China vs. India

At a recent assembly of private equity professionals targeting Asia, the discussion boiled down to the merits – and drawbacks – of investing in the continent’s two largest countries.

When a group of private equity professionals actively investing in Asia recently met for a roundtable discussion at a conference organised by a Harvard Business School alumni group, the discussion evolved into a debate over whether to place one’s bets on India or China.

Placing his bet on China was Leonard Harlan, president and co-founder of New York-based private equity firm Castle Harlan. According to Harlan, China’s energy and transportation sectors are undergoing rapid expansion, creating the infrastructure necessary to support private equity investments.

In comparison, “India’s infrastructure is terrible, and the country’s bureaucracy grinds everything to a halt,” said Harlan.

Leonard Harlan: Infrastructure is key

Harlan contended that the boom in India’s software industry has taken place because it does not rely heavily on transportation infrastructure or bureaucratic approvals. “China is moving more rapidly, and India will be hobbled until it gets its act together,” concluded Harlan.

Regarding India, participants agreed that the foundation exists for successful private equity investing, but many challenges remain as well.

Ramanan Raghavendran, a senior partner at New York-headquartered TH Lee Putnam Ventures, identified the entrepreneurial nature of the Indian population, the growing liquidity in the local capital market, and the already realised returns on Indian investments as reasons to consider investing in India.

Meanwhile, Parag Saxena, CEO and managing partner of New York-based INVESCO Capital, acknowledged India’s infrastructure as being “terrible”, but argued that not only is the situation improving, but India’s infrastructure situation also presents opportunities for private equity. “For mass production, you go to China,” Saxena said. “For value-added products, you go to India,” since companies are not going to want or be able to transport heavy parts and machinery on India’s poor infrastructure.

However, Raghavendran tempered his positive assessment of investing in India with examples of obstacles to investments, particularly India’s dearth of local management expertise, patchy dealflow, fragmented political landscape, and stock market volatility.

The panellists did not reach a consensus on the China-India debate, but all agreed that success is heavily influenced by one’s familiarity with the region. “I get a little scared about both countries from the standpoint of buying control of local companies,” said Harlan. “Success requires working closely with the company long before making the investment, as well as understanding the local culture.”