Marco Polo, who traveled throughout Asia with his father and uncle as a teenager, returned to Venice to find his Republic at war with Genoa. He found himself imprisoned and eventually dictated tales of his travels to his cellmate, a Pisan romance writer. The epic stories would form the first most Venetians would hear of central Asia and China. Yet on his deathbed, Marco Polo remarked “I did not write half of what I saw, for I knew I would not be believed”.
Seven hundred years later, that sentiment still has some truth to it. Despite a highly-connected world that our grandparents – let alone Marco Polo – couldn’t have fathomed, I find societal thinking to still be more insular than one would expect.
After all, in places like the United States, the idea of moving to another country to take a job is rather odd. That’s what kids in worse than depression-level unemployment climates like that of Spain do. And starting a business? Why go anywhere else?
Yet my friend, frontier market investor Chris Tell recently wrote about an interesting opportunity in China.
Since six infants died in 2008 from severe kidney poisoning at the hands of bad formula, the country has been on high alert against food contamination. Having spent significant time in China on several occasions and having a large number of Chinese friends, that phenomenon is nothing new. But it’s gotten louder. Alongside long-time claims about bad food safety such as restaurants re-using cooking oil, there’s no doubt the Chinese don’t trust their food producers. Especially in the dairy field.
The market in China is wide open for someone to legitimately gain consumer trust. Michael Silverstein, author of The $10 Trillion Prize told me earlier this year that buyout firm KKR owned thousands of milk cows in China as part of its Modern Dairy unit (they sold most of that stake earlier this month). While their improved safety standards have made a dent, there’s much work to be done.
How much needs to be done? Chris tells us:
In a move reminiscent of US anti-drug trafficking efforts, the Chinese Government, exhibiting the intellectual capacity of a stuffed bear, have since restricted imports [of formula] to just 2 cans per person. This has opened up a massive smuggling opportunity. You know the world is a screwed up place when transporting something so innocuous as infant formula is a punishable crime!
Chinese parents are searching literally around the world, willing to pay huge markups for “safe” baby formula. Like every other time Big Government steps in to screw up a situation, a black market has cropped up for the stuff. People are selling it out of their homes. You know you’ve got an opportunity when people are buying food for their children from people off the street. Yet none of the top imported brands have an organized strategy to become the trusted player in this space.
It’s literally wide open.
A Chinese mother told the media: “Even if there is only a 1% chance that Chinese formula is not safe, I don’t want to be that 1%.” With the high-population emerging world growing faster than the west, these countries need solutions from global entrepreneurs who are willing to truly understand how to do business there.
The Chinese mother who doesn’t want to chance getting the 1% of unsafe food is one of the endless number of customers that could put you into the one-percent club.
That opportunity plays out over and over around the world.
Take a peek outside your usual haunts and you’ll find countless opportunities like this. According to some foreign investors I talk to, the three times return KKR earned on its Chinese dairy unit is small change to what can be earned by savvy global entrepreneurs in less developed emerging countries.
As our friend Ulysses at Diverging Markets reported this month, the landlocked African nation of Ethiopia – not exactly the continent’s most resource rich – has GDP growth of 10% and is becoming one of the best countries in Africa to be in. Do you think there are more opportunities in a country that, surrounded by neighbors like South Sudan and Somalia, has built itself into a powerhouse African economy?
Back in Asia, fast food chain KFC is setting the stage to open fifteen restaurants in the next couple years. They dominated the market in China and are now taking their act to the next big place. Yet when I offer up Mongolia as an offshore banking option, people scoff. It’s like suggesting someone go to Timbuktu or Cucamonga. No one really knows where those places are, but they’ve been ingrained in our minds as synonymous with “far away”. A world apart.
It’s the mirage of global opportunity.
The world is calling out for solutions. Fast-growing countries fast-rapidly growing affluence need solutions to their problems that no other company may be stepping up to fill. In some cases, there is just so much growth that it’s hard to keep up, and demand outpaces supply. Wouldn’t you rather answer their call than toil away in a home country with too much supply and too much competition?