Hamburger and Target Market Essay Example for Free

Hamburger and Target Market Essay This chapter represents the introduction, statement of the problem, objectives and scope and limitations of the study. Introduction A burger is usually defined as a sandwich consisting of a bun, a ground meat patty and often other ingredients such as cheese, onion slices, lettuce and other condiments. The ingredients are often used in combination and are usually called a cheeseburger. Although the origin of the modern beef hamburger came from the Germans, many culinary historians consider the burgers to be primarily from an American concoction. The first burgers were made from various cuts of beef ground into a manageable paste but eventually there emerge different ground meats and vegetable mixtures that have earned the right to be called â€Å"burgers† even in their own distinctive taste. Today, there are dozens of variations on the basic meat patty served between two slices of bread. Indeed through the years, the simple American meal called â€Å"burger† has transformed itself to an array of variations combining different ingredients to suite the taste of millions of people worldwide. Tony Tan Choking, who is the CEO of Jollibee which is considered as the one of the most popular fast-food chain in the Philippines, told in his interview for Business Week Asia that, â€Å"hamburgers, they appeal to any culture†. Taking to account that through this sumptuous dish, Jollibee was able to gain current status in the Philippine business. At present the hamburger toppings may not vary much. Some toppings ramp up taste and may love variants of toppings like the bacon cheeseburger or the replacement of standard condiments (mayo, mustard, ketchup) with things like barbecue sauce. Arguments exist as to what condiments should exist on hamburgers, and also what other things a hamburger needs such as lettuce, tomatoes, onions and pickles. There is no hard and fast rule that requires ingredients to be combined to the more familiar and staple hamburger toppings. In fact, the present times emphasizes creativity and innovation on almost anything even in the traditional hamburgers, which offers usually the same fairly blank palate. Currently an innovation on the burger recipe is viewed as means of culinary expression and way to create exciting and new taste combinations by varying toppings. Ultimately, innovation on the traditional burger combining different ingredients together in different proportions boils down as a means to satisfy one’s palate and finally one’s individuality. Thus with these concept, a new business establishment that deviates from the traditional way on how burger is served has emerged. The business establishment is called Jumbleger and this paper aims to evaluate the business’s feasibility in terms of target market acceptance, profit gain and overall future performance. Statement of the Problem. This paper aims to evaluate the feasibility of an innovative new business establishment to be called Jumbleger in terms of target market acceptance, profit gain and overall future performance. Specifically it aims to answer the following sub-problems: 1. Which among the following groups compose majority of the population surveyed? a. Which of the following age groups compose majority of the population surveyed? b. Which gender compose majority of the population surveyed? c. Which among the different educational attainment compose majority of the population surveyed? d. Among the samples who are students, what schools are they from? f. Which among the different civil status compose majority of the population surveyed? g. Which among the different income bracket is the most common income classification of the population surveyed? 2. Is an innovative new concept of a burger business significantly acceptable to the target market? a. Does majority of the population surveyed eat burgers? b. How often does the majority of the population prefer to eat burgers? c. Does majority of the population surveyed willing to try burgers in new varieties of flavors? d. Among the business establishments who offer burgers in their menu, which is the most preferred by the population surveyed? 3. What are the ingredients most preferred by the population surveyed? a. Among the different kinds of patty which is most preferred by the population surveyed? b. Which among the different kinds of sauces are most preferred by the population surveyed? c. Which among the different toppings are most preferred by the population surveyed? 4. Is the new concept burger be considered affordable to the target population and yet still be a profitable business? a. Among the different price groups for a burger, which will be most preferably spent by majority of the population surveyed? b. How many servings is the majority of the population surveyed able to consume per meal? Objectives of the Study The general objective of this paper is to evaluate the feasibility of an innovative new business establishment to be called Jumbleger in terms of target market acceptance, profit gain and overall future performance. The following are its specific objectives: 1. To determine which among the following groups compose majority of the population surveyed. 2. To evaluate if an innovative new concept of a burger business significantly acceptable to the target market. 3. To identify the ingredients most preferred by the population surveyed. 4. To determine if the new concept burger be considered affordable to the target population and yet still be a profitable business. 5. To derive recommendations for further improvement of the business. Scope and Limitation of the Study The demographic profile as well as the needs and wants of the proposed target market shall be further identified and discussed in the study, in order to asses whether the proposed business would gain impact in the proposed market location. Also, such study shall determine the preferences and level of satisfaction of the proposed market with regard to their food consumption particularly with burgers. The target markets of the proposed business are customers who are frequent in St. Thomas Square, Morayta, more particularly the students from different universities, colleges, review centers and business establishments situated in that vicinity.

Laws of Concentration and Centralization: A Modern Review

Laws of Concentration and Centralization: A Modern Review Sourish Dutta Abstract Though the basic (late 1860s) Marxian model, under capitalist mode of production, assumes (more or less) perfectly competitive markets with a large number of small firms in each industry, Marx was cognizant of the growing size of firms, the consequent weakening of competition, and the growth of monopolistic power. Hence, capital has the inclination for concentration and centralization in the hands of richest capitalists. Actually, the concentration and centralization of capital are two capital accumulation techniques. Such concentration and centralization of capital can be clearly detected at this modern time—especially in the USA—in the massive occurrences of the mergers, acquisitions and conglomerates. In this assignment, henceforth, I will be trying to cultivate an analytical discussion about these two interlinked concepts and their implications and repercussions in this modern world of capitalism. Prologue The contemporary financial catastrophe of 2008 brings back the Marxian laws of concentration and centralization of capital in the modern form. They are often confused but must be clearly distinguished. Marx explained it most famously in chapter 25 of volume 1 of Capital. Though his dynamic intellectual exploration engrossed in the industrial capital, the same tendency holds with respect to financial capital in present scenario. With the increasing mass of wealth which functions as capital, accumulation increases the concentration of that wealth in the hands of individual capitalists, and thereby widens the basis of production on a large scale and of the specific methods of capitalist production†¦ It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the former in this, that it only presupposes a change in the distribution of capital already to hand, and functioning†¦ Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. This is centralisation proper, as distinct from accumulation and concentration. In brief, by concentration we make out the upsurge of capital that is due to the capitalisation of the surplus value originated through accumulation of surplus value of labour. Indeed, increasing concentration of capital occurs as individual capitalists accumulate more and more capital, thereby increasing the absolute amount of capital under their control. The size of the firm or economic unit of production is increased correspondingly, and the degree of competition in the market tends to be diminished; under centralisation we understand the joining together of various individual capital units which thus form a new larger unit. Actually, more important reason for the reduction of competition is the centralization of capital. Centralization occurs through a redistribution of already existing capital in a manner that places its ownership and control in fewer and fewer hands. Marx maintained that larger firms would be able to achieve economies of scale and thus produce at lower average costs than would smaller firms. However, concentration and centralisation, influence one another. A great concentration of capital accelerates the absorption of small-scale enterprises by large-scale ones; conversely, centralisation aids the increase of individual capital units and so accelerates the process of concentration[1],[2]. Beside this, recent experience of financial crisis also conveys a new phenomenal dimension in the context of Marxian crisis in capitalist mode of production. This phenomenon gives rise to the doctrine of Too Big to Fail (TBTF)[3]. Rationale behind these laws The main logic behind these two laws of capitalism is the force of capital accumulation or the self-expansion of capital. Here we have to note two distinct concepts, namely, individual capital and social capital. Marx observes: The fact that the social capital is equal to the sum of the individual capitals (including the joint-stock capital or the state capital, so far as governments employ productive wage-labour in mines, railways etc., perform the function of industrial capitalists), and that the aggregate movement of social capital is equal to the algebraic sum of the movements of the individual capitals, does not in any way preclude the possibility that this movement as the movement of a single individual capital, may present other phenomena than the same movement does when considered from the point of