Could you please describe the current trends in the Asia-Pacific private-equity sector?
First, it is important to understand that Asia-Pacific is a large, diverse region, and market contexts differ across countries. We currently see private-equity firms developing tailored strategies relative to the specific market conditions. Most of them started with an “Asia fund,” but today they may divide their operations into a China fund, a Japan fund, and an Australia/New Zealand fund. The local specifics really are important to making good deals.
Further, huge deal opportunities are developing in the Asia-Pacific region for private-equity firms. Large parts of global economic growth in the next few years will come from the high-growth Asian economies. China and India are growing at a rapid pace. At the same time, countries like Australia, New Zealand, and Japan will experience the same difficulties as the advanced economies of Europe and the United States.
What difficulties emerge for international private-equity firms when doing business in the Asia-Pacific region?
The largest obstacle is gaining the trust of their counterparts. Developing a well-entrenched network is the key to success in the region, as trust is an important factor in Asian culture.
There are a couple of pitfalls that international private-equity firms can encounter when doing business in Asia. Perhaps the most dangerous one is to misunderstand the decision-making structure. For example, we advised a private-equity company that had closed a carve-out deal of a subsidiary with the parent company’s CEO. And they believed it was done. But in reality, the subsidiary’s CEO can resist and even lead to a breakup of the deal. It took more than six months until the deal was actually signed. And this illustrates the importance of really looking behind the scenes to understand the decision-making structure and avoid this kind of difficulty.
What role does the government play?
Government interventions are much more common in Asia than in Europe or the United States. Especially in China, the state-run businesses and the government are still the most important sector for almost any economic activity. But this is also the case in Japan. The Japanese Ministry of Economy, Trade, and Industry (METI) has acted like a plot writer for a good deal of the industry development in the past, and it is back today. Therefore, in order to really understand what is coming next in terms of industry-landscape change, you have to effectively network with government officials and agencies.
How can BCG help private-equity firms establish an Asia-Pacific footprint?
BCG has been committed to the region for a long time. We opened our Tokyo office in 1966, just three years after the company was founded in Boston. We have worked for multinationals and local firms in Asia-Pacific for a long time. Hence, our network is a strong lever for private-equity firms to make connections and earn trust in quite a short period of time.