Bridging the Gap

The road from Wall Street to the Great Wall may not have been a direct route for Jack Perkowski, but it was a fortuitous one.

In less than five years, Mr. Perkowski, chairman and CEO of Asian Strategic Investments Corp. (ASIMCO), has become one of the largest direct foreign investors in China, with 15 joint ventures in key sectors of the Chinese economy under his firm's belt and, coming soon, two wholly owned subsidiaries.

With an aggregate capitalization of approximately $500 million - predominantly from major pension funds, insurance companies, and significant private investors from the U.S. Europe and Middle East - the ASIMCO Components Group is one of China's leading automotive components organizations.

The litany of U.S. companies in China affiliated with ASIMCO is a virtual who's-who of Tier 1 auto partsmakers: Delphi Automotive Systems, Caterpillar, Chicago Rawhide, TRW Inc., Delco Remy Co. and Dana Corp. among them.

And there's more to come as ASIMCO sets up an auto components sales and service unit in the U.S., with plans to begin exporting Chinese-made auto parts to the new market shortly. Little wonder, then, that a subsidiary of General Electric Pension Trust - GE Investments - recently took a one-third-shareholder position in the company.

Mr. Perkowski quickly notes that the GE deal has been in the works for 18 month and is not just a knee-jerk reaction to the Asia currency crisis. "We take an active management role in China," he says. "GE has a global perspective and is well known for its management. Capital was not the issue. What we lacked was a comprehensive management-training program. GE offers us the ability to tap into what they've set up."

ASIMCO's objective, Mr. Perkowski says, is to take good Chinese companies that have already attained a leadership position in the Chinese market and enable them to become leaders on the world stage.

In essence, ASIMCO affects change by identifying local management with a track record of success that understands the importance of being globally competitive and expose it to experienced Western operating professionals, who can provide access to the latest financial, manufacturing and marketing practices.

ASIMCO's staff of senior and mid-level Chinese executives help to bridge the gap between successful Chinese and Western managers.

For foreign investors and those looking to do business in China, it's one-stop shopping.

"Companies going to global sourcing find it difficult to do business in China," Mr. Perkowski says, "due to time, language and distance. We take China out of the equation. We provide sales, technical and support-side help."

Mr. Perkowski, 49, always has gone the extra mile. He received his bachelor's degree (cum laude) from Yale University in 1970 and MBA degree (with high distinction) from the Harvard Graduate School of Business Administration in 1973. At Harvard, he was a Baker Scholar.

He joined Paine Webber in 1973 and was the director of investment banking when he left that firm in 1988 to become managing director of a leveraged buyout firm he formed with John W. Kluge. "I always wanted to do something entrepreneurial," Mr. Perkowski says. "But we were late in the buyout cycle. By 1990, I was looking for something where I could apply the experience gained in the first half of my life. I wanted to do something early enough to be the creator and big enough to be substantial."

His competitive instincts pointed him toward East Asia. The demographics of the region, age of population and growth rate all assured him of a long-term ride there. Capital and management flowing from the U.S., Europe and Japan to Asia could make it happen, he believed. "Next, I had to convince myself that it was a great opportunity for me," he says. After traveling for a year through the region, he decided he would have a competitive edge by creating a direct investment company.

The next logical step was to relocate to Asia. So, in 1991, Mr. Perkowski moved to Hong Kong. "Overseas, Chinese spent the first 10 minutes of conversation talking about their business in Hong Kong," he says, "and the next 20 minutes talking about their business on the mainland. I decided that's where I needed to be."

Mr. Perkowski arrived in Beijing in 1993 and never left. He quickly recognized the key to doing business in China was to retain a majority share, something not easily done. He needed to put a business plan together that made sense, he recalls. He needed to be able to sleep at night. "I couldn't just raise money and make a dozen investments in different industries," he says. "It was too difficult to get information, and most industries were fragmented. I wanted to take an industry approach. Pick a leading company."

Which is why he focused on the motor vehicle components business. "Most of the car companies were interested in assembly," he says. "That's where the big business is. China was frustrated because it couldn't get foreign capital into the components' side, (where policy did not prevent majority ownership)."

But that didn't necessarily make it easy. First, he acquired two partners. Tim Clissold, now 37, is a graduate of Cambridge University with accounting and auditing experience in the U.K., Hong Kong, Australia and China, and fluent in Mandarin. Ai Jian, now 46, is a graduate of Northwestern Polytechnical University of Xi'an, fluent in Mandarin and English, and experienced in assisting foreign companies in doing business in China.

Together, the trio took nine months to visit 100 factories in 40 cities. "We were the only ones interested in the components business, but it still took a while," Mr. Perkowski says. "They (Chinese) weren't sure we could really afford to do what we proposed. We weren't a big name, and we had no annual report."

The addition of TCW Capital Investment Corp. and Dean Witter Capital Corp. as co-founding shareholders pumped $150 million into the upstart company. By August 1994, ASIMCO was setting up its first Chinese joint venture. "Once we got the first - with the Ningguo rubber products plant - others fell in line," Mr. Perkowski recalls.

Since then, ASIMCO has developed rapidly, raising an unprecedented amount of capital for investment in China, Mr. Perkowski says, assembling an 80-person Beijing-based staff of professionals; creating an extensive network of relationships; forging strategic alliances with numerous global companies, and completing more joint ventures and investing more capital than any comparable company in China.

"We've culled through 25,000 companies," Mr. Perkowski says. "Of those, we've put together a group of companies (China Automotive Components Corp.). Majority-owned capital wasn't hard, he says. Technology wasn't too difficult. The hardest part of doing business in China was management issues.

While U.S. companies have had to compete globally since World War II, China has remained insular. "Companies in China didn't even compete with one another," he says, "because they all were state-owned. They simply produced. There was no interface with the market."

Today, most Chinese managers over 40 are bureaucrats, while younger managers are entrepreneurial, Mr. Perkowski says. "You have both ends of the spectrum. Plus, only 13 universities offer MBA programs, so there's maybe 30,000 managers in all of China with MBAs. I argue you can't be at either end of the spectrum. The trick is to find Chinese managers who have obtained a global view to operate in a Western style. The second choice is to train and the third choice is to bring selective expatriates over to help, which can be very expensive."

Despite the Asia currency crisis, Mr. Perkowski remains bullish on China. "Over half of the vehicles sold in China are now purchased by individuals," he says. "The mostsignificant impact of the crisis is the undermining of consumer confidence. When people get into that mode, they close their pocketbooks. And that hurts our business."

Yet, despite several flat sales years for the automobile industry, Mr. Perkowski sees opportunity for growth later this year and into next. "It depends on how successful China is with its fiscal policy," he says. "Foreign investments and exports can't be counted on right now. And the banking system can't keep the economy afloat."

Instead, he says, China's commitment to investing in infrastructure and housing reform will lead the way to unlocking people's savings. "(Premier) Zhu Rongji is the right person for the right time," Mr. Perkowski says. "He knows how to get things done. The next five years should be a good time for China."

ASIMCO, meanwhile, will not be sitting on its collective hands, waiting for the urban car market to pick up speed. Not while 2 million tractors and 2.6 million farm vehicles were purchased by individuals last year. Not while the government estimates that some 850 million people live in rural China.

"That's a whole industry no one's looking at," Mr. Perkowski says. "We're spending a lot of time broadening our horizons, deciding what constitutes China's auto market. Farm vehicles and motorcycles are serving a need, and we need to tap into that."