MANAGING INVESTMENTS INSIDE AND OUTSIDE OF CHINA
“Four experienced financial experts with extensive Chinese experience respond to questions about the Investment scene in China and the rising level of Chinese investment in other countries. They are: Alyce Su, Ph.D., Founder of China Queen Capital; David Huang established TXTD Company, Stan Fung, managing director of FarSight Ventures, and Andre Loesekrug-Pietri, Founder and CEO, A Capital, China
Q: Does Danone’s experience investing
with local entrepreneur, Zong Qinghou,
serve as a warning to foreign investors?
Qinghou took money and technology
from Danone and set up a parallel
company. Eventually Danone settled
with Qinghou and lost an opportunity to
be a player in the Chinese market.
Huang: Let me say this: To state that Danone lost the opportunity to be a player in Chinese yogurt market is not accurate, not even correct. China has 1.4 billion people and hundreds of yogurt brands including many many, foreign brands, a solid company like Danone will never be a loser in the largest market in this globe if they are doing right. There are many foreign yogurt brands in China and they all live extremely well. Why do we think Danone lost the opportunity? Danone will not be a failure if they do not want to be.
And, I can hardly agree the statement that Qinghou took money and technology from Danone. I am sure that Danone is way too smart to not let Qinghou took money and technology from them. It is business and it is serious business, no one wants to lose. The issue is: United, they stand, otherwise, they both are losers or, at least one of them will think that they are a loser.
Fung: When I work with foreign investors and partners in China, and for that matter, in any country, I always recommend patience, caution, and not rushing into a JV or working with the first interested party (from both sides). If possible, work with credible referrals. Even then, start small before growing into bigger commitments. This will enhance the opportunity for successes.
André Loesekrug-Pietri: This major setback is a reminder that each country has its own business culture, and that China is no exception. I think it should not deter investors to come to China, in particular now when the domestic market is picking up massively. But a lot can be learnt through this case: how important it is to be clear about each parties objectives; how much unstable legal situations, especially for IP, should be avoided; how important is that communication with local governments, employees, consumers are done with a local touch and local experts; and finally that involvement in the operations is crucial, especially for foreign firms, in order to understand better the local way of doing business, track possible misalignment of interests – and correct them while they are manageable.
Q: The Heritage Foundation, a U.S. think tank, puts China at 132 in the world on its economic freedom scale, below Yemen, Rwanda, Columbia, and Niger. What’s your opinion?
Su: I usually have no comment on a ranking offered by any entity. Any entity of real substance does not need to offer a ranking of others to boost its own influence. What is the cost to offer a ranking? The same cost as publishing words of the same quantity.
Huang: So what? Heritage Foundation put China at 132 even below Yemen, Rwanda, Columbia and so on. If I were the Chinese government, I just skip their evaluation and do not even think about it. I cannot say that they are doing this on purpose or they have some bias on this issue, but I am sure that they can not see the real picture and they did not see the whole picture of China. I do not know what was the value of making this scale? It is easy to open a big mouth and it is OK to be #132. It does not mean anything to me.
There is an old Buddhist saying: If a few blind men touch the elephant, none of them are able to get the whole picture of the huge elephant.
Only when you are in China, can you see the real China and the real business environment. I also know some other think tanks that put China as the #1 investment paradise. I do not even want to think about their rank. Just see those huge/big/medium/ small/tiny companies are doing great business in China.
Fung: There is a tendency for think tanks (such as The Heritage Foundation), the press and the public to compare countries based on indexes (such as the Index of Economic Freedom) without taking into account other factors that have made countries different. Without going into details on the 100+ factors used to represent a country, I want to point out that leading emerging countries such as India, China, Brazil, South Africa, began their reforms only in the past two to four decades, while developed countries such as the United States, Hong Kong and the United Kingdom, have decades and decades of development experience behind them – thus making direct comparisons irrelevant. If one insists on using an index, I would rather look at the trend of the country rankings over a long period of time in order to draw meaningful (but yet not complete) conclusion.”
Loeskrug-Pietri: “Regarding the Heritage Foundation, and without being an expert of their criteria, I think this can be explained by the fact that China is still very much influenced by its central planning, which has to be recognized as pretty effective. In private equity, you would say that the ‘Track-record’, i.e. the capacity to deliver on your promises of Central Planning has been remarkable, and that the Five Year Plan is a great tool to anticipate the sectors that will be strongly developed. In some areas requiring a long term vision and heavy investments, this is a real tool for investors. On the other side, being in sectors less favored by the plan makes you swim against the tide – difficult.” ..........................
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