Asia has long been home to the world's most dynamic pack of economies, yet a defining feature of the region's business landscape has been corporate size.
China's state-owned enterprises, the keiretsu business combines in Japan, or the mighty chaebol family-run industrial empires of South Korea tended to squeeze out the small fry in the struggle for market access and capital. Well, that all seems so late-'90s now.
This decade has witnessed a broad flowering of entrepreneurship throughout Asia. Factors driving this trend include a huge wave of private equity and venture capital funding, the region's enormous base of Net users and high-speed broadband networks, and regulatory easing on rules governing the listing of young companies at bourses from Seoul to Singapore.
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Bantam-Weight Champions
This new-found verve among the small-company set is readily apparent in BusinessWeek's latest compilation of Asia's 100 Hot Growth Companies. This year's list of the region's best-performing growth companies-those with annual sales of $50 million to $500 million-is drawn from the Standard & Poor's/Citigroup Extended Market Indexes for the Developed and Emerging Markets of Asia as of Oct. 26, 2006.
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Hot-growth Indian firms | |
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1 |
Hexaware Technologies |
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2 |
Matrix Laboratories |
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3 |
Dabur India |
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4 |
MphasiS BFL |
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5 |
Wockhardt |
Analysts at Standard & Poor's (like BusinessWeek, a unit of The McGraw-Hill Companies) only consider listed companies with minimum sales growth, profit growth, and average return on invested capital of at least 10%-and then rank the 100 top finalists by performance over three-year time frames, to reward consistency.
In many ways, the environment for the region's bantam-weight champions is ideal. The amount of startup capital sloshing around Asia right now is awesome. Private equity and venture capital funds have invested $44.7 billion in Asian companies in 2006, vs. $29.6 billion for all of 2005, according to Hong Kong-based AVCJ Research, which tracks such flows. And another $30 billion has been raised this year for future investments.
Smoothing the Way for Startups
In big, established economies such as Japan's-which fielded 34 companies for our list, by far the biggest number of any country-the adoption of international accounting standards in 2000 and liberalized regulations on startup capital requirements have made a huge difference. "The legal infrastructure is more suited to deal with small startups," says Kazuyoshi Komiya, president of Komiya Consultants, a management consulting firm in Tokyo. "There are also many Japanese stock exchanges that now allow small-cap listings, so there is a better chance a venture fund will recoup its investments."
In regional IT powerhouse South Korea, a huge base of Net-savvy consumers and mobile phone users, plus blisteringly fast broadband networks, have opened doors for small biz. It's "easier now to reach out to customers because of excellent Internet access through broadband and mobile networks," says James Yoon, a partner at Korea-based private equity fund MBK Partners.
India!
Of course, the rise of China and India is attracting serious money, too.
In India, there are now 53 foreign venture capital funds operating, vs. 39 at this time last year, and big investment funds such as Blackstone and Carlyle are chasing deals there. "They are all looking at the small stories which have the potential to become large-cap in the next three to five years," says Manish Shah, head of equity and derivatives at brokerage Motilal Oswal Securities. In China, private equity shop General Atlantic Partners and U.S. tech titans such as Intel and Ciscoare investing in promising young Chinese Net and IT firms.
Southeast Asian Winners
There are high-fliers in Southeast Asia as well. Grabbing top honors on this year's list is Thailand-based Precious Shipping, which runs a fleet of small cargo vessels that haul rice, sugar, fertilizers, cement, and iron ore to and from booming Asia to ports in China, Australia, the Middle East, and Latin America.
The company has averaged profit growth of 154% in the past three years. The global trade boom and careful financial management-the company carries no debt-have earned Precious a market capitalization of $600 million. "We invested for the future, and we knew that we'd get fairly close to where we are now," says Chief Executive Khalid Hashim.
Another high achiever is Mumbai-based Wockhardt, one of five Indian companies on this year's list. The pharmaceutical and biotechnology firm markets 14 products in the U.S. and in August received approval from the U.S. Food & Drug Administration to market a broad-spectrum antibiotic called cefotaxime sodium.
Wockhardt has spent $500 million buying up companies in Europe and India over the last couple of years. "Size is important if you want to be a global player, as it gives you access to markets, resources, and talent," says Chairman Habil Khorakiwala.
Maybe it's time to reconsider those stereotypes about Japan being a place characterized by glacial change and cultural insularity. Japanese wedding specialist Take & Give Needs is making a killing catering to younger Japanese who prefer Western over traditional Shinto nuptials. The company's staff will deliver everything from French-trained chefs to a choir to serenade guests at the reception.
Competitive Spirit
Other companies such as Hong Kong-based Prime Success International are finding stellar growth even in no-frills industries such as footwear manufacturing and retailing. Prime is a major supplier of shoes to big U.S. retailers such as Wal-Mart Companies, Sears Holdings, discount retailer Kmart, and the Payless Shoes chain.
Back in 1990, it launched its own retail chain in China called Daphne, which has since emerged as the leading ladies' footwear chain on the mainland. Investors love this stock: Its Hong Kong-traded shares have rocketed up 60% this year.
Though the companies on this year's list hail from different countries and cultures, what unites them is a killer competitive instinct. Will all of them be thriving at decade's end? Probably not, but Asia is starting to produce a new generation of midsize companies that aspire to the big time. And that kind of dynamism from the bottom of the corporate world is a very good omen that Asia's run of economic prosperity is far from over.
