India and China: A Guidebook to Private Investing Monil Kothari As advised by Professor Michael Schiavo The most fascinating

industry in the world is the business of innovation. True capitalism is the origin and execution of ideas into successful businesses that contribute back to the productivity and welfare of the nation. It is entrepreneurship that really creates wealth and jobs, not legislation. While entrepreneurship is a difficult path, it is infrequently a lonely one. The toughest challenge for any emerging business is to fund the company through a combination of investment and generation of profit until it is a stand-alone entity generating enough cash to carry the business along until it hits the black, which is where the venture capitalist comes in. For better or worse, venture capital has helped many business ideas come to fruition, and is heavily responsible for the emergence of many high-tech industries, including biotech, IT, nanotechnology, and Internet/New Media. It used to be that venture capital was an American concept, but as barriers to foreign markets vanish we are seeing more and more of a venture capital presence in international markets. When we think of international markets, we cannot help but immediately jump to India and China as the darlings of economic growth and success. As developed markets become more and more saturated with capital and provide lower returns on investments, capital is being deployed into high growth economies like those found in India and China, chasing high returns in short time frames. This sort of foreign investing activity has provided an impetus to these countries, sparking a much needed stimulus in industry, notably technology. This, in turn, has stoked a fire under many industries, causing a huge emergence of startups, nascent technologies, R&D, and more in these developing economies. When there is an increase in entrepreneurship,
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newly established businesses start popping up, and a resulting increase in venture capital and private equity is sure to follow. America is no longer a top investment destination for venture capitalists. The country is no longer retaining talent, and thus not enabling economic growth. It used to be that students from India and China would come to the USA for an education, after which they would stay here and innovate. In fact, it was so common for Chinese and Indian students to study and live here, that China and India were described as having a brain drain problem. This is no longer the case; students who come from overseas to study here are no longer allowed to stay in the USA to contribute to the economy. America is now going through a reverse brain drain, in which major sources of our innovation are going back to their own countries. On top of Americas inability to retain top talent, the country does not have many attractive or fresh industries to invest in. These two factors are a cause for the decline of innovation in our country. Until the US develops an immigration policy that makes sense and reignites industries such as high-tech manufacturing, the country will not attract investment, a leading cause for capital to flow into countries such as India and China. Such is the case in India and China. Their somewhat recent modernization and opening of their respective economies led to a vast investment in technology, notably IT. This in turn led to a growth internally; hundreds of new companies were created almost overnight. Thereafter, the two countries began to leverage their huge work force by developing infrastructure and service industries to support domestic and international interests. Over a very short time frame, these countries began to resemble developed countries, especially in their large metropolitan
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areas. India and China, however, have still not finished playing catch up, and have presented many opportunities for investors to collect large returns, not commonly found in developed countries. The goal of this paper is to determine whether India or China offers the better short-term investment opportunities in the venture area, and which country offers the better long-term opportunities. Although financial media and literature may suggest that these two countries are great investment opportunities, and any money thrown at them will offer massive returns, it is prudent that venture investors pay heed to certain issues when entering India and China. Venture capitalists face the basic risk of a company failing to succeed, but in these foreign markets there are other risks to evaluate, that if investors cannot comprehend or perform the appropriate due diligence they will certainly fail; as such, this paper will explore some of the major issues to consider. First and foremost, investors should have a grasp of the contemporary economic history of both countries. Knowing how they got to where they are now will be useful, as it will allow investors to understand and assist in forecasting. For both countries, this will include postcolonialism, government structure, major economic and fiscal policies, and more. It would be just as useful for investors to dig deeper, and gain an understanding of the investment history of the two countries. Much of their success can be attributed to the dot com growth, so understanding the effect that foreign direct capital had on both countries early on will certainly help. Building off this, an analysis of capital markets in both countries will aid investors in determining how capital can be raised domestically, and what exit opportunities are available. Most importantly, however, is the challenge in dealing with the regulatory and legal landscapes
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of both countries. India is the worlds largest democracy, yet also has some of the highest rates of corruption; China on the other hand, is outwardly a communist state, but its economic policies reflect that of a capitalist free market. These issues, along with other risks inherent to each country, pose a significant barrier to entry if investors are not mindful of them. That being said, savvy venture capitalists that will perform market and country due diligence stand to earn significant returns on their investments, making entry into China and India a worthwhile experience.

Compelling Reasons to Invest in India and China

Why is everyone obsessed with India and China? It may seem obvious, given the amount of attention given to the two countries, but it would serve well to examine the compelling reasons as to why investors are flocking there. It is best to start with the most staggering statistic for each country. According to the CIA, China has a population of 1,336,718,015 and India has a population of 1,189,172,906. Together, these countries account for a third of the global population. Based on those figures, one can see why there is a fundamental reason to invest in both countries. A population of over one billion people provides not only a cheap labor costs, but also a huge market for goods and services. Imagine if the Coca-Cola Company sold one Coke per year to every person in the country (Coca-Cola is a very popular product in both countries, so it is not too hard to imagine). The company would generate over $1 billion dollars in additional revenue, accounting for 3% of its annual revenues (based off current 10-K figures). Not only

would they have a huge base to sell to in either country, but they could also leverage low capital and labor costs in both countries to significantly reduce costs of production. Imagine the profit margin from such an operation. Imagine no more; since 1977 Coca-Cola has been operating in India for just those reasons. Coca-Cola India is among the countrys top international investors, having invested more than US$1 billion in India in the first decade, and further pledged another US$100 million in 2003 for its operations1. Huge capital investments by Coke, with promises of more, further solidify the international and investment strategy for companies in India and China.

