The Eager Swimmer

Is it just me, or is every major company in the world turning its sights on China? They may know a good investment or a good business opportunity when they see one, but the sheer numbers of mega-companies participating is mind-blowing.

A recent case in point is 3Com, the Marlborough Massachusetts telecommunications company. Their new CEO, Robert Mao, will be based in Hong Kong. 3Com is a major player in China with its H3C Technologies Limited unit. H3C holds the number one position in market share for enterprise stackable switch ports and router units. The new CEO sees H3C as the most integral enterprise within 3Com for the company’s future growth.

This trend towards relocating business units or whole businesses to China seems to have some real momentum. GM, in partnership with Shanghai Automotive, has just launched their Wuling pickup in China. NEC of Japan, Spain’s Zara and U.S. companies like Microsoft, the NBA, American Apparel clothing stores, IDG, Mattel, International Paper, Readers Digest, Rubbermaid and General Electric have created subsidiaries in China.

A movement of companies to China has been accompanied by a growing number of venture capital and private equity firms. Sequoia Capital, DCM, Ignition Partners, Granite Global Ventures, DFJ, IDGVC Partners and Intel Capital are all examples of VC firms that have found opportunity in the Chinese market. One reason for this is the singular immensity of opportunity that exists in Hong Kong and the mainland, but another is that these firms are filling a need that exists as a result of the regions learning curve.

When a child wants to learn how to swim, their parents may send them to swimming classes. The instructors know how to swim themselves, but more importantly, they know how to teach swimming to those who haven’t mastered the skill. China was in that learning stage in the mid-90s and has advanced to the point of confident swimmer. Now Chinese venture capital firms are appearing on the map.

As 3Com learned with its H3C subsidiary, a pool of technical talent exists in Hong Kong and throughout China. H3C has 2,600 engineers engaged in R & D. That focus has resulted in 4,000 patents and licenses. Engineering and computer science students who studied abroad are returning to China with a wealth of resources. A combination of venture capital funding and technical talent will take China from advanced swimmer to Olympic champion in the coming years.

Just as technical solutions are finding their birthplace in China, so is the venture capital market. A recent AFP story about a young Chinese investor named Chen Hao illustrated how the venture capital learning curve is making great progress in China. In the story, Chen is quoted as saying “China is 50 years behind the US in this area (venture capital)… and my generation is going to have to fill this gap”.

Chen’s investment firm, Blue Ocean Angel Capital, has already invested a total of 50 million yuan into 8 startups. The AFP story went on to say that ‘local venture capital funds saw their portion (of total venture capital funds in China) nearly double in 2007 to about a quarter of total investment. While the foreign firms are likely to dominate for another 3 to 5 years, the local VC scene is thriving and learning the ropes.

What does all this portend for the future of Hong Kong and the mainland on the world stage? It seems that a lot of smart people see a promising picture for technological advancements with the substantial amount of talent in the region. Technology and the knowledge to use information is the future of any country that wants to capture the largest share of revenue. Much of the world wants their best swimming teachers in China for now.