view of a part of the aggregate movement of social capital, hence in its interconnection with the movements of its other parts. †¦Every individual capital forms, however, but an individualised fraction, a fraction endowed with individual life, as it were, of the aggregate social capital, just as every individual capitalist is but an individual element of the capitalist class. The movement of the soci al capital consists of the totality of the movements of its individualised fractional parts, the turnovers of the individual capitals. The self-expansion of individual capital is accomplished through the appropriation of surplus value by maximizing the rate of profit, while the movement of the social capital leads to the equalisation of rates of profit. Individual capital is a thing as well as a relation, and so is the social capital; moreover, the social capital denotes another dimension of social relation, namely, the relation between industrial, financial and commercial branches, and also between branches, sectors and departments of the productive system. Nevertheless, it is also to be noted that in a capitalist economy, state capital is an integral part of social capital. In juridical form, state capital is indeed different from private joint-stock capital, but its movements determine, and are determined by, the movements of social capital. Concentration The other name of self-expansion of individual capital is concentration of capital, according to Marx. It has nothing to do with the statistical concept of concentration ratio on the pattern of Gini, Lorenz or Atkinson. The concentration of capital in the Marxian sense is measured in absolute terms with reference to a single individual capital, without regard to the rest of the individual capitals; in other words, it is not a ratio of any two magnitudes. At one place Marx says that simple concentration of the means of production and of the command over labour is identical with accumulation, and at another he equates the rate of self-expansion of the total capital with the rate of profit. Every individual capital is a larger or smaller concentration of the means of production, with a corresponding command over a larger or smaller labour-army, says Marx. Every accumulation becomes the means of new accumulation. Clearly, by concentration Marx does not mean anything like the Gini coefficient or the Lorenz ratio. Now, accumulation is the prime mover of capitalism, and concentration increases with accumulation. Since the rate of profit is uniform throughout the economy, should every capitalist accumulate the entire profits (or equal pro- portion of profit) then each individual capital would grow at the same rate. In that event, there would be a continuous rise in the concentration of capital in the Marxian sense, but not so in the usual statistical sense. To put it differently, a constancy in the statistical concentration ratio does not imply a cessation of the Marxian concentration of capital. Movements of social capital tend to bring about equalisation of profit rate throughout the economy, but in fact profit rates do vary from one branch of production to another at any given period. Besides, as we know, one portion (of the surplus value) if employed as capital, is accumulated 13 and the portion of this plough-back may not be the same for every individual capita- list. A bigger capitalist accumulates a larger percentage of the surplus value appropriated by him. Hence, the rates of self- expansion of various individual capitals-that is to say, their rates of concentration-differ. If the bigger capital effects a higher rate of self-expansion, then the statistical concentration ratio would rise with the Marxian concentration of capital. With the rising concentration of capital a qualitative change takes place-the organic composition of capital goes up, and hence the rate of profit declines bringing in its trail a crisis which we shall take up for discussion below. [1] http://www.economictheories.org/2008/07/karl-marx-concentration-and.html [2]N.I. Bukharin: Imperialism and World Economy [3] According to some economists, when banks and finance corporations become too big, their failure has systemic implications, inflicting collateral damage on individuals who may have nothing directly to do with those banks or corporations. Governments then feel compelled to rescue these large entities in order to minimize the collateral damage, and the anticipation of such bailout promotes reckless behaviour.

Analysis on Current Venture Capital Market in China

Analysis on Current Venture Capital Market in China Introduction The huge consumer market potential and booming economy in China attract enormous foreign direct investments to capitalize this unprecedented opportunity. Foreign venture capital is not exceptional from this trend. They, however, still have to face constant challenges from regulations, market practices and business cultures in China. To be successful in this marketplace totally different from their origin, foreign venture capitals need to adapt their previous strategies and experiences and test it through trial and error. This report is to get overall picture about current venture capital market in China. Then it will focus on the market position of foreign venture capitals. The report is followed by the analyses and summary on investment and exit strategies used by foreign venture capitals. Finally, the report will discuss the potential trend in China venture capital market. Key Objectives To get in-depth analysis on current venture capital market in China and foreign venture capitals market position in China. To analyze and summarize the investment strategies and exit strategies used by foreign venture capital in China. To make prediction on future market trend, especially foreign venture capital. Key Chapters General introduction on venture capital Historical development and current venture capital market in China Detail market position analysis on foreign venture capital in China Investment strategies of foreign venture capital in China Exit strategies of foreign venture capital in China Future trends in China venture capital market Introduction on Venture Capital Venture capital is source of funds to small firms that cannot establish credit relationships with bank or other financial institutions. As Gompers (2001) states: Companies that lack substantial tangible assets and have uncertain prospects are unlikely to receive significant bank loans. These firms face many years of negative earnings and are unable to make interest payments on debt obligations. Start-up high tech firms are exactly the type of firms that banks are least likely to lend to because of poor information availability and lack of tangible assets or assets that can be readily evaluated. Firms developing software or new technology for the communications or biotech industries are largely investing in human capital. In a nutshell, the VC firm is a relative small financial services professional organization that functions primarily to: (a) assess business opportunities; (b) provide capital; and (c) monitor, advise and assist the firms in its portfolio. By investing, the venture capitalists accept substantial tranche of illiquid equity that converts their status to something like partners to the entrepreneur. The goal of the venture capitalist is not only to increase the value of that equity but also to eventually monetize the investment through a liquidity event such as an initial public offering or sale to other investors. The other way of reaping the reward is liquidation due to the firm failure and bankruptcy. In all of these scenarios, the venture capitalist exits their investment to complete the VC process. The venture capital cycle is briefly visualized in below chart. Chart 1 Fund flow of Venture Capital Cycle Source: National Venture Capital Association Yearbook 2008 The National Venture Capital Association in the United States defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have potential to develop into significant economic contributors. There are a number of key attributes associated with VC that distinguish it from other equity capital investments. Venture capital normally focuses on small firms that have great growth potential. These firms usually are not mature enough to be traded in public equity markets. Compared with public equity investment, venture capital investment has poorer liquidity with more severe information asymmetry and higher investment risks. Venture capital investment is also different from angel capital. Managers of angel capital use their personal money to invest. In contrast, investments professionals who raise money from other investors manage venture capital. Angle capital invests more often in the seed stage of the start up firms than venture capital does. Finally, venture capital is different from non-venture private equity investments (such as buyouts, restructure, and mezzanine funds). Firms backed by venture capital usually have considerable growth potential. For these firms, the cash flow generated from operations is usually insufficient to support finance growth and debt financing is usually not available. In contrast, private equity funds target more mature firms that have stable cash flows and limited growth potential. The Table 1 below summarizes the investment stages and types of funding for different investment styles. Table 1. Types of Funding and Investment Stage Source: A Guild To Venture Capital (3rd edition) by Irish Venture Capital Association There are five stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as: 1. Seed 2. Start-up 3. Other early stages (exploration) 4. Expansion 5. Maturity (exit). The definition of the company stage is different with the definition of the financing round. The negotiation of a VC investment is a time-consuming and economically costly process for all parties. Neither the VCs nor the portfolio firms want to repeat the process very often. Therefore VCs have to balance the cost of negotiation and potential risks from one time investment. Typically, a VC will try to provide sufficient financing for a company to reach some natural milestone, such as the development of a prototype product, the acquisition of a major customer, or a cash flow breakeven. Each financing event is known as a round. So the first time a company receives financing is known as the first round (or Series A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can return to the negotiating table with some new information. These milestones differ across industries and depend on market conditions. A company might receive several rounds of investment at any stage, or it might receive sufficient investment in one round to bypass multiple stages. One special