With virtually all the goods and services required to produce and market Coca-Cola being made in India, the business system of the Company directly employs approximately 6,000 people, and indirectly creates employment for more than 125,000 people in related industries through its vast procurement, supply, and distribution system. The Indian operations comprises of 50 bottling operations, 25 owned by the Company, with another 25 being owned by franchisees. That apart, a network of 21 contract packers manufacture a range of products for the Company. (Coke website)

The use of domestic labor and operations has been a huge incentive for firms to diversify overseas, supporting the idea that having a huge population is important to the expansion strategy of large companies. Population, however, it not the only attractive feature of the countries. What really gets attention from investors are the respective growth rates for both countries. India and China are growing tremendously as measured through their respective GDPs. China has seen growth rates of 8.4% to 14% from 2000 to 2009, whereas India has had rates as low as 4% to as high as 9.6% (World Bank). The best part is that these growth rates are not artificial or manipulated, nor are they slated to decrease anytime soon. So those who think they missed out in the first few years should fear not; India's Sensex 30 -- that country's version
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Coca-Cola

of the U.S. Dow-Jones Industrial Index -- broke through 10,000 in February, up from 3,300 in December 2002. The price-to-earnings ratio for India stocks is 21, while Chinese stocks on the Hong Kong Exchange are selling for 15 times earnings. In private equity, firms invested $2.3 billion in India in 147 deals last year, up from $1.6 billion in 68 deals the prior year, according to Venture Intelligence India. 2 Furthermore, due to the severe shock of the credit crisis and the tumultuous period of time in the financial sector, investments within the US and even Europe have been limited. Returns have been low due to few mergers and acquisitions, and practically no initial public offerings. These statistics highlight a few key points. Primarily, they show that both India and China have had surging equity markets. In fact, based on the price to earnings ratios, China still has plenty of ground to gain implying that there is room for improvement in investment returns. Interestingly enough, despite Indias high PE ratio (if we are to use only that as a metric for returns), private equity firms are still increasing the amount of capital being invested.

Mukund Krishnaswami, managing director of Krilacon Group, an investment firm based in New York agrees with Siegel about the current investment climate in India.Long-term, I'm a very big bull on India. India is a country where they've done so much wrong in the last 45 years. Yet despite all that there's so much that is good going on that if they just get it right, the opportunities [will be] fabulous in 25 years," he said. "In the short-term, I'm quite a bear. I think the risk premium just isn't there in most assets to be spending a lot of money [in India] today. Krishnaswami advised investors to follow the broader economy, not the trends that are hot today, including information technology or real estate. "Look for derivative areas of economic growth and take a 12- to 25-year horizon. Those who do will be fairly compensated for the risk they're taking." 3

Krishnaswamis long-term outlook for returns in India is a beneficial portent for private equity and venture capital investors, especially considering their long-term investment horizons.

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Wharton Wharton

Xiaojun Li, principal at IDG Venture Investment, remarked that he is bullish about China over the longterm because of its growing middle class and potential as a consumer market. He pointed out there are more Internet users and engineers in China than any other country, and that China also has a strong entrepreneurial culture. "You need to be patient," he said. 4

China also has immense long-term investment potential. Lis summary of the Chinese market essentially supports the dual nature of the Chinese population; that is, the people serve to create work and perform labor while also engaging in the consumer space as purchasers. China has also had plenty of exit opportunities to support exit strategies for future investors. Hahn pointed to a number of successful exits by Chinese firms. Chinese venture capitalist Golden Meditech invested $5 million in China Medical Technologies, which went public in August 2005 on the NASDAQ. That $5 million investment is now valued at $280 million, an estimated return of 70 times its investment in 30 months.5 It is good to be aware of returns on investments, but equally as good to know how exits work, and if they are not just rare occurrences within the country. Many developing nations do not have the corporate financial structure that enables companies to successfully exit via mergers and acquisitions (M&Aor IPOs; thus knowing that there have been successful exits in China and India). Investors should note one thing. The optimal time horizon for investing in either country is around 12-25 years. Typically, time horizons for venture capitalists and private equity are around 8-12 years. This, however, does not mean investors should wait. Rather, they should start investing in India and China for three reasons. First off, there are still opportunities for prudent investors to take advantage of. Secondly, this gives institutional investors a chance to build up a ground team, who later on will be able to jump in at the perfect moments for the right
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Wharton Wharton

opportunities. Finally, it is to give investors a chance to get their hands dirty. Nothing leads to future successes more than experience, and right now is the best time to build that experience up. There is a plethora of information that no one paper can cover available to further justify any investment strategy in these markets. The main take away is that the population figures for both countries is enough of a compelling reason to begin an investigation into investing into either country. This advantage puts them miles ahead of any other developing nation.

Economic History of India

In 1950, India threw the shackles of British colonial rule off, and claimed independence as the newly formed Republic of India. Indias economic policy, post-colonial rule, was a result of two factors. The first was Indias fear of exploitive practices, based on their experience with colonial rule. Immediately an association between capitalism and exploitation was drawn, and free market economy was no longer a viable option for the newly formed India. The second factor was the Soviet Unions then successful controlled economy model. These two experiences helped India form their own socialist model for the country. The model was protectionism heavy, with emphasis on industrialization, nationalism, public planning, and a few other central economy planning tools. Most importantly, India developed five year plans, similar to the Soviet Unions use of plans, to help set the pace of Indian growth. Interestingly enough, these plans still persist today even though India has shunned socialism in favor of free market

principles. From 1950 to 1991, Indias economy was inconsistent at best; as with most complex systems, the more the Indian government tampered and tried to control the economy, more problems arose. Indias GDP growth was abysmal, relative to its Asian neighbors. While economic growth in many Asian nations surged, the Indian growth rate approximated a sluggish 3% per year until 1990 and was deridingly termed the Hindu rate of growth.6 Eventually, India was hit with the allegorical perfect storm and saw the need for economic liberalization. With low growth rates, economic stagnancy, the collapse of the USSR (Indias largest trading partner), and a spike in oil prices, India was hit with a shift in the balance of payments (BOP). To cover their obligations, India was granted a $1.8 billion bailout loan from the IMF, on the condition that India began to open their economy up.7 In 1991, the first of many neo-liberal economic policies were put into place. At first, the country was concerned since a completely new administration, led by Prime Minister Rao and his finance minister Manmohan Singh, were put in place in the midst of the balance of payments crisis. Immediately, the new party tightened spending and stabilized rupee devaluation to reduce BOP obligations by 25%. This reassured the rest of the nation into entrusting their economic wellbeing to the newcomers. Initially, the administration focused on reforms they could realistically carry out. They reversed historic policies, and slowly but surely began to dismantle the rusting socialist machinery that stymied the countrys growth. Instead of manipulating the economy, the administration let the market determine the currency, they reduced tariffs, and they dismantled

