CEO Interviews
Corporate changes/trendsÿ
(ZE611/02) JOHN A. JONES is Chairman and Chief Executive Officer of Largo Vista Group, Ltd Jones, the company founder, has over twenty one years experience in underground roadway and utility infrastructure construction industry. Jones has owned and operated for thirteen years a general contracting business. Previously he managed operations for some of the most respected construction firms in the U.S. including Stang Hydronices, Inc. and Peter Kiewit Pacific, Inc. Coupled with this background, Jones had worked and traveled extensively throughout China developing a network of friends who are influential in Chinese business and government circles. Mr. Jones has demonstrated the ability to successfully negotiate business agreements with a variety of Chinese government officials.
ÿ(ZE611/03e) Daniel J. Mendez is President and director of Largo Vista Group, Ltd. He has a twenty year history of managing sales and marketing programs, with ten years experience in the manufactured housing industry. Previous to Largo Vista, he operated his own consumer goods retailing company and his own marketing company in real estate investment opportunities. Mendez realized the exceptional opportunity Largo Vista had created in China and sold his business to join the company.
ÿ(ZE611/01)(8397) John A. Jones is Chairman and CEO and Daniel J. Mendez is President of Largo vista Group, Ltd., which began exploring business opportunities in China and the Pacific Rim in the early 1990's. The firm was subsequently hired by the Nanashan District of Shenzhen ( a designated Chinese Enterprise Zone) to develop a master plan for its Central Business District. Chinese officials later offered to engage the firm in joint ventures with a variety of Chines Enterprise Companies. Recognizing Shenzhen's critical housing shortage and the tremendous demand for modern telecommunications throughout the country, Largo Vista secured opportunities in both sectors. Corporate headquarters are in Newport Beach, California.
ÿ"largo Vista is a small, tight knit group, and we're taking advantage of everyone else's mistakes. We've established ourselves in certain areas over there which we should be able to hold on. We have many opportunities available, and we're looking for partners to come and fill those gaps." -- Mendez, Largo Vista Group, Ltd.
ÿBusiness Climate
ÿJones; "The climate is extremely favorable in China. Generally in China there is no financing; they usually pay cash for everything before they move into it. We have made some inroads to financing in some cases but this unusual in China. It appears that our homes could be financed out of Hong Kong with a 30 percent down payment. The biggest change that we're introducing is reducing the waiting period for housing from anywhere between 24 and 36 months down to about three months. The greatest growth opportunities for Largo Vista Group are clearly housing and telecommunications. On the telecommunications side, we're just about to become silent partner for two-way points systems for domestic and international use. This should expand over the next couple of years to include cellular service and other products related to telecommunications."
ÿMendez: "Mr. Jones is saying Largo Vista Group has the license for frequencies covering a population base of almost 300 million people in Southeast China."
ÿJones: "In terms of acquisitions, mergers, joint ventures, alliances, we're open to all of these provided there is a basic understanding of China. Most Americans do not understand the Chinese Culture. They try to force the Chinese to operate the same way the western world does. To be specific, they do not take the time to build relations in China. They rush into a memorandum of understanding and then tell the world they have a contract, which is far from the truth. Without the follow through, business ventures will not succeed."
ÿMendez: "There really isn't any competition in what we're doing now. Currently housing in the area, where we plan to build are simply concrete boxes without amenities and they generally have to wait between two or three years after they've paid for before they can move in - and without water heaters, drapes, flooring, etc. We, on the other hand, are introducing low-cost housing with many attractive amenities. There is no real competition right now."
ÿJones: "As far as the telecommunications that we're getting into, there really isn't any competition in that area either, internationally anyhow. The domestic companies that are there are happy with where they're at; they've made what they call their `balance point'; they've making a little bit of money and that's what they're happy with. The majority of them don't have foresight to really want to grow from where they're at."
ÿMendez: "Largo Vista is a small, tight knit group, and we're taking advantage of everyone else's mistakes. U.S. corporations go over there with an entourage of people and attorneys and hire more people through Hong Kong, thinking they can get into China, this is their learning process. We already know that's not the way to do it, so it's given us a head start. We've established ourselves in certain areas over there which we should be able to hold on to. We have many opportunities available, and were looking for partners to come and fill those gaps. But they have to understand, just like Mr. Jones was saying, we have to do it their way, not our way.
ÿ"In the U.S., most of our time is spent trying to explain China. Trying to give someone an education gets very frustrating doing it over and over again. What I have see, though, is that people do want to invest in China. They just don't know how. Largo Vista is one of the ways to invest. With our model homes on their way to China, arriving November 29 we should have booked sales and deposits by year-end. I think then we're going to be a major entity which everyone in the U.S. will recognize and invest in. So the model homes will be set up in December, and we'll be kicking of our sales, campaign right before Christmas. This will complete the first step in realizing successful recognition in the U.S. financial marketplace, along with our telecommunications contract, which is unique in itself; It's taken us years to get there; it did not happen overnight; a lot of frustration and dedicated work was used to develop these essential relationships. Largo vista Group has the approved assigned licensed frequencies in five Southeast China provinces. To put it succinctly, each province is a tower of Babel and we have the license to standardize in certain areas of Southeast China."
