Equity funds bet big on Taiwanese firms in PRC

Major strides by Taiwan's franchise industry in China and the branding effect this has created has attracted the attention of big international investment funds such as Carlyle Group and Baring Asset Management, a report in the Chinese-language Commercial Times said on Saturday.

These funds have switched focus from the high-tech industry to the franchise industry after investing more than US$200 million in the sector, the report said.

Carlyle alone has set up a US$3 billion Asian fund that invests in food and beverage franchises in Asian countries, including Taiwan.

EYEING CHINA

At a forum on Friday organized by the Association of Chain and Franchise Promotion, Taiwan (台灣連鎖加盟促進協會), several international private equity funds said Taiwan's franchise industry had proven successful at tapping into the Chinese market, while their brands and distribution networks had led to strategic cooperations and investment opportunities.

As a result, foreign equity firms are lining up to cash in on the success. Carlyle has invested US$21 million in Dio Coffee (迪歐咖啡), while Goldman Sachs has invested US$30 million in C. Straits Coffee (兩岸咖啡), Baring has invested 100 million yuan (US$13.9 million) in Yonghe King (永和大王) and Pukai has invested US$27 million in Kelti Group (克麗緹娜), the Commercial Times said.

In addition, Chen Dingzong (陳定宗), general manager of Yicha Yizuo (一茶一坐) in Shanghai, said Lehman Brothers was in talks to invest in the company, which had also been approached by Baring.

INSIDE TRACK

Xie Yinghai (謝穎海), vice president of Carlyle Group's Shanghai representative office, said that cultural similarities between Taiwan and China gave Taiwanese businesses an edge in breaking into the Chinese market.

Taiwanese businesses understand what Chinese people want, especially when it comes to food and beverages, Xie said.

Xie said that there was a three-year window of opportunity for Taiwanese firms, as Chinese companies were still fumbling to organize their operations, while European and US companies had difficulties operating in a Chinese business climate.

This has given Taiwanese businesses that are well established in China the opportunity to take the lead with their technology and management experience.

TAKE THE CAKE

Xie said support from foreign investors would help Taiwanese franchises open a flood of outlets and dominate the market.

William Wang (王國安), chairman of the franchise association, was quoted in the Commercial Times as saying: "In the past, these overseas investment funds felt the technology industry was the only one that promised high returns, but with the rapid growth of domestic Chinese demand and the outstanding performance of local companies such as Home Inn (如家) and Quanjude (全聚德) on the stock market, foreign investors are beginning to re-evaluate the service industry."