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the License Raj which earlier built the foundation of corruption. The License Raj was a system in which business people would have to apply for licenses for almost any business activity they undertook. This system was used and abused, as all it took to get the system moving was a few bribes. Unlike most countries that receive IMF funding, India developed its own policies to meet the demands of the IMF. This was seen as a positive approach to changing controversial areas such as taxation and finance. The key area of change was seen in international trade and investment reforms; changes that ultimately made India an investment destination. Prior to the changes, India was closed off with protectionist policies and high tariffs, to protect domestic industry. Policies included bans on foreign manufactured consumer goods, and red tape and bureaucratic applications for imports of capital goods, raw materials, and intermediary products. Infosys executives described how the founders had to visit Delhi nine times to obtain a license to import just one personal computer.9 Initially, there was very little foreign ownership allowed in India, with complicated licensing processes and equity caps. In fact, until recently Indians had only one television program and had to settle for locally-produced Thumbs Up instead of Coca-Cola.10 With Rao and Singh, all of this has changed. Today, you can find practically any American product and service, and if not, then their Indian counterparts at the store. Since the lifting of restrictions, and the paradigm shift of Indian policy to free market, exports and imports grew at 19% and 30% in 2004 and 2005 respectively and both Congress and the Bharatiya Janata Party (BJP) are
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Harris Harris 10 Harris

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committed to increasing free trade.11 No longer are foreign entities heavily regulated and scrutinized; most industries no longer have equity caps, thus welcoming foreign direct investment and creating a foundation for private equity. India has the fastest growing population in the world expanding at a rate of 16 million per year. At this rate, India's population will exceed 1.4 billion people and be larger than China's by 2030. India also has a high per capita income growth. Over the past five years, per capita income has increased from $285 to around $550 today. Although that's less than half of China's per capita income of $1,162, its growth rate is still high; Indian per capita income rose 8% year over year. There are some who even suggest that in the long run India's per capita income may eventually reach over six times that of China. India's government also plans to invest significantly in the infrastructure of the country; by 2012 the government plans on spending a total of $500 billion on India's infrastructure.
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Economic History of China

The economic history of China begins in 1911, with the fall of the last ruling dynasty, the Qing. Between 1911 and around 1945, China went through much economic upheaval; playing catch up to the rest of the world as well engaging in war with Japan that took a heavy toll on the nation.

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Harris Six Reasons to Invest in India

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Soon after, Mao Zedong took power and established a socialist power in the newly formed Peoples Republic of China. At first, central planning and government control were effective, as China rebuilt itself following the disaster and destruction of the nation by the Japanese. Then Zedong put into effect the Great Leap Forward, an effort to collectivize every aspect of Chinese life and industry; needless to say, this failed miserably. Agriculture, for example, was heavily and negatively affected. As part of the central planning, most labor forces were diverted to steel production. Furthermore, the central planning group initiated a campaign to destroy what they identified as pests: rats, flies, mosquitoes, and sparrows. When the harvest came, there were not enough laborers to harvest the crops, and an unnaturally high level of locusts destroyed most of the crop because their natural predators (rats, mosquitoes, flies, and sparrows) were gone. During that period, famines hit China as well. Normally there would be enough reserve resources to support the people and minimize the effects, but the Great Leap Forward turned out to be a death sentence, and over 20 million people perished.
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During the Great Leap, the Chinese economy initially grew. Iron production increased 45% in 1958 and a combined 30% over the next two years, but plummeted in 1961, and did not reach the previous 1958 level until 1964.14 Not only were many lives lost during this period, but the goals of the plan were not at all ultimately met. In certain areas, the Great Leap Forward destroyed success and growth. The Great Leap also led to the greatest destruction of real estate in human history, outstripping any of the bombing campaigns from World War II.
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Source List and Detailed Death Tolls for the Primary Megadeaths of the Twentieth Century Diktter, xi & xii 15 Diktter, 169

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Approximately 30% to 40% of all houses were turned to rubble. Frank Diktter states that "homes were pulled down to make fertilizer, to build canteens, to relocate villagers, to straighten roads, to make place for a better future beckoning ahead or simply to punish their owners. 16 The resulting effects of the Great Leap Forward caused great dissension in not only the population, but within the government as well. As the dust of the Great Leap Forward settled, fingers began to point to Zedong as the cause of this. As party members started to figure out the next set of steps, Zedong launched his Cultural Revolution. Zedong became convinced that he was about to lose power and so, through the youth of China, he launched an attack on all things capitalist, and any free market or bourgeois elements were removed from China. After the chaos and radicalism of the Cultural Revolution died down (attributable to Zedongs death and the removal of the Gang of Four), Deng Xiaoping came into power. Xiaoping is credited with creating and solidifying modern Chinese economics. Similar to the Indian administration of Rao and Singh, Xiaoping knew that in an increasingly globalizing world, China would have to open its doors or face being obsolete. Xiaoping took advantage of some of the strengths that China had in order to reform the economy.

1. China enjoyed the advantages of backwardness. More than two-thirds of the population lived in the countryside. For them, the uncertainties of the reform were less alarming than the difficulties of the present system. Agricultures surplus labor meant that rural industry could achieve rapid, uninterrupted growth for almost two decades without facing wage pressures.
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2. Planning was less entrenched in China than it has been in other transitional economies. So when commercial activities were legalized, Chinese entrepreneurs needed little encouragement to expand. 3. China had always had a strong administrative capacity, especially at the provincial level. So, when reforms required administrative and financial decentralization, provincial governments were able to take on the new responsibilities. 4. China had a skilled and disciplined labor force. The share of technicians and engineers in the industrial labor force was higher than in many newly industrializing economies of Southeast Asia. 5. The Chinese extended to virtually all corners of the world. Chinese minorities in several Southeast Asian countries had considerable economic power, and they figured prominently in the explosive growth of foreign direct investment in China. 17

Xiaoping then set into motion what would later be coined the socialist market economy; essentially an attempt to reconcile the disconnect between government planning and free market policies. Xiaoping realized that central planning was a monumental, if not impossible, task for a government to carry out when China had over billion people. For example, instead of creating communes for people to live and farm on, people would lease land from the government and would be able to keep everything above rent. This was called the responsibility system and representative of socialist market economy. Free market incentives, along with government

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control, work in this system known as the Township-Village Enterprises. This along with opening the economy for agriculture resolved any lingering major food shortage issues.18 The next major step China took was to establish special economic zones (SEZ). The reforms of the late 1980s and early 1990s focused on creating a pricing system. This was finally achieved using a dual track pricing system and increasing the role of the state in resource allocations. The diversified enterprise ownership system emerged, followed by more and more areas of the monopoly being open to private business and foreign capital.19 These SEZs soon became the foundation and leading force for market growth in China. Additionally, the government began to close unprofitable businesses and tried to remove corruption and waste from the system (an impossible, but honorable goal). This dramatic shift in economic policy paid off. China continues to attract large investment inflows. By the end of 2004 China had become the biggest FDI developing country. In 2003 foreign fund and enterprises produced about 45% of Chinas exports. By comparison, Chinas imports and exports account for 5.3% and 5.8% of the exports, respectively. Foreign exchange, on the other hand, totaled about US$609.9 billion in 2004. This appeared in the IMF report of 2004. More than 20% of the world increase in trade was contributed by China. China emerged as the third largest trade body, after the US and the European Union.20 In 2001, China entered the World Trade Organization (WTO), further solidifying its presence on the global stage of trade and ensuring that it live up to its goals of free trade.
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Vicky Hu Vicky Hu 20 Vicky Hu

