Below is a complete transcript of the China Corner Office Podcast with Jon Garrison and Derrick Porter:
Chris: Hi, everyone. Thanks so much for joining us today on China Corner Office, a podcast part by The China Project, the New York based news and information platform that helps the west read China between the lines. I’m Chris Marquis, a professor at the Cambridge Judge Business School. And today we’re featuring recording of a live CEO webinar discussion with two entrepreneurs from the U.S. State of Utah, both about the unique businesses they run and China focused careers they’ve developed, but also what makes the state of Utah such a hotbed for international trade.
Jon Garrison went to Nanjing in 1998 to study for a semester and has spent the last 20 plus years working with businesses that connect China and the U.S. including a number of startups and Goldman Sachs and also as a general manager at Dalian Wanda Group. He most recently co-founded EnRoute Global, a company that provides inflight entertainment for Chinese airlines. He works with large air groups in China, like China Southern and also Sichuan Air among other smaller companies.
Derrick Porter leads one of the biggest players in the hair and eyelash extension market called Beauty Industry Group and he also serves on the board of the Utah World Trade Center. He discusses the supply chain of this fascinating industry and how the company sources most of their products from Shandong province, which for a number of unique historical reasons is now a global hub in the beauty and hair products industry.
I also really appreciated learning about how Beauty Industry Group has infused ethics throughout its supply chain and today has a rigorous transparency and traceability program. These topics are increasingly relevant given growing consumer focus on corporate social responsibility and also government attention to supply chains such as the recent Uyghur Forced Labor Prevention Act, which just went into effect.
We also discussed why Utah is such a center of international trade. Certainly, an important reason is that every year the Mormon church sends 50 to 60,000 missionaries around the globe. And many of these are from Utah and then come back for their missions with extensive international experiences and contacts. We also discuss the effects that this has on the state and other historical reasons for Utah’s big international focus including the importance of the two major universities in Utah, the University of Utah and also BYU, Brigham Young university. Thanks so much for listening and enjoy the show.
Chris: Welcome everyone. My name is Chris Marquis. I’m a professor at the Cambridge Judge Business school. Just want to welcome you all to this live The China Project CEO webinar recording of the China Corner Office podcast, which is a show focused on leaders and companies facing the challenges and opportunities of doing business in China.
And today’s webinar is in partnership with the U.S.-China Business Council or the USBC, which is a nonpartisan non-profit organization representing over 250 American companies doing business with China. And our topic today is how Utah is punching above its weight in doing business with China. Consider some facts. Utah exported almost 740 million in goods to China in 2019, making China Utah’s third largest trading partner for everything from computer products to agriculture. In fact, nearly one in five Utah jobs is tied to international trade, making Utahans some of the biggest critics and supporters of the ongoing trade war between China in the United States.
Another interesting fact is that Utah has more people learning Chinese as a second language than anywhere else in America. So, to understand the surprising success and dig into two really interesting businesses that are headquartered in Utah but do a lot of business in China, are two entrepreneurs to discuss their companies.
So Jon Garrison is with us and Jon went to China in 1998 for a semester to study and ended up becoming sort of hooked on China and eventually went to work as a general manager at Dalian Wanda, who I’m sure most of you are familiar with, a gigantic conglomerate. And most recently Jon founded EnRoute Global, which is a company that provides inflight entertainment for Chinese airlines.
We also have Derrick Porter who helped found Beauty Industry Group in 2006. This company has grown into one of the biggest players in the hair and eyelash extension market. This company sources most of their raw goods from China, where Derrick and his team have built up supply chains, ethical auditing processes from scratch. So Jon and Derrick, welcome to China corner office.
Derrick: Thank you. Great to be here.
Jon: Thanks Chris likewise.
Chris: I think the first thing that is really interesting is your personal backgrounds in relation to China and your entrepreneurship work. And so maybe I’ll just ask Jon first, as I mentioned, you went to study abroad in China during the 1990s. Can you say a little bit about that experience and how that has influenced your career?
Jon: Absolutely. So I was a junior at the University of Utah and just looking to kind of round out my undergraduate years with a study abroad and had a friend who naturally was a professor in the mathematics department, a Chinese national, and he had gone to Nanjing University and just strongly encouraged me if you’re looking anywhere. And I was kind of looking in the region in Asia and was quite interested in China at that time. And he said, “Nanjing university would be a great environment and it’s great history, culture, go knock yourself out.”
And so I kind of searched around and found a study abroad program that could transfer credits to the University of Utah, that sort of thing. And when I went to that semester abroad, I noticed that right next to our dormitories was the Johns Hopkins graduate program. So it kind of set my sight on that. That seemed kind of a lofty goal. Most of them had several years of language and I went back and finished my senior year, took some high-level Chinese classes that were probably well out of my language range, but squeaked through and passed the language exam. And the next year I was in Nanjing for a full year for the graduate program. And then I stayed and worked in Nanjing for a while for a company that was kind of an emerging competitor with Alibaba.
