Global Themes

On Globalization & Venture Capital

Why Venture Capital has to Globalize…

A few weeks ago, in response to a post by Ed Sim, I wrote that for me, Globalization was really about opening new markets (particularly in Asia) for our portfolio companies.

A great illustration of why global markets matter is CSR – a company that we funded in 1998. CSR today is a world-leader in bluetooth and 802.11 chips – and from its earliest days, was focused on exploiting overseas markets for its products.

 

Throughout its growth phase, CSR continued to derive c. 75% of its revenues from Asia. In 2005, almost $398m of the $487m in total sales were from Asia.

When you think about the products that CSR’s technology goes into (primarily mobile phones), that number does not seem surprising (China and India alone added 25% of all new subscribers last year at 120m+).

In the last few years, we have seen an increasing number of our portfolio companies trying to enter Asian markets…and when you consider the facts below, you begin to understand why:

 

Asia today: 

  • Is the fastest growing market for telecoms & wireless products and technologies worldwide
  • Has the largest mobile user base in the world (China)…and very soon, will have the largest number of online users, and broadband subscribers

. China is on track to become the biggest consumer of semiconductor chips in the world within the next decade

. India added a whopping 5.8m mobile subscribers in last month alone – the biggest growth anywhere in the world. It is adding the equivalent of the entire population of Britain EVERY year and yet the total number of subscribers are only 110m

. On almost any metric of personal consumption, Asian economies have the fastest growing markets in the world (e.g. TV Sets, Air-conditioners, MP3 players etc) that will soon also be the largest

. There are entire sub-sectors within technology that are shifting “eastwards”. A good example is the fact that there is no US/ European TV manufacturer left in the world today except Philips

. At 400m+ subscribers, China still adding 5m new subscribers every month. 30% of GSM users in the world are in China

. Before long half of all mobile users are expected to come from India and China alone

As you let these facts sink in, it becomes obvious why venture capital HAS to globalise – It is about end-markets*, it is about growth, it is about customers and increasingly it will be about technology

For VC firms and their companies, globalization is no longer a matter of choice. What is not obvious is how do you do it well? And which models work better than others… that is perhaps where the seeds of competitive advantage and differentiation lie.

* For a powerful illustration of these end-markets, see this graph below:

Consumer Markets in Asia

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P.S. See also: Globalization – What’s it got to do with me?

November 11th, 2006 Posted by | China, Emerging Markets, India, Venture Capital | no comments

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