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Investment History of China and India:

Technically, the investment history of India and China began in the 70s, but for all real purposes and intents, they shared a similar investment history beginning in the 90s with the opening of their markets. Beyond economic policy shifts, however, the market openings of India and China also managed to coincide with the dot com bubble emergence. With the emergence of the personal computer (PC), individuals now had the ability to create software and interact with people. Windows enabled PCs and Apple made it possible for individuals to author their own content right from their desktops in digital form. And those last three words are critical. 21 Prior to personal computers, the only entities that could author new software were large institutions taking advantage of mainframe computers. Even then, content was not easily disseminated and most of it kept close to the company and their paying clients. "Because once people could author their own content in digital form in the form of computer bits and bytes they could manipulate it on computer screens in ways that made individuals so much more productive. And with the steady advances in telecommunications, they would soon be able to disseminate their own digital content in so many new ways to so many more people." 22 This was a fundamental paradigm shift in power. Individuals now had the same ability (roughly) to do what only large corporations could do before.

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A chain of events in the 90s contributed to India and Chinas recent economic growth and led to a huge flow of foreign direct investment (FDI) for both countries. On August 9, 1995 Netscape went public, sparking the dot com bubble. The short-term benefit was that people now had what we call a browser, enabling people to view dynamic content and to use tools online. This IPO also affirmed the dot com era, and companies began to enter a frenzied period of investment and strategy diversification. Practically overnight, a multitude of companies were investing (not wisely in hindsight) billions in the laying of fiber optic lines across the world. Companies like Global Crossing (which filed for bankruptcy in 2001) bridged the vast distance between NYC, Beijing, and Delhi and turned journeys of days into milliseconds. The rest, as we all know, is history. Outsourcing services, factories, people, and ideas became commonplace. Costs when billions of people were looking for jobs plunged, providing huge incentives for large corporations to send operations, and later on, full companies to India and China. Once large businesses began to establish a foundation for foreign firms to operate in India and China, investors began to chase after the money and sent ground teams into both countries. As time progressed, however, a sudden divergence took place between the two countries, where each one began pursuing a different economic agenda.

Investing in India

India, one day, will be the classic example of an emerging market with a GDP driven by services. Although agriculture makes up 57% of the workforce, as of recent, agriculture only

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constitutes 23% of GDP. 23 In todays modern world, where technology bridges vast distances, India has created a name for itself as the worlds leading provider of services globally. Significant purchasing power has emerged from the service sector, which comprises 52% of the Indian economy, driven by the millions of new high-wage jobs created by software services, ITenabled services, banking, insurance, capital markets, telecommunications, hospitality, travel, global technology research, and development initiatives, and lots of other service industries. This became the cornerstone for Indias transformation from slumbering country to a powerhouse of economic growth. The country is now a hotspot for investors, and venture FDI has been pouring in left and right. In India, venture capitalists invested $895 million in 92 deals in 2010, a 15% increase in deal activity and 14% increase in capital invested. Forty-one percent of capital went to Consumer Services companies, which collected $369 million for 29 deals. Investment in the Business & Financial Services industry was also strong as 28 deals garnered $282 million. The $8 million median deal size was almost double the $4.2 million median seen in 2009 and the highest median on record for the country. 24 Indias capital markets, in the past few years, have strongly been driven by the government. That is to say, the divestitures of publicly held positions in companies have resulted in a huge volume of liquidity and opportunity. In 2004, the ONGC Gas Company had an Initial Public Offering raising $2.2 billion. A sale of 27.5% in Maruti Suzuki raised an additional $250 million. From 1991 to 2004, the Indian government sold off many of its stakes in various state owned enterprises for $12

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billion (a large amount given Indias GDP, is still quite low). 25 Evidently, India has been quite busy. Although India has a strong service sector, there are still many other industries that are just as important in terms of value to the nation and adding value to the GDP. An analysis of each sector would help any investor; otherwise they may just buy into what is hot and risk overpaying. Ideally, an investor would love to see every sector analyzed, but with a wide spectrum of sectors each with their own subtle nuances, it would be difficult to cover them all. Instead, the focus is going to be on key sectors, critical to both India and investors. Banking, infrastructure, energy, and IT are the key ones here. Its not to say that these are the only opportunities in those specific sectors; rather that those sectors offer the biggest investment opportunities with the highest return potentials. Again, India is an expansive country with many opportunities. Investors just have to put in a little effort to uncover the areas that are best suited to them. Put plain and simple, a country cannot be tempting to investors without having an established banking sector; a crucial part for entering and exiting investments. In this regard, India is well set. There are 11 banks trading at a market capitalization each of more than $1 billion. The big four private sector banks ICICI bank, HDFC, Kotak Mahindra, and UTI are on average capped at $3.5 billion. Even amongst those big banks, some of the smaller ones are becoming ripe for investment. The reason being, that these small players dominate a certain niche, and are not burdened by size. Banks like Federal Bank, based in Kerala, cater to a certain
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characteristic of the South. Like many Indians, South Indians migrated to the Middle East to earn better wages. These wages were in turn sent to and serviced by Federal Bank, which built its brand and name off that one need. From an investment standpoint, this is appealing because Federal Bank has an unofficial monopoly on those people and their money, and will be guaranteed deposits from them. Another reason for investing in banking is a newfound appetite for credit. Previously, Indians as a whole shied away from credit and debt because of the stigma attached to it. Partially because no one wanted to be obligated to someone and partially because credit was unofficial and the bank was more of a loan shark; banks levied high interest rates on debt that usually forced debtors into bankruptcy. With the entrance of complex and global financial service providers in India, there has been a noticeable change in the opinion of debt. The business of loaning has been steadily increasing. In just the first half 2005, banks recorded a 25% increase in lending, making personal credit one of the fasting growing banking segments in India. Finally, the last thing to consider in this sector is growth. India is under banked. Despite relative liberalization, Indian banks are still not up to par with other international banks. Whereas only 60% of Indias GDP is driven by banking (proportion of banks assets to GDP, otherwise known as the proportion of the economy financed by bank debt), Chinas GDP is driven 178% by banking. Most European GDPs are driven 255-262% by banking.
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Knowing

that bank growth and GDP growth are closely intertwined, investors may want to look at the banking sector as a potential driver of returns.