So right around that same time, ’99, 2000, I traveled all over Eastern China recruiting suppliers to join the platform to be part of a big sort of B2B online clearing house. Later, moved to Shanghai and just have sort of stayed somewhat involved with China since I’d moved back to the US in 2001, not too long, just a few months before the sort of Seminole 911 moment I was working in South Carolina at a Taiwanese company. And from there the long career through years at Goldman Sachs and in the investment world. And then you mentioned my time at Wanda for several years. So it’s been sort of a nonstop element of my career that I did not foresee in 1998 when I first went over.
Chris: Would love to get into the business you’ve started, also maybe even learned a little bit about your time at Wanda, but first let me actually ask Derrick a little bit about his background and experience in regards to China. I saw that you’ve taken over 40 trips there visiting your suppliers and other customers, et cetera. So can you say a little bit about your background in China and how that’s affected your entrepreneurship?
Derrick: Yeah. China was really where I got my start for international business since then have certainly conducted business all around the world. Our company now has offices in mainland China in Qingdao, Shandong province, but also in Australia, England, Germany, Canada, and kind of coast to coast, New York to LA and Miami, and Salt Lake is our world headquarters.
My first trip to China was about 15 years ago. And as you’ve mentioned, have now been in and out of that great country more than 40 times. So I’ve spent a considerable amount of time there, mostly in the greater Shandong province area, fair bit of time down in Shenzhen Hong Kong area, and also over into Kunming and Chengdu. As you ask that question about shaping my entrepreneurial experience, when I go to China, I want to be a better entrepreneur because I’m amazed as I sit at the traffic lights in certain cities, and I watch people out there hustling. And I’ve seen people standing three shoulders, tall doing acrobats for money, and I’m just amazed at the ingenuity.
And then as you go to some of these incredible markets in great cities in Shanghai and Beijing, Ningbo, and you see the ingenuity of these Chinese nationals for me, it’s simply inspiring. And so I feel that I’m doing everything I can to actually be keeping up with them because of their grit stick-to-itiveness and ingenuity.
Chris: As you built your business obviously you’re interacting with entrepreneurs as your partners and clients, and I’m sure you learned a lot from them as well, but before diving into that question with you, I’d like to go back to Jon and you mentioned you worked for an Alibaba competitor in Nanjing, you’ve worked for Wanda, which (is) very famous from AMC movie theaters to theme parks and various things. I’d love to hear your reflections a little bit on working for Chinese companies from this very, very small startups to these giant world-famous conglomerates.
Jon: My time at Wanda began late so December, 2012. So coming up on about a decade when I began there and overall was at Wanda for about four years over two different stints at Wanda. So I was there right in the heyday of that acquisition. As you’d mentioned their kind of acquisition spree with AMC, we went on to purchase a yacht company in the UK called Sun Seeker. And so spent a lot of time in Shandong. And actually my remit at Wanda was international investments and partnerships with cultural industries, players. So everything from film and entertainment, themed attractions, travel, and tourism sports, all kind of began at that time. And so it was the first time that the company had really organized a vocal point for their international outreach. Prior to that, it had been various departments who had made trips abroad and they had various mandates for doing different things, but really it all kind of flowed back up to the chairman.
I think my biggest observation from the time is, would probably be really succinctly sort of corporate culture shock. I had left Goldman Sachs, which has over a hundred years, a very lengthy and established corporate culture and a real sense of sort of controls and processes. And they work in a highly regulated environment to stepping into Wanda. On one hand, there was a lot of discussion within the company about their zhìdù 制度, the strength of their liúchéng 流程 their processes, their procedures, their policies. It turns out a lot of those things are really aimed at controlling employee behavior, and I can understand where they’re coming from in that, but the legendary requirements of draping your over coat over your arm, when you get in the elevator. And if you were to exit your elevator on your floor and the receptionist at that front desk saw you, you’d receive some sort of notification that you’re being fined.
Generally, I was given some leeway in that, but we got caught up to speed pretty quickly, a very small group of foreigners who joined that team at that time. But I think the biggest observation was just how much of despite various sort of initiatives that were entrusted to different groups down below them, there wasn’t really an expectation that you would be very entrepreneurial or creative in that role, other than creative in executing whatever was the priority of the day for the chairman. People really mobilized everything to deliver on those kinds of things. It also meant that I was really a magnet for a lot of international interaction, companies that wanted to be in business with Wanda that came with a variety of sort of preparation to the table.
Chris: Opposite in some way of what Derrick was saying, it brought up his entrepreneurial energy. You have very powerful person at the top and that really in some way, stifles the innovation at the more lower level because people are just trying to meet what chairman Wong is interested in, I guess.
Jon: Exactly. And I think everyone throughout the organization, they knew that when they were coming in that we are here to really execute on the chairman’s vision and that may change and have some fluctuation over time. I was in a really ideal situation where my department overseer, the manager of that whole center for international investments was eventually the CFO of the group, but was sort of a special assistant to the chairman. He had the chairman’s ear every morning at 7:30, 8 o’clock. And so anything that I needed feedback on, I could prepare a qǐngshì 请示 kind of a request for input from the chairman and he would invariably respond and provide direction.
