China Investment Environment
Understanding investments in China

China has a unique and complex culture; successfully doing business in China requires expertise in the way the business community and government agencies' work, a thorough understanding of what makes things happen in China, and most importantly, knowledge of Chinese culture. CIVC's multi-cultural team has the expertise needed to succeed in China. CIVC was formed by leading private equity investors that are thoroughly educated in China's high-tech and investment industries. The Fund's investment strategy has also taken into account an analysis of why foreign companies have not been able to succeed in China in the past, and focuses on how the Partnership can learn from those errors:

Typical annual spending for R&D in most Chinese companies is a mere 1%-2% of the company's total budget, which stifles the development of these companies and prevents them from maintaining their current market share. Increasing R&D spending is a challenge in itself; however, the bigger issue is the time that is needed to form R&D capabilities. Current R&D conditions in these companies cannot meet the rapidly growing market demand for new advanced products. CIVC's solution is to provide Chinese companies with complementary, proven Israeli technology, customized to meet the needs of the Chinese market.
The creation of jobs and increased wealth in China is of primary importance to the Chinese Central and Provincial Governments. Chinese enterprises prefer to purchase goods and services from other Chinese suppliers rather than from foreign vendors to serve this strong motivation. When goods and services are purchased from a foreign source, it is done as a short-term strategy until other Chinese companies develop similar products and services. Therefore, no long-term relationship or growth can be expected for foreign entities selling to Chinese customers. CIVC plans to join forces with foreign technology companies that will produce advanced technology in China, allowing Chinese companies to grow into global leaders thus creating more jobs and further strengthening the domestic economy.
China is looking to shift its reputation as the world's manufacturing hub to becoming a global leader in product design and innovation, and Chinese companies are striving to be leaders in their respective domains. Understanding this effort has been critical to developing the Fund's investment strategy, as CIVC plans to establish joint ventures that will allow Chinese companies to be part of the creative design process.
In some high-tech industry sectors, especially in the software market and medical devices, Chinese enterprises prefer to buy "software as a service" and medical services, rather than purchasing up-front licenses or costly machines. CIVC's solution in these sectors is a "service business" investment model, thus overcoming the high expenses and resulting in gaining market share.
China is undergoing a tremendous wave of privatization; many of the 159,000 revenue-generating SOEs in China are potential candidates for privatization in the next decade. The Chinese government recognizes that these companies are being held back from becoming more efficient and profitable, so, to facilitate privatization, the Chinese Government is allowing for preferential terms to potential investors. The SOEs that are being privatized are in need of management expertise, investment funds, and advanced technologies to help them achieve and maintain strong positions in the fast-changing competitive market. CIVC created a winning investment model with an emphasis on "hands on" work and training of target companies that can resolve many of these issues.
The development of CIVC's investment strategy has been influenced by an analysis of the past failures of foreign investments and companies in China. These failures were in part a result of not fully understanding the following:

The need to apply different business models when investing in China, as mentioned above;
The Chinese business culture and the importance of cultivating personal relationships with potential Chinese partners;
The importance of Guanxi, a central aspect of successfully doing business in China, including gaining exposure to proprietary deal flow and performing thorough due diligence;

The factors that drive the Chinese Government, how the Chinese Government works, and why the Western assumption that "money can buy everything" may not be true in China;

The importance of working with the right Chinese partners for joint investments, and taking in account risks control and potential profits;

The importance of the time factor. In the past, there was a lack of Chinese Government readiness for potentially successful investments, today after the changes in legal and financial rules and regulations; China is fully ready to cultivate successful investments and exits.

CIVC is a unique investment vehicle - CIVC's multi-cultural Managers provide the complimenting skills ensuring successful investments in China, with knowledge of Chinese and foreign cultures, experience in global organizational procedures, the benefits of both private and governmental organizations, extensive technical and professional expertise and long-term investment experience to ensure lower risks with higher returns.