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If banking is the icing on the cake, then infrastructure is the gooey center of the investment cake. Although banking offers a relatively less risky investment opportunity than infrastructure, infrastructure is still the most promising of investment opportunities. One look at India and it is clear as light that infrastructure is lacking. Roads, as vast and expansive as they are, are in terrible condition, and cannot accommodate traffic. India has so much water, but unfortunately that supply never properly reaches the people (similar to aid packages sent to India that strangely never make it to the people, but I digress). On top of that, India is rapidly becoming a huge consumer of power, and as of now, there arent enough power generating facilities in India. Practically speaking, India has by far the worst infrastructure amongst Asian economies. This list can go on and on, but the point is that there is an increasing demand for better infrastructure, and if the demand is there, then investors can cater to it. We can take the negative spin of this and turn it around. Because infrastructure is so lacking, it has the highest return potential. Kotak Mahindra is planning to raise a $300 million fund for just infrastructure. Although this is a domestic investment news item, it has some important subtext to it. First of all, $300 million is a huge commitment from a domestic player. Moreover, Indian banks are notoriously conservative and risk averse (which is why there is so much growth potential in banking). If a bank is planning to raise and invest $300 million in infrastructure, you can be sure that this is a good bet (with proper due diligence).
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At this point, investors may be salivating

over this opportunity; but there is a slight catch, depending on the view of investors. Although some sectors (real estate, roads, and power) do not cap foreign direct investment equity stakes,
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other sectors cap how much of a stake a foreign investor can hold. In either case, investors should or need to engage in a public-private partnership (PPP). Depending on the sector, an investor puts in a minimum private equity investment, and the government supports an X percentage along with additional funding for any shortfalls. Road PPPs, for example, require a minimum investment of 40% equity and the government will put up 20%. 29 Investors may be apprehensive about getting in bed with the Indian government, but this partnership has actually led to many successes. India may have the second largest road system in the world, but just like AT&T, coverage isnt everything. The quality of the roads is very poor, and this has a significant negative effect on many industries. Inefficiencies caused by poor road systems result in waste and cost somewhere between 40% and 150% over cost of production. 30 Thirty percent of harvests, for example, are lost because of an inadequate transport system. Clearly the need is there, and agribusinesses, as well as other transporters of raw goods, would be more than willing to pay higher tolls (read: cash flow) for a working road system. And just like the road system, there is plenty of water in India, but no efficient way of getting it to the people. Recognizing this need, the government has pledged to spend $6 billion annually on water facilities, another great PPP opportunity. One specific venture investment opportunity could be Thermax LTD a family-owned engineering company with revenues in 2005 of $210 million.31 This company has a water and water waste management segment that does $20 million in revenue; quite small

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Chaze 133 Chaze 131 31 Chaze 136

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when you consider the opportunities available and the placement of the company as a whole. Recently, there has been talk about spinning that business off as an independent company. This would make a solid venture investment, because if the company can scale its system it stands to capture a significant portion of the market. Indias growth is exciting for sure, but at the end of the day, it is contingent on one factor. Nothing happens without energy. Infrastructure, which can be considered the basis of a country, does not happen with just money. Roads are not paved in dollars, nor are waterways gilded in gold. These are labor and machine intensive projects that require huge amounts of energy. Electricity and fuel are the two movers and shakers in this modern age, and in India there is a shortage of both. For India to keep up and increase its overall growth, it is going to need energy, and this is another area that investors would be well served in. Initially, with Indias rather sluggish economic growth, energy consumption was kept to a minimum, but with the recent unleashing of economic forces, Indias appetite for energy has rapidly increased. As a result, it imports around two-thirds of its oil and one-third of its natural gas needs. Internally, India produces and refines around 137 million tons of oil with daily consumption of three million tons. 32 One can see how the math is not in favor of India. Realizing this, the Indian government made it easier for internal energy exploration, granting licenses for exploration and drilling. Additionally, there are no equity caps in the energy sector, allowing for foreign investment to flow in. Recently, 3i invested $40 million in Ind-Barath Energy (Uktal), a subsidiary of IndBarath Power Infra (IBPIL). Utkal is building a 700 MW (two units of 350 MW each) coal fired

32

Chaze 142

23

power plant based in Orissa. This is the second deal by 3i in this month (March 2011). Earlier this month the fund invested $111.51 million in KMC Infratech, which develops and operates national, state and urban highways and roads. 33 Utkal is well positioned to take advantage of the demand for power in India which is growing strongly. This investment allows us to partner with IBPIL which is a power generation company with an established track record of delivery,"
34

said Anil Ahuja, Managing Director and Head of 3i Asia. Clearly investors have already

identified this area as a fantastic opportunity if they get in now and wait a few years until the demand really starts to scale up. This can be classified as venture, in the sense that these are relatively immature companies and the emphasis is on scaling these companies to start meeting the increasing demand for consumption.

If India had to be characterized by one word in the 2000s, it would be software. The emergence of the digital expanse allowed well educated people in India to capitalize on the early stage internet. Although we are a decade past the early emergence of information technology in India, there is still so much more growth left to capture. IT software export revenue jumped from $12 billion in 2004, to $17.2 billion in 2005. McKinsey has predicted by 2010-2011, Indian software service revenue could hit $60 billion. 35 This sector is still a venture hotspot, as the Indian brain drain starts to fall and a higher percentage of the population receives a proper education. Up to 2006, the sector saw over 66 consecutive quarters of unbroken growth rates. This translates to over 12 years of growth with still plenty of space left to grow. Just last year, at
33 34

NDIA PE NDIA PE 35 Chaze 164

24

least six venture deals were made in this sector. iYogi, a personnel outsourcing company, was invested in by Canaan, SAP, DFJ, and Silicon Valley Bank for $14,200,000. InMobi, a mobile advertising platform, was invested in by KPCB and Sherpalo for an undisclosed sum. SMS Gupshup, a mobile value added-service, was invested in by Globespan Capital for $10,800,000.
36

There is plenty of venture activity in India, even when the world is still in the midst of

recovering from a credit crunch. There have also been notable exits in this area. In 2005, Oracle purchased Citigroups entire 41% stake in I-Flex Solutions LTD for $600 million with another $300 million for an additional 20% in compliance with Indian law. 37 Clearly, India has presented a very compelling macro level and sector level scenario for private investment.