So I was in a great position to get that really immediate feedback and we could really move. There are many other groups within the company that “look, the emperor is far away from where I am and how do I find out what he wants to do? In the meantime, I’m just going to put my head down and do what my boss wants me to do and hopefully that’s also what the chairman wants done.”
Chris: I want to get back to entrepreneurship expertise that you guys have on the ground. I had never heard to be honest Derrick, of Beauty Industry Group, before getting to know you and amazed to learn, it is one of the largest hair extension providers in the world with 13 brands operating in six different countries. So when you actually were involved in sort of getting this up and running and some of your early work in China, did you ever envision that it could be this big? And then can you describe a little bit the process of actually how it scaled like this?
Derrick: I did not envision that it could be this big. Prior to this. I had found it and started a third-party logistics company. One day a hair extension company came to me as one of my customers and said, “Would you warehouse our hair extensions?” And I said, “What in the world is a hair extension?” And this is early internet days and so did a little bit of searching and found out what it was and watched this customer of mine for about three months and went to him one day and said, “I think that your business is absolutely incredible. It’s way better than mine. Margins are better, term could be just massive. Adoption is low right now, but it could grow as awareness increases, et cetera.” One conversation led to another. He was nice enough to let me come on as an equity partner and our first Christmas party together, it was him and his wife and me and my wife.
And we sat down and he said, “What’s the biggest we think this thing can ever get? My partner said, “$10 million a year.” And I just said, “There is no way that it will ever make it to $10 million a year. It’s impossible.” And my wife and I were convinced that this was a fad. So we gave it one to two years. Well, three to four years in, we said, “Okay, maybe it’s not a fad maybe it’s a trend.” Seven to eight years in we said, “It’s not really a trend. It’s become a category.” And now as you fast forward and we probably have about 3,500 indirect full-time persons in China that are manufacturing our products. We’ve got over 500 full-time employees directly employed here, the products were sold in about 250 distributor ships in North America through these 13 brands to more than 165 countries.
And what’s happened is it’s really grown as we have gone and partnered with China where the collection of raw human hair began more than a hundred years ago at near the end of the Qing dynasty. People began to cut the cue off of the head to symbolize some of these great changes that was coming about in China. And being the resourceful nature and entrepreneurial founded nation that really is, they came up with a great way to be able to use this hair, which was wigs at the time, hair extensions, and actually other products such as soaking up oils. I remember the great BP spill in the Gulf of Mexico a long time ago, they used hair to sit on the ocean to help soak up the oil, to try to soak it up in horse feed and a number of other things.
And so since that time hair has been collected in China, more than probably 10 million women a year participate in this supply chain, if you will, of donating, selling, collecting, gathering, producing human hair extensions, that then go to companies like ours, where we either purchase from auctions or from hair collectors. Today, it’s grown into a large business where we feel a great responsibility to now take this category that has been created and make sure that it’s here to stay from a slew of things such as ESG and transparency and traceability. And just making sure that all parties in the supply chain are benefiting.
Chris: Definitely want to get into this, the traceability transparency issues, given Uyghur Forced Labor Prevention Act it came into, and that obviously affects a lot of companies in China’s supply chain. So I’ll be asking you about that in the second, but beforehand it would be just great to learn a little bit more about the supply chain that you have. So, you mentioned you go to Shandong a lot, I assume that’s because you have a number of factories there. And can you say a little bit about what these factories do? Obviously it takes a person a long time to grow their hair, and I’m sure you want long pieces of hair, not like short little things like I have. So I would just love to hear a little bit about actually sort of supply chain of this product.
Derrick: Hair is collected all over Asia, predominantly in China. And the predominant way of collecting that hair is either through what’s called fallen hair, which is hair that is gathered up from, say a salon after it’s been cut off and fallen to the floor. People will collect that hair. So instead of just dishing it up and throwing it away, they’ll collect it and sell it to like a local or regional hair collector who will gather all of that. Or sometimes even women as they comb their hair, there’s hair that’s left in the brush that is just naturally shedded hair. They’ll take that and collect that and sell that hair. And so that’s one of the major ways that hair is collected.
A secondary way is through women who traditionally right before the hotter summer months will actually thin the hair. So instead of just taking a full head of hair and cutting it all off and going from long to short, actually what they’ll do is take a portion of the hair, pull it up, thin it. Chinese hair is known to be very thick and a very healthy cuticle and they’ll thin that hair and sell a portion of it. And so the hair actually looks just as long, it’s just thinner. So that will take places all throughout China. A lot of them say the Sichuan province, but all over. Hair is then sold to these village or local regional collectors that is then sold to hair factories.
