JF1286: How To Diversify Your Portfolio With International Investments with Stephen Petith
Stephen Advises entrepreneurs and investors on how they can expand their investment strategies and grow their businesses to new heights. Him and his company work with individuals on what their goals are to first see if they are a fit for each other. See if international investing intrigues you by listening to this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Stephen Petith Background:
- Co-founder of Global Private Partners and Sovereign Capitalists
- An internationally focused Investment Adviser and Asset Strategist working with Corporations, Investment Funds, and High Net Worth Individuals to optimize assets
- His internationalization plan unleashes significant value improvement from current assets.
- Based in Hong Kong
- Say hi to him at http://sjpetith.com/
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Stephen Petith. How are you doing, Stephen?
Stephen Petith: Very good, Joe. It’s good to be here, and hello, listeners.
Joe Fairless: Nice to have you on the show. A little bit about Stephen – he is the co-founder of Global Private Partners, and he is an internationally focused investment advisor and asset strategist working with corporations investments. He is based in Hong Kong. With that being said, Stephen, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Stephen Petith: Yes, I’ve been based here in Asia now for over 20 years. I joined the Royal Australian Navy straight out of school, and from there came out after a ten-year stint, joined our family business, which was manufacturing focused in the property construction materials industry. We had all sorts of businesses here in Asia, producing [unintelligible [00:04:19].21] and all other bits and pieces, and trading items, tiles and bathroom fittings and stuff for the property industry. After that we sold the business around 2006-2007, and ever since then I’ve just been helping other entrepreneurs and business-minded people here in Asia optimize their strategies, go a bit more global, go a bit more outside of their backyard… And it’s a great thing, it’s a great job.
Joe Fairless: Can you give us an example of maybe one case study of an entrepreneur you’ve helped to optimize their business strategy?
Stephen Petith: Sure. We help a lot of people that are doing — say Amazon sellers, or they’ve got a small trading business back home, and they’re buying locally. So they’re an Australian-based or an American-based SME, they’re buying their own products; the property construction guy in Australia was a prime example. He was doing 35-40 apartments at a time, but buying all his fitted out materials locally in Australia. To increase his bottom line and his margin, we brought him up here to China, as well as Vietnam, and we started sourcing product direct from manufacturers, that could go directly into his development. Out of that, he’s created a new trading operation, buying larger quantities than he needs, and then on selling them to other developers.
Joe Fairless: It saves him money and then it also brings in an additional revenue stream for him.
Stephen Petith: Hugely. And it diversifies his asset base and his income base. If he doesn’t wanna do development, he’s still got a business selling product [unintelligible [00:05:50].24]
Joe Fairless: That is really interesting. So what is your role in the process for helping make that happen?
Stephen Petith: Our work is purely a consultant. I come on board and sort of work with you over a period of time, whether that’s two, three, four, five, six months, or even longer. Some of the companies I work with I’ve been with now for over two or three years. I just work on a month-to-month basis and optimize them and use my network to bring them into wherever they wanna go. Property developers looking for projects in Bali, for instance. We sort of work with them to do that… Extended reach.
Joe Fairless: At what level should someone be at in order to then decide “Okay, it makes sense to go to Asia and start looking for other manufacturers or other ways of getting more for less”?
Stephen Petith: The people that we typically work for are people that are self-employed for a start, and they’ve got a business that can nearly run on autopilot… So whether it’s a development business or whether it’s a real estate investment business, or a general trading company, they’re sort of at the level where it’s no longer a mom-and-dad operation, you can get away and you’re looking to expand, you’re looking to find out what’s next.
Dollar-wise it’s hard to say, because different people get to that level quicker than others [unintelligible [00:07:13].23] but it’s when you’re looking to be a bit more than what you are now, if that makes sense.
Joe Fairless: Yeah, that does make sense.
Stephen Petith: Yeah, and we get the best results out of people that aren’t heavily involved into running their businesses on a day-to-day basis.
Joe Fairless: When you take a look at companies that reach out to you, what are some of the questions that you ask them, to qualify them and see if they’re ready?
Stephen Petith: Some of the things we look at is past experience – what’s their view on globalization and things like that. Some people hear the term ‘globalization’ but actually don’t really know what it is. Some people are 100% for it. What’s their risk level? So we analyze risk… For some people, they think that this is a good thing, but importing and exporting or even doing projects in other countries – the risk is a lot higher. So it’s qualifying them on a risk level. It’s also — I like just to have a conversation with them. It’s not necessarily I ask questions, it’s sort of trying to work out what their goals are. Are they trying to build a business to sell? Are they trying to build a business to leave for the next generation?
So we work with our clients and sort of eek out what they’re trying to do, what their goals and aspirations are.
