Venture capital funds combing China for investment opportunities have discovered the joy of outsourcing.
Their focus is not just on low-cost outsourced manufacturing, although that sector remains a major draw for private equity. Chinese outsourcing is climbing steadily up the value-added chain into software, hi-tech medicine and other sectors requiring intensive application of highly skilled labour.
While private equity investment in Asia in the first six months jumped 21 per cent to US$8.6 billion, mainland investments have risen fivefold to US$1.2 billion, according to Asian Venture Capital Journal. A large chunk of this money has gone into outsourcing
'This is a very hot area right now,' said Sheng Qiang, director of the newly opened Shanghai office of Crimson Ventures. Until now, Crimson has invested its US$600 million fund in manufacturing firms in Taiwan and Singapore, some of which have plants in the mainland.
One Crimson investment, SPI technologies, has grown to employ 6,000 in the Philippines, India and China, storing data for the likes of Microsoft and the British Ministry of Defence.
Two months ago, Crimson opened an office in Shanghai to invest directly in Chinese companies. 'Originally, China was good for low-end products, like textiles. Now you see more traditional manufacturing like auto parts and medical equipment,' Mr Sheng said.