The majority of hair factories are in that Shandong region over in say Qufu and Heze and that greater Qingdao area. Although there are a lot of other factories all throughout China as well. Inside of the factory, then the hair is, as you can imagine, it’s typically all one or two colors, like a level 1, 2, 3, which is a dark color. It is then taken cleansed, colored takes a process of two to maybe six weeks to get the color that you want. And it is then applied to a number of different styles and types of hair extensions. We then buy that finished product from a number of factories and turn it into one of our brands that is then taken and sold to salons and hairdressers and even end consumers as mentioned previously all around the world.
Chris: You mentioned the Shandong cities near Qingdao, Qufu which I think is Confucius famous hometown. I don’t know if you’ve gone to the Confucius temple and with all the-
Derrick: Many times. Incredible place.
Chris: Could you say more about why the centralized in Shandong is that a place where traditionally people would donate their hair or is it something about the population there that has really good hair or what’s what about Shandong?
Derrick: Yes. Great question. Like a lot of places in industries in China, they tend to localize and tend to come together and no different than an American city where you have four gas stations on every corner or six hotels on the same side of the block, very similar things occurred and happened over there. Really what happened is some of the pre decentralizing in the late 1990s, there was really just a very handful of Chinese government owned hair companies that had been around for many, many decades.
They took those companies and basically turned them into employee owned enterprises and corporations, where those companies tended to be domiciled out of, was the Shandong area. So from there, as that occurred with the oldest and most traditional say Shandong Haichuan supply, they then took out and fractured into today what is more than a thousand human hair extension factories in the Shandong province alone over just the course of say, 30, 25 years.
Chris: Initial state focus and then they spun that off to individuals. I’d like to follow up with you, Jon, just a little bit more about your business that you founded called EnRoute Global, which is a different sort of focus than hair extension actually inflight entertainment in airlines. And Derrick mentioned that he has some work in Chengdu. And I think that you also have some work with Sichuan airlines as well. So there’s some little geographic connection. I don’t know if you have a connection in Shangdong either, but can you say a little bit about EnRoute Global? what experiences led you to found that and operating through a challenging time for the air travel industry? So just would love to hear about your experience with EnRoute Global.
Jon: Definitely the pandemic impacted the inflight market significantly. And I can kind of explain why that was, even though the audience has returned in large measure in China, I call them audience just meaning the regular sort of ridership of airplanes. My partner in the business is a former colleague from Goldman. So we had both left Goldman Sachs. He’s from China. He was actually the first hire that I had hired or anyone had hired from BYU, Hawaii. And so he joined the office in Salt Lake right as I was leaving with Goldman to go to the Beijing office and we just always sort of maintained rapport. So we founded this business when an opportunity was presented to us to work with a technology company in China who had been supplying tablets. So they were basically providing like an OEM type of iPad on which was loaded all of the normal content you would expect in an inflight environment.
So movies, television programming, documentaries, music, mobile games, some news, some potential shopping opportunities, but pretty much a closed system with all of that loaded on the drives of each of those devices. And then those would be handed out in cabins of airplanes and then gathered back up. Now there was a short period of time where I was starting to notice this Hainan airlines had begun to do it, and a couple of others, I think experimented, but we really got out the gate with Sichuan Airlines being one of the larger carriers early on in our time. we started with a few very small regional carriers in Guangxi and Yunnan province, in Ruili and Beibuwan airlines. And when we got to Sichuan airlines, our next site was on one of the major carriers that being China Southern airlines and so our goal was to let’s really prove both the system and the content side of things.
And they also wanted to prove their ad revenue supported business model. And so that’s where we came in to provide some access to international brands, destinations, other kind of service providers, any typical target advertiser for that platform. We looked at travel and tourism as sort of the lowest hanging fruit. Many of those organizations are not so tied in with the large agencies that we go right to major automotive. We’ll be dealing with layers of people that handle their marketing efforts and which is good, but they also want to see some track record and traction and we could get that pretty significantly in travel and tourism. So eventually Brand USA has been our biggest ad partner. We’ve done campaigns on the airlines with them on 42 different states with entities like six flags and seaworld and Avis Car Rental, that sort of thing.
So anything in that sort of destination area and with great results, like really great usership of the platform and then a transition has been happening even just prior to the pandemic where WiFi has been approved and enabled on airlines. It does require some of the planes that are currently outfitted for WiFi. Now we were covering about two thirds of the total WiFi enabled fleet of jets in China, pretty significant. And China Southern was really out in the lead in that. And we did secure that long term agreement with China Southern airlines to manage the platform with our technology partner and eventually they pleased enough with what we had done in the advertising space, which we were also set to sort of take to the next level with other categories from finance to technology, luxury goods, automotive, insurance the typical kind of categories you would see in flight, but they had also approached us to manage content.
So we manage filmed entertainment, music, and mobile games on that platform. And with that, the pandemic came about and our biggest challenge has not just been that, Hey, we don’t have people in those seats. They would eventually come back, but not really a time to be promoting “get on an airplane and fly to America” during the heart of this pandemic. So a lot of that has been put on hold. And then in terms of getting some equipment upgraded, we’ve had some issues with both capital taking a kind of a wait and see approach with our technology side partner and just access to the airplanes to install upgraded equipment on the planes. Not that we couldn’t mobilize that group, it’s just they’re not allowed to get out and non-essential labor around the airports was sort of put on pause. All fine, fairly a big disruption for us, but that’s led us kind of into our new directions of the lessons that we learned from that, which is we’ve learned a lot about the Chinese consumer.