ÿ"We're probably one of a very small handful, if not the only company in the U.S, that can put together a join venture in China on a fax machine and that's because we've spent a couple million dollars and a few years over there developing relationships." -- Jones, Largo Vista Group, Ltd.
ÿHousing Projects
ÿJones: "Our first housing is going to be in Shenzhen, in the Guangdong Province, right next to Hong Kong and 17 minutes driving time now with the new freeway they just opened up. We have a site there where we're going to set up homes and invite everyone that attended our exhibit that we put on in China previously. The exhibit showed us that there was definitely a market but it's completely different from the U.S. China, you have no title insurance, no escrow, no mortgages, everything's cash and carry: you want it, you buy it, no warranty, it's yours. And they do have the cash."
ÿMendez: "Some of the buyers are wealthy entrepreneurs, but you also have the people that live there. They're in the Special Economic Zone where there's a lot of opportunity. The people have family members that can pool their money so whenever there's an opportunity that might benefit the family in the long run, they spend it. It's very typical for the Chinese to pool together $100,000 to $1 million in cash, and do a purchase - in this case purchase a home. There's enormous opportunity there right now. They have the money to do it. They just need state-of-the-art equipment."
ÿ"There's no limit to how many homes could be put up in Shenzhen. The project we're talking about now has a potential of 20,000 homes. We're estimating sales of over 500 homes our first year, approximately $100,000 in sales. We are going to expand there immediately. We have a location in Shanghai that we want to set up as quickly as we can, along with three other locations."
ÿ"We are already involved in other building types. There was a city planned, that's how we got in. Mr. Jones has a relationship with the Chinese. He loves and understands China. It's his second home. This is not just a job for him. It's part of his life. And that's why the Chinese trust him. Therefore, our contract turn into licenses. Contracts are done all the time over there but to get them to the point where they are actually licenses, which give them the right to execute, is entirely a different matter - and nobody has what we have. Our stock is so undervalued that it's embarrassing."
ÿCustomers/Marketing
ÿJones: "Probably 40 percent of our customers are going to be out of Hong Kong and I imagine that 60 percent are going to be out of China. And I would imagine that the bulk-probably 75-80 percent of the homes-will be what we've targeted in the $200,000 price range U.S. Our marketing approach is real simple: We have something that's different, that they have never had before. We have three different sizes. one is 1,100 square feet and the other is 1,700 square feet. There's a single that's about 964 feet. then there's room to maneuver by introducing different variations of those three."
ÿMendez: "We can go smaller or bigger. The reason we're taking the smaller is that because, initially, we had meetings with the People's Army, with the generals, and they indicated they wanted the smaller homes. So that's why we're taking those, the army has a lot of cash. This is the first time anyone's ever been able to get homes into China duty-free-- under our marketing plan".
ÿTechnology
ÿMendez:" We find out what the Chinese want, because we do not go in cold. We've turned away a large number of different projects. So if it's something that we have a little bit of an understanding about, then we go out and research the different people in this country that have it and want to get involved. As far as Largo Vista itself, we do not claim to have any great technological advances. Most anything that the Chinese want - communications, for instance - you can purchase first or second generation state-of-the-art equipment almost over the counter."
ÿ"What's happened in the past, and why a lot of companies are having difficulties now, is that they used China as a dumping ground, and they dumped old used, worn out antiquated equipment there. In Shangai, for example, it might take you an hour to get a phone call placed across town, and you might find that your call went through long distance, because of the different types of equipment they have. Some of it's not compatible. They might try calling Hangchou and it comes back into the west side of Shanghai. It's really a mess because some of the major companies went in there and dumped their equipment that was 10 or 15 years old that couldn't be used anyplace else. The Chinese tried to improvise and use it, and it was just impossible. They're pretty aggressive now that they know what the problem is. It will probably take them another 4 to 5 years to straighten that out."
ÿPersonnel
ÿJones:" I think that we've probably have everybody we need right now. We might need three or four more people, especially in the U.S. Overseas we might end up needing 8 or 10 people. The joint ventures that we're doing, like housing for example, will end up employing probably 150 or 175 people."
ÿMr. Mendez: "We have an office in China, in Shekou, just outside of Hong Kong."
ÿFive Year Vision
ÿJones: "I would say something on the order of a combination of all the major U.S. automakers in this country."
ÿFinancial Aspects
ÿJones: "What will contribute to net margin improvement for the company? We're probably one of a very small handful, if not the only company in the U.S., that can put together a joint venture in China on a fax machine and that's because we've spent a couple million dollars and a few years over there developing relationships."
ÿMendez: "It's hard to say what's ahead for earnings. If you're talking about communications, it's the same thing. But, we anticipate big sales. Our CFO is looking at 700 plus sales per year. I'm just playing it way down. But I see $100 million in home sales even by the first quarter. It's just the nature of the business over there. I don't know how familiar you are with China, but I've seen them raise $80 million in 48 hours on projects not even close to what we have, outside the economic zone which we are in.