situation is the down round. It is when the company does not meet milestones and the VC still needs to invest but at a lower valuation than prior round of financing. Venture Capital in China Why invest in China? There are four major popular arguments behind for the investment rush to east. Reason 1: High Rate of Economic Growth Chinas impressive economic growth for the past 30 years, averaging between 8% to 10% real growth per year, has been the envy of the developing world. The size of Chinese economy by the end of 2006 reached US$2.62 trillion, 13 times larger than that in 1978 when measured in constant RMB (MasterCard Worldwide Insight, 2007). According to Goldman Sachs China economic research (2003), per capita GDP expect to grow from less than $5,000 at that time to more than $30,000 in 2050 (refer to Chart 2). China will have a middle class of more than 500 million by 2025 larger than the entire population of the United States. It represents a huge emerging demand for everything from integrated circuits to cars. 500M mobile users, 130M Internet users, 104M broadband users and 4.5M college graduates every year could all transfer into huge business opportunity (represented in Chart 3). Based on the estimation (Chart 4) from Mckinsey, there will be sustainable market growth to 2025 in every business that related with peoples life and daily consumption. Huge opportunities for venture capital are Internet (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and traditional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments). Chart 2 China GDP Growth Forecast (2000-2050) Source: Goldman Sachs 2003 Chart 3 China Energy/Material supply imbalance (2010) Source: Goldman Sachs 2003 Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025) Source: National Bureau of Statistics of China; Mckinsey Global Institute Analysis Reason 2: Inefficient Capital Market In the United States and Europe, private and public capital markets compete as sources of capital. However, China does not yet have an equity culture despite the adoption of market-oriented policies. In China, the public equity market lists inefficient and unappealing state owned enterprises (SOE) most of the times. And government holds roughly 60-70% of share capital of most listed companies. Few private firms are listed in the stock market due to legal and policy hurdle. Chinas bond market is similarly underdeveloped. Chinese corporate bonds account for less than 2% of corporate financing. Thin trading between banks and investors makes issuing bonds unattractive for fundraising or investing. Insurers and fund managers therefore have few fixed-income securities to hedge against mid- and long-term risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans. The domestic banks, however, have tendency to provide loans to stated owned company rather than private firms, especially small and medium businesses (SMB). With the poor functioning financial markets and policy discrimination, venture capital and private equity become important sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc. Reason 3: Creative Solutions/Early Adopting Consumers One of the most unexpected attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese remain consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities. Online gaming, wireless instant messaging, and wireless value added services are just three markets that the Chinese more or less created out of thin air. Each of these businesses has growing customer bases (and have spawned successful public companies like Shanda, Netease, Tencent, and Linktone). But none of them has significant participants yet in the United States. Different consumer behaviors contribute to this phenomenon as well. In below case study on Tencent, it provides a great example on how to innovate the Internet product offerings to cater the needs of online generation. Case study: QQ of Tencent (Adapted from www.tencent.com) Tencent (listed in HK stock exchange) is the #1 Instant Messaging (IM) service provider in China. Tencents IM community counts over 270 million active accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. Same as other IMs, QQ is a free tool to use. Tencent, however, came up the idea to generate revenue stream by allowing users to buy and exchange virtual items (clothes and background image) online to decorate his or her QQ head icon. Tencent even created its own cyber currency called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrier of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M. Reason 4: Risk-taking, Innovative Culture In the last fifteen years, the privatization reform is one of the critical forces in stimulating China economy growth. This privatization wave also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing innovative ways to solve problems and create wealth both for individuals and for society at large. The successful stories of VC backed entrepreneurs further promote the risk taking culture in China and the awareness and popularity of venture capital. The Focus Media case below illustrates the power of business model innovation by its unprecedented expansion speed ever in Chinas business history. There is no doubt that foreign VCs played an important role in this story to make Focus Media successful. Case study: Focus Media China (Adapted from www.focus.com) Founded in 2003, Focus Media is Chinas largest Digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative approach in operating out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercial centers (like office buildings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs. By selecting and contracting with high quality commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. Tow foreign VC firms, Soft Bank and UCI, invested in the first round. And another five VCs, CDH, TDF, DFJ, WI Harper and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M IPO and now it is part of Nasdaq 100 index. Historical development Infancy stage: 1984 1995 In 1984, the Research Center of Science and Technology Development of the State Science Technology Commission (SSTC) (now the Ministry of Science Technology or MOST) cooperated with British experts to study how to develop high-tech in China. The British experts proposed that venture capital should be developed if China wanted to foster high technology. In 1985, the Central Commission of the Chinese Communist Party and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high-tech with quick change and high risk. It was the first time that the concept of venture capital appeared in an official Chinese Government document. With the government decision to develop high technology industries, the Central Government and some local governments financed and set-up series of investment institutions that intended to pursue the venture capital business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks. Simultaneously, some overseas investment banks, funds and venture capital institutions also started to expand their business into China. For example, the Pacific Technology Venture Capital Fund subordinate to IDG entered China in 1992. It cooperated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in technology companies. Also, some foreign capital or joint stock investment institutions established venture capital businesses. Asia Venture Capital Journal (AVCJ, 2001) shows that $16 million was raised for venture capital investments in 1991. In 1992, the total funds raised jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first wave reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first wave of venture capital investments was brought by international venture capitalists. The international venture capital firms accounted for more than 95% of the total fund raised in the early and mid 1990s. The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regulations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation essentially removed the possibility for venture capitalists to raise funds within China. It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could bypass the regulation because they were incorporated and they raised funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either. Early Growth: 1996 2001 From the mid-1990s, the perception of venture capital shifted from being a type of government funding to being a commercial activity necessary to support the commercialization of new technology. As there were still no laws or regulations about setting up foreign venture capital institutions in China, many overseas investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also located representative offices in some major cities, primarily Beijing and Shanghai. Most of the VCs active in China in the early 90s were American firms. The VC industry in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$110 billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of experienced American VCs started searching the world for investment opportunities, attempting to replicate the Silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish. Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, there were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital institutions with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom bubble burst and came with huge casualties. It took the VC community 3 years to recover. Fast Growth: 2002 present Although initial government-backed investment operations generally failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital available for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew rapidly from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mainland or mainland-related enterprises (Zero2IPO 2007). According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no more than $2B. The money chasing deal phenomenon started to emerge in China. Many foreign VC funds, especially first-time funds raised after 2005, had the pressure to pour out investment quickly to avoid US dollar depreciation against RMB and to get better deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace. Under the simple supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was focusing on local value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was sector specific. To get higher return under the competition, VC firms started to invest in traditional business models such as hotels, travels and fast food chains beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VCs were more like PE. Legal and Regulations According to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys legal system being paramount. Two major factors are paramount in evaluating legal system: contract law enforcement and protection of shareholder rights through effective corporate governance. Cumming