And I had lived in China for a decade, have been very close to that issue, my partner being Chinese, I think, is something that we could quickly sort of pivot into other areas that were kind of complimentary. We can take lessons learned from our inflight experience, which we expect will come back. It’s likely going to be in the 12 to 18 month time range that we’ll have a lot more resources kind of focused on our inflight business, but we’ve been able to develop e-commerce and outreach and then other services for parties that are dealing with China, both on the logistics side of things, dealing with payment issues with Chinese customers. So we have kind of a suite of services that we work with some clients that are engaging with China, and then we ourselves have an e-commerce storefront. And we’re a buyer for an e-commerce platform in China for outdoor goods.
Chris: That is significant pivot from inflight entertainment to e-commerce on outdoor but like you’re saying, I think as you’ve learned through your experience and your partner’s experience with the Chinese consumer, you can see how maybe with that experience, you can move across different sectors. Your Chinese partner, is he or she in living in the U.S. or you in China?
Jon: Here in Salt Lake City. So that’s always been unique aspect of our company while I was in Beijing for much of our early years, he was here in the U.S. And so he is kind of a natural attraction for people who are interested in China being Chinese here in this market and then myself kind of the reverse in China, people who are looking for greater engagement with us companies or the market, or it could be a potential supply partner for us or some other kind of service partner in some of the chain of activities we’re involved in and so those are easy conversations for us to spark.
Chris: You mentioned, did some work on advertising and then also moved into providing WiFi, providing content. Some of those things like I’m thinking like WiFi and content, did you run up against any sort of government regulations or government bureaus having to get certain things approved? I know from at least trying to get WiFi in Chinese airports, sometimes if you don’t have a Chinese phone number you have to go get some slip of paper and show them your passport. And I don’t know if it’s like that on the airplane, what types of controls there are to identify the person. And also then the content, is there any content bureau, did you have to interact with those at all? Or were you getting that content already post-approval?
Jon: On the content fairly easy. There is a unit within the airline. So China Southern in particular, they do have a group that clears all of the content, but that content has been cleared already. Our rights partner that we’re working with they’re the largest aggregator of like post theatrical rights for film and television content. So international content you’d be looking at them. And then the recent emergence of the streaming services has been a competitor in that space, but they have a great library and they still maintain active acquisition of some international content.
We do have some limits on what that balance of international versus domestic content should be which is fine. We have access to plenty of content for that space. So that approval part process, luckily we have those entities in place who are responsible for clearance of here’s what’s going to go up on the platform. On the technology side yeah there’s really no avenue for a foreign company to get involved in delivering WiFi, that kind of telecommunications type luckily that’s where our technology partner comes in. They’re a company that’s a local company in China, registered in Chongqing. They’ve rolled that out over several airlines and they’ve worked out the regulatory pathway for that already.
Chris: Speaking of broader regulatory or other controls on products, I want to actually turn back to you, Derrick. As I mentioned, just recently, this Uyghur Forced Labor Protection Act came active, which creates a lot of disruption for companies. I don’t think that you have any product source out of Xinjiang so it may not affect you, but you probably also have some thoughts on it. I’d be interested to hear generally about your transparency, processes, traceability of your products. And then additionally, what you think of this new Act and any sort of longer term preparations maybe you’re doing to address it.
Derrick: And if I may just real quick, Jon, I just am having flashbacks of flying from Chinese city to Chinese city back in those early days that you were describing. And they would always play Shaun the sheep on China Eastern, it was always Shaun the sheep. And I could just remember being so dead tired and I’d get on that plane and I would settle in and I’d watch Shaun the sheep and I’d be out in about five minutes. But it brings back great memories of the glory days. In mid Asia they’re actually still handing out the iPads as I’m sure you’re aware on some of like Uzbekistan airlines and stuff, which is so interesting. But brings back great memories.
You’re right Chris, we don’t have any of our supply chain in Xinjiang. In fact, we don’t have anything in even central or Western China. It’s all kind of along that Eastern seaboard, if you will there relatively speaking. But with that being said, we have taken a very preemptive approach to be able to prove that we are not maybe in regions that are contested by international authorities. And if you’re going to be an importer of record in the United States of America as of this week, you absolutely have to be able to prove that you are not doing business there for right or wrong, regardless of where you stand it’s the law. Last week, it was on U.S. customs to be able to prove that you were using forced labor. This week, it’s on you to prove that you are not independent of whatever region you’re in. So for what we’ve done as we’ve gone through and just shown a very clear chain of custody of where hair comes from, where it goes, we have that certified and sourced and everything ready just in case anybody were to ask that question.
