*NEWS*ASIA’S HOT GROWTH COMPANIES

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*NEWS*ASIA’S HOT GROWTH COMPANIES

 user 2005-11-09 at 10:41:00 am Views: 74
  • #14546

    Asia’s Hot Growth Companies
    Backed by a flood of capital, the region’s smartest startups are expanding their scope
    Just
    a few years ago, Asia was a tough place for small companies. Venture
    capitalists worldwide were licking their wounds from the dot-com bust
    and had little appetite for prospecting in Asia. The region itself was
    still digging out from the Asian financial crisis, so banks busy
    clearing the bad loans from their books didn’t have much time to take
    on new risk. And exchanges around Asia were focused on large
    enterprises, leaving startups out in the cold.
    Today, that has all
    changed. New money is flooding in, the crisis feels so last century,
    and relaxed rules make it easier for startups to get airborne.
    Furthermore, consumers in Asia have new spending power, and
    technologies such as the Internet and cellular telephony are creating
    opportunities for entrepreneurs from Seoul to Singapore. In China, the
    3.5 million private companies — the vast majority of them small or
    midsize — are the real engines of the economy, generating $241 billion
    in sales last year and accounting for 15% of gross domestic product.
    “The environment for entrepreneurs is getting so much better,” says
    27-year-old Ninie Yan Wang, founder of Pine Tree Institute, which
    operates vocational centers for senior citizens in Beijing. “At the
    moment young people would rather be their own bosses.”
    Plenty of
    Asia’s scrappy upstarts are making a name for themselves. Air Asia of
    Malaysia and India’s Air Deccan have taken advantage of airline
    deregulation and are now among the fastest-growing carriers in the
    region. In South Korea, one of the hottest new brands is TheFaceShop.
    The two-year-old brainchild of entrepreneur Jung Woon Ho serves up
    cosmetics to the young and trendy, and its sales are expected to grow
    by 176% this year. India’s Balkrishna Tyres is making handsome profits
    in a niche — tires for tractors and construction vehicles — abandoned
    by the industry’s giants. And just about every urban Chinese teenager
    knows QQ, the toy penguin mascot of Tencent Inc., which controls 60% of
    the mainland’s Internet instant-messaging market. Tencent’s sales? Up
    55% in 2004.
    One big reason these companies have been able to grow
    is the amount of cash sloshing around Asia. TheFaceShop, for instance,
    just got funding from Hong Kong-based Affinity Equity Partners, which
    took a 70% stake in the retailer. Last year, private-equity funds
    targeting the region raised some $10.6 billion, up from $3.3 billion in
    2004, according to Asian Venture Capital Journal in Hong Kong. The
    journal, the most comprehensive source on VCs in Asia, predicts that
    new money raised this year could top $12 billion.
    The money is
    coming from some of the biggest names in international finance. CVC
    Capital Partners, an arm of Citigroup, in May put together a $1.95
    billion fund to invest in the region. JPMorgan Partners Asia raised
    $1.58 billion in September. International Data Group, which has poured
    $200 million into China since 1993, last year launched a $100 million
    fund to invest in Vietnam’s fledgling tech sector. And Kohlberg Kravis
    Roberts & Co. in September said it’s planning its first foray into
    Asia with new offices in Hong Kong and Tokyo.
    The reason for the
    influx is the big payouts that some players have already enjoyed in the
    region. IDG paid $10 million for a stake in Chinese online auction
    company EachNet that it sold to eBay four years later for $180 million.
    And private-equity partnership Carlyle Group made back 15 times its
    initial investment of $8 million in Chinese online travel company
    Ctrip.com International Ltd. when it listed on NASDAQ in 2003.
    All Aboard
    It’s
    not just foreigners who are sniffing around for deals. Kuala
    Lumpur-based Navis Capital Partners Ltd. — which has made investments
    in everything from disposable diaper manufacturing in Malaysia to
    airline catering in India — raised $315 million in July to back more
    startups in the region. And Korea has some 102 local venture-capital
    companies with $3.5 billion to invest. Startups in Korea “won’t face
    funding problems as long as they have good products or technologies,”
    says Kim Hyung Soo, director at the Korean Venture Capital Assn.
    Some
    of the most eager backers of startups are Asian entrepreneurs who made
    fortunes with their own successful initial public offerings. Neil Shen,
    the 37-year-old Chinese returnee who helped found Ctrip is leaving the
    company to start his own private-equity firm in China. And Muneaki
    Masuda, who shepherded his Culture Convenience Club Co. — Japan’s
    largest chain of DVD rental outlets — to an initial public offering
    five years ago is now funding smaller startups. “The guys who have made
    money in an IPO know there are people just like them,” says C.J.
    Wilson, founder of Global Alliance Ltd., a mergers-and-acquisitions
    advisory firm. “They know it’s the best money they’ve ever made.”
    Stock
    markets these days offer more opportunities for startups, too. Until
    recently, a big obstacle to raising funds in Asia was the difficulty
    investors had in cashing out. But in the past several years local
    bourses have set up secondary exchanges designed specifically for
    startups, which in turn has made it easier for those companies to
    attract money from venture capitalists early in their growth. Japan’s
    Mothers board (short for Market of the High-growth and Emerging
