Speech presented at AusBiotech Conference in Shanghai March 2017
Good afternoon, my name is Tom Ellis and I am the Investment Director at MAI Capital. Today I’d like to talk about the opportunity that we see for collaboration between Australia and China, highlighting pathways as well as barriers to entry for the Chinese market. But first, a little background on who we are.
Mai Capital Introduction
MAI Capital was founded by Managing Director, Michael Mai, in 2014 and is a family investment office and a member of the broader MAI Group network of companies.
Since 2009, the MAI Group has quickly grown to cover areas including property development, PE investments, philanthropy and Chinese family investor alliance management. Headquartered in Melbourne, the group has collectively managed $1.6 billion Australian dollars.
As part of our mission at MAI Capital, we aim to create a bridge between Australia and China by connecting entrepreneurs and developed companies in Australia to the market opportunities in China.
We primarily work with companies in industries where Australia has historically held a competitive advantage and where there is a strong future demand for potential growth in China. And for us, healthcare has been a major focus area. We feel that the Healthcare market currently represents one of the most attractive opportunities for Australian companies to innovate and expand to the market in China.
As part of our value adding services, we seek to assist companies during all stages of development expand to China, so long as their solution helps solve a problem. Our Family Office structure affords us the flexibility to make both Venture Capital and Private Equity based investments. For earlier stage companies, we typically provide investment and coaching, as well as access to commercialization facilities within China. For more mature companies, we work with our close partners in China to identify expansionary opportunities and assist with structuring joint ventures. This structure provides us the capability to assist companies across the full spectrum.
Opportunity for Collaboration
In China, the combination of rising rates of chronic diseases and the rapidly ageing population, coupled with the shift to a service-oriented economy, present a huge opportunity for Australian healthcare companies to make a real difference.
We are currently witnessing a perfect storm, as the middle class expands so to does the rise of non-communicable chronic diseases which, according to the WHO, kill three million people in China per year. On top of this, the long term effects of the one-child policy are beginning to become visible, with the proportion of elderly people becoming an ever-increasing proportion of the total population – it is forecast that by 2040, around 28% of people in China will be aged over 60. The total number of working people has been declining since 2011.
For scope, Healthcare PE investments in the Asia-Pacific region reached a record high in 2015. Total buyout deal value rose to $4.9 billion, with Australian based companies such as Healthe Care, acquired by Shandong Luye Medical group for $688 million USD, at the forefront of this trend.
We believe that Australian companies are well suited to provide these innovative products and services to China. We have a strong history of developing innovative, world leading companies, and our $32B annual public spending on research output ranks us in the top 8 in the OECD. Australia’s stable economy, and our geographic proximity to Asia also provide Australian companies with a natural advantage.
While there is significant opportunity for Australia and China to collaborate in the future, what’s encouraging to see is that there is already collaboration happening today. China is already Australia’s largest trading partner, and the China Australia Free Trade Agreement will allow further collaboration through opening up markets, reducing barriers to trade and increasing the strength and transparency of legal protections.
Today, we are here in Shanghai to further encourage this collaboration between Australia and China and provide context on how we can contribute to this by opening doors for our partners in both countries.
Pathways to Market/MAI Capital as a Conduit
Many emerging and established companies wish to expand to China for any number of reasons. But wanting to expand to China and actually doing it are two very different things, and the lack of successful China expansions can be attributed to many different factors.
As we all know, there are certain cultural barriers and misunderstandings between key stakeholders from both countries, and most attempts to break these barriers tend to either be unsuccessful as they usually appeal to only one side of the equation, or the discussions are overly generalized.
We see that there is often also a lack of capital support to fuel the China Expansion, as Australian companies generally source funding locally, and the local funds and investors struggle to evaluate Chinese opportunities correctly. By contrast, we lead the investment and source funding from our network to fuel a company’s China expansion, ensuring all funds are focused on a China expansion. This process allows us to ensure that the interests of all parties involved are strongly aligned.
Another barrier to entry that we see, is the difficulty involved in identifying real opportunities and tangible pathways into China. “China Opportunities” are typically either unreal stories or overly pessimistic skepticisms, and Australian companies may engage Chinese consultants to help navigate their Chinese expansion, but not much of this advice can result in clear, real action and alignment of interests. We work very closely with our commercial partners to design a China commercialization pathway for early stage Australian companies through relevant commercialization facilities.
In addition to these early stage companies, there are a large number of mature Australian companies that would significantly benefit from expanding their operations to China. This includes companies who have reached their market potential domestically and require international expansion to sustain growth. We have found that the challenge for these companies is often the lack of expertise and local resources in China. Traditionally most would attempt to enter China by setting up a Wholly Owned Foreign Entity (WOFE) and hire a local team, trying to localize the business and operate it in a way that is similar to their Australian processes. We feel that this is not the optimal approach for most companies; instead, we value partnership and specialization. We assist and encourage Australian companies to build genuine Joint Ventures with Chinese partners to fully leverage the resources and efficiency of both sides to share the benefits, while at the same time lowering the risk.
To sum up a few of the key points mentioned above, we truly believe that there is significant opportunity for collaboration between Australia and China, and, with the right guidance, we believe that companies can achieve real success entering the market in China. At MAI Capital, we are always interested in speaking with any company who is seeking to solve a real problem and has seriously considered how they can operate in the Chinese market. For companies, whether early stage or mature, that we believe are aligned with our vision, we will provide guidance, access to our network as well as resources to fuel the expansion.
Thank you for your time today, I hope you all enjoy the rest of the conference. Please let me know if you have any further questions.