Investing in China

If Indias success story is based on its services sector, then Chinas story has a heavy manufacturing theme to it. Everywhere you look, something is made in China. Whether its your sneakers, your computer, car parts, house parts, jet parts, or a plastic toy just about everything has some link to Chinese manufacturing. But this is past and present, not forward looking. As Friedman puts it, What Chinas leaders really want is that the next generation of underwear and airplane wings not just be made in China but also be designed in China. 38 Chinas next move is to vertically integrate its manufacturing, and control everything from design to retail. Their goals
36 37

Equity & Venture Capital Deals in India Chaze 170 38 Friedman

25

are ambitious and admirable, but more importantly, they are being achieved as we speak. This is an investors dream, stepping in early enough to take advantage of the internal scaling of manufacturing. So in 30 years we will have gone from sold in China to made in China to designed in China to dreamed up in China. 39 China is going to be the worlds largest economy. Whether it is going to be in 2015, 2025, or by 2050; the question no longer remains if, but rather when its going to happen. Global economic dominance is not an insurmountable challenge, but rather a daily task for the Chinese state. To help China on its way, Mr. Wen set a target for economic growth of 7% a year for 2011-15. The figure should not be taken too literally. A target of 7.5% for the past five years did not stop China growing by more than 11% over that period. Still, the target is lower than it was in the previous plan, suggesting that the pattern of growth now matters as much as the speed. 40 Imagine that; when Chinas realized growth rates have topped over 10% annually, they were actually shattering their targets, implying unexpected growth. Investors, foreseeing that, have been pumping in FDI to global highs. By the end of 2006, total realized value of FDI in China was at $703.9 billion USD, making China the largest recipient of FDI. 41 So if China is skyrocketing to the top, how and where can investors jump in? First and foremost, it is important to understand that China is still a state run system, despite its obvious liberalization and free market policies. Private companies still have a tough time competing against state run companies, and they have strict FDI caps.

39 40

Friedman Huang 41 Dang, 8

26

Private investment in China is allowed in about half of more than 80 industries and accounts for a very low percentage in areas traditionally monopolized by government- owned companies, the commission said today. Non-state investment accounts for 13.6 percent of the power and thermal heating industries, 9.6 percent of financial services, and 7.5 percent of the transport and postal services industries, the commission said. Private investment will also be encouraged in telecommunications, natural gas, power generation, public utilities, financial services, mining, commerce and trade, the State Council said yesterday. The industries specified in the new guidelines account for about 60 percent of Chinas total investment, Citics Zhu estimates. 42

However, there is a bright side to this. Around the time of the credit crunch, the Chinese government implemented a public stimulus package to maintain the high growth rate of the country. As the stimulus plan starts to unwind, the government has begun to de-emphasize public led investments into roads, railways, and energy. This will provide the opportunity for economic gains, if China still hopes to keep its GDP growing above its target rate. At this point, China will have no option but to allow further private investments. At this point, it is crucial for investors to understand a significant difference between India and China. In India, venture activity (emerging companies) is not as high as China; instead the emphasis is on private equity with positions in developed industries. In China, it is a bit different. The state is much stricter on foreign investment, and buyouts and the like are not permitted; instead investors have to opt for minority stakes. In this case, it makes more sense to engage in venture activity in sectors not heavily dominated by state players and state bureaucracy. At first, investors were apprehensive about entering the Chinese market; although foreign investment was being allowed, investors were not sure about exiting, especially when invested in state owned enterprises (SOE). Then, when SOEs were allowed to list and IPO, investors saw that the final piece of the puzzle was in place, and investing momentum began to

42

Huang

27

build up. In October 1992, Brilliance Automotive, an SOE, became the first Chinese firm to be listed on the New York Stock Exchange. Its share price had appreciated 30% three months after its IPO. In February 1993, Denway Investment, a car manufacturer that is a joint venture between an SOE and Frances Peugeot, had an IPO in Hong Kong. The firms IPO stocks were oversubscribed by 657 times: $31 billion was submitted to chase the $52 million offering. In 1993, nine SOEs and joint venture enterprises (JVEs) were listed in Hong Kong. The nine IPOs sought to raise $1.21 billion in total capital, and they attracted applications worth about $100 billion43. This became one of the tipping points for investors; almost immediately the floodgates were open and waves of investors surged into China. Unlike India, where investors look for opportunities based on the needs of the nation, investors in China, first need to look for areas where their presence is allowed. Granted, the past few years has seen further liberalization of the economy, but there is still plenty of progress left in terms of opening up. Private investment was encouraged to enter infrastructure sectors such as transportation, water, oil, natural gas, power, mining and telecommunications, and to flow into public utilities, social utilities, financial services, commerce, trade and defense. 44 Even with this list, it is somewhat easy to narrow down the sectors to just two. Investors would be well served in energy and the, uninspired, low tech sectors. They represent two principles of investing; energy is the long -term, risky, but high reward sector whereas the low tech is the blue chip of investing where returns might not be as high, but risk is somewhat tempered.

43 44

Rand, 54 Xiaotian

28

Earlier, it was mentioned that Indias demand for energy was steadily growing. With China, this statement is taken to the next level. China is now the number one consumer of energy worldwide, outranking the USA. China's total 2009 consumption, including energy sources ranging from oil and coal to wind and solar power, was equal to 2.265 billion tons of oil, compared with 2.169 billion tons used by the U.S., the IEA said. China's energy consumption has more than doubled in less than a decade, from 1.107 billion tons in 2000 driven by its burgeoning population and economic growth that hit 11.9 percent in the first quarter of 2010. Per capita, the U.S. still consumes five times more energy than China, Birol said. 45 This is astounding and sparks an important question; how can China continue this? The answer lies in developing its network of energy supply and diversifying out for the long-term. Specifically, for investors, clean energy has been a high priority for China. In 2005, China attracted less than US$3 billion in private investment for clean energy. Four short years later, in 2009, it led the world with US$39.1 billion in private investment. Last year, private investment grew a further 39 percent to US$54.4 billion well-above the regions growth rate. Private investment in clean energy in China in 2010 equals that of the entire world in 2005. 46 In fact, venture funding for Cleantech in China has surpassed $720 billion, with eight Chinese companies (JA Solar, SinoEnv, China Biodiesel, Renesolar, Epure Water, Canadian Solar Inc., Solar Fun, and Trina Solar), six of them venture backed, going public. (Cleantech, 9) It does not get better than that; entering a high consumer demand industry with exits; and still more than enough investment potential