    Stocks), has attracted 137 companies. Shares in the top mover on the
    exchange, V Technology Co. — a maker of inspection gear for
    semiconductors — have nearly quintupled this year. Hong Kong’s Growth
    Enterprises Market (GEM) has 205 companies. Korea’s KOSDAQ now has 582
    and is actively courting profitable startups. KOSDAQ-listed NHN Corp.,
    which runs Korea’s biggest Internet portal and search engine, has seen
    its share price more than double this year, as its profits are expected
    to climb 70%. Exchanges in the West are also trying to get in on the
    action. In the past year, London’s AIM market and the New York Stock
    Exchange have set up offices in Hong Kong and Beijing to woo local
    companies to their bourses.
    A few hit stocks, of course, help sell
    Wall Street on an idea. And many small companies from Asia have done
    pretty well lately. In Shanghai, Focus Media Holding Ltd. has built a
    successful business placing TV screens near elevator banks and serving
    up ads to waiting office workers. In just two years the company went
    from zero to a NASDAQ IPO and is one of the hottest Chinese companies
    to list this year. Not quite as hot, though, as mainland Internet
    search engine Baidu.com Inc. Its shares now trade at double their
    offering price, though they’ve come off the 355% gain they saw on their
    first day of trading in New York in August.
    The flood of money
    coming into the region carries some dangers. Expectations for Asia’s
    startups may already be outstripping their real potential, and many
    investors appear to be ignoring the risks of investing in any untested
    company, let alone one in a developing market such as China or India.
    So U.S. venture-capital funds looking around China are finding that
    valuations, especially in the Internet and mobile telecommunications,
    are getting out of hand. “There is an awful lot of money chasing
    relatively few deals,” says Michael Thorneman, the head of Bain &
    Co.’s private-equity practice in China. “Some private-equity companies
    have money burning in their pocket, and it’s going to get pretty
    competitive.”
    You don’t need to look far for highfliers that fell to
    earth, either. Chinese property and orchid magnate Yang Bin was one of
    the country’s richest businessmen before the authorities nailed him for
    tax evasion in 2002. Xinjiang Delong Group, a red-hot Chinese
    conglomerate that sold everything from tomato sauce to cement to
    stocks, last year collapsed under a mountain of debt. Japanese
    semiconductor technology developer North Corp. is due to delist from
    the Tokyo Stock Exchange this fall because it was found to have
    falsified its financial statements. And Carlyle Group invested in New
    Delhi educational software company Educomp Solutions Ltd. back in 2000,
    hoping to cash in on the outsourcing boom in India. But earlier this
    year Carlyle sold its stake back to the company at a loss.
    Such
    failures serve as a sober warning to investors on the lookout for the
    Next Big Thing. In the West, despite the risks of investing in young
    and inexperienced companies, financial backers can at least be fairly
    confident they’re getting the real story from management. In China and
    India, it’s not uncommon for companies to keep two or even three
    separate sets of accounts. That means it takes a lot of extra sleuthing
    before deals come together, and investors often appoint a foreign chief
    financial officer, while leaving the day-to-day running of the business
    to the local founder. Baring Private Equity Partners, for instance,
    hired a CFO from one of its other portfolio companies for Ningbo-based
    auto parts maker Minth Group.
    Ready to Buy
    Still, there are lots
    of real opportunities in Asia as developing economies take off and
    others undergo demographic changes. China’s booming cities are
    sprouting new apartment buildings daily, and virtually every new flat
    is home to a middle-class family ready to buy everything from quality
    toys for Junior to better health care for grandpa. That creates
    opportunities for the likes of BabyCare, a Beijing-based startup that
    is seeking to cash in on the 23 million children born in China every
    year by dispensing advice on parenting — and by selling vitamins,
    formula, and toys. And in Japan, many of the fastest-growing companies
    are those that serve the elderly — which makes sense given the
    country’s rapidly aging population. Message Co. runs more than 100
    nursing homes and last year saw its sales jump 66%, to $92.6 million.
    Startups
    are also taking advantage of new technologies that the region’s giants
    have been slow to exploit. In China, already the world’s largest
    mobile-phone market, there’s an explosion in demand for everything from
    the latest pop music ringtone downloads to the hottest new online
    games. Taiwanese photovoltaic battery cell maker Motech Industries Inc.
    is cashing in on growing demand for green technologies and has built a
    robust business selling cells to solar panel makers. And Korean
    consumers continue to eat up anything digital, fueling the growth of
    companies such as Nexon Corp., which gives away online games but this
    year expects to more than double its sales — to $250 million — of
    virtual accessories such as cars and goggles that players buy to gain
    an advantage over other competitors.
    Launching a startup anywhere
    isn’t easy. And Asia will see plenty of failures as entrepreneurs take
    the kind of risks required to create a big success. But for those ready
    to seize the growing opportunities it offers, Asia is looking better
    all the time
    .