And I think that’s something wise for anyone to do that is importing products from China. Again, not speaking, whether it’s right or wrong, agree or disagree, but simply to comply with the American law that’s now come into place ESG and what we call our T&T program transparency and traceability is something that is extremely important to us. And if it’s not important to business today, it probably had better get important very, very quickly because consumers and stakeholders and lenders, regardless of who it is that I’m meeting with, they ask these kind of questions.
And they are very, very important as well as to the customers. So what we’ve done is we release annually a 70 to 80 page report showing where we do business, how we do it, what our scores are, what kind of initiatives we have in place. In addition to that, we have supplier codes of conduct that everyone is required to sign suppliers as well as subcontractors stating that they won’t do certain things like forced labor and underaged children working, all of things, which actually are against Chinese law as well.
But we want to make sure that we are going in and through the front doors there, we also have scoring programs that all of our vendors participate in, where they’re audited by third parties as well as by us individually. They’re shown each other scores, names, redacted to show where they line up and how they’re doing there. We really believe that a rising tide lifts all ships. And so being what we feel humbly that we are the category creator, we also believe that the onus is on us to make sure that we again are lifting all people involved in the supply chain from end to end.
Chris: Yeah. Well, that’s great to hear. And I know we started out talking about this from a regulatory standpoint, but I think consumers will want it. But then also just as a responsible business you’re dealing with products that are coming from people’s bodies. And so you just really want to make sure that things are done in a highly ethical and responsible way. So it’s great to hear about those programs you have in place to make sure that occurs. I’d also like to hear a little bit about COVID, how did that impact your business?
Derrick: It’s had a great impact on the business. Some for good, some for bad. I remember March 11th, 2020, I was here in Utah. The Utah jazz were in Oklahoma playing The Thunder. The game doesn’t start it doesn’t start, it doesn’t start. They cancel the game. No one knows why, COVID became real that day. And I remember thinking to myself, what in the world am I going to do if they just canceled an NBA game? Salons are going to shut down and if that goes throughout the world, my business is going to be over. I’m going to be in trouble. And we gathered as an executive team and as a board kind of went into crisis mode.
One of my board members and a mentor of mine for many, many years as a man by the name of Gary Crittenden, who was the CFO of Amex when 911 hit, he was there in the building that eventually went down, survived, was credited with saving more than 2000 people’s lives.Then he was the CFO of Citi Group during 2008. And so we sat down and we built a plan and worked through this and decided what we would do and how we would survive.
What came out of that was an acronym that became the playbook that we gave to our teams all around the world playbook that took the guesswork out of what they were doing and gave them a directionally accurate view of where to go and how to go about it. And that is RISE. The R stands for rethinking the organization. We have to rethink how we do business, where we do business, how we engage, what our teams look like and striving to push decision making down to the lowest level in the organization where it still isn’t disruptive. Freeing up the executive’s mind and time to make and solve only the most crucial problems.
The I for interconnectivity relationships, collaborations, partnerships. I haven’t been able to be to China nor has anyone on my team now in two and a half years, we hope to be able to go later this year. But that has taken a great degree of trust thankfully, that was built pre COVID that has extended through. Our way of pivoting was we opened up our own office in China. We’ve got a team there that now goes out on our behalf. We’re in the factories virtually they’re in the factories physically, and we’re maintaining and building those relationships. But our relationships with Chinese factories, it has never been more important to have relationships built on trust, to be able to get through this. That’s the I. The S speed agility, simplicity, the E the power to evolve and adapt.
Chris: And you mentioned obviously your sort of factory partners and your initial thought when the basketball game be canceled as salon sort of your distribution, has there been much disruption in your supply chain where it’s been harder to get products?
Derrick: Yeah, it’s presented a billion different challenges. We’ve had massive inflation come simply because of supply demand issues. And as China has taken a very aggressive approach to kind of have a COVID zero policy really eradicate that, they’ve closed borders and locked them down pretty tight. And there was a lot of hair that would cross across borders and what have you. It also caused for workers to be quarantined on longer times. And so we’ve seen lead times extend drastically. We have really moved from a just in time strategy to a just in case strategy. But because of that, we’ve also seen a bull whip effect that has come about because of ordering too much and too little and challenges that are there. Quality also, quite frankly, we’ve seen quality degrade across nearly all of our brands. And I talk about that openly because it’s a reality that we’re facing.
That’s because of having less workers having to do more work on a shorter timeframe and having it be kind of disjointed workflows as compared to what used to occur. And that’s had an effect as well. So we’re putting in counter measures to be able to combat that, which again directly come from this RISE acronym to be able to help us get through it. But it’s been to anyone, an incredibly difficult period to handle this environment. And there’s an old 1980s business term known as VUCA. VUCA stands for volatile, uncertain, complex, and ambiguous. And when you think about the environment that we’re in, we are in a VUCA environment. And so the onus comes on the company, on the CEOs, on the entrepreneurs, on the people solving problems to determine how to pivot in a VUCA environment.
Chris: Interesting. I’m surprised that hasn’t come back into more fully that term that really does describe the situation we’re in.
Derrick: It does.
