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Fyggex VIP Insiders Interview Series 5: Joel Li, Director, Tang Lung Development Ltd. Hong Kong

As our true followers know, Fyggex.com is not only about Blockchain and digital currencies. We also cover traditional currencies actively and have emphasis on ordinary people and companies life, business and personal impact. The aim is to have a more safe and sound life as a reader, to be aware of the risks and opportunities associated with currency fluctuations.

It is therefore with utmost pleasure that we introduction our next Insider in the Series addressing this area of traditional currencies today. Fyggex got the opportunity to speak with Joel Li, director of the Hong Kong international trade specialized company Tang Lung Development Ltd. In this expert interview we are discussing how their company addresses the currency exchange rate change risks within their area.

FYGGEX:

Mr. Li it is a great pleasure to have you with us, very nice to meet you. To enlighten all our readers, we would like to start with some general questions about you and your business. How did you get into the export industry in the first place?

JOEL LI

I’m the second-generation owner of an export business that my father started in the 1980s. Back then, products were still manufactured in Hong Kong, and it just so happened that a family friend who had recently immigrated to the US was looking for some goods, and that’s how the business started. We started with a few small cartons of goods each month, and after years of development and support from our partners, this year during our busiest months we’re shipping about 10 full containers per week, some products manufactured by us, into the US and other countries.

FYGGEX:

Sounds like a great journey the business has been on so far. What are the main countries that your company exports to?

JOEL LI

Yes, and our major customers are from the US, and we also have some customers in the UK, Canada as well as in Australia.

FYGGEX:

What are the main products that your company exports?

JOEL LI

The goods we sell range from children’s toys, garments, to consumer electronics nowadays such as camera drones. We also sell sports and medical equipment, but our main products remain to be children’s toys and consumer electronics.

FYGGEX:

Quite a wide range. Now to the main focus which is currency. How much influence would you say that currency has on your business? And is it one of the biggest risks that you face when exporting?

JOEL LI

Yes, it is. The currency affects us quite a lot, especially when our costs are mainly based on the Chinese Yuan. An example would be in 2018 when the sharp drop in the Chinese Yuan within two to three months almost wiped out our profit margin on our best-selling products.

FYGGEX:

That is very relevant this year. With COVID, there’s been quite a few currency fluctuations. For example, the British Pound to the Hong Kong Dollar went from 10.14 to 8.9 in approximately 10 days. How do you try and react to quick and sudden changes like this?

JOEL LI

Based on the lesson we have learned from currency rate drops, we now keep more reserves in different currencies. We try our best to hedge against sudden drops, by buying currencies ahead of time. And hence when it comes time to pay for raw materials or for our suppliers we will have lowered our risks.

FYGGEX:

So, you would say that you try and predict these changes and be proactive instead of being reactive after they happen.

JOEL LI

Yes, we try to be proactive in that.

FYGGEX:

Okay. Would you say a change in your local currency is more or less influential to your business than changes in the US dollar or the pound for example?

JOEL LI

I would say a change in our local currency would be more influential to us. For example, last year there was widespread social unrest in Hong Kong as well as the COVID-19 in China. We took the first hit over here in Asia with the COVID-19, which was also apparent in the GBP vs. HKD rates.

FYGGEX:

I can imagine how hard you must have been hit by those. Moving onto the pricing aspect, do you price your products all in your local currency or do you price the products in the currencies of the countries you’re exporting to. So, to be clear if you’re exporting to the U.S, do you put the prices in dollars or do you just have all of them in your local currency.

JOEL LI

Now we price our products in our customers’ local currency.

FYGGEX:

Why do you do it that way if I may ask?

JOEL LI

We think that if we price in our customer’s currency then the fluctuations may feel like less of a risk to them. In 2018 during the huge drop in the Chinese Yuan within a short period, we were not as proactive and that has cost us tremendously.

FYGGEX:

Keeping on the topic of prices, if there was a big change in one of the exchange rates, say with the dollar, would you choose to keep your prices the same or would you change them as a result of the change in the exchange rate.

JOEL LI

Well, once we have provided a quotation, we honor the price listed, but every time our customers ask us for a quotation, we requote based on the latest currency exchange rates.

