This week Alacrity Canada is welcoming a team from our incubator partner, We Geek, in Shanghai. We’re looking forward to having them meet with local companies and sharing their experience on expanding into the Chinese market. I often hear the argument that the best way to help your local economy is to stay put, buying locally and selling locally. That doesn’t make any sense to me at all. Though you have to address all kinds of additional complications, investing outside of Canada can reap huge benefits, both for the investor and the Canadian economy.
Our history of doing business in China actually goes back a long way. Wesley Clover, the investment fund where I am a partner, has been doing business there since the late 70s. Shanghai is a large city with a population almost as big as all of Canada. It’s a huge market that is fairly open and welcoming towards foreign business, which makes it easy to enter and get set up if you know what you’re doing.
It’s easy to go into a new market thinking you can hire a few people to represent you there. it’s hard to have any decent oversight from so far away. The truth is the people that you’re hiring won’t necessarily have shared interests with you. You need to with influential local people who have shared interest in the gains you create.
One of the biggest challenges in doing business in China is that if you end up earning a lot of capital there — and there is plenty of opportunity to do that — it can be a challenge to get the money out. A lot of the funds that have gone into china, don’t come out that easily. There’s an inherent risk in investing abroad, but there are steps you can take to reduce the exposure.
Foreign regulations regarding business and investment change frequently. They also differ by territory. Paying attention to and staying on top of those rules and regulations can save a lot of headaches. Don’t wait until you have an exit 5 or 6 years down the line. Working and checking in with the local authorities on a regular basis is important. Take small dividends often, to test the systems and paperwork. While there’s a substantial risk, there’s huge growth in Chinese society that makes it worth it.
The Alacrity process so far has been to really get to know and form a partnership with the people in the area we plan to do business in. Specifically a partnership in which both parties are compensated for the success of the portfolio companies.
With enough incentive, the locals really help you get into the market successfully in that territory. This is the approach Alacrity has been using around the world (Singapore, France, Mexico, Turkey, India, Indonesia and Dubai) and Shanghai is our latest achievement in a great booming market.
We encourage our partners in Shanghai to see what is doing well outside of China that they might like to see do well in China. There are quite a few Canadian companies that could suit their market quite well. In turn, we encourage Canadian investors to see what is doing well in China to see if it could make sense here. Investors across the border share a common interest in customer acquisition and distribution. Maintaining open dialogue around these subjects keeps us up to date on global developments and best market opportunities. It’s a win win.
A common view that’s been given a lot of attention recently is that you should be protecting local jobs and your own economy by keeping business within your own borders. I don’t believe that view means you’re protectionist in your trade policies, but it obscures a lot of opportunity.
Investing and encouraging investment opportunities abroad can do a lot to strengthen your own economy. The economies of the US and Canada are highly integrated. Good products get made in Canada are sent to the US to be put together and shipped back. By missing out on the opportunity to work with China because you feel you are protecting jobs, you’re actually harming your economy more than protecting it.
Canada is a small country that is inherently an exporter. To protect our jobs by not trading with China is like saying we won’t trade with the US. Not trading with the US would eliminate lots of jobs. By trading with China we become competitive. Canada has unbelievable standards when it comes to our products and world class engineering, and we need to bring that to the world economy.
Furthermore, there is no low cost manufacturing (which China excels at) that competes with the reproduction of software. We are providing our intellectual horsepower to the world and the quicker we work with other markets to access more customers, the bigger our global impact. I am excited to dig into it this week, introducing many of our local companies to the opportunity to expand into awesome Chinese market.
Canada has a lot to offer to the global market, and Alacrity is part of a process that’s committed to assisting and supporting local companies in being able to do so.