Canadian businesses with strong ties to Hong Kong have already felt the negative effects of the ongoing protests in the city but aren’t ready to consider changing the strategies until they see how the current unrest plays out.
The protests, which have been ongoing for more than four months, initially attracted more than one million people fighting a proposed bill in China that would have made it possible for Hong Kong citizens to be extradited to the mainland. From there, protesters took over Hong Kong’s transit system, its airport and stormed the city’s parliament.
Now, they’re no longer focused on the proposed extradition bill — the protests are a result of the city’s people feeling their freedom is being threatened by Beijing. And as they’ve evolved, they’ve become increasingly violent from both sides. Police have reportedly used live rounds while rioters have flung arrows and petrol bombs.
The environment isn’t one that’s easy for business. The sight of a protest in the city’s downtown core, where Nanoleaf has an office, is enough to empty out the district, CEO Gimmy Chu said. It has also resulted in consumers doing their spending from the comfort of their own homes. That’s a problem for the Toronto-based company, which sells its smart modular lights in 30 retail locations across six different stores.
“Our sales are down quite a bit in Hong Kong because from what we see, people aren’t going out and shopping in retail stores anymore,” said Chu, explaining that he’s seen sales decline 30 per cent year over year.
Chu began his company with two other University of Toronto graduates in Hong Kong, targeting the city both for the manufacturing opportunities it could provide and due to its reputation as being a gateway into China for the West. Nanoleaf’s Hong Kong entity would be able to do business with the Hong Kong businesses of its Chinese suppliers and enter the country indirectly. Those relationships then allowed Nanoleaf to expand into Shenzhen and open an office there.
If Chu was starting Nanoleaf now, it’s likely that he’d look elsewhere.
“I think if this was the situation five years ago when we were looking at starting an entity, we probably would’ve made a different decision,” he said.
Multiple Canadian companies have used the same strategy in an attempt to get a foothold in China. Canada Goose Holdings Inc. entered Hong Kong in late 2018, opening two retail locations there. Last week, the parka-maker’s CEO Dani Reiss said the protests were hurting the company but said Canada Goose was developing markets for “decades, not just the next quarter.”
If this was the situation five years ago when we were looking at starting an entity, we probably would’ve made a different decision (about locating in Hong Kong)
Nanoleaf CEO Gimmy Chu
Insurers Manulife Financial Corp. and Sun Life Financial Inc. had similar messages during their third-quarter earnings calls in early November. Both hinted at potential headwinds in the short term but were confident the protests would not impact their long-term strategy in Hong Kong.
Those companies already have a strong presence in Hong Kong; for those that are still attempting to expand in the region, the protests offer a different challenge.
Drew Dorweiler, the managing director of Montreal-based boutique investment bank IJW and Co., has not flown to Hong Kong since the protests have become increasingly violent. He can maintain his business from Montreal and continue to connect companies from Canada who are looking to buy or sell assets to those in Hong Kong, but he can’t grow his network.
“It has to be face-to-face,” said Dorweiler. “I don’t really have plans to go there right now simply because businesses are intermittently closed sometimes for a day or two and I don’t want to be going there for a week and have one or two days where no one is at work.”
There’s been no effect on the bottom line of IJW, Dorweiler said — at least not yet. Instead of fielding inquiries about expanding in Hong Kong, his clients are inquiring about the U.S., Canada and Singapore. IJW might consider pivoting toward Singapore if the protests drag on, but that would only be in a worst-case scenario, he said.
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Based on his conversations with clients in Hong Kong, Jesse Goldman, a partner for the international trade team at Borden Ladner Gervais LLP, said the protests have “passed through the stage of concern … and into the stage of full-blown alarm.” Even then, it’s too early for the Canadian law firm, which handles M&A and investments and disputes for Hong Kong clients, to consider rethinking its Hong Kong strategy.
A complete government shutdown would have to occur to force Chu to rethink how his company is doing business there.
“We’ll find a way to run our company,” Chu said, “but hopefully the people in Hong Kong find a way to resolve this.”