Panelists
Frank Lavin – ExportNow, Hong Kong and Singapore
Hugh Dyus – Navis Capital Partners, Hong Kong
Magnus Grimeland – Antler, Singapore
Moderator
Dr. Peter Lorange – Zurich, Switzerland
Questions
Per Lorange – Sandefjord, Norway
1) What is the current situation in Asia today – economy, geo-political; etc.?
We can expect a high growth, outperforming Europe (and the US) for the near term. Asia, however, is a construct and not one relatively homogeneous area, such as Europe, but very heterogeneous when it comes to religions (Buddhists, Christians, …), political regions (democracies, communism, dictatorships, …) cultures and competence profiles. So, the key is to appreciate the heterogeneity, and to attempt to take advantage of these differences in country/regional profiles when it comes to the implementation of one’s own particular business activities. (“What do you put where?” - Tech: Vietnam; deep tech: China; India: outsourcing (Philippines); finance: Singapore, Hong Kong) …). Clearly too, the covid pandemic has influenced different business sectors significantly as well as causing turbulence and some serious mistrust about the region by those outside the region.
In general, there seems to be a fast-growing middle class, rapid growing digitization, fairly stable market, and relatively favorable demographic profiles. (Japan seems to be having particular problems when it comes to these issues, however, thus facing lower growth prospects).
Now to the US-China political tension. There shall of course always be tension as long as China unilaterally decides on what they see as reasonable, from their perspective. Trump was rather ideological when it came to facing up to this, while Biden seems to be more subdued, but highly pragmatic. A relatively stable situation of “polarized differences” seem to “be it”.
2) Corporate behavior - what is happening in Asia? What advice would you give?
Some companies seem to have a good ability to succeed, through mindset, speed, flexibility and adaptability. A good example of this is Starbucks, while most other European and/or US-based coffee shop chains are not. Nike is another example. Why these differences? Key differences when it comes to specific firm outlooks seem to be important:
An international competence profile; flexible, adaptable plus internal capabilities.
A “make it happen” attitude.
Accept that to develop International Asian business typically might take a longer time.
Also accept that this may be more costly than what might often be the case in domestic development efforts. Thus, do not be “deterred” by less favorable financial yardsticks (ROI, ROCE, …), which tend to imply a shorter term focus. All metrics for success will be violated in a new market entry, and this is also true for foreign companies coming into an Asian market.
Very broadly speaking, there might be two classes of companies:
Those where the grandfather was smart – the next generation shall often attempt to mimic this, thus typically staying domestic (and typically not succeeding in Asia!). This category will have an enormous challenge in going abroad.
Those where you are smart, thus being comfortable going ahead, (and thus succeeding in Asia also) and hungry from day one.
3) Asia is indeed an economic growth engine, but there are indeed many hurdles to growth. What are they? How does one navigate for success?
Economic growth does not necessarily translate to investment returns or higher ones. Be careful and recognize that there might be particular risks, perhaps especially relating to failures, and thus generally a harder time to get out, often due to a less liquid situation. There seem to be many gifted entrepreneurial operators, but there may be an element of risk when investing in their projects and where these subsequently might go wrong. Most entrepreneurs and founders seem to get out ok, i.e., get rich, but at the expense of investors, who typically might lose most or all! There seems to be a “what’s in it for me” bias. So measure your attitude about risk, and adjust your model so it’s not the same as that for your home market. Compartmentalize your model to reduce your risk in the market.
One model that might involve acceptable risk exposure might be the depot strategy (a 18th and 19th century model): you distribute from depots, and ship the proceeds out, as soon as possible; no assets or staff in the market, so low risk with 100% variable costs and no fixed costs. This basic approach is followed not only by large successful firms, but also by many relatively smaller firms.
4) Let us turn to growth opportunities. Where do these come from?
It seems particularly important to focus on the younger generation of Asians, often with strength and ambition, a spirit of entrepreneurship, steady visions of growth and missions to “make it big”. While there may be an element of impatience, success in Asia in general may involve a longer time horizon than, say, in the US or even in Europe, as already discussed. “Pulling up one’s sleeves”, demonstrating strong commitment might, however, have an impact when it comes to reducing the speed it takes. China may be getting faster and faster though. The time it takes to build and then get an exit opportunity is getting shorter but not as quick as in the US.
You do, of course, need to secure backing from the right circles, above all investing in local entrepreneurs. Don’t try to drop your own home country personnel in the terrain and just expect it all to work. Hands-on leadership, with rapid reactions is key! And launch a business only when ready! There may be two phases here. The first might be to satisfy that there is a group of prospective customers that simply “love” the product – “I can simply not be without it!”. Find the emotional content of the brand. This group might not necessarily be all that large, say, perhaps only around 200-300 people, but if people love your product, you may be ready to scale. Set up infrastructure, gear up for success, get the right financing. The second phase might then be that the “early devotees” talk about the product to their friends – “word of mouth” – this hopefully inducing ultra-rapid growth. You need to reach scale quickly. And the financing must be lined up to allow for such rapid scaling, maybe even several times. To get the capital seems relatively easy if you have the right team! In a traditional static business, static, you may make only a few decisions a month, focusing on not making mistakes. In emerging markets, you have to make many, many more decisions a month, innovate, and you will have more inefficiencies and a higher failure rate. Your company has to understand this and support this approach.
5) What is the future like in the various Asian markets? What is in store for us? What are some recommendations regarding Asian business development and the funding of this?
Growth in Asia will be far faster than elsewhere. Investing in equity will give you the upside. So you have to have exposure to give you the upside. China is the biggest story in Asia. If a business model works in one part of China, it can scale up quickly. You can’t ignore China. Sector-wise, look at technology enabled industries as well as health care, as opposed to sunset industries. The key is performance-enabling! All of these areas will witness opportunities and strength, but again proceed with caution. There is no doubt green energies is a good sector but policies and government has a strong influence here, and may complicate growth or progress. Regrettably, much of the so-called “green” investment sectors seem to be heavily driven by governmental regulations – negative! There are windmill parks in China, for instance, that are at a standstill, negatively impacted by governmental regulations. Stay perhaps away from highly regulated areas.
The advent of globalization means it has never been easier for your competitor to enter your market, and for you to enter another market. Business decisions thus don’t depend on proximity. For example, tech, e-commerce, etc. facilitate growth. So why not? Look for the easiest market to enter. Be systemic. Don’t be dogmatic. Every country will be different, but keep an appetite for exploration and discovery.
Capture the limited upside. You can build B2B app, deep tech platforms now in days. The fundamentals mean you have to back the winning team. Too many investors back a team into a category - i.e. bloodbath in Asia in e-commerce. People just want to invest in e-commerce but instead you should back the winning team, look at the business model, find the company with network effects, one that can grow.
Additional questions & points
We are returning to the critical issue of backing winning teams! (Analysis; scaling; growing – be innovative regarding all of this!).
Finally let us consider private equity – the west versus China. In the west, private equity focuses largely on buyouts. In Asia, in contrast, private equity is typically focused on supporting growth. This, failure when it comes to ventures that have been supported becomes a severe problem. “You simply might not be able to get out!”.
So, better governance procedures become key. And, to look for features such as trust, honesty, and ethical stance is critical.
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