and Macintosh (2002) observed that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and obtain higher returns. Cumming et al. (2004) further examined legal system effects on governance structure. Under better legal systems: the faster the origination and screening of deals; the higher the probability of syndication; less frequently funds of the same organization used to invest in a given company; the easier the board representation of investors; the lower the probability that investors required periodic cash flows prior to exit; and the higher the probability of investment in high-tech companies. Lerner and Schoar (2005) show that in a bad legal environment, PE/VC managers tend to buy controlling stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the legal environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the legal system, the accounting standards and investor protection across countries. However, more sophisticated PE/VC managers tend to operate in the U.S. style irrespective of local institutional concerns. The authors show that managers operating with convertible preferred stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments. Bottazzi et al. (2005) corroborate some of the previous results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to maintain the investment style used at home). This is observed in managers based in both good and bad legal environments. The Chinese regulations governing foreign venture capital investment are chaotic and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to foster domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that local governments provide financing assistance, favorable tax treatment, and direct investment in Chinese venture capital firms. They also provide less stringent capitalization, investment amount, investor qualification and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that include high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a). Substantial legal and de facto restraints on the ability of FIVCEs to access the stock markets in China and overseas for IPO listings make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on offshore holding companies created to receive their investments. Foreign venture capital firms (most of which are U.S. based) investing in China generally have done so through the restructuring of Chinese companies into offshore investment vehicles. These enable an easier exit from investments either by selling shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these transactions to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an offshore company without the approval of the Government, either directly or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to overseas companies, and to preclude domestic companies from using the overseas vehicles to gain foreign investor tax exemption status. However, they choked off legitimate transactions as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a halt in 2005 (Borrell and Jerry, 2005). Then, in November of 2005, the Chinese authorities issued superseding regulations. These require registration of offshore investment vehicles with the State Administration of Foreign Exchange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the scope of review nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b). Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China Medical Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005). Hidden risk and solutions Lagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problems: Chinas lawmaking on VC investment remains stagnant Existing laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment. Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide clear answers to these questions. Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined. There are three available approaches for foreign venture capital firms to enter China venture capital market legally. Establishing offshore venture capital fund focusing on China Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a legal person entity Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a non-legal person entity To avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore holding entities with all equity activities happening outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China. Offshore holding arrangement is a preferred structure for Chinese entrepreneurs and VCs as it provides a feasible and practical route for funding, divestment and all equity events. Its advantage and attractiveness to Chinese entrepreneurs and VC communities: Go away from laws and regulations in China. Many of them are not friendly to venture activities, such as lack of preferred shares, stock options limitation, double tax etc. Bypassing capital account control on foreign exchange. More flexible and usually profitable divestment options by overseas IPO, MA or trade sales. Offshore route investment involves the following steps: The Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China. With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise). The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. All equity events happen in offshore. Companies funding and IPO proceeds will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong Stock Exchange in vision. (The concept and process is visualized in chart 5.) Chart 5 Foreign VC Offshore Investment Process Source: A legal perspective on Chinas venture capital rush, Mar 2006 Restrictions in Chinas corporate regulations and limitations at the domestic capital markets explain foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or convertible preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company. Notably, local VC firms would have the possibility to arrange preferred stock scheme with their investee company according to a newly issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law. Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Even if listing conditions could be met, the queue in the pipeline waiting for a listing window is at the moment frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares. The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly twice of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place. This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take the Analysis on Current Venture Capital Market in China Analysis on Current Venture Capital Market in China Introduction The huge consumer market potential and booming economy in China attract enormous foreign direct investments to capitalize this unprecedented opportunity. Foreign venture capital is not exceptional from this trend. They, however, still have to face constant challenges from regulations, market practices and business cultures in China. To be successful in this marketplace totally different from their origin, foreign venture capitals need to adapt their previous strategies and experiences and test it through trial and error. This report is to get overall picture about current venture capital market in China. Then it will focus on the market position of foreign venture capitals. The report is followed by the analyses and summary on investment and exit strategies used by foreign venture capitals. Finally, the report will discuss the potential trend in China venture capital market. Key Objectives To get in-depth analysis on current venture capital market in China and foreign venture capitals market position in China. To analyze and summarize the investment strategies and exit strategies used by foreign venture capital in China. To make prediction on future market trend, especially foreign venture capital. Key Chapters General introduction on venture capital Historical development and current venture capital market in China Detail market position analysis on foreign venture capital in China Investment strategies of foreign venture capital in China Exit strategies of foreign venture capital in China Future trends in China venture capital market Introduction on Venture Capital Venture capital is source of funds to small firms that cannot establish credit relationships with bank or other financial institutions. As Gompers (2001) states: Companies that lack substantial tangible assets and have uncertain prospects are unlikely to receive significant bank loans. These firms face many years of negative earnings and are unable to make interest payments on debt obligations. Start-up high tech firms are exactly the type of firms that banks are least likely to lend to because of poor information availability and lack of tangible assets or assets that can be readily evaluated. Firms developing software or new technology for the communications or biotech industries are largely investing in human capital. In a nutshell, the VC firm is a relative small financial services professional organization that functions primarily to: (a) assess business opportunities; (b) provide capital; and (c) monitor, advise and assist the firms in its portfolio. By investing, the venture capitalists accept substantial tranche of illiquid equity that converts their status to something like partners to the entrepreneur. The goal of the venture capitalist is not only to increase the value of that equity but also to eventually monetize the investment through a liquidity event such as an initial public offering or sale to other investors. The other way of reaping the reward is liquidation due to the firm failure and bankruptcy. In all of these scenarios, the venture capitalist exits their investment to complete the VC process. The venture capital cycle is briefly visualized in below chart. Chart 1 Fund flow of Venture Capital Cycle Source: National Venture Capital Association Yearbook 2008 The National Venture Capital Association in the United States defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have potential to develop into significant economic contributors. There are a number of key attributes associated with VC that distinguish it from other equity capital investments. Venture capital normally focuses on small firms that have great growth potential. These firms usually are not mature enough to be traded in public equity markets. Compared with public equity investment, venture capital investment has poorer liquidity with more severe information asymmetry and higher investment risks. Venture capital investment is also different from angel capital. Managers of angel capital use their personal money to invest. In contrast, investments professionals who raise money from other investors manage venture capital. Angle capital invests more often in the seed stage of the start up firms than venture capital does. Finally, venture capital is different from non-venture private equity investments (such as buyouts, restructure, and mezzanine funds). Firms