In international circles, Jack Perkowski is widely referred to as “Mr. China.” An expert on doing business in China, Perkowski was the author of “Managing the Dragon: How I’m Building a Billion Dollar Business in China.” He founded and grew ASIMCO Technologies in China and today serves as the founder and managing partner at JFP Holdings Ltd., a merchant banking firm based in Beijing. Perkowski will be the keynote speaker at the Wisconsin International Trade Conference. In advance of the event, Perkowski was interviewed by BizTimes executive editor Steve Jagler. The following are excerpts from that interview.
BizTimes: Jack, I’ve looked through your background, and I can’t find anything to suggest that you would end up in Asia, let alone China; that is, before you actually moved to Asia in 1991. What was going on? Was this some type of a mid-life crisis?
Perkowski: “A lot of people ask me that question, including the reference to the mid-life crisis. I always tell them, though, that I had already had my mid-life crisis several years before, so it wasn’t that, but actually a well-considered change of direction in my professional and personal life. After what many would consider to have been a very satisfying 20-year career on Wall Street, I decided that I wanted to do something completely different for a second career, and I got it in my head that I wanted to do something where I would get ahead of a trend. In other words, I didn’t want to be a follower, but wanted to break new ground. The trend I was searching for could have been in any industry or country.
“The only qualification was that it had to be a long-term trend, because I told myself that, whatever I did next, I would do it for the rest of my life. When I stumbled on the fact that countries in Asia, including China, have very large young populations, I concluded that, as these young people began working and building their lives, Asia would emerge as the story of the 21st century. When I discovered that the smartest, most knowledgeable people in Asia considered China to be the driving force in the region and were all trying to do business there, I decided that China would be my focus.”
BizTimes: You’ve now been in China for more than 20 years and have already started your second major business there. What is the most important thing you have learned?
Perkowski: “Without a doubt, the most important thing I’ve learned is that, in order to have any chance of success in China, you have to build, develop and empower a good local management team. There are, of course, many reasons for doing so – China’s different language, culture, government and business practices, to name but a few – but, by far, the most important reason is that the Chinese have a fundamentally different, and lower, cost perspective than me and most Americans. They think about money differently.
“To illustrate, the largest bill printed in the U.S. is $100, while the largest printed in China is 100 yuan. Based on my experience, these two bills are looked at and treated exactly the same way in their respective countries. Therefore, a Chinese consumer looks at a 100 yuan bill the same way that an American consumer looks at a $100 bill. So, when an American sees a 100 yuan bill, he or she automatically divides by 6.2 (the current exchange rate) and really sees something like $15. When a Chinese person looks at that same bill, however, he or she sees the equivalent of $100 – two different ways of looking at the same physical object.
“That is why, in the eyes of the Chinese consumer, many foreign products are simply priced too high. While an American may consider a product priced at 100 yuan ($15) to be reasonably priced, a Chinese person looking at that same product may consider it too expensive. If you don’t put a local management team in the field in China, you end up importing a higher cost perspective into the country. In order to be successful, the managers making the pricing and purchasing decisions in your operations in China should have the same cost perspective as their customers and their competitors.”
BizTimes: Why did you move from auto parts manufacturing in China to establish JFP Holdings, your current business? Is that because you believe the auto business has peaked?
Perkowski: “To the contrary. While the Chinese auto industry has a great deal of growth left, I became increasingly excited about the development of China’s capital markets, which I believe will be one of the defining trends in China over the next 10 or 15 years. When I first came to China in 1991, no one had capital. Now, there is plenty of capital in the country, but like any product, the system for getting that capital to the companies and individuals that can use it best is underdeveloped. As the distribution system for capital, i.e. the capital markets, develop in China, cross border mergers and acquisitions will flourish and China will become a global source of capital. At JFP Holdings, we work with companies in a wide range of industries, providing strategic advisory, capital raising and merger and acquisition services.
“With respect to autos, China now makes more than 24 million vehicles a year and is the largest auto market in the world. While the industry has slowed, annual unit growth is still 7 percent, and autos will continue to be a growth market for years to come. Moreover, support businesses such as aftermarket parts distribution, auto repair, auto financing and leasing and used car sales are only in their early stages of development and will become very large businesses in their own right.”
BizTimes: Which industry sectors hold the most promising prospects for Wisconsin companies seeking to export to China?
Perkowski: “There are many areas where I see opportunities for Wisconsin companies, but let me highlight three. First, Wisconsin has a long and deep tradition in agriculture, particularly the dairy industry. Meanwhile, China is struggling with food safety issues and must more than double the productivity of its agricultural sector, as 240 million Chinese, about 40 percent of China’s rural population, are expected to move into the cities in the coming years. In this context, agricultural and food products, agricultural know-how and technology and agricultural services will be in demand. Chinese love American products, and in a country where per capita incomes are growing, branded consumer products will be in high demand.
“Secondly, Wisconsin has many companies involved in various types of advanced manufacturing. As Chinese manufacturers move up the value added chain, they will search for the best products with the best technology available, presenting many opportunities for Wisconsin manufacturers with high value-added products.
“Finally, Wisconsin has a rich tradition in IT and environmental technologies such as water-related. China is already the largest market in the world for goods sold over the Internet, with annual Internet sales expected to reach $1 trillion by 2020. Moreover, China faces massive environmental challenges. As a result, China should be a good market for the IT and environmental products, services and technologies provided by Wisconsin companies.”
BizTimes: Wisconsin is making a case to be the World Water Hub. From your perspective, is this a winning hand, a smart strategy?
Perkowski: “Absolutely. China has a fifth of the world’s population, but just 7 percent of its water resources. To make matters worse, a recent survey of 5,000 groundwater check points found that almost 60 percent were heavily polluted. To address its water problem, China plans to spend $330 billion in the coming years on an action plan to tackle water scarcity and pollution. Cleaning up, purifying, treating and preserving its scarce water resources is one of China’s biggest problems. China should represent a major opportunity for Wisconsin water companies.”
BizTimes: What are some of the most common misconceptions American business owners have about doing business in China?
Perkowski: “The reality of China today has been slow to catch up with the perception of China in the West. No matter how much they have read or been told about China, American businessmen are universally surprised at how developed China and its companies are when they visit the country for the first time. In many cases, American businessmen believe they are bringing a unique technology to China, or that their Chinese competitors are far behind, only to find that similar technologies have already been developed and are being used in the country, and that their Chinese counterparts are very far along in their development and have plenty of capital. The China market is large, but competition is intense. American companies must develop strategies for China that take this into account and focus on areas where they can add value. Another common misperception is to extrapolate experiences in modern Chinese cities such as Shanghai and Beijing to the rest of the country. In fact, there is a great disparity of incomes in China, with the richest provinces having per capita incomes that are as much as 10 times larger than the per capita incomes in the country’s poorest. Therefore, in order to capture a large share of the China market, it is not enough to look only at cities like Beijing and Shanghai.
“Finally, while so called ‘guanxi,’ or the use of relationships, is important in China, many American businessmen believe that ‘guanxi’ alone will guarantee access or success in the country. I can’t tell you how many American businessmen have told me about some Chinese acquaintance who knows important people in the Chinese government and who can provide access to great opportunities as a result. While government relationships are important, they are seldom enough and it is rarely that easy. Doing business in China is difficult, and anyone who does not understand this and believes they have discovered a shortcut will be sorely disappointed.”