ÿ"I wouldn't say Largo Vista is well financed. It's been a struggle for us because few Americans understand China. We're like wildcatters, we know the potential because you go and see the new freeway with an off-ramp that just opened up and see all this vacant land, well you tell me. Is that an opportunity? The land is cheaper than in Hong Kong and people can drive to it now. It's a suburb. In 1997 the border will no longer exist between Guandong and Hong Kong. It doesn't take to much to figure out two and two. What a lot of people do not know is in 1997 there is still an internal border dividing Guangdong Province and Mainland China. It's just basic; we haven't met the company that has the contracts or the contacts that we do."
ÿ"Once we turn the profit corner, we think a 15 percent earnings increase each year over the next several years is doable."
ÿJones:"What's ahead in terms of capital spending changes is going to a tough one, because actually, the housing and communications will just be a process of spending out of actual business from that."
ÿMendez:" We've got the most internal things behind us right now. That's not to say that everything is forever taken care of, because every day creates new problems with new, different challenges. But for the bulk of it, we see most of our major problems are behind us. A challenge in the future might be managing growth and this is a challenge that we would really enjoy handling.
ÿ"The climate is extremely favorable in China, generally in China there is no financing; they usually pay cash for everything before they move into it..the greatest growth opportunities are clearly housing and telecommunications." -- Jones, Largo Vista Group, Ltd.
ÿ"Externally, I do not see economic conditions, industry policies, or government regulations have a negative effect on us, because If you understand China at all, they're growing and going in the international marketplace more and more. The things in the past that affected foreigners negatively have been made easier to deal with. So I don't see where there's going to be any governmental problems, nothing significant anyhow. It's probably just like in this country, every time you think you have something figured out, some other government agency comes in and says, oh, you've got to get this one thing or that once more things. But I don't see anything out of the ordinary that's to have an adverse or negative effect. As long, as we keep our eyes open and finger on the pulse of what's going on, we should be okay."
ÿ"The Chinese in general, are pretty content. They're not crying out for political freedom because Central Government have them the freedom making money, and that's their big thing, getting rich is now glorious. The entrepreneurs and millionaires are coming up in Guangdong province, thousands of them are getting powerful. In China it's basics. There are over 400,000 state-owned factories feeding the populace of China - the iron rice bowl - and they're not profitable, they're all losing money. But you've got the few companies in the special zones that are under capitalism's principles are make so much money they're floating the other companies that are losing money. Central Government will not change that. There's too much foreign investment going in. The people are moving ahead, they're making money. If Central Government - the communist party- was to try to stop the flow they could not. They're afraid of what happened in Russia. The don't want that to happen there. It's actually a good feeling for us. John and I talked about this. We're raising their standard of living; it's not only very profitable, it's also a good cause."
ÿStock Market Evaluation
ÿMendez: "Well, we haven't had a chance yet. The point is, we did our merger in April. Our stock went to $2.50, we didn't know why. We think it was just because someone smelled `Hey, these guys are in China!' I had over 120 brokerage firms - you'll recognize all of them - calling us, asking who are you guys? We hired a PR company. We sent out information. Now they understand our contracts, they understand what Largo Vista is doing in China. And we think once these homes are there and the deposits and money is flowing, even though it's not revenue, it will show activity. I think we'll see a much higher level to where it should be. But what we did learn is people want to make money in China. They don't know how, other than through a mutual fund, and even those guys are having a tough time placing investment in China. We know a lot of good places in China to put money into."
ÿJones: "The other thing is companies in this country that are doing the same thing that we're doing China, but they don't have licenses... The one I'm familiar with doesn't' have licenses yet to do what they want to do. But it was in the telecom industry, and they had authority to pursue and hopefully provide services to about 175,000 users, and their stock went up to $35. And we've got the same thing plus the licenses." Mendez: "That's been our biggest frustration. When we did merge we thought, well, great. We've got all these assets that are recognized in China, and we have appraisals on it. The Bank of China recognizes them. And they're up or near $100 million worth of properties in our name, mortgagable and transferable, which is very difficult to in China, and we can't book them as assets here in the U.S. Very frustrating."
ÿLong Term Strengths
ÿJones: "I see two things or maybe two primary things. One is the long-term commitment between Largo Vista and the Chinese people and relationship that's there. And the second one is that everything that we've said have in China is verifiable. We don't talk about different letters of intent or anything like that. We mentioned none of that to you. All we've been talking about is contracts and licenses, and everybody else. Ron Brown when he was over there made a whole bunch of noise about all these different things that they accomplished. What they accomplished was a sales contract and that was all. All they ended up doing was having two real contracts that were both for sale. They were just selling equipment from one entity to the other, and that was it. A one-time thing."
ÿMendez: "We have a wonderful opportunity, but again, it takes the right mindset to understand it." |