backed by venture capital usually have considerable growth potential. For these firms, the cash flow generated from operations is usually insufficient to support finance growth and debt financing is usually not available. In contrast, private equity funds target more mature firms that have stable cash flows and limited growth potential. The Table 1 below summarizes the investment stages and types of funding for different investment styles. Table 1. Types of Funding and Investment Stage Source: A Guild To Venture Capital (3rd edition) by Irish Venture Capital Association There are five stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as: 1. Seed 2. Start-up 3. Other early stages (exploration) 4. Expansion 5. Maturity (exit). The definition of the company stage is different with the definition of the financing round. The negotiation of a VC investment is a time-consuming and economically costly process for all parties. Neither the VCs nor the portfolio firms want to repeat the process very often. Therefore VCs have to balance the cost of negotiation and potential risks from one time investment. Typically, a VC will try to provide sufficient financing for a company to reach some natural milestone, such as the development of a prototype product, the acquisition of a major customer, or a cash flow breakeven. Each financing event is known as a round. So the first time a company receives financing is known as the first round (or Series A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can return to the negotiating table with some new information. These milestones differ across industries and depend on market conditions. A company might receive several rounds of investment at any stage, or it might receive sufficient investment in one round to bypass multiple stages. One special situation is the down round. It is when the company does not meet milestones and the VC still needs to invest but at a lower valuation than prior round of financing. Venture Capital in China Why invest in China? There are four major popular arguments behind for the investment rush to east. Reason 1: High Rate of Economic Growth Chinas impressive economic growth for the past 30 years, averaging between 8% to 10% real growth per year, has been the envy of the developing world. The size of Chinese economy by the end of 2006 reached US$2.62 trillion, 13 times larger than that in 1978 when measured in constant RMB (MasterCard Worldwide Insight, 2007). According to Goldman Sachs China economic research (2003), per capita GDP expect to grow from less than $5,000 at that time to more than $30,000 in 2050 (refer to Chart 2). China will have a middle class of more than 500 million by 2025 larger than the entire population of the United States. It represents a huge emerging demand for everything from integrated circuits to cars. 500M mobile users, 130M Internet users, 104M broadband users and 4.5M college graduates every year could all transfer into huge business opportunity (represented in Chart 3). Based on the estimation (Chart 4) from Mckinsey, there will be sustainable market growth to 2025 in every business that related with peoples life and daily consumption. Huge opportunities for venture capital are Internet (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and traditional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments). Chart 2 China GDP Growth Forecast (2000-2050) Source: Goldman Sachs 2003 Chart 3 China Energy/Material supply imbalance (2010) Source: Goldman Sachs 2003 Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025) Source: National Bureau of Statistics of China; Mckinsey Global Institute Analysis Reason 2: Inefficient Capital Market In the United States and Europe, private and public capital markets compete as sources of capital. However, China does not yet have an equity culture despite the adoption of market-oriented policies. In China, the public equity market lists inefficient and unappealing state owned enterprises (SOE) most of the times. And government holds roughly 60-70% of share capital of most listed companies. Few private firms are listed in the stock market due to legal and policy hurdle. Chinas bond market is similarly underdeveloped. Chinese corporate bonds account for less than 2% of corporate financing. Thin trading between banks and investors makes issuing bonds unattractive for fundraising or investing. Insurers and fund managers therefore have few fixed-income securities to hedge against mid- and long-term risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans. The domestic banks, however, have tendency to provide loans to stated owned company rather than private firms, especially small and medium businesses (SMB). With the poor functioning financial markets and policy discrimination, venture capital and private equity become important sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc. Reason 3: Creative Solutions/Early Adopting Consumers One of the most unexpected attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese remain consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities. Online gaming, wireless instant messaging, and wireless value added services are just three markets that the Chinese more or less created out of thin air. Each of these businesses has growing customer bases (and have spawned successful public companies like Shanda, Netease, Tencent, and Linktone). But none of them has significant participants yet in the United States. Different consumer behaviors contribute to this phenomenon as well. In below case study on Tencent, it provides a great example on how to innovate the Internet product offerings to cater the needs of online generation. Case study: QQ of Tencent (Adapted from www.tencent.com) Tencent (listed in HK stock exchange) is the #1 Instant Messaging (IM) service provider in China. Tencents IM community counts over 270 million active accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. Same as other IMs, QQ is a free tool to use. Tencent, however, came up the idea to generate revenue stream by allowing users to buy and exchange virtual items (clothes and background image) online to decorate his or her QQ head icon. Tencent even created its own cyber currency called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrier of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M. Reason 4: Risk-taking, Innovative Culture In the last fifteen years, the privatization reform is one of the critical forces in stimulating China economy growth. This privatization wave also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing innovative ways to solve problems and create wealth both for individuals and for society at large. The successful stories of VC backed entrepreneurs further promote the risk taking culture in China and the awareness and popularity of venture capital. The Focus Media case below illustrates the power of business model innovation by its unprecedented expansion speed ever in Chinas business history. There is no doubt that foreign VCs played an important role in this story to make Focus Media successful. Case study: Focus Media China (Adapted from www.focus.com) Founded in 2003, Focus Media is Chinas largest Digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative approach in operating out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercial centers (like office buildings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs. By selecting and contracting with high quality commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. Tow foreign VC firms, Soft Bank and UCI, invested in the first round. And another five VCs, CDH, TDF, DFJ, WI Harper and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M IPO and now it is part of Nasdaq 100 index. Historical development Infancy stage: 1984 1995 In 1984, the Research Center of Science and Technology Development of the State Science Technology Commission (SSTC) (now the Ministry of Science Technology or MOST) cooperated with British experts to study how to develop high-tech in China. The British experts proposed that venture capital should be developed if China wanted to foster high technology. In 1985, the Central Commission of the Chinese Communist Party and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high-tech with quick change and high risk. It was the first time that the concept of venture capital appeared in an official Chinese Government document. With the government decision to develop high technology industries, the Central Government and some local governments financed and set-up series of investment institutions that intended to pursue the venture capital business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks. Simultaneously, some overseas investment banks, funds and venture capital institutions also started to expand their business into China. For example, the Pacific Technology Venture Capital Fund subordinate to IDG entered China in 1992. It cooperated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in technology companies. Also, some foreign capital or joint stock investment institutions established venture capital businesses. Asia Venture Capital Journal (AVCJ, 2001) shows that $16 million was raised for venture capital investments in 1991. In 1992, the total funds raised jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first wave reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first wave of venture capital investments was brought by international venture capitalists. The international venture capital firms accounted for more than 95% of the total fund raised in the early and mid 1990s. The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regulations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation essentially removed the possibility for venture capitalists to raise funds within China. It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could bypass the regulation because they were incorporated and they raised funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either. Early Growth: 1996 2001 From the mid-1990s, the perception of venture capital shifted from being a type of government funding to being a commercial activity necessary to support the commercialization of new technology. As there were still no laws or regulations about setting up foreign venture capital institutions in China, many overseas investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also located representative offices in some major cities, primarily Beijing and Shanghai. Most of the VCs active in China in the early 90s were American firms. The VC industry in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$110 billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of experienced American VCs started searching the world for investment opportunities, attempting to replicate the Silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish. Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, there were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital institutions with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom bubble burst and came with huge casualties. It took the VC community 3 years to recover. Fast Growth: 2002 present Although initial government-backed investment operations generally failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital available for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew rapidly from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mainland or mainland-related enterprises (Zero2IPO 2007). According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no more than $2B. The money chasing deal phenomenon started to emerge in China. Many foreign VC funds, especially first-time funds raised after 2005, had the pressure to pour out investment quickly to avoid US dollar depreciation against RMB and to get better deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace. Under the simple supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was focusing on local value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was sector specific. To get higher return under the competition, VC firms started to invest in traditional business models such as hotels, travels and fast food chains beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VCs were more like PE. Legal and Regulations According to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys legal system being paramount. Two major factors are paramount in evaluating legal system: contract law enforcement and protection of shareholder rights through effective corporate governance. Cumming and Macintosh (2002) observed that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and obtain higher returns. Cumming et al. (2004) further examined legal system effects on governance structure. Under better legal systems: the faster the origination and screening of deals; the higher the probability of syndication; less frequently funds of the same organization used to invest in a given company; the easier the board representation of investors; the lower the probability that investors required periodic cash flows prior to exit; and the higher the probability of investment in high-tech companies. Lerner and Schoar (2005) show that in a bad legal environment, PE/VC managers tend to buy controlling stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the legal environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the legal system, the accounting standards and investor protection across countries. However, more sophisticated PE/VC managers tend to operate in the U.S. style irrespective of local institutional concerns. The authors show that managers operating with convertible preferred stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments. Bottazzi et al. (2005) corroborate some of the previous results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to maintain the investment style used at home). This is observed in managers based in both good and bad legal environments. The Chinese regulations governing foreign venture capital investment are chaotic and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to foster domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that local governments provide financing assistance, favorable tax treatment, and direct investment in Chinese venture capital firms. They also provide less stringent capitalization, investment amount, investor qualification and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that include high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a). Substantial legal and de facto restraints on the ability of FIVCEs to access the stock markets in China and overseas for IPO listings make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on offshore holding companies created to receive their investments. Foreign venture capital firms (most of which are U.S. based) investing in China generally have done so through the restructuring of Chinese companies into offshore investment vehicles. These enable an easier exit from investments either by selling shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these transactions to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an offshore company without the approval of the Government, either directly or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to overseas companies, and to preclude domestic companies from using the overseas vehicles to gain foreign investor tax exemption status. However, they choked off legitimate transactions as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a halt in 2005 (Borrell and Jerry, 2005). Then, in November of 2005, the Chinese authorities issued superseding regulations. These require registration of offshore investment vehicles with the State Administration of Foreign Exchange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the scope of review nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b). Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China Medical Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005). Hidden risk and solutions Lagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problems: Chinas lawmaking on VC investment remains stagnant Existing laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment. Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide clear answers to these questions. Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined. There are three available approaches for foreign venture capital firms to enter China venture capital market legally. Establishing offshore venture capital fund focusing on China Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a legal person entity Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a non-legal person entity To avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore holding entities with all equity activities happening outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China. Offshore holding arrangement is a preferred structure for Chinese entrepreneurs and VCs as it provides a feasible and practical route for funding, divestment and all equity events. Its advantage and attractiveness to Chinese entrepreneurs and VC communities: Go away from laws and regulations in China. Many of them are not friendly to venture activities, such as lack of preferred shares, stock options limitation, double tax etc. Bypassing capital account control on foreign exchange. More flexible and usually profitable divestment options by overseas IPO, MA or trade sales. Offshore route investment involves the following steps: The Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China. With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise). The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. All equity events happen in offshore. Companies funding and IPO proceeds will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong Stock Exchange in vision. (The concept and process is visualized in chart 5.) Chart 5 Foreign VC Offshore Investment Process Source: A legal perspective on Chinas venture capital rush, Mar 2006 Restrictions in Chinas corporate regulations and limitations at the domestic capital markets explain foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or convertible preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company. Notably, local VC firms would have the possibility to arrange preferred stock scheme with their investee company according to a newly issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law. Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Even if listing conditions could be met, the queue in the pipeline waiting for a listing window is at the moment frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares. The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly twice of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place. This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take the

Gender Differences in Behavior Essay -- Child Observation Essays

In order to determine the gender differences in behavior in boys and girls, I observed seven activities for ten minutes, taking a total of five observations of the numbers of boys and girls each activity. This experiment took place on October 9th from 4’ o’clock to 4’ ten at County Elementary School. I performed this experiment in the school’s After School Program because having a smaller sample size is easier to keep count and observe. From the beginning of this experiment, there was a total of twenty-two boys and thirty girls, age ranging from six to eleven. Seven activities I recorded were basketball, four squares, jump rope, sliding, swinging, talking, and tetherball. According to Bjorklund, the process of incorporating gender roles and values is referred to as gender identification. This is important, since this allows children to label, behave, and perform the appropriate gender role. Factors that contribute to gender identification are gender constancy, knowing that a person’s gender does not change despite physical changes and gender stereotypes. Once children are able to achieve gender constancy, it would help them know that there are certain things boys do and certain things girls do. This accomplishment leads to gender schemas, an â€Å"interrelated networks of mental association representing information about the sexes (430-431).† According to Martin and Halverson’s model, developed gender schemas help children label objects and activities that are for their gender or for the other gender (431). For example, a boy knows that trucks are for them while Barbie dolls are for girls. In my observation, I have noticed that the children have already developed gender schemas because they were in activities that we... ...hemata that would help them learn how to label, behave, and perform the appropriate gender role. They used tools such as imitation and emulation to help them get toward their desired goal. I also learned that there is definitely an aggression and competition difference in what activities boys and girls plays. Activities that are considered less aggressive, such as jump roping, sliding, swinging, and socializing is considered a female activities because there is neither aggression nor competitions evoked from these activities. While activities such as basketball, four square, and tetherball are labeled as male activities because of the aggression and competition it evokes. Works Cited Bjorklund, David F. "Social Cognition." Children's Thinking: Cognitive Development and Individual Differences. Belmont, CA: Wadsworth Cengage Learning, 2012. 424- 38. Print.

