Asimco-Nanyue Joint Venture in China

Abstract

This case is written for a course on emerging markets finance. It can be used to teach valuation, merger and acquisition, and financial forecasting in an emerging market setting. Intrigued by growth opportunities in China, Jack Perkowski, a retired Wall Street investment banker, raised a venture capital fund with the backing of two large U.S. institutions in 1994 to found Asian Strategic Investment Company (ASIMCO) to explore private equity investment opportunities in China. After visiting more than 100 automotive component factories in China, Perkowski and his partners identified a few state-owned factories as potential equity joint venture partners. On top of the list was Nanyue Fuel Injection Pump Assembly Company, Ltd. (Nanyue), one of China�s largest fuel injection pump manufacturers. After three months of negotiation, the two parties struck a deal under which ASIMCO and Nanyue would enter into a joint venture with ASIMCO holding the majority ownership. Should Perkowski and his partners give this joint venture agreement their final approval? And if so, how should Perkowski integrate and restructure its state-owned partner, Nanyue? More generally, should ASIMCO invest in China�s automotive component industry?

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This case was prepared by Dong Li under the supervision of Associate Professor Wei Li. It was written as a basis for
class discussion rather than to illustrate effective or ineffective handling of an administrative situation. The authors
gratefully acknowledge the financial assistance of the Darden School’s Batten Institute. Copyright  2001 by the
University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an
e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation. Rev. 9/05. ◊



ASIMCO-NANYUE JOINT VENTURE IN CHINA


It was a warm July morning in 1994 in Beijing. Jack Perkowski arrived at Asian Strategic
Investment Corporation (ASIMCO) headquarters at 7:20 a.m. Sitting down behind the desk in
his spacious corner office on the top floor, he could see construction cranes spanning the
horizon, basking in the morning sun. It was an awesome sight for many of his visiting friends
from the United States. But Perkowski barely noticed it. His mind was instead preoccupied by
the proposed joint venture between ASIMCO and Nanyue Fuel Injection Pump Assembly
Company, Ltd. (Nanyue), one of China’s largest fuel injection pump manufacturers. Compared
with most of the deals that he had done in his Wall Street years, this joint venture was small,
with a capitalization of only $15.31 million. Perkowski, however, felt that he and his venture
partners had spent more time and effort conducting due diligence on this investment than he
would normally do on deals dozens of times larger in the United States. Yet given the many
uncertainties about the current and future economic and political conditions in China, about the
market conditions for China’s automotive components industry, and about the operations and
staffing issues at the plant, Perkowski still wondered if he could make this joint venture work for
him and for his investors. At 8 a.m., he and his two venture partners, Tim Clissold and Ai Jian,
would meet to make a final decision on whether to proceed with the joint venture or to look for
investment opportunities elsewhere in China. With 40 minutes to go before the meeting,
Perkowski thought he could use the time to reflect on the extraordinary sequence of events that
led him to become one of the largest foreign investors in China.


Jack Perkowski and ASIMCO

Jack Perkowski received his BA from Yale University (cum laude) in 1970 and MBA
from the Harvard Business School (where he was a Baker Scholar) in 1973. Then he joined
Paine Webber and was promoted to director of investment banking. He left Paine Webber in
1989 to become managing director of a leveraged buyout firm he formed with telecom billionaire
John Kluge. By 1990, Perkowski was looking for something where he could apply his Wall
Street experience. His competitive instincts pointed him toward East Asia. Perkowski first

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arrived in China in 1992. While most investors spread their China investment across a range of
industries, Perkowski decided to adopt a more focused strategy, at least in the beginning.

Inspiration came at a Shanghai business conference in 1992, when Perkowski heard a
senior Volkswagen executive complaining about the difficulty in finding reliable parts suppliers
in China. Perkowski decided that he wanted to be the kind of supplier Volkswagen needed. He
first recruited two partners, Tim Clissold, a British accountant formerly with Arthur Anderson,
and Ai Jian, a former official at China’s Foreign Trade Ministry, to create what would remain the
core ASIMCO management team.

The trio spent nine months on the road in China, investigating more than 100 vehicle-
components factories as potential joint-venture partners. At each stop, he and his partners were
wined and dined by local officials who were actively seeking foreign investments. “I got used
to drinking Maotai and learned not to ask what was in each dish,” said Perkowski. “But in the
end, I figured that I probably ate every part of every animal.” In December 1993, “just when my
liver was about to give up,” he said, “I went back to the United States to raise my China
investment fund.”

Reaching out to his Wall Street contacts, Perkowski quickly secured funding from large
institutional investors. In February 1994, he founded ASIMCO. At first, share ownership was
split equally between the original venture capital partnership (Perkowski-Clissold-Jian), Trust
Company of the West (TCW), and Dean Witter. Dean Witter later sold its share to General
Electric Pension Trust (GEPT) (see Exhibit 1). Representatives from GEPT and TCW, together
with senior members of the ASIMCO management, formed the advisory committee that
provided oversight over ASIMCO’s operations. With a registered capital of $300 million in
1994, ASIMCO became one of the largest foreign investors in China.

ASIMCO strove to become one of the largest and most competitive China-based auto
components suppliers in the world. ASIMCO’s investment strategy involved selecting the best
companies it could find, adding capital, technology, and management, rationalizing production,
and introducing quality control. The essence of ASIMCO’s initial approach was to bring about
changes by identifying local managerial talents who already had track records of success and
understood the importance of being globally competitive. Then ASIMCO would provide them
with access to the latest financial, manufacturing, and marketing practices. Well-conceived
industry strategies would enable ASIMCO’s joint ventures to benefit from the synergies
available to companies with complementary product lines and capabilities. ASIMCO planned to
focus on five main product lines: iron and aluminum castings, light- and heavy-duty brake
systems, diesel fuel injection systems, electrical products, and engine parts.

To be successful in China, ASIMCO had to overcome many obstacles. Experienced
managers were hard to find locally. Managers whose experience was mostly with state-owned
enterprises tended to be highly bureaucratic, while managers and owners of the newly emerged
private firms were often not team players and had a penchant for taking uncalculated risks. The

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