West meets East
Los Angeles area-based agency capitalizes on economic growth in the Pacific Rim
By Thomas A. McCoy
In the 18th and 19th centuries when the English and other Western European powers built their shipping empires, they did so largely to pursue trade with China and India. Entrepreneurs in London and on the European continent built three-masted schooners to circle Africa and head east, eager to exchange their goods for the silk, tea and spices of Asia. “It’s a world economy now,” they might have marveled.
Today the world economy is just as enticing. The exports of China and India have changed, but Western entrepreneurs are still staking their economic fortunes on trade with the East. Simon Saeheng and Subert Wong, founders of New Century Insurance Services, Inc. in Alhambra, California, are two such entrepreneurs. Some 80% of their $35 million in P-C premiums is tied to U.S. trade with Asia.
“We try to urge U.S. brokers to ‘think outside the box,’” says Saeheng. “China is the manufacturer of the world, and India is the back-office of the world. The United States is the research and development capital of the world because of all the freedoms we have.”
“The playing field for U.S. agents will be vastly different in the next decade,” predicts Saeheng.
These two men founded New Century essentially from scratch 20 years ago. Today they have a total of 50 employees, many of whom speak Chinese, and three offices in California. Saeheng and Wong travel to China and other Asian countries three or four times a year, to conduct business with Chinese companies exporting to the United States.
Recent overall economic growth statistics tilt decidedly toward China. “China has one-fourth of the world’s population,” Saeheng points out. “Its GNP is lower than that of the U.S., but China’s GNP grew 11% last year, compared to 4% for the U.S. China’s GNP growth will probably fall to about 9% this year,” he acknowledges.
A bit of history
In 1988 Wong was selling for a Korean-owned agency in the Los Angeles area. Saeheng, the vice president of marketing for a wholesale food importer, was one of his clients. The two men decided to start an agency to cater to the growing import-export trade tied to the Port of Los Angeles. Wong brought with him a handful of small commercial accounts from his prior firm.
“Our key customers at first were importers of goods from Asia such as furniture, lighting, mini-blinds and hi-tech equipment,” Saeheng recalls. “We had educated some of these importers about the importance of demanding protection from the manufactures, so we thought, ‘Why not insure some of the manufacturers of these goods ourselves?’
“So about five or six years ago we began visiting Hong Kong and China to talk to some of these manufacturers and demonstrate what we could do for them. Additionally, we needed to educate them about the American legal system and their responsibilities,” says Saeheng.
These visits have taken on an important dimension in view of recent press reports of Chinese-manufactured products failing to meet American safety standards. “There have been problems in some factories,” Saeheng acknowledges, “but the majority of the Chinese factories that deal with the major chain stores here have very high standards.”
But it’s an issue that New Century watches closely because they often deal with products that could be high risk, such as baby strollers or auto parts. Saeheng says that the Chinese manufacturers need to be better educated on labeling concerns, such as suffocation warning notices on plastic bags.
A twist on risk management
“Also a lot of them don’t know about recall insurance,” he says. “In China, the first consideration in manufacturing is ‘How can I make it cheaper?’ That’s how they win in the marketplace. We have to overcome the objection that insurance will cut further into their profit margins. By operating without the proper insurance, they may win the battle but lose the war. If one recall happens, or a product lawsuit happens, it could wipe out their whole market segment.”
Saeheng describes a visit to a cosmetic manufacturer employing 25,000 people in Guangdong Province in China. Its products are distributed to major chain stores throughout the world, including Wal-Mart, and these chains have their own inspectors visiting the factories.
“I was looking at their quality control such as how often they check their chemicals and their bacteria level. I was amazed by the standards—they are very high. They comply with ISO (International Organization for Standardization), and they comply with all U.S. regulations. While I was on the third floor of the factory, looking down on the playground near the entrance to the factory, I saw about 15 young people standing there—probably around 18 to 25 years old. One manager was doing some kind of an inspection of these workers. I asked someone, ‘What’s going on over there?’
“He said, ‘We’re hiring new workers, and we’re checking them for pimples on their face.’
“I asked what that had to do with the product, and he said, ‘If they have pimples, they tend to scratch their face, and if they do that, even if they are wearing gloves, they might contaminate our product.’”
Dealing in a new marketplace
“It’s well known that China is the manufacturer of the world, but it’s also turning into the marketplace of the world,” Saeheng says. Competing for business there can be very different from the U.S., he points out. “The most important factor is relationships. Just because you are a giant firm doesn’t mean you’re going to get a contract in China. Many U.S. Alpha house insurance brokers want to capture this new market, but because China is a new marketplace, they are just another new guy there. So for them, their size is not that much of an advantage. It’s almost like the early days of the Internet,” he says. “You could be a small start-up company, and if you could provide the technology services that companies needed, it didn’t matter how long you’d been around or how big you were.
“A Japanese auto giant went into the China marketplace late because they figured since they are the leader, they could call their shots,” Saeheng continues. “They almost missed the game because Chinese auto manufacturers had already set up joint ventures with other companies.”
New Century’s owners are looking for business opportunities in other Asian countries too. “A lot of garment production is coming from Vietnam now, instead of China,” says Wong. “So even though we haven’t tried to enter the Vietnam market yet, it’s on our watch list. We’re also keeping an eye on Thailand and Malaysia. Singapore is a very small country with not much manufacturing, but a lot of companies like to put their headquarters there, and a lot of high net worth clients like to have a base there because Singapore just abolished their estate tax.”
More opportunities
New Century’s business in Asia is conducted largely through relationships with brokers in Taiwan, Singapore, Malaysia and Hong Kong with whom it shares commissions and fees. The agency also is looking into other possibilities for the future.
“About three years ago we talked to agencies in Taiwan, Hong Kong and China about being a strategic partner with them,” says Wong. “And we might establish a branch office in Asia at some time.”
Aside from writing business for both importers and exporters to the United States, New Century also covers U.S. companies doing business abroad. Its lineup for these firms includes credit insurance, workers comp on foreign nationals and kidnap and ransom. About six years ago the agency began offering personal lines insurance as an accommodation to its commercial clients in the United States.
Among its insurance carriers are AIG, Chubb, The Hartford, ACE, Employers, Travelers, Safeco and Golden Eagle.
In just two months the world’s attention will be focused on Beijing, China, as the 2008 Summer Olympic Games open. The games will provide one more reminder to all the world of the significance of China, as well as the interconnectedness of all nations. New Century Insurance is proving every day that commerce is a worldwide language, and that good relationships and professional service transcend geographic distance. *