Catal Huyuk was a Civilization Essay examples -- essays research paper

Catal Huyuk was a Civilization According to archaeologist in order to be defined as a civilization certain criteria must be met. Early archaeologists believed in order to be considered a civilization a society must have cultural superiority, which meant they must have the ability to read and write. If this was the sole criteria used to judge if a society was labeled a civilization, then you could say the Inca of South America, who constructed cities on top of mountains and had a complex system of irrigation canals, were not one because they did not have a system for reading or writing. Modern archaeologists now think of civilization as not better but different. The modern definition of civilization consists of the development of cities, or urbanization, the existence of a centralized political unit, a dense population in the thousands and a degree of organizational complexity. After reading and listening to class lecture I believe that Catal Huyuk should be considered a civilization. As you read on I will discuss point by point why I feel Catal Huyuk was a civilization.   Ã‚  Ã‚  Ã‚  Ã‚  Signs of craft specialization are very apparent at Catal Huyuk. There are a variety tools and weapons made from obsidian, flint, stone and bone. A process called flint knapping, or chipping, was used to shape a stone, like flint, into a sharp tool which could be used in arrowheads. Another process that was used in making tools was called grounding. This involved using two ston...

Meat Consumption

23 May 2011 One Bite At a Time Most Americans are aware of global warming, cancer, heart disease and the fact that the earth’s supply of good water is diminishing. In an effort to conserve our planet people drive hybrid cars, recycle, and use low energy light bulbs and appliances, which is great. However, most Americans are unaware and uninformed about how meat effects global warming, our health, and how much of our planet’s water and resources meat production consumes.Meat contributes to global warming, increases risk for cancer, causes heart disease and uses a tremendous amount of resources to produce, therefore people need to be informed about what they are eating through food labeling and Surgeon General warnings, as well as cutting back to appropriate portion sizes. Farming used to do good things for our planet, where as now its causing harm due to mass production and factory farms. â€Å"Traditionally, farm animals played a useful role . . . they ate grass, crop wastes, and kitchen scraps that people could not eat and turned them into good that people could eat.Their manure provided the soil with needed nutrients . . . the animals pulled plows and provided services that enhanced human life†(Robbins 233). Things have changed drastically since the days of simple farming. Today, â€Å"With the expansion and mechanization of animal farming . . . there are now 20 billion livestock on Earth- more than triple the number of human beings†(Robbins 234). The problem with having so many livestock on earth is that the manure that used to provide soil with nutrients now releases nitrous oxide, which contributes to global warming. According to the U.N Food and Agriculture Organization â€Å" Worldwide livestock farming generates 18% of the planet’s greenhouse gas emissions . . . all the world’s cars, trains, planes and boats account for a combined 13%†. However it’s more than just the manure contributing to global warming. FAO estimates that 70% of former forest covers were cut down to make room for grazing. This is a problem because â€Å"Lost forest cover heats the planet, because trees absorb CO2 while they’re alive . . . when they’re cut down or burned, the greenhouse gases are released back into the atmosphere†(Walsh).Cutting back on meat, or eliminating it all together would be a great way to help preserve our planet and much cheaper than a hybrid car. If meat production continues to grow, not only will it keep contributing to global warming, it will continue using the earth’s precious resources. The amount of food and water needed for farming is obscene. Water is something that we take for granted. There is no replacement for water, so when there is a 3 to 1 ratio from livestock to humans, why are we wasting so much of our earth’s precious water on livestock? Forty-two percent of the fresh water available to us in the United States is used for agricul ture† (Silverstone 25). Granted it’s not all devoted to animals, and the amount of water needed to produce meat varies in different parts of the country.In California, according to the Water Education Foundation, to produce one pound of California beef the amount of water required is 2,464 gallons; comparatively a pound of tomatoes only requires 23 gallons of water (Robbins 236-237). Think of how much water California would save if everyone cut back on meat. Then there is the other problem, how much food we use to feed the livestock. Sixty million acres of the United States are devoted to growing hay primarily for livestock, while we only use 13 million acres to grow fruits and vegetables†(Silverstone 25). If there were less of a demand for livestock, that would enable us to use the land devoted to growing hay for growing vegetables, fruit and other plant based foods while using considerably less water. Not only is meat taking a toll on the environment, it’ s taking a toll on the heath of America. Eating meat, especially the portions Americans eat, cause Heart Disease and increase a person’s risk for Cancer.The facts that there are triple the amount of livestock on earth means only one thing, that humans eat entirely too much meat. In fact, â€Å"The average person in the industrialized world eats more than 176lb of meat annually†(Walsh). People would argue that we need meat to survive, but in fact meat causes more harm than it does good because of saturated fats and cholesterol. â€Å"Cholesterol is found only in animal foods and is particularly concentrated in organ meats and eggs†(Davis and Vesanto 27), therefore, it would be hard to argue that cutting back or eliminating meat would be a bad thing.Another major problem is that meat contains a ton of saturated fats, which raise a person’s blood cholesterol and causes plague to clog arteries, clogged arteries lead to high blood pressure and heart attacks (S ilverstone). â€Å"More than anything else, blood cholesterol determines your likelihood of having a heart attack†(Marcus 10). There have also been many studies that link meat consumption to cancer. â€Å"Researchers at the University of California at San Diego have isolated a sugar molecule that shows up in many cancerous human tumors . . Not only does Neu5Gc seem to build tumors, our human bodies produce antibodies against Neu5Gc, which causes inflammation, helping the tumors to grow even more†(Silverstone 17). The connection between eating meat and cancer from the research done at UC San Diego is that the sugar molecule Neu5Gc comes from red meat and is not produced in the human body (Silverstone). In America people have a hard time recognizing that what they eat contributes to disease, they would rather put blame on smoking and drinking when it comes to cancer.However, â€Å"The American Cancer Society estimates that 75 percent of all cancers are the product of ou r environment and lifestyle . . . 30 to 40 percent of all cancers are caused by diet†(Davis and Melina 32). The consumption of meat has also been liked to Osteoporosis; â€Å"When you eat meat, your blood becomes acidic . . . In order to balance all the acidity, your bones come to the rescue by releasing some of their minerals†(Silverstone 17). â€Å"Diets†, in America revolve heavily around meat and dairy products; no wonder cancer is the second leading cause of death.These are significant problems because Heart Disease and Cancer are the number one and two killers in America. â€Å"Almost one of every two Americans will die from Heart Disease . . . 40 million diagnosed with heart disease, and 1. 