By Jonathan Matzner
There is an old story told in the U.S. about two traveling salesmen who arrive in Africa to grow their shoe sales in a new market. After several days traveling from country to country around Africa, both salesmen call their corporate headquarters in America to provide a sales update.
The first salesman calls his corporate headquarters and says grumpily:
“Situation poor. No opportunity here, Africans don’t wear shoes”.
The second salesman calls his corporate headquarters in America and says excitedly:
“Situation fantastic. Huge opportunity here, Africans don’t wear shoes”.
This story is a great starting point to begin discussing the topic of EB-5 distribution opportunities outside China. With the lengthening backlog of EB-5 applications coming from China, smart EB-5 agents inside China are increasingly looking to take their hard-won expertise, capital and experience into new EB-5 markets.
A short conversation with any prominent figure in the investment immigration from any other country, for example UK, Canada or Portugal, reveals that half of their clients are from China and the other half from the emerging markets. Using this benchmark, here are a few countries with the most noticeable lack of EB-5 petitions. Statistics from FY-2015 shows that Iraq had zero EB-5 petitions processed, Jordan 10 EB-5 petitions, Pakistan 26 EB-5 petitions and Lebanon 3 EB-5 petitions.
Each of these countries has extensive sales and success with other Western residency programs – but are simply unaware of the United States’ EB-5 program. This lack of knowledge represents a significant opportunity to globally expand for energetic Chinese firms.
The EB-5 industry has now seen multiple instances where small markets have opened up in a period of only a few years, to become new and significant sources of EB-5 capital. This has happened three times in the last five years - most noticeably with sharply increasing numbers from South Korea, Vietnam and India.
The question is not if other markets will grow – the question is how fast and who is positioned to benefit from this growth?
MARKET KNOWLEDGE WHEN EXPANDING OUTSIDE CHINA
There are two important things to know when potentially considering an EB-5 expansion outside China. The first thing is about distributing EB-5 outside of China is the stunning lack of market knowledge.
Inside China, everyone knows what EB-5 is. Potential applicants have dozens of events in major cities every month that they could go to in order to meet the right people. These potential applicants are educated about what advantages and disadvantages certain projects have compared to other projects, and they maybe even have a friend or two who has been a successful applicant.
Comparatively, outside China, some people don’t know what EB-5 is. What this frequently translates to is a longer sales cycle – if these prospective clients are hearing about the program for the first time at your event – they will take a little bit more time than a “ready to go” and well educated Chinese investor.
What this also translates to is a different approach to educating prospective clients. Rather than spending the most time selling clients about the strengths or weaknesses of a particular project – much more time will need to be spent comparing EB-5 to other countries’ programs – in particular the Canadian Permanent Residency Program – which is much more well-known (at least in the Emerging Markets where we have experience).
This lack of EB-5 knowledge can also be an opportunity for businesses within EB-5. It isn’t uncommon for prospective investors to express their disbelief when they learn that they can get their $500,000 investment back after five years! Lack of program knowledge means that EB-5 businesses in these new markets have the incredible opportunity to teach investors, from a very low starting point.
FINDING THE RIGHT PARTNER IN AN EMERGING MARKET
The second important thing to know for Chinese agents exploring a potential expansion outside China is to recognize the difficulty in finding correct “on the ground” partners. Many potential partners are completely unaware of the challenges and expertise required to successfully distribute EB-5, and therefore can be prone to exaggeration. This spans the range of potential partners – from passive referral partners like attorneys, all the way up to joint venture partners who have existing distribution. It isn’t that these partners are lying to you – it’s just that they don’t have any experience overcoming the challenges in educating investors about EB-5.
That said, the right partner can be the key to unlocking the region for your expansion strategy. Look for someone who is located within the region, who also has broad experience and expertise in the distribution of financial products. Give the partner bonus points if they are relatively modest (at least initially) in their ambitions for the partnership. This should position any firm well for exploring potential partnerships outside of China.
Two final, short technical tips for an expansion strategy outside China - be patient and budget for travel.
Being patient means not expecting your first trip to the region to result in 50 new investors. Think of your strategy as planting seeds in a garden. You’ll need to be patient in order for your efforts to start bearing fruit.
Budgeting for travel is fairly obvious. Plane ticket expenses can add up fast, but there is no better way to form new relationships than getting on a plane. Make sure travel is generously budgeted for within your strategic planning.
The case for EB-5 expansion outside of China is clear. Zero backlogs, eager clients and minimal competition means that the EB-5 industry will be seeing strong growth within non-Chinese markets for years to come.