The low-hanging fruit for private equity (PE) firms looking for a rich harvest in China has been picked, according to supply chain consultant James Tompkins. In his recent “Asia Supply Chain Excellence” report, Tompkins notes that the last five years in China have been marked by a frantic buying spree in which many bad decisions have been made and many PE firms have closed their doors and gone back home to “lick their wounds.”
“The easy/quick/good deals are gone, and what remains are considerable debris and the potential for more complicated deals that are slow to bear fruit,” he writes.
Tompkins offers four priorities to help firms ease their way into China growth:
1. Establish a Proactive Strategy. Remember China's dual role as the world's factory and a booming consumer market.
2. Source from China and Do It Well. Although sourcing from China is still very important, it must be done intelligently, since, as mentioned, the low hanging fruit has already been picked. All that remains is to ensure that sourcing decisions are fresh and current.
3. Sell to China, Respecting the Complexity. Use "local" guidance to understand: a) the marketplace (market analysis), b) the competitive landscape (competitive intelligence), and c) how to customize your products for local acceptance.
4. Acquire Tuck-in Acquisitions. Often referred to as a "bolt-on acquisition," this is where the acquiring company merges the acquired company into a division rather than implement changes on its own. A tuck-in acquisitions will allow the acquirer to gain a quicker footing in China, and possibly a greater market share as it expands.