45 46

Barchfield Parker

29

remaining. In the USA, Cleantech is constantly receiving scrutiny and there is not enough governmental or big business support to drive the use and adoption of Cleantech. Furthermore, our impatience with the somewhat lacking short-term results of Cleantech is putting a damper on further development of solar, wind, geo, etc China, on the other hand, recognizes that in the long run Cleantech will provide cheap energy to China without the nation having to rely on shock prone international energy trade. China is preparing setting itself up for the future, and this works well with venture capital, as most investors have a long-term investment horizon (if they dont then they might want to reconsider if they are fit for Chinese investing). The low tech sector was primarily the foundation for venture investing in China early on. Unlike India, Chinas high tech sector was not as well highlighted or as accessible, so investors shied away from it. In the 90s, industrial manufacturing and consumer products accounted for around 78% of venture investing, staying in line with the low tech theme. 47 Furthermore, the government reformed the tax code to allow for exporting businesses to receive favorable tax treatment; most exporting businesses were low tech, so even more capital passed through this genre of businesses. Ta Fu International, a wood manufacturer founded by a Taiwanese entrepreneur, and Elegance International, a glass manufacturer founded by a Hong Kong entrepreneur, are excellent examples of VC-backed private firms founded by overseas entrepreneurs. These firms tended to be in low-tech industries such as toys and construction materials.
48

Traditional industries in this category include machinery, textiles, and consumer

goods; however going back to Friedman, these categories are in the made in China stage, but

47 48

Rand, 54 Rand, 88

30

evolving up to designed in China. With enough emphasis on modernization and in-country development, these firms can properly entice investors, primarily because the focus will be on serving the huge domestic market which is what investors are looking for. Timing is always tough, especially with the Chinese market environment. The good thing about the two highlighted sectors is that they are long-term investments and that the Chinese government over time will lower barriers to exit and entry, making these sectors the place to be. With other sectors, it just is too difficult to enter and even properly exit once in an investment. The government has made it clear that sectors in which there isnt underinvestment and development will not require private investing; thus energy being open and banking not so much. At this point, investors might be ready to pack their bags and book the first ticket to India or China. After all, all the money is going there and it sounds like there is a success story everywhere you go. Unfortunately, it is not that easy. How do you get to Asia? Due diligence, due diligence, due diligence. The reason why these venture capital firms are willing to risk their capital in these markets is not just because of promise, but the high level of due diligence they conduct, probably more so then the amount conducted in the USA. So settle down there Mr. Investor and pay attention to this section. With any high rewarding investment, comes a high level of risk; the basics of investing. With India and China the risks come not so much from the firm or industry level, but rather the macro level view of government, economics, and socio cultural implications. By not understanding the business culture (legal, political, etc.), investors can kiss their capital away.

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Indias Regulatory Landscape

There are two forms of risk, outside of individual firm and economic risk, that investors face in India. The first is the political/legal realm, whereas the second is the tainting rot of corruption. These risks can go hand in hand and investors should know upfront what they are getting into. From a venture capital standpoint, a highlight of the most relevant factors would serve well. To begin with, the regulatory landscape is immature and undeveloped. There has not been enough time to implement proper guidelines for venture capital; this has led to an overlap of many different laws that try to cover venture investing the best they can. This is good and bad. Its good in that a directly unregulated market has the most leeway for actions and decisions. One would imagine you can do anything you want, invest where you want, and take actions that benefit investors the best. Unfortunately that is not always the case, and more often, legal consultants in India figure out which portions of the law affect investors. Furthermore, law enforcement is minimal in terms of white-collar crime. This has changed a bit with the passing of the SEBI Act of 1992. SEBI is the Indian equivalent of the SEC and is charged with protecting the interests of investors and promoting and developing the regulation of the securities market and for any matters connected to those roles. 49 With enough time, SEBI will transition the minimalistic law enforcement to hopefully a fully functioning governance system effectively

49

SEBI

32

deterring fraud. For the time being, SEBI has clarified which set of laws venture capital falls under.

i. ii. iii.

The SEBI (Venture Capital Funds) Regulation, 1996[Regulations] lays down the overall regulatory framework for registration and operations of venture capital funds in India. Overseas venture capital investments are subject to the Government of India Guidelines for Overseas Venture Capital Investment in India dated September 20, 1995 . For tax exemptions purposes venture capital funds also needs to comply with the Income Tax Rules made under Section 10(23FA) of the Income Tax Act.
50

Furthermore, all foreign investors have to register and receive permission from SEBI, the Foreign Investment Board of India, and the Reserve Bank of India. Based on that, the ideal way to enter into India for investing is by registering as Foreign Venture Capital Investor (FVCI). On the other hand, India does have some favorable policies for FVCIs.

1. 2.

No prior approval required from the Foreign Investment Promotion Board (FIPB) for making investments into Indian Venture Capital Undertakings (VCUs). As per the Reserve Bank of India Notification No. FEMA 32 /2000-RB dated December 26, 2000, an FVCI can purchase/ sell securities/ investments at a price that is mutually acceptable to the parties and there is no ceiling or floor restriction applicable to them. A registered FVCI has been granted the status of Qualified Institutional Buyer (QIB), so they can subscribe to the share capital of a VCU at the time of initial public offer. A lock-in of one year is applicable to the shares subscribed in an IPO . The lock-in period applicable for the pre-issue share capital from the date of allotment, under the SEBI (Disclosure and Investor Protection) Guidelines, 2000 is not applicable in case of a registered FVCI and VCF. Under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 if the promoters want to buy back the shares from FVCIs, it would not come under the public offer requirements .
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3.

4. 5.

6.

