Tips from a dragon tamer

Best for smaller foreign firms to have joint ventures, says china veteran

As China's economic growth steadies, deciding how to allocate the country's new-found wealth will be the biggest driver for the next decade and a half, says China veteran Jack Perkowski.

The founder of US strategic consultancy JFP Holdings, who is a seasoned Wall Street investor, believes building the right channels and opportunities for the country's capital could push China into its next boom.

"There's a lot of capital in China. The real challenge and the real trick is going to be for China to improve its distribution of capital. In the next 10 to 15 years, China's growth will be driven by the development of its capital markets."

In the 1980s, the US redeveloped its capital markets, a move that led to the golden period of the 1990s.

"The development of the US capital market is what led to such large increases in productivity in the 1990s," Perkowski says.

With many of the same economic trends that occurred in the US in the 1980s now happening in China from a large increase in initial public offerings and joint ventures to junk bonds he predicts the country will take a comparable path.

"If China's capital markets are developed in the same way, I imagine the results would be similar."

While many in the age of the Chinese economic boom are quick to describe themselves as China experts, few deserve the title of "Mr China" more than Perkowski.

"I didn't ask for the name - it was given to me," he says of the moniker bestowed on him in a book of the same name by his former assistant Tom Clissold.

The straight-talking Perkowski earned his initial China stripes in 1993, when he joined the first wave of foreign entrepreneurs to show interest as the country opened up to outside investment.

Quitting his job as a Wall Street bigwig to invest more than $400 million in creating auto-component company ASIMCO, the Harvard business graduate's endeavors in China have been highly successful. This prompted Perkowski to write his book, Managing the Dragon: How I'm Building a Billion-Dollar Business in China, which was published in 2008.

He has since left ASIMCO to manage and develop JFP Holdings, which specializes in helping foreign companies develop and implement strategies for entering the Chinese market and helps them find the necessary capital.

Two decades after first arriving in China, Perkowski has seen its economy skyrocket from a GDP of $400 billion in the early 1990s to the $7.3 trillion it is today.

While China's economy has matured and its growth rate steadied, he believes the country is still the best bet for global companies, large and small.

"In 1993 there were still a lot of questions whether China was going to continue on this reform path and whether China was here to stay," he says from his sprawling office in the heart of Beijing's diplomatic area. "Today people are pretty convinced China is permanently on this path.

"People may disagree about what the growth rates will be ... but most companies are coming to the view that if they're not in China they're missing out on what is probably the single biggest growth market the world will see for the next 50 to 100 years."

However, the biggest transformation he has seen in the past 20 years of doing business in China, is the maturing of management talent at local companies.

"Unlike in other parts of the world, management has never been treated as a science here," he says. "People didn't go to school to learn management; companies didn't have management training programs."

But as Chinese companies have grown increasingly global, international influence has helped create a hybrid of competent East meets West-style managers, a rarity in the early days.

The impact of this new generation of managers on business opportunities, says Perkowski, will be huge.

"This has done a number of things. One, it's made it possible for companies to come in and set up wholly foreign-owned enterprises," he says, adding that when he first arrived creating such entities was illegal.

"Beyond the legality of a WOFE, one of the first issues you would have was where you would find your management.

"Because the quality of management has got better, many of the private and state-owned companies are much better run, making it easier to enter into a joint venture."

Horror stories of partnerships gone wrong have created a strong bias against Western companies entering into joint ventures with Chinese companies.

With stronger management and more reliable Chinese partners, this bias will slowly dissipate, Perkowski says. "Bad things still happen and China is still one of the most competitive markets in the world, but things will change slowly."

With the prospect of more reliable joint ventures, the door has opened for foreign small and medium enterprises, which often struggle to afford the huge costs of expanding to China.

"In the wake of the financial crisis, companies of all sizes had to tear their plans off the wall and start over," he says. "I think many of them quickly realized that China was going to be their No 1 market."

With many of the largest multinational companies already operating in China, SMEs will make up the majority of new foreign companies coming into China.

"For any company, putting an operation on the ground in China is a pretty daunting task," he says. "But for smaller companies, entering into a joint-venture is really the only option.

"The good news is now we can usually find good partners that not only know the system and how to operate professionally, but are also the kind of company that they are able to work well with."

Connecting Western SMEs with well-managed Chinese companies, he says, quickly fills in the lack of China knowledge that regularly creates the biggest hurdle for businesses of any size moving East.

"As appealing as it is to have your own facility where you can do anything you want, I can tell you from personal experience, starting from zero is tough."

As economists continue to speculate on what the future holds for the world's second-largest economy, Perkowski paints a clear picture: China is transforming into a very different dragon.

toddbalazovic@chinadaily.com.cn

(China Daily Africa Weekly 08/23/2013 page23)