We are in an age of change. Whether we call new technologies disruptive or innovative, we can feel that past patterns of development will be completely transformed. We are now in the new “shared economy,” represented by Uber and Airbnb, bypassing the need for heavy investments in cars and hotels. We also see Apple and Google accumulate cash without much need for investment. Actually, they are distributing their profits. As a result, there are lots of excessive savings over investment. We face long lasting stagnation with low interest rates. What can we do to find good investment opportunities? We need products that can be manufactured with less demand and more technical change; it is very different than before. I have analyzed the Chinese economy, its demand, and what Europe can offer. Four segments deserve further attention.
1) Production efficiency. As many of you might know, some of the most important news in China recently is that AlphaGo beat Lee, the word champion of Go chess. Everyone is wondering what can be left for humans to accomplish. I believe in the trend that in the future, all the production will be completed by machinery and artificial intelligence instead of human labor. In this regard, we should consider how to make the process quicker. How do we invent useful things in the process? Chinese companies are interested in robots, high-efficiency machines, and critical components used therein. China’s labor cost is increasing and losing the competitive advantage of mass production, which results in the requirement of production efficiency. Actually, we have found that some Italian companies can provide these kinds of solutions in terms of automation and achieving production efficiency. We will continue to invest in these kinds of companies and work together with the technology leaders in the sector or creative new companies on AI application. This is because AI could be used in all traditional manufacturing sectors.
2) Dematerialization. In today’s world, everything is becoming lighter and lighter. We use less material and produce more outputs. Think about producing a car in the 1980s, how many materials were used, and how heavy they were at that time. Now the car is obviously becoming much lighter and necessitates fewer materials and resources. So, if you have a technology that decreases the amount and weight of materials used during production, then you will be the winner in the future. I think there are Chinese and Italian companies that are moving in this direction that could work together to achieve this goal.
3) Environmental technology. This is a focus of our fund, Mandarin Capital Partners, and we have already done one deal in this sector. After 20-30 years of fast industrial development with a lot of overcapacity in various industries, pollution is a huge problem in China. Air, water, soils, etc. are all polluted. We need technologies to treat them in correct ways to improve the living environment. The emerging middle class is becoming more and more conscious about health problem and their living environments. Many technology companies in Europe have the methodology to treat this kind of problem, giving this segment a bright future.
4) Tailor-made products. Although it might not be our investment focus, I want to share my perspective on this segment. In the future, one important trend is that all things that can be shared will be shared. A car, a house, or even women’s accessories like bags, etc. But eventually, you need something unique that belongs to solely to you. Maybe it is furniture you like or something handmade, unique that has a lot of value to you. I actually like Elon Musk’s words, CEO of Tesla, that in 20 years owning a car will be like owning a horse, which is just a personal hobby. So if you want to own something, it should be tailor made. I know that Europe has many good tailor made products. There is a lot of craftsmanship in Europe and you can order many things that are custom and unique. In this regard, small companies and tailor-made products could also have a good future.
In summary, I think the first three segments will continue to be our investment focus in the future. There are a lot of opportunities across our two continents. For example, China is not sophisticated in mechanical products in terms of precise machinery. In addition, China does not have enough technical workers possessing the know-how needed to operate precise machinery. But, China has young and creative companies who are leaders in new technology sectors. Even Kevin Kelly, the Godfather of Silicon Valley, launched his new book “Inevitable” in Chinese first to highlight how large the audience for digital technology is in China. The English version is estimated to be released in the middle of this year. So, there are a lot of VCs and PE funds flowing into new technology sectors. Imagine if we combined these new technology companies with the traditional know-how, critical expertise, and IP of Italian companies; we could create leaders in the next age.
A topic that requires a lot of attention is how to convince Italian companies to overcome their psychological barrier in regards to IP infringement and fakes in investment in China. Generally, we have two approaches. We have good links with IP protection teams in China, such as lawyers and agencies. At the beginning of the investment, we will evaluate what we can do in this regard and to ensure we get the most important protection of IP rights. More importantly, as everything is evolving so quickly today, the technology must be used as quickly as possible and be applied to make products more competitive in the market. Actually you cannot build a real barrier to prevent local players from copying products. What you can do is to quickly penetrate the market and make your products more competitive to these copied products.
I have spent the most interesting part of my professional life shuttling between China and Europe enjoying my work every day. I have witnessed companies from our two countries working together smoothly and understanding each other more and more. We should not be discouraged or threatened by technological progress. Rather, we should embrace the opposite and capture any opportunity that technology warrants us to learn from each other and improve our industrial capabilities and the well being of our stakeholders.
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