Most importantly, all registered FVCI receive pass through tax treatment, so any dividends or long-term capital gains are not taxed, but rather just net income. With these major
50 51

SEBI Bothra

33

regulations in mind, an investor is now better armed to tackle the regulatory due diligence for India. As Rubin Chheda put it in our interview, Its a loose framework; you pretty much just go with the flow India is the worlds largest democracy, which in turn makes it the largest bureaucratic headache. These issues would arise with clueless politicians wielding enough power to make ad hoc legislation. That was the initial fear of any foreign investor; there was no assurance that laws would not change ex post facto. Even with an implicit guarantee from the government not to behave like China, investors are still concerned about India from a different risk perspective, corruption. According to Transparency International, India is the 9th most corrupt country in the world. 52 Corruption runs rampant from the lowest levels of the nation to the highest circles of wealth and power. Just recently, the 2G scam was uncovered in which the nation was scammed out of almost $40 billion. Corruption knows no bounds; just recently it was found that there was price fixing, inventory fixing, and grafting involved in the Asian Commonwealth games, a privilege bestowed upon India. Investors need to be alarmed for two reasons, the first being that they will have to, at some point or another, turn a blind eye to portfolio companies engaging in bribes because that is the way of life. More importantly, most Western countries have legislation that aims to punish companies, even international ones like VC funds, which engage or are implicated in corruption. For example, the USA has the Foreign Corrupt Practices Act for this specific case. So venture capitalists would need to be careful in complying with this act.

52

India Ninth-most Corrupt Country: Survey

34

Based on this research, it can be said that India is transitioning from a wild west of sorts, in regards to regulation, to a somewhat more stabilized system. Yet, even with any pragmatic approach taken to governance, corruption will still be around. Any investor, who waits for that magical day when corruption is gone, will most likely never invest in India. The sad truth is that corruption is just something that investors will have to put up with, and figure out ways to limit their liability and exposure to it. Unlike India, China does not guarantee a set legal and regulatory system for investors. Laws can be changed ex post facto, and are subject to the whim of the state. Since there is some semblance of regulatory stability in India, investors are not turned off as much with that specific risk, but in China its a whole different story. Its enough of a risk for some investors to just rightfully pass it by as an opportunity. Any investment strategy in China requires a proactive and reactive investment strategy, because you will never know for sure if you are in violation of one law or another. What makes it worse is that investors have the same level of protections as in India, if not less. The Chinese government is influential in the success of a Chinese-focused VC fund. Investors need to be wary of the China Securities Regulatory Commission, as they are the authority on all things securities based. Through their board, they have created a strict set of guidelines for venture capitalists to follow. First, internal fund raising is not allowed. The Chinese government will not allow the financial resources of its people to be used and gambled away on private investments. All funds must be raised overseas from international institutional investors. Another irritation is the limited liability partnership (a common venture

35

capital business formation) is not legally recognized in China. Consequently venture capital firms need to incorporate offshore and all fund activities need to take place outside of China. 53 Another tricky situation is how VC funds enter into China. Just like most international companies looking to do business in China, VC funds are encouraged to partner with SOEs (state owned enterprises) as this provides the easiest way to conduct business in China. Now joint ventures from a company standpoint sound logical, but when it comes to the complexities of financing, things get tricky. If a VC fund goes in with an SOE, they are given the benefit of well placed insiders, but there is a conflict of alignment. Most SOEs are typically not profit maximizers, so they tend to hamper any organic growth for venture investments by emphasizing short-term decisions. Furthermore, if a venture capitalist ties up with an SOE, traditional financial instruments such as convertible preferred securities and stock options are not recognized by the Chinese government, thus merging ownership and control into one. If a venture capitalist opts for financial securities, it can only be through off-shoring and then an alliance with an SOE is impossible. If you mention SOE to any venture capitalist, they will surely groan, for that word implies massive headaches. Even if a venture capitalist refuses to do nothing with an SOE, it still plagues them. That is because the Chinese government used to give unbelievable preferential treatment to SOE over private firms, thus forcing VCs back to SOEs. As the markets have become more liberalized, this issue has started to fade, but as of now, it is still present.

53

Rand, 119

36

Beyond SOEs, there looms an even bigger issue for venture capitalists concerned with regulations. Chinese government regulations forbid the listing of venture-backed Chinese firms on the Chinese market; instead forcing them to list on overseas stock markets. The government has set up a quota system for how many Chinese firms can list, and the preference is given to SOEs. Going back to financial instruments, since the Chinese government doesnt recognize venture securities, it would be impossible for VCs to liquidate after a Chinese IPO. Even if the above two issues were resolved (which is not too much of a stretch), the government does not officially allowed foreign-backed firms to list, and worse, if these firms list overseas they still require permission from the Chinese government. 54 It is only understandable if an investor decides that China is just not worth it. All the laws and regulations are enough of a compliance headache, and to know that at any point those guidelines can change is just too much to handle. Venture capital can be boiled down to three steps; investing, monitoring, and exiting. In China, the first step requires an inordinate amount of extra work on top of significant due diligence. Exiting is difficult at best, impossible at worst. Granted, there have been initial public offerings of Chinese companies, but they are listed on foreign exchanges, making it difficult to raise capital domestically. Knowing that two of the three basic venture capital activities have major hurdles, who wouldnt be risk averse to China?

Conclusion Over the next few decades, economic dramas are slowly going to unfold, ushering in a new era of venture capital and private investing. The world is going to witness so much; the
54

Rand, 121

37

overtaking of the USA as the economic winner, the population wars between India and China, and which of the two countries will ultimately reign supreme. At the end of the day, India and China are young countries in a modern context. They just started engaging in free trade, privatization, and liberalization. What is impressive is the rate at which they are catching up to the rest of the developed world. At some point, many of the state specific risks are going to recede, inevitably. Corruption, excessive bureaucracy, and overbearing regulation can only last so long. Eventually, these countries will come around and change their ways. Here are some investment-related predictions for both countries. Investors who invest in infrastructure (especially energy) in the next decade, will reap enormous benefits relatively soon after. Both countries will see less of a brain drain, as the population realizes that there is no reason to leave the country; this in turn will create more domestic investment opportunities. In India, there will be a huge surge in the IT and services industry, whereas China will see better manufacturing and production in consumer goods. No one wants to just be a manufacturer or producer for another country, why create software and products for other people when there is a huge market at home? Finally, both countries will take a deep look at and realize that being receptive to FDI is a good thing and not something to stave off. Ideally, this will result in the loosening of policies and eventually create true free market countries. India and China are not two countries, but rather two unique worlds. For those who have never been, I suggest taking the first flight out. You dont need to go around researching and performing due diligence, just walk around and take in that fresh air of development. Observe and absorb what you see. There is a whole lot to learn from just day-to-day living in India or
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China, and if you wish to invest, there is no better way to know what you are getting into, then by being right there on the ground. After all, in the always wise words of Benjamin Franklin, An investment in knowledge always pays the best interest and thats half the battle to successfully investing in India and China.

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