Joe Fairless: As far as thoughts on globalization and exactly what it is, how do you define it and how do you think about it?
Stephen Petith: For me, it’s just an extension of a current business. If you ever look at it, we’re all leaving our little tribes, and globalization is just an extension of dealing with the tribe next door. If you take boundaries out of it and nations out of it, all we’re doing is dealing with the person next door. So instead of dealing between your hometown and the towns three people over, all you’re doing now is dealing with your country and another country. So it’s just a current extension on our traditional methods of trading and interacting with people.
Joe Fairless: You mentioned the risk is a lot higher – what are some of those risks that you’ve seen play out and actually transpire?
Stephen Petith: The biggest one is miscommunication on all sorts of levels – not fully understanding the other parties’ needs and wants, not understanding the basics of, especially when you’re buying a product, getting the right specifications and making sure that the counterparty understands those specifications. That would be my number one risk.
Then of course there’s the legal risks and monetary risks, currency fluctuations and all that, but they’re all mitigated through standard procedures. Communication is the biggest one, and it’s the one you have to be the most aware of in any situation. We refer to China as the land of five no’s, and basically one of those eventually means a yes.
Joe Fairless: Will you help me understand that a little bit more?
Stephen Petith: Okay, so in China they will say yes to everything, but really it’s a no, because they don’t wanna lose face; they don’t wanna seem like they don’t know something. So you’ll go to them and say “I want this widget.” They’ll look at it and go “Yes, yes, we can produce it. Yes, yes, yes.” But just by seeing how they react, you know that they’re not 100% certain that they can do it. So then you’ve gotta dig deeper, you’ve gotta ask more, you’ve gotta — “Let’s go for a walk through the factory.” When you ask them to go walk through the factory, you’ll find out are they a trader or are they actually the manufacturer?
90% of the people you deal with in China aren’t manufacturers, they’re all traders. It’s their brother that has the factory, is their best friend that’s got a factory, or it’s just a factory that they know of. So they may not understand 100% what you’re trying to do, so you need to drill in deeper.
After you [unintelligible [00:10:52].05] they’ll say yes again, but they may not 100% get it then either, so you’ve just gotta keep drilling down, drilling down, and then the last no is your final yes. So it’s a step-by-step process, and a lot of people think they can do it by just jumping on a plane, coming over, finding the first person and going. First three or four shipments are fine, the fifth one is not. The relationship wasn’t built, time wasn’t taken to get it… You’ve gotta really build a relationship over here with your suppliers, especially if you want long-term.
Joe Fairless: When you look at the best-case scenario, when you have a truly globalized company, what are you ultimately looking to accomplish? Is it the new revenue stream and saving money, or are there other benefits as well?
Stephen Petith: There’s heaps of other benefits as well. You can then look at restructuring your entire enterprise and then start playing the same games as the big corporates. So you build yourself up to a certain stage, and then you can start leveraging tax jurisdictions, you can start leveraging bigger jurisdictions to maybe design the widget that you use so there’s IP protection, and the best IP protection might not be in the country that you’re currently in.
Taxes are always a side benefit, they should never be the main benefit that you internationalize. The benefits for internationalizing should be that you’re gonna get better capital efficiency, because you’re paying lower prices for your product, so you can buy more of that product and then sell it. You’re expanding your reach, you’re opening new markets, and you might find complementary markets to what you have.
If you’re a builder, and you’re a very successful, highly-qualified homebuilder, you might find a market somewhere else where you can then sell your IP. You might have a way that you design a roof truss, or you design whatever it is in the building in the industry, then you might be able to capitalize on that and sell [unintelligible [00:12:48].07]
Joe Fairless: Anything else that we haven’t talked about as it relates to working with Asia in particular to help optimize our company that you wanna mention?
Stephen Petith: The biggest thing is come and visit the place. Most people have this thing about “Oh, Asia is just a big factory.” Come and visit, there’s so much opportunity out here at the moment. What we’re saying is your opportunity outweighs a lot of the risk some of the times, because the entry level out here is a lot lower. So it’s broadening your horizons and just seeing where it can take you?
Joe Fairless: Stephen, how can the Best Ever listeners learn more about what you’re doing and get in touch with you?
Stephen Petith: Okay, so you can either do it through the Global Private Partners website, and then just contact us there on our Contact page. [unintelligible [00:13:37].05] is my PA, she’ll set up a call and we can discuss how we can go forward.
Joe Fairless: Thank you for being on the show and talking about your experiences helping business owners generate an additional revenue stream, maybe position their company for a sale, and also decreasing the cost of goods in some cases, as well.
I appreciate you spending some time us. I hope you have a best ever weekend, and we’ll talk to you soon.
Stephen Petith: Thanks, Joe, thanks, listeners.