How to Score in Asia

When it comes to football, I’d much rather watch my University of Washington Huskies than a professional team. Still, I did get interested when the NFL announced that the New England Patriots will play the Seattle Seahawks in an exhibition game in Beijing next August.

This will be the first time an NFL game has ever been played in China, and it’s happening exactly one year before the start of the 2008 Olympic Games. But make no mistake: This is not about building goodwill … it’s about building a good business.

The NFL is probably envious of the National Basketball Association’s success in China, largely due to 7’1″ Yao Ming of the Houston Rockets. The NBA’s revenues from China have been increasing 30% a year, according to Commissioner David Stern.

Stern has also said that China is the NBA’s most important market outside the U.S. Now, that’s really saying something! No wonder the NBA has three offices and 50 employees over there.

Baseball, considered our national pastime, has also been capitalizing on Asia. In Taiwan, I saw lots of New York Yankees shirts sporting pitcher Chien-Ming Wang’s number 40.

Heck, my uncle in Aizuwakamatsu, a small town in central Japan, routinely stays up until the wee hours of the morning to watch Ichiro Suzuki of the Seattle Mariners.

Bottom line: American sports leagues are aggressively expanding overseas because they know there’s a mountain of money to be made. Many other American corporations are doing the same thing. So you don’t have to invest in Chinese companies to grab a piece of the Asian growth machine …

Here Are Six
U.S. Companies
Playing Asia

None of the following firms garners the majority of its revenues from Asia. However, each of these companies realizes that Asia is going to be absolutely essential to their profitability in the future. That’s why they’re building up their overseas businesses …

Starbucks currently has about 12,000 stores, 400 of which are in China. But just last week, Starbucks boasted that it expects to open 28,000 more stores over time.

Where is most of that growth going to come from? According to CFO Michael Casey, the company’s biggest market, outside of the U.S., will be China.

Motorola, the world’s second-largest cell phone maker, said last week that it expects to capture 25% of China’s mobile phone market by the end of this year.

In my opinion, they’ll probably do it. After all, in May, Motorola had 21% market share.

China is the largest cell phone market in the world, with more than 300 million cell phone users. So 25% of that market would deliver a giant chunk of Motorola’s profits.

Yum Brands owns a host of restaurant chains, including Long John Silvers, Pizza Hut, and Taco Bell. The company has 34,000 stores around the world.

Its Chinese division has grown to more than 2,400 locations, making China its top growth market. China contributed more than $200 million to Yum’s 2005 operating profits!

Tiffany’s, the famous jewelry house, garnered a full 28% of its revenues from Asia in 2005.

While that’s a lot, Tiffany’s says its Asian business is growing by more than 10% a year. It seems as though Breakfast at Tiffany’s is increasingly being eaten with chopsticks!

Coca-Cola has invested $1.1 billion in China since 1979. It has a wholly-owned unit, Coca-Cola China Ltd., which operates as a local company.

Coca-Cola predicts that China will become its third biggest market by 2008. Coke has 34 bottling plants in China and plans to build even more.

General Electric, one of the largest companies in the world, is counting on sales in China to expand between 18% and 20% a year.

Based on the company’s diversified businesses, and the rapid development in Asia, GE’s certainly got a solid chance of meeting that goal.

Now, I’m not saying you should buy any of these particular companies. But they do demonstrate just how important China has become to U.S. firms.

When it comes to choosing where to put your money, I think there are two important questions you need to ask …

Question #1:
Does this company have a strategy for China?

This should be easy to answer. If a company isn’t taking serious steps to grab their share of the booming China market, they’re going to have a very hard time growing at a rapid rate.

In my book, companies that can successfully tap into China â€” like Starbucks, Motorola, or Yum Brands â€” have the best shot at being the big winners of tomorrow.

Question #2:
Is this company competing against China?

One of the costliest investment mistakes you can make is holding stocks that are directly competing against Chinese firms.

Here are some industries I’m especially wary of: Computers, electronics, apparel, toys, furniture, housewares, chemicals, basic materials, paper, machinery, shipbuilding, and plastics.

What’s the problem? American companies have to fork over high wages and deal with other large costs, while their Asian competitors don’t.

In fact, just last week, Senators Charles Schumer (D, NY) and Lindsey Graham (R, SC) abandoned legislation that threatened to impose a 27.5% tariff on U.S.-bound Chinese exports. If that’s not a green light for Chinese competition, I don’t know what is.

My message to you is this: Invest in whatever China’s buying, and stay the heck away from whatever it’s selling. To score big, you’ve got to seek out great companies with solid business plans for Asia.

Best wishes,

Tony

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MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.

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