Y. Stuart Nam, Esq.

1
Partnering as a Cost-Efficient Strategy to
Penetrate Asian Technology Markets

• Y. Stuart Nam, Esq.
• Founder Managing Director
• Principia Group, Inc.
• Silicon Forrest Forum, Oct. 12, 2002

2
What Asia means for U.S. Tech Firms

• Large rapidly growing markets
• Across the board software, components,
  services, content, etc.
• Demographics highly attractive long-term
  opportunity
• Favorable govt policy fostering IT industry a
  top priority
• Key production base
• Cost-efficient supplier of parts
• Highly educated IT work force RD, design, OEM,
  etc.
• Reliable engineering/manufacturing support

3
What Asia means for U.S. Tech Firms

• Biggest buyer of U.S. technological IP
• Japan Korea account for almost half of U.S.
  total licensing receipts (44 in 1999)
• Biggest IT export market
• Japan, largest importer
• Hong Kong, Singapore, Korea, Taiwan together a
  quarter of total U.S. technology exports
• Biggest potential
• Four emerging Asian economies (EAEs) China,
  India, Indonesia, Malaysia
• Rapidly increasing U.S. IT imports (est. at 10
  billion)

4
Profiles of Asian Countries

• Japan
• Second largest, most developed economy
• Largest wireless market
• Cell subscribers 60 million
• Mobile Internet users 30 million
• Government commitment to IT
• The e-Japan Strategy aims to make Japan words
  most advanced IT nation within 5 years
• IP rights protection low risk

5
Profiles of Asian Countries

• Korea
• Tenth largest, still fast-growing economy
• 4.1 GDP growth expected for 2002
• Contribution of IT to GDP growth 50.5 in 2000
• Vibrant IT industry
• Highest high-speed Internet penetration in the
  world (distribution rate per 100 persons Korea
  9.1, U.S. 2.2, Japan 0.8)
• Strong government commitment and support
• IP rights protection low risk

6
Profiles of Asian Countries

• Taiwan
• Asian IT leader after Korea and Japan
• Awarded more U.S. patents than Canada (Top 5) in
  1999
• Increasingly competitive in electronics/telco
• IP rights protection risky
• Singapore
• Strong government initiative to attract IT
  talent, capital (e.g. 1 billion
  Technopreneurship Investment Fund)
• English-speaking workforce, marketing savvy, good
  infrastructure
• Limited home market/narrower tech foundations
• IP rights protection low risk

7
Profiles of Asian Countries

• Hong Kong
• Considerable capital and technology resources
• Small population and limited technology
  foundation
• Political integration with China opportunity
  and challenge
• IP rights protection risky
• Malaysia
• Leader in technology among EAEs
• Large foreign investment in form of high-tech
  manufacturing facilities (but mostly platform or
  assembly operations)
• IP rights protection risky

8
Profiles of Asian Countries

• India
• Considerable IT strengths and weakness
• Highly qualified scientists, engineers, excellent
  in basic research
• Yet among highest illiteracy rates in region
• One of the worst socioeconomic infrastructures
• Hostile toward foreign investment (although
  improving)
• IP rights protection highly risky
• Indonesia
• Mixed signs in tech development and
  competitiveness
• Large populations, tremendous economic growth
• Central govt places high priority on technical
  training and development
• List of challenges long and complex
• IP rights protection highly risky

9
Profiles of Asian Countries

• China
• Its sheer size, dynamics and complexity deserves
  more detailed analysis
• In theory, the largest potential IT market in the
  world (e.g. billion population, fast growing
  economy)
• In reality, theoretical potential remains a
  theory
• Rampant piracy (top priority for USTR)
• Multiple bureaucratic hurdles
• Today, highly risky for many start-ups to
  consider
• direct engagement

10
How to Approach Asian Markets

• Consider each market potential separately
• Comprehensive Asia expansion plan doesnt work
• Realizable potential often at odds with popular
  perception
• Research and design flexible plan
• Use numbers and facts, not cultural
  misperceptions
• Develop strategy that can be flexible
• Expect challenges
• Be prepared to adapt and change
• Commitment and time precede success

11
Getting Started

• Finding suitable partners
• Rresearch ideal partner, dont rely on limited
  connections
• Ask what you can do for them in the U.S. market
• Watch out for parent companys interest (many
  tech firms part of a conglomerate)
• Building relationships
• Business is built on trust, not legal contracts
• It takes time, but reputation in local markets go
  far
• Developing distribution channels
• Bundling, customization, AS all crucially
  important
• Use existing channel consider local
  competitors

12
Why Partner?

• Grow at home, go abroad strategy no longer
  viable
• Partnering makes emerging growth firms move in
  swift
• Only large companies can afford time,
  cost-consuming, me-alone penetration
• Lots of partnering opportunities with Asian firms
• U.S. market is their No. 1 target
• U.S./Asian technology highly compatible/mutually
  adaptable
• Survival strategy during recession
• License your IP in exchange of capital
• Take cue from Asia where its ahead of U.S. (e.g.
  wireless)

13
Case Study 1

• Early-stage biotech company in the Valley
• Seed-funded, needs to raise 10 million to move
  ahead
• Virtually impossible to raise in the current
  market
• Most of capital for expensive RD
• U.S. pharmaceutical firms not interested
• Recession, focus on later-stage bio products
• Technology still too early in development, etc.
• Korean pharmaceutical firm shows interest
• Wants to invest in form of joint RD plus cash
  for licensing
• Parent conglomerate has strategic interest in
  expanding its RD center
• Deal offers validation, cash, new market access
  for U.S. firm
• Partnership likely to make the bio firm more
  attractive target for U.S. VCs

14
Case Study 2

• Mobile Gaming Company
• Well funded by top VCs in the Valley
• But U.S. mobile gaming market still limited
• Determining possible next steps in Asia
• In-depth research on Asian market (e.g.
  countries, carriers, content aggregators, game
  developers)
• In-depth research on Asian companies (e.g. power
  players, office politics, actual decision-making
  process)
• The approach
• Both high-level and working-level
• Offer to realize parent conglomerates U.S.
  market ambitions (e.g. distribution, licensing
  Hollywood content)

15
Successful Partnering Strategies

• Research, research, research
• Find an ideal partner, dont settle on company
  you know
• Let business logic drive understand their true
  motivation, their U.S. market ambition
• Beyond research gather intelligence
• Interview local insiders only they know inside
  scoop
• Knowing the target decision maker and his/her
  motivation equally important often bureaucratic
  and hierarchical
• Negotiate for your success
• Seek win-win dont be greedy
• Use facts and business logic offer creative
  solutions

16
A Few Final Tips

• Leverage their desire to get exclusives
• Asian companies often seek exclusive liscensing
  deals for their home country market and beyond
  often based on revenue-sharing
• Think twice about liscensing if
• Potential partner can pose a direct challenge in
  U.S. market at later date (licensing often
  understood as passive transfer of technology and
  know-how)
• Alliance with Asian companies work only when
• You really know them (dont just communicate via
  phone and email, visit and sit down with them)

17
For Follow-Up Questions

• Y. Stuart Nam, Esq.
• Managing Director, Principia Group, Inc.
• 600 Townsend Street, Suite 120E
• San Francisco, CA 94103
• Tel [phone]
• Cell [phone]
• Fax [phone]
• yuchol_at_principiagroup.com
• www.principiagroup.com