March 25, 2010 Leave a comment
In the last post I touched the issue of 4 ways of looking at the PE/VC relations between Japan and India. In this post, I would try to elaborate on these 4 ways about how the Japanese PE/VC firms could look to seek a pie of the India story cake.
- Invest in Indian Companies – After talking to various PE/VC firms in Japan I noticed that they have very less exposure to the Indian markets. They almost have no Indian company in their portfolio. We need to understand that to capitalize on the emerging economies; companies need to understand the local markets and who can know these markets better than the local Indian companies? I completely agree that to have companies from other country on the portfolio, someone from the investment firm needs to understand the target country’s culture and people. But that should not be an issue for Japan, since many Indian business professionals work in Japan and they are bilingual too. Off-course in the beginning aligning to some new county’s customs and business would be a problem for the investment firm, but that’s fair enough given the better IRRs.
- Streamline the Indian companies – Now once the Indian companies are in the portfolio, the Japanese GPs can streamline their operations while restructuring the company. The GPs can then use the knowledge of their world-class quality tools such as TQM, JIT to improve the efficiencies and take the company to new avenues. They can also restructure the company to serve the Japanese markets, like Daiso’s main suppliers are from China and Indonesia, similarly companies in India can also have products catering to Japanese markets, become suppliers to companies such as Uniqlo.
- Bring LPs from India on board – As I said in the last post due to not up-to mark performance of the Japanese GPs, some LPs here might have turned a bit unwilling to invest. The unwillingness is but natural because the LPs would always be expecting for much above market returns, which may be high expectation over the short run. However with the recent boom in India, there would be cash-rich LPs in India, looking for fundamentally strong companies in Japan, to invest in. In India basically most of the PE firms, are arms of business conglomerates, Birla, Fortune, Premji and now even Infosys to name a few. These firms would be willing to invest in companies having businesses allied to their business, such as Fortune could invest in a brilliant technology catering to the Retail markets, Premji Capital could invest in some brilliant embedded technology company.
- Take the Portfolio company’s products to India – Japan, a technology power has immense potential in terms of technological innovations, the need of the day is to synchronize the applications of these innovations to the needs of emerging economies, and if the GPs can achieve this during the restructuring of portfolio companies, planned to cater to India markets it would be very fruitful. Let’s take an example of this aspect; India has set a target of generating additional 78,500 MW of electricity by 2012, of which Solar and Hydro Power also form a crucial part. India has set an immediate target of 1000 MW of Solar energy by 2013 under the Solar mission and 20,000 MW by 2022. Some days back I was reading in Nikkei Weekly that due to high costs Japan has lost market of photovoltaic cells to Korea and Taiwan, but these days there is some movement for regaining the lost place. If PE firms having such companies in portfolio can have an offering for Indian markets, it would be a right offering at right time. But not to forget, in India cost and durability play a vital role, so due care should be taken of these aspects. Some days back I was looking at a hydropower Japanese product, it is a box, which just needs to be placed in a stream of water, may be river, city sewage drains, industrial drains and it would in turn generate power. Now if this product can be adaptable to Indian needs it would be interesting. Suppose it can generate enough electricity to pump water for a river side farm, than farmers would readily use it, even the government could pitch in with subsidies, because it’s addressing the immediate need of power shortage in India.