Chris: I also want to mention to our audience, would love to have your questions to pose to Derrick and Jon. So anything that’s come up, anything you want to ask about, please put them in the question function, which at the bottom of your screen, and we can try to get to them. The discussion so far has been really focused on each of you and your businesses, which are just so fascinating and diverse. So it’s been really great to hear about that. I know one of the things that we really want to talk about in this webinar is why Utah is such a magnet for international business. Why it’s had such success. And Jon, I’m going to start with you, because you had mentioned to us that you have a partner who’s Chinese, that was Salt Lake City while you were in Beijing and now you’ve come back. I think that’s not a natural environment, but it is probably a place you’ve been in Utah behind you. So I would love to hear why is Utah such a special place as far as international business is concerned?
Jon: I’m not from Utah. So I grew up in Boston and made my way here just because another family member, my older brother was living in town when I started at the University of Utah. So I visited him, visited the university and decided, “Hey, this is a great place to set down,” and bit by bit the other siblings and parents and people all kind of moved back here to Utah. Now we ended up here a bit by accident. One, Goldman was opening an office here and had, was beginning to sort of grow that business back in 2002, 2003, I had spent a summer at Goldman as an intern in my undergraduate years. And some of those connections in New York had reached out to me and said, “If you’re heading back that direction,” knowing I’d been at the University of Utah, “It might be interesting to kind of jump into the Salt Lake office.’
It was a great experience. And then I had sort of induced my partner to come over from BYU Hawaii to settle in Utah. So with that sort of established some roots for us. Now, my wife and I and family had just come back just prior to the pandemic, really just to visit family. We were expecting another baby, other family kind of issues and then when the pandemics was clear that was going to be emerging and might be a problem for us, we’ve made it sort of a temporary and now more of a permanent home. We love it just for sort of vibrant nature of what’s happening in Utah. The growth in a lot of technologies, entrepreneurship is certainly on the rise. There’s a lot of really ambitious, young and growing companies. A lot of them that are connected all over the world.
I’m always surprised at the size of the Chinese community here. And we continue to encounter people from all over the region who live here in Utah. So that’s been a really pleasant surprise. Infrastructure, the quality education base. That was a real draw even for the time when I was at Goldman for drawing people from say jersey city to come and relocate to Utah. So we’ve seen that going on for a number of years now. We really enjoy being here. Proximity to the coast is really pretty convenient heading over to whether it’s California or further up the coast, where we have some operations in Portland, Oregon, even so ease of access. Another real interesting issue.
Chris: Crossroads of the west in some ways having these two great large universities that I think probably have very strong foreign language departments given particularly BYU. I think with the connection to the Mormon church, preparing people to go on their mission. I’m curious, Derrick, your thoughts about this entrepreneurship focus and international business focus in Utah. What sort of drives it and accounts for its sort of punching above its weight so to speak.
Derrick: Yeah. I spent a lot of time thinking about this. I have the great opportunity of sitting on the board of the World Trade Center with a fantastic CEO there, whose name is Miles Hansen has great international experience World Trade Center, Utah that is. And the chair of the global business services committee there. And as you think about Utah, 99% of all businesses in the state are small businesses. There’s more than 300,000 small businesses in the State of Utah.
And about 50% of all employees in the state come and serve small businesses as well. On top of that, we have a thriving tech forum here down south near BYU, which is the Silicon slopes that is bringing a lot of people to Utah. You have the influence of the Church of Jesus Christ of Latter Day Saints that certainly sends more than 50, 60,000 missionaries out at any one time where I think Utah has the highest population of dual language speakers than anywhere else in the nation giving opportunity for a lot of people to go out and do some really meaningful things.
About 20% of all the jobs in the State of Utah are supported by international trade. And so trade is a big thing. When Brigham Young came west 150 years ago, it was called the crossroads of the west. Utah really now is becoming the crossroads of the world. When you think about their low income tax, when you think about proximity and it’s placed geographically with all of these people, these missionaries that go out in the world and then come back and bring with them relationships and skills and trades and things like that, that is something very unique that just simply can’t necessarily be replicated. And on top of that, you have a very entrepreneurial driven state. And Utah is a great state for entrepreneurs. I’m a judge for entrepreneur of the year through the Ernst & Young program. This just got done. We wrapped up and announced finals our winners last week for the whole Pacific Northwest.
It is an amazing place of people. Business Week asked the question, why is that? And what is that that is in that genetic DNA? I just went to the Garth Brooks concert Saturday night here. He said Salt Lake is the most amazing place on my tour every year. It’s the loudest. You hear that about the Utah Jazz. There is an energy, there’s a passion, there’s a commitment to go out and solve really cool problems. Things like Jon is doing delivering inflight entertainment to airlines and customers around the world, these problems being solved right here in Utah because of the way the people are growing up through their schools, through their communities, through their religious affiliations, through their university academic studies, it is just impressive on a number of marks. So I am very, very pro Utah and a big believer in what it can do on the international stage.