FYGGEX:

Would you also try, when you’re agreeing a price with a customer, to look ahead and see if any major events, such as referendums, are coming up and predict an exchange rate will go one way. Do you also try to factor that into agreeing a quotation for the future?

JOEL LI

Yes, we do. We pay attention to major events and where the currency might be heading. It sometimes feels to us as if we are running not only a manufacturing and export business but also a half finance business.

FYGGEX:

How price elastic would you say the market is? Is there a high change in demand if there’s a small change in price and does that affect your decisions when deciding whether you are going to change a future price?

JOEL LI

Fortunately for items that we sell, our price remains competitive for our customers. And with the fact that most children’s toys are still made in China, the change in demand due to a small change in price is quite negligible. If a price change was needed due to currency fluctuation, mostly the entire US market also needed to adjust.

FYGGEX:

For your company, do you want a weak or strong local currency when you’re exporting?

JOEL LI

For us, a weak currency will help us out because it keeps our price competitive.

FYGGEX:

Lastly from me, recently I’ve seen in the news that there’s been a dispute recently with the U.S about labelling Hong Kong exports as ‘made in China’. Do you think that’ll have a big impact on your business?

JOEL LI

Not so much. Back in the ’80s when our company was founded, toys were still made in Hong Kong, but the factories have gradually moved into mainland China so I would say in the recent 20 years we’ve been sourcing and manufacturing toys exclusively from mainland China. For some novelty gifts, collectibles, or antiques made in smaller quantities, the Hong Kong branding may be more important, as the “Made in Hong Kong” label remains to be a proof of quality to many foreign markets.

FYGGEX:

Did you approach the traditional banks in your history for different hedging products?  What is your experience of banks offerings, regarding the currency fluctuations?

JOEL LI

Yes, over here the local banks offer short-term money market accounts in multi-currency. We also make use of the bank services offered in mainland China for the Chinese Yuan. They give us the flexibility of buying into different currencies as reserves. We haven’t started looking at the offerings from newer banks yet

FYGGEX:

Many countries have very different new emerging Fintech’s, even in China with Alibaba’s Alipay. Also other areas in Asia have many FinTech’s, for example in Singapore. Are you familiar with those? Have you checked their offerings?

JOEL LI

One of our customers in the US has made use of a global payment network startup that lets businesses mitigate FX rate volatility by locking in a base FX value per invoice. I believe this has helped the customer tremendously and it also aroused our curiosity into looking into the newer bank’s and startup’s offerings.

FYGGEX:

Some FinTech’s try to compete to disrupt the old banks. Have you discussed these possibilities with your peers?

JOEL LI

Yes, as some traditional banks are still offering no more than regular trade finance services or loans without also mitigating FX rate risks for businesses, we have had those discussions with our peers.

FYGGEX:

If we understand you are right, you are using the best of what is locally available. FinTech’s  might be interesting but at  the moment that you haven’t tried them yet. Is this a hint to Fintech’s that they should maybe do more marketing? To actively make it clearer that they’re offering to the companies?

JOEL LI

Yes, I believe there is a lot of room for businesses over here to know about and to assess Fintech’s offerings, and so more marketing will be helpful.

FYGGEX:

Do you feel, or do you see that when Hong Kong became part of mainland China that that has impacted the export companies situation due to the currency fluctuations?

JOEL LI

Not so much because the Hong Kong dollar has been pegged to the US dollar throughout.  And for companies that export from China to foreign markets, there has been no negative impact since the Chinese Yuan is not pegged to the HK dollar.

FYGGEX:

Have you experienced or seen anything like that in the Hong Kong community that people will be actively looking at ways to move their money away and assets away from Hong Kong?

JOEL LI

Over the past months with social unrest and also the newly imposed law from mainland China, I have seen some concerned local friends immigrate to Canada, the UK, and Taiwan, and I have read from the papers there is already an influx of immigrants investing in their first property in the UK.

FYGGEX:

Due to the COVID-19 situation property prices have gone down quite a lot in Europe. You can find potentially cheaper assets now than you would otherwise be able to buy. Not because of the currency, but because of the market situation. But that is a completely different topic and end of this interview. 

We are very grateful for your time Mr. Li, thank you for your insights, it was a pleasure to have you here.

 

For more info about Tang Lung Development Ltd visit www.tanglung.com/home

 

 

 

 

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