Say you're an importer sitting in Chicago. You could be a retailer, a wholesaler or a manufacturer in search of cheap goods. Whether you seek electronics, fashion accessories, toys or hardware, the supplier of choice is probably a low-cost factory in China. But how can you find that competitive but anonymous Chinese manufacturer?
Merle Hinrichs, a native of Nebraska and longtime resident of Hong Kong, has built a surging and highly profitable business around just that challenge. Hinrichs's Global Sources Ltd. (symbol GSOL) operates a vast electronic marketplace that connects factories in China and elsewhere in Asia with buyers around the globe.
Some statistics tell the story of the Globalsources.com community. The Web site, divided into 13 product sections, such as children's products, security and auto parts, hosts information on 1.8 million products from 130,000 suppliers. More than 560,000 buyers from 230 countries submit millions of sales leads each year through the site. Global Sources earns its keep not through transaction fees but by selling ad space to thousands of manufacturers.
Hinrichs, 65, is no Internet geek. He made his first fortune in print media, publishing unglamorous but ad-rich trade magazines before migrating online. He established Asian Sources publications (as it was then called) in Hong Kong in 1970 and shrewdly provided an initial ad medium for no-name small and midsize exporters in Taiwan, Hong Kong and Korea. Later, he tapped into the staggering industrial growth in China, where Global Sources operates 44 offices that are replete with ad salespeople.
When the Internet sprang up in the mid 1990s, Hinrichs seized the opportunity. A bulky trade magazine takes weeks to produce and wing its way to a buyer in Chicago. With Global Sources Online, a factory in China can change its product ad instantaneously. "Our total focus is on helping businesses market their products globally," says Hinrichs. "We're media-agnostic."
Although electronic media account for almost half of Global Sources' revenues, Hinrichs still publishes a dozen print trade publications. "Print is the hidden secret," he says. "You cannot build brands just online."
Global's fastest-growing business is the China sourcing fairs it hosts each spring and fall in Hong Kong. Last year, it sponsored six such product fairs, which attracted nearly 150,000 buyers from around the world. Global Sources sold nearly 13,000 booths to Chinese manufacturers for an average of $3,700 per booth. Hinrichs explains that because importers are "buying container-loads of products, most of which are made to specifications," they want to meet their suppliers in person.
Global Sources, a nice proxy for growth in global trade, is finally moving onto investors' radar screens. The stock has risen 70% since October, to $17, aided by favorable comments by CNBC's Jim Cramer. Citigroup expects Global to earn $40 million in 2008, three times its 2005 profits. It rates the stock, which trades at 24 times estimated 2007 profits, a "buy," with a one-year target of $22.50.