Ties That Bind - Bay Area Council Economic Institute

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98 Ties That Bind San Francisco-based Dae Advertising was formed in 1990 by a group of friends to serve what 1990 U.S. Census Bureau figures revealed to be a burgeoning Asian-American consumer market defined by relatively high disposable incomes, education and consumer expenditures. Dae worked with clients ranging from Miller Brewing to Wells Fargo Bank to Albertson’s, tailoring campaigns to Asian-American tastes, aesthetics and aspirations. Dae co-founder Wei-Tai Kwok notes that more than a third of the 12.5 million Asian-Americans in the U.S. are in California. Roughly 22% of the Bay Area’s population is of Asia-Pacific origin, and about 8% are ethnic Chinese, according to U.S. Census Bureau 2005 data. That, he says, has led to a cross-cultural understanding here that aids businesses in tapping markets on either side of the Pacific. Dae’s first major Chinese client was 999 Pharmaceutical, a maker of powdered ginseng, echinacea and other herbal medicines owned by the People’s Liberation Army. 999 hoped to establish a retail brand presence in the U.S. in 1996, and Kwok bought space on a huge billboard in Times Square promoting the company. Eventually 999 became a listed company and a supplier to health food store chains and pharmacies, and the sign remained prominent in Times Square for several years. Dae also helped Hong Kong-based Vitasoy market its soy milk products in the U.S., by first selling to an Asian-American customer base. Kwok sees opportunity in large Chinese manufacturers trying to build global brand identity in the U.S., as Lenovo has done by purchasing the PC unit of IBM and as appliance-maker Haier attempted in its bid to acquire Whirlpool. Another such company in Dae’s sights, Konka, is among the largest television manufacturers in the world and a supplier to Sharp, Toshiba and other brands, but remains unknown outside China. It is not lost on these firms that most of the end user value is not in the physical production of their goods but in design, marketing, advertising and branding. It is inevitable, Kwok believes, that those firms will be looking to go beyond a supplier role and raise their profiles globally. Silicon Valley played an important part in the “rollup”—M&A expansion, to achieve industry scale—of Focus Media Holdings. Focus was begun in January 2003 by Jason Jiang, a 33-year old ad executive, who had noticed while waiting in a Shanghai office building for an elevator and staring at a print movie poster, that workers waiting for and riding in China’s slow office building elevators are a captive audience and might like to watch more interesting video advertising. Jiang arranged successful six-month trials to install 17-inch screens in 50 buildings in Shanghai, showing ads from Hennessy cognac, Fujifilm, China Netcom and others. He next raised an initial $500,000 from Softbank China Venture Capital to set up offices and a company structure. That in turn attracted $42.5 million in 2004 from additional venture investors, among them Draper Fisher Jurvetson. Focus shifted its attention to Beijing, Shenzhen and Guangzhou, and office and high-rise condominium buildings, supermarkets and airport shuttles serving affluent Chinese workers, residents and travelers. The list of advertisers grew to include Samsung, Nokia, General Motors Corp., Ford Motor Co., Motorola, HSBC, Haier, Unilever and MacDonald’s. The number of screens grew to 35,000 in 52 cities by late 2005.
Bay Area-China Trade: Behind the Numbers As Focus concentrated on Beijing and Southern China, Shanghai Framedia Advertising, an installer of framed poster advertising in residential buildings—the kind that first gave Jiang the idea for his company—approached Silicon Valley venture firm Hina Capital Partners about selling some assets. Seeing potential, Hina instead bought a one-third stake in Framedia in late 2004, bringing Hina general partner Dr. Zhi Tan—formerly head of M&A for the Tom Group—onto the Framedia board as chairman. Over the next eight months, Framedia acquired seven small, local and regional poster frame advertising companies in China that were each number one in their respective markets and were prepared for acquisition by a Hina team. Framedia’s market share grew from 12–75% in China, and both revenues and net income grew five-fold by late 2005. Focus raised $172 million in a highly successful July 2005 listing on NASDAQ, and its shares rose 50% by yearend. In October 2005 Focus acquired Framedia for $183 million in cash and stock. Hina served as Framedia’s advisors. Focus quickly acquired its only remaining major rival firm, Target Media Holdings, for $325 million in cash and stock. Just over three years after it was established, Focus has 1,800 advertisers, with 71,000 video screens and nearly 209,000 poster frames in 86 cities. While the company is entirely Chinese, its growth strategy, expansion by acquisition, management formation and preparation for listing all have their roots in the Bay Area. Already, Focus has a Bay Area venture-funded competitor: W.R. Hambrecht + Co. has been an early stage investor in Epin Technologies Ltd., a company that uses wireless technology developed in China and the U.S. to create a multimedia screen network offering travel information, weather, news, entertainment and advertising on passenger and commute trains. Epin, started in 2002 by MIT graduate and CEO Feng Li, was installed on 105 express trains serving Beijing to and from Tianjin, Xi’an, Guilin, Wuhan and Guangzhou as of August 2006, and is expected to serve 200 by the end of 2006 and 500 by 2008. Environment/Energy 0DUNHW (QYLURQPHQW Industrial growth and decades of poor resource management have left China with a range of environmental problems. Water resources in China are scarce given the country’s immense population, and most are concentrated in the south or east. Factories and cities dump an estimated 40– 60 billion tons of wastewater and sewage into China’s lakes and rivers each year, 70% of which are considered seriously polluted. An estimated 600 million Chinese rely on daily water supplies contaminated to some degree by human and animal waste, and a 2004 study by consulting firm Frost & Sullivan found that China would have to spend $48 billion on 10,000 more wastewater treatment plants just to reach a 50% treatment rate. Coal-fired power plants provide nearly 70% of China’s electricity and coal is commonly burned for home heating. As a result, China leads the world in sulphur dioxide emissions and acid rain. The environmental effects of Chinese emissions reach as far as California. According to the World Bank, 16 of the world’s 20 most polluted cities are in China. The State Environmental 99
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Table of Contents Introduction ....
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Introduction About This Report The
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Introduction practices of their sup
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Executive Summary The San Francisco
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Executive Summary As Silicon Valley
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Executive Summary 8. Establish regi
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1 A Rich History of Work and Reward
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A Rich History of Work and Reward m
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A Rich History of Work and Reward T
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2 New Networks Emerge The Bay Area
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New Networks Emerge With scholarshi
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New Networks Emerge nomic Law; the
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New Networks Emerge and academics f
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New Networks Emerge schools on the
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New Networks Emerge Hong Kong and T
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New Networks Emerge financing—ban
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New Networks Emerge Since the mid-1
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New Networks Emerge (R&D) innovatio
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Hong Kong Seeks Its Role New Networ
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New Networks Emerge In recent years
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New Networks Emerge savings rates a
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New Networks Emerge Two, featuring
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Sources Hicks, John D. “The Ameri
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Financial Services Sources “A Gre
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