated. Decas expects export activity to continue to swing upward thanks in part to that expanding middle class. Also, Chinese consumers are willing to spend cash on U.S. products that they perceives as more trustworthy than those made in China, Tsao noted. “Now that (the Chinese) have more disposable income, they’re demanding better, more expensive products,” he said. “They’re looking to explore products from places that they perceive as having higher manufacturing standards, such as the U.S.” No ‘anti-business’ animus The same regulations that have led domestic companies to label California as “anti-business” do not threaten Chinese stakeholders, Bowman said. Instead, they view the state in terms of its return on investment. “When I talk to Chinese businessmen, they aren’t looking to locate to cities with cheap land, labor and tax benefits, because they can get that anywhere in the world,” he said. “One thing that is hard to dispute is the number of companies that do well here – they feel that if they invest here there’s a greater return than if they go somewhere with a lower cost.” And while political tensions in Washington, D.C. over trade and immigration may slow progress, the two nations’ desire to do business together will overcome those challenges, Tsao believes. There are plenty of issues to tackle – intellectual property violations and trade infringement are real concerns, he noted – but the drive for financial success could inspire creative solutions. “I think trade between these two countries is too important to let a certain type of politics get in the way,” Tsao said. California has done a good job of bridging the cultural divide between the two countries, he added. The nations’ eagerness to establish partnerships in the form of sister city programs, trade missions and joint pro-environment initiatives bodes well for their future prosperity. “There are always going to be obstacles,” Tsao said. “But they can be circumvented as long as the enthusiasm to do business together exists.”