Chris: I’d like to ask you also about, you mentioned the 50, 60,000 missionaries going out and there’s a lot of research in social sciences about how having diverse experiences like that helps make you make cognitive connections more likely just the simple relational connections also is important as you mentioned let’s say you went to Columbia for your mission. You come back to finish up your education. And you have friends from Columbia and you might actually that spurs an idea for a business. And what’s your sense of how many people that could come back from their mission, end up doing something that’s then connected to that in their later career or business.
Derrick: I think there’s a lot. You spend typically two years ingrained in a culture, in a language, in a people that has a lasting impact on you regardless of whether it’s tied to religion or not, whether it’s school, whether it’s an internship, what have you. Business week did some surveys on this to try to understand the link there and what they came back with is they said entrepreneurs who have had this mission experience have better resilience and grit than their counterparts, basically because they are told no all day long and they’re going out trying to sell something that no one wants to buy in a day and age like this. And it is extremely and incredibly difficult.
And so what that builds up is a resiliency in a grit to just keep charging through. My business partner, the original idea generator of the whole company is a man by the name of Logan Wooley. Logan is from the mission in Toronto, he learned both Cantonese and Mandarin. He came back, he played tennis at a university. He was able to be a tennis pro. He ends up teaching in Hong Kong going across the border right when the handover was happening with Britain back to China, gets this idea for a hair extension business. Today it’s resulted in hundreds and thousands of jobs creating hundreds of millions of dollars of revenue every single year.
He is just one example of many tens, if not hundreds of thousands that that spurs from. I could give you so many examples of people that have lived in a country Kodapak is another great Utah company, doing great, great things, David Smith, his whole experience has shifted and shaped because of where he was and what he learned. And he’s going back and doing business in this way.
Chris: Yeah. So and I’ve interviewed him as well actually. He’s-
Derrick: Have you? Oh, great. Yeah, he’s incredible.
Chris: With our final few minutes, I love to just have you reflect on geopolitical tensions between the US and China, what your thoughts are about where things are going and how to actually make things better. The mission of this show really is to try to help understanding about China in America to help build those bridges. And so Jon, would you mind?
Jon: Sure. I think my initial reflection is that there’s a tension there that has heightened and increased. On an official level that’s very apparent. When we get down into our immediate connection with consumers in China, we don’t feel a lot of that. That relationship I think, is continuing to grow and develop and hopefully will continue to deepen. I do think of it sometimes like the line in the godfather that they have to like go to the mattresses as they say in the movie, like these things have to happen every five to 10 years to clean out the bad blood.
Now, we’ve gone like 20 plus years without this moment that we’re having and it’s probably not a bad thing where both countries get an opportunity to address the issues that have been emerging and festering over time. I’m not going to predict where we will end up in this whole process, but I do think these are the two major powers that are contributing to global peace, global development and I trust that we will find a way to play that role profitably.
And our engagement is more seamless than it’s ever been. The ability to continue to broaden networks has never been as it is. As an example, I was contacted just two days ago by a young guy that I had met in AMCHAM, the American Chamber of Commerce event in Beijing a few years ago. He’s now living in the United States and representing some enterprises from Shandong province. And there were some synergies with things that we can provide some of those enterprises and they also will open up some avenues for us and it’s easier and better than it’s ever been. It’s just also the problems are more pronounced and they’re more accessible in terms of media and exposure than they’ve ever been. So I think it’s important to kind of look at the bright side and as an entrepreneur, I’d always say like, always look at sort of the lessons and the wins that you’ve had and use those as you kind of tack in new directions.
Chris: Yeah, that’s a good point. So many of the people I talk to, they share similar sentiments that they’re seeing so many positive things sort of on the ground, but the media actually tends to really reinforce a lot of the negative. Derrick, but I know that you’re on the board of the Utah World Trade center. What’s your sense of where things are going in the US-China relationship?
Derrick: I believe in subscribe to everything that Jon said. We’ve been doing business now for more than 50 years as a country with China. We’ve had great relationships for much of that time. And Jon Huntsman, who is an ambassador to China and sits on, is the chairman of our board of the world trade center has summed it up in a really great way, which is that I think that the relationship with China and the U.S. is too great to fail.
It’s not too big to fail or too important to fail. It’s too great to fail. You look at the reliance that each economy has upon one another. You look at the way that we’ve been able to seamlessly integrate and work for many, many decades now and the opportunities and possibilities that continue to grow there. So I have high hopes for those opportunities to occur.
Certainly it will take a lot of creative conversations. Certainly it will take listening to be understood. Certainly it will take creative problem solving, but I believe in a world where we can build spaceships and satellites and things that are launching out of this orbit, that we certainly can sit down at the table and have these kind of constructive conversations that we have again been having now for many, many years and many decades. So I’m a big believer in it. I’m not running from China, I hope to be able to get over there again soon and really believe in feel that this is too great to fail.
Chris: I want to thank you, both Derrick and Jon for joining us in China Corner Office. Thank you to our audience and look forward to talking to you all next time.
Derrick: Thank you.
Jon: Thanks Chris.
