From HKUST Campus

From HKUST Campus

Aggression

Z-to-A view of today's Asia

Zillions of articles and billions of FDI later, the unabated growth story continues in the emerging markets of China and India. The neighboring nations like Vietnam, Thailand, Indonesia and Malaysia seem to have joined the party too. True, the rising Asian currencies, the low morale of the export-oriented industries, commodity price inflation coupled with the softening demand from Western markets raised many questions on the de-coupling that the local ‘experts’ were boasting about. The deals have decreased considerably over the last year, partly due to the credit squeeze and doubts on general slowdown in global growth.

There are, of course, the evergreen sectors like real-estate, infrastructure and healthcare in India where a lot of private equity money is pouring in. Infact, one company even started a helicopter service to beat the traffic jams and poor roads. While, the Government’s plan to allow private healthcare providers to serve the untapped rural market is very positive. Similarly, in China the industries that serve the domestic consumer market are doing very well on account of the Olympics and the voracious appetite of the urban consumer.

The key for the industries is to focus more on the domestic sector, not just to offset temporary global demand, but to innovate and offer better products and services. These companies must not be put off by lower margins but must gain better market stronghold and seek immunity from volatile global trends. Some great examples are ICICI bank and Bharti Telecom in India, these companies are largely unknown outside India, but they outperformed the market expectations and serve local middle income consumer. Other global examples are software giants IBM and SAP. While IBM deliberately moved 60% of its revenue generation outside USA, SAP diversified from serving large companies to tailoring products for SMEs. The export oriented companies of Asia must learn from these global players.

Another potential area for investors is to look beyond the conventional sectors in Asia and keep eyes open for the less promiscuous, innovative and customer-focused businesses. Recently, the food crops production deficit and the ensuing commodity price inflation shows more scope in agri-business. Also, the privatization of formerly state-owned or controlled industries in newly globalizing economies throws open new doors. There is already the small trend shift from financial services to tech, infrastructure and hospitality. Ginger hotels has proven that there is a niche even in a crowded and commoditized hospitality industry. Further, the movement of funds from buyouts to more early stage, growth and restructuring sectors which traditionally bootstrap or seek loans. The winner will be the one who can ride this wave, do you have it in ya?