Global Business 2004:

1
Global Business 2004
The Game, the Players, and the Rules
Mark Cameron White Partner, White Lee
LLP November 12, 2004
2
U.S. Outsourcing To Be or Not to Be

• To Be
• Cost savings
• New innovation
• Time to market
• Extensibility of markets/capital
• Requirement for venture capital
• Creation of U.S. jobs
• Better customer service

• Not To Be
• Quality control
• IP risk
• U.S. worker morale
• Politically correct
• Political risk?
• Loss of U.S. jobs
• Language/culture problems

3
U.S. Outsourcing The Reality
VC Mantra Whats Your Chinese Strategy? Its
Business Politics doesnt factor in. The U.S.
domestic market no longer matters.
4
U.S. Outsourcing How To Do It

• What to Outsource?
• Assembly/Manufacture
• New Innovation (?)
• Services
• What Not to Outsource/What the U.S. is good at
• Business innovation models, markets,
  execution, accountability
• Development of core technologies
• Capital formation
• Infrastructure
• Exit opportunities
• U.S. government policy implications?

5
U.S. Outsourcing How To Do It

• Protections?
• Agreements dont count
• Own the customer
• Retain core innovation
• Peripheral technology
• Source applications, peripheral technology
• Trade association initiativesEDAC model
• Own the offshore entityRD or channel
  resource
• Long Term Enterprise GoalsGlobal Market
  DevelopmentCapital?
• Local customers
• Local capital (?)
• IPO possibilities
• New life to old technology in emerging markets
  (?)

6
ChinaGround Zero in the Global Markets

• Why the Hype?
• Domestic marketchannels not clear
• Global cost advantage
• Conversion of state-owned enterprises
• New solutions for getting money out
• Land grab market share growth strategy
  dominates
• must get in NOW!

7

• The Drivers of Change
• Unemployed workers from SOEs and rural areas
• Technical talentlocal and returnees
• Government incentives for returnees
• gt Housing, low taxes, exit structures hands
  off
• WTO standards
• Chinese technical standards
• Public officials in private enterprise

ChinaGround Zero in the Global Markets
8
ChinaGround Zero in the Global Markets

• Business Models that Might Work
• Own the resource
• JV so Chinese parties have equity stake in
  enterprise
• Match domestic Chinese market with U.S. capital
• Avoid simple commercial / contractual
  arrangements unless non-essential technology and
  operations involved

9
ChinaGround Zero in the Global Markets

• The Chinese Investment Scene
• Issue not whetherbut how to get in
• Emerging Chinese investment model is the US
  model
• 2004 Focus on mezzanine companies
• Partnering of venture capital with larger
  private equity
• Assurance of U.S. exits and large pools of
  capital, i.e. Warburg Pincus, Caryle Group with
  NEA, Doll Capital, Intel and others
• 2004 year of the trip
• 2005 year of the commitment

10
ChinaGround Zero in the Global Markets

• Food for Thought
• Tension between Old China and New China
• Relationship vs. business
• Ethical and accountability standards
• Government grant of monopoly licenses
• Effect of Yen currency revaluation on cost
  advantageinevitable
• U.S. venture industry in Chinaimplications for
  Chinese business
• How to get inwho to trust?
• The timeline for global standardsand when to
  get in

11
India Different Dynamics and a Different Model

• Why is India Different?
• Best infrastructure5 year head start with
  U.S./Indian operations
• Accomplished Indian technical teams in U.S. and
  India
• gt Facilitates technical cooperation and interface
  with U.S. customers
• U.S.-based investors of Indian origin investing
  in Indian innovation companies
• Indian global BPO and BPM companies will
  outsource anywhere
• gt A gateway to China?
• Chinese Issues not there
• gt IP risk, investment restrictions, culture and
  language hurdles

12
India Different Dynamics and a Different Model

• Concerns for U.S. Business in India
• Drive to own the customer
• Indian strategic investment in the U.S. buying
  customers dedicated to Indian suppliers
• Investment for supply and innovation makes
  senseNOT for markets

13
India Different Dynamics and a Different Model

• Comparison of India vs. China
• Where to Place your Bet?
• MUST place a betcant move once you commit
• CHINA has cost, proximity, domestic market
  advantage
• INDIA has culture, infrastructure, investor
  liquidity advantage
• BOTTOM LINE
• India is better for services/support China is
  better for innovation and new markets

14
Eastern EuropeThe Sleeping Giant

• The Eastern European StoryWhats Attractive
• Leading-edge technologyconversion to commercial
  use?
• European educated engineers
• Costmid-way between India and China
• Proximity, ties to Western European markets

• Whats Not
• Bureaucratic mind-set
• Unfamiliarity with western business concepts and
  practices
• Fragmented markets
• Best as sources of innovation and customized
  development

15
Australia/NZA Hotbed of Undiscovered Innovation

• The Enigma of Australia/NZ
• Lots of landfew people
• Wealth of commercial innovationone step behind?
• Sophisticated technologyunsophisticated
  business
• Government and seed capital not enoughand no
  sharing of deals
• State competition to promote local companies

• Why Australia/NZ
• Closest to USlanguage, culture, politics
• Deep technology resource and continuing cost
  advantage
• Enthusiasm for the US
• Access to Southeast Asia and China
• Sophisticated government export departmentsANZA
  Technology Network

16
A Few Comments on International Investment

• The Drivers
• Perfect US market information drives returns
  down
• 1,000 US venture fundsmust go offshore for
  large returns
• Limited good US companies
• International investment helps existing
  portfolio companies
• LPs want in
• Undiscovered mezzanine companiespossible
  offshore

17
A Few Comments on International Investment

• The Models
• Israel Model Investment in innovation
  relocation of companies
• to US
• India Model Investment in innovation and
  services local
• companies stay local
• China Model 2004 Mezzanine investments for
  domestic market
• and US exits
• China Model 2005 Migration to midstage
  companies and new
• generators of innovation

18
A Few Comments on International Investment

• The New Paradigm
• Global syndicationslocal and US
• Bigger syndicates, bigger rounds, bigger
  expectations
• US Model will dominate
• International exits will become more attractive
• Global harmonization of governance, reporting
  and measurement
• standards