5 million a year having heart attacks†(Marcus 8). There is no denying that disease is developing at a rapid pace. Everyone knows someone who had or has cancer or heart disease. They are awful diseases, and â€Å"a high-fat, animal based diet is the single most s ignificant cause of death from heart disease†(Marcus 3).If people cut back or eliminated animal products from their diets, not only would they be eating less of the foods that cause their bodies harm, they would be eating more nutrient rich foods (fruits and vegetables) that help fight off and prevent disease. â€Å"Doctors like Dean Ornish and John MacDougall have discovered that plant-based diets have the power to reverse heart disease, diabetes, even cancer†(Silverstone 7). One might argue that eating vegan or vegetarian is expensive; but would you rather pay a little bit more at the grocery store now, or pay for an xpensive heart surgery or chemotherapy because of what that inexpensive meat did to your body? There are some things already being done in an effort to get Americans to cut back on meat, but they aren’t enough. Yes, there are more vegetarian options at grocery stores now; you no longer have to go to a specialty market to get vegetarian options. In major chain grocery stores like Ralph’s and VONS, they carry vegetarian brands of non-meat items like Boca and Garden burger; you can buy tofu, tofurkey, non-dairy cheese, yogurt and milk.The only problem is that its not always easy to find, they usually have a separate â€Å"heath food isle† where they keep all the non-animal products. Then there is the John Hopkins’ Bloomberg School of Public Health. They have started a global movement to get people to cut back on meat by reinventing a campaign called Meatless Mondays that was based on a campaign used during WW1 to conserve food for soldiers. In 2003, they recreated Meatless Mondays as public heath awareness program to help Americans reduce their risk for preventable disease by cutting back on meat. It was originally endorsed by over 20 schools of public health and is now global.Countries, hospitals, restaurants and Universities around the world are joining the movement for Meatless Mondays; it could always ge t bigger though. If there was backing from our government like there was during WW1 just think of how much larger this campaign could get. During that time, â€Å"The effect was overwhelming . . . In November 1917, New York City hotels saved some 116 tons of meat over the course of one week†(Meatless Mondays). If the U. S food administration made the same effort today, the United States could be one step closer to a healthier population. There needs to be a Surgeon General’s warning on meat products.The duties of the Surgeon General are to â€Å"Protect and advance the health of the nation through educating the pubic, advocating for effective disease prevention and health promotion programs and activities, and, providing a highly recognized symbol of national commitment to protecting and improving the public’s health†(Surgeon General). If the Surgeon General serves as â€Å"America’s doctor†, and is concerned advocating for disease preventio n, they should take a serious look at promoting a low fat plant-based diet. According to â€Å" Dr. William Castelli, director of the Farmington Heart Study . . a low-fat plant-based diet would decrease an individual’s risk of heart attack by 85 percent†(Silverstone 16). The government, starting with the Surgeon General, also needs to do their job in educating the general public on what meat does to their bodies. Everyone is familiar with the Surgeon General’s warning on cigarettes, that smoking causes cancer and increases you risk for heart disease; if eating meat causes heart disease and increases risk for cancer and other diseases like osteoporosis it is important people know what they are putting in their bodies just like cigarettes.Food labeling needs to be the same for meat as it is for every other food product. Almost everything you buy these days has a nutrition label except for fresh meat and poultry. At the end of 2009 the Department of Agriculture pro posed a solution that forced grocery stores and supermarkets to provide nutrition facts. However, the solution doesn’t work because the grocery stores and supermarkets don’t have to put it directly on the package; they can put the nutrition facts on a poster, pamphlet, or anywhere in the store that is available to customers if they request (Hurley and Liebman).If they were forced to add the nutrition facts directly to the package on fresh meats just like every other food product out there, it would at least inform people on what they are putting into their bodies and reduce the amount of meat purchased, and therefore reducing the amount of meat produced. Restaurants need to decrease portion sizes and offer non-meat items. â€Å"The U. S department of Agriculture says that a typical serving of steaks, roasts, chops and poultry parts is just 3 ounces†(Hurley and Liebman).Most restaurants typically serve a six-ounce chicken breast, and the size of a steak ranges fr om 6 to 12 ounces. That is a huge problem right there, no wonder obesity is a problem in the United Stares. If restaurants were required to serve the appropriate serving size recommended by our government and health officials, there would be less people eating meat, which would once again lead to less meat being produced. Another problem with restaurants, especially chain restaurants are that they don’t always serve non-meat items. I have worked for T.G. I Friday’s for the past seven years, and they don’t even serve a veggie burger. Restaurants should be required to serve a vegetarian option. Most people love dining out and if they had non-meat options it would allow them make healthier decisions and help contribute to the reduction of the amount of meat produced. If Americans want to do their part in conserving our planet while reducing their risk for heart disease, cancer and other nasty diseases they need to consider how what they eat effects themselves and t he environment.The government needs to provide guidelines and Surgeon General warnings to help inform and guide our nation to eating less meat and living a healthier lifestyle. If we all do our part one bite at a time we will have a healthier nation, reduce the amount of harm farming is doing to our planet (because their would be less livestock on earth), as well as use less of our earth’s precious resources.Works Cited â€Å"A Campaign Becomes a Movement†. Meatless Mondays. n pg. n. d. Web. 11 May 2011. Davis, Brenda and Melina, Vesanto. The New Becoming Vegetarian. Summertown, Tennessee: Healthy Living Publications, 2003. Print. Hurley, Jayne and Liebman, Bonnie. â€Å"The Kindest Cut†. Nutrition Action Health Letter. 37. 8 (Oct 2010): pg. 13. Web. 11 May 2011. Marcus, Erik. Vegan The New Ethics of Eating. New York: Mcbooks Press, 2001. Print. Office of Surgeon General. â€Å"About the office of the Surgeon General†. Surgeon General. n. pg. n. d. Web. 9 May 2011. Robbins, John. The Food Revolution. San Francisco: Conari Press, 2001. Print. Silverstone, Alicia. The Kind Diet. New York: Rodale Inc, 2009. Print Walsh, Bryan. †Meat: Making Global Warming Worse†. Time. Sept. 2008:n. pg. Time. com. Web. 3 May 2011.

Design House Partnership

‘I can’t believe how much we have changed in a relatively short time. From being an inward-looking manufacturer,we became a customer-focused â€Å"design and make†operation. Now we are an integrated service provider. Most of our new business comes from the partnerships we have formed with design houses. In effect, we design products jointly with specialist design houses that have a well-known brand, and offer them a complete service of manufacturing and distribution. In many ways we are now a â€Å"business-to-business† company rather than aâ€Å"business-to consumer† company. ’ (Jim Thompson, CEO,Concept Design Services (CDS)) CDS had become one of Europe’s most profitable homeware businesses. Originally founded in the 1960s, the company had moved from making industrial mouldings, mainly in the aerospace sector, and some cheap ‘homeware’ items such as buckets and dust pans, sold under the ‘Focus’ brand name, to making very high-quality (expensive) stylish homewares with a high ‘design value’. The move into ‘Concept’ products, The move into higher-margin homeware had been masterminded by Linda Fleet, CDS’s Marketing Director, who had previously worked for a large retail chain of paint and wallpaper retailers. ‘Experience in the decorative products industry had taught me the importance of fashion and product development, even in mundane products such as paint. Premium-priced colours and new textures would become popular for one or two years, supported by appropriate promotion and features in lifestyle magazines. The manufacturers and retailers who created and supported these products were dramatically more profitable than those who simply provided standard ranges. Instinctively, I felt that this must also apply to homeware. We decided to develop a whole coordinated range of such items, and to open up a new distribution network for them to serve upmarket stores, kitchen equipment and speciality retailers. Within a year of launching our first new range of kitchen homeware under the â€Å"Concept† brand name, we had over 3000 retail outlets signed up, provided with point-of-sale display facilities. Press coverage generated an enormous interest which was reinforced by the product placement on several TV cookery and â€Å"lifestyle† programmes. We soon developed an entirely new market and within two years â€Å"Concept† products were providing over 75 per cent of our revenue and 90 per cent of our profits. The price realization of Concept products is many times higher than for the Focus range. To keep ahead we launched new ranges at regular intervals. ’