The Chinese Emperor and His Number Two: Xi-Li Power Shift, What It Means for Value Investors and the Story of Hangzhou Robam

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

Dear Friends and All,

The Chinese Emperor and His Number Two: Xi-Li Power Shift, What It Means for Value Investors and the Story of Hangzhou Robam

Deng Xiaoping needs the number two man Zhu Rongji in China’s quest for prosperity in the 1990s as “Zhu Laoban” (朱老板, “Zhu the Boss”) pushed through wrenching state-sector reform and terrorized corrupt officials. Singapore’s Lee Kuan Yew has Goh Keng Swee, the economic architect who is said to feel depressed every time he passed by a school at the end of the school day as his thoughts were on how to find gainful employment for the school-leavers every year. The late Indonesian strongman Suharto is aided by Widjojo Nitisastro, the legendary architect of Suharto’s New Order economy. Wal-Mart is unstoppable when Sam Walton has David Glass as the key architect to implement the automated distribution vision at Wal-Mart since 1978 and is since up 1,000-fold to $250 billion in market value. Thailand’s Thaksin had Somkid Jatusripitak but the once-successful Thaksinomics ended with Somkid’s departure in 2006. The importance of a good number two man has been neglected and Thaksin’s parting shot then at the co-founder of the Thai Rak Thai Party has been predictive of his own future downfall: “Whether Somkid is in my next government or not is irrelevant to confidence in my government among business leaders. Nowadays, I am the main person who works. Everybody else in my cabinet is just my helper.”

Chinese President Xi Jinping (Right) and Premier Li Keqiang (Left) hold umbrellas as they arrive for a tribute ceremony marking the 64th anniversary of the founding of the People’s Republic of China at Tiananmen Square on October 1, 2013 in Beijing. On the right is a chart on credit to non-financial private sector as percent of GDP (Source: Bank for International Settlements, Haver Analytics, and Guggenheim Investments). 

How about China’s President Xi Jinping? In an important shift that has bearings on China’s economic reform, Xi is weakening the role of his number two man Premier Li Keqiang and assuming the primary duty of overseeing economic reforms, particularly after the Plenum in November 2013. “Likonomics” is replaced by “Jinpingnomics”. Xi had personally led the drafting of the Plenum economic reform plan – the first time a party chief had done so since 2000. Xi is subverting a nearly two-decade-old division of power whereby the president, who is also party chief, handles politics, diplomacy and security, while the premier manages the economy. Xi’s predecessor Hu Jintao had played a negligible role in the economy and shared power evenly with former premier Wen Jiabao who was in charge of the massive RMB4 trillion ($660 billion) stimulus plan to respond to the 2008-09 global financial crisis which led to over RMB20 trillion ($3.3 trillion) of local government debt and concerns by investors such as George Soros who wrote recently what is perceived as a prediction of an economic crash in China: “There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.” After rapidly consolidating power over the party and the military in his first year, Xi is now stepping in on the economy, making him the most individually powerful leader since Deng who launched China’s economic liberalization in 1978. Xi is also said to want to avoid the mistake of Hu who was outshined by Wen during the ten-year Hu-Wen administration from 2002.

Interestingly, in the February and May 2011 monthly editions of On the Ground in Asia, the predecessor of the Bamboo Innovator Insight and the Moat Report Asia, we had highlighted how the weak emperors in China and Asia would attempt to consolidate and take back power from the powerful local warlords:

“Local provinces now have greater autonomy and real power and the local warlords strive to create political dynasties capable of controlling or influencing a wide range of government projects to entrench themselves. A key risk for Asia that has not been particularly publicly highlighted is that the weakened central authority, unhappy at how his power and money base is eroded by so many different local factions, attempts to first attract all the FDI and investment flows into the regions with buzz transformational projects and privatization or PPP plans, and then, after getting a critical pool of funds, “shuts down” the place partially to reallocate power and money back to the central authority. This is a potential macro risk in Asia that investors have to keep in mind.. leverage is flattened, particularly at the LGFVs (local government financing vehicles), so as to weaken the elitist grip in local provinces through controlling the finances, resulting in China taking a “big bath writedown”, contrary to market expectations of a relatively smooth economic condition.. The new (benign elitist) leader Xi Jinping can also start to quickly produce fruits on the burnt-and-fallowed grounds when he takes over to demonstrate his competence and authority.”

The Bamboo Innovator recalled when we wrote about the above opinion in early 2011, we were derided both by some external parties and even internally for being an unnecessary alarmist, especially when Asia had rebounded strongly for almost two years from the bottom in March 2009 and everyone was minting money from property, gold, commodities and so on. The local government debt risk is not something new or unexpected and is already a known risk factored into the markets, some commented. If the information is out there, someone is already worrying about it and the risk will be impounded into the prices, they added. Shanghai Composite index is down 30% since then, Hang Seng index is still slightly down, gold down 11%, while the S&P index is up nearly 40% over the same period. Yes, while the local debt risk is not new, it definitely isn’t weighted enough by the market….

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… Asian patriarchs and matriarchs add value in ways that do not appear on balance-sheets through their relationship-based deal-making capabilities. These strengths and tacit knowledge are difficult to bequeath or transfer to one’s children, and these specialized and intangible assets cannot be capitalized easily in the markets. This is why some Asian empires struggle to outlive their founders and succession tended to coincide with tremendous destruction of value. Because most Asian companies are “one-man-shop” operations with the founder making all the decisions, one of our favorite due diligence questions for Asian entrepreneurs and managers: the willingness to build a culture of decentralization/ empowerment and invest in a system to cascade decision rights throughout the organization is an important signal that the founder desires and cares to scale up the company in a sustainable manner by not hoarding knowledge.

That is why the Bamboo Innovator likes to see whether the company or country has a David Glass, a Zhu Rongji. Often, in our interaction with the Asian management, we can sense whether the emperor is playing mind games on the people around him or her so as to ascertain the worthiness of the “successor”. True Asian compounders and Bamboo Innovators have no time to waste – they build an idea or a vehicle that is larger than them so that others can be co-creators and involved in the value creation process, rather than having to fight for favors and permission and engaging in time-wasting posturing acts to be perceived in a good light by the emperor. There is a palpable sense of urgency in wanting to get things done, to realize the intangible ideas and Purpose, to keep the flames burning..

To read the exclusive article in full to find out more about the implications of the Xi-Li power shift and the story of Hangzhou Robam, please visit:

• The Chinese Emperor and His Number Two: Xi-Li Power Shift, What It Means for Value Investors and the Story of Hangzhou Robam, Jan 13, 2014 (Moat Report Asia, BeyondProxy)

New Year’s Greetings by Asian Patriarchs: Implications for Value Investors (Bamboo Innovator Insight)

Updates:

• One of our recent new subscribers last month is a Singapore-based billionaire who’s a secretive low-profile super value investor with his own multi-billion family office and we have another European-based multi-billion family office signing up too.
• The Bamboo Innovator also met up with one of our Institutional Subscribers over  Saturday at the Detecting Accounting Frauds Ahead of the Investment Curve workshop (our 6th run of the workshop series) and he commented that while he has been cautious on the macro front, he finds the investment philosophy, the thinking process and the stock ideas highlighted in the monthly reports to be carefully researched and useful for his professional and personal growth as a value investor in taking high-conviction bets of wide-moat business models with peace of mind in an uncertain macro environment.
• We are grateful to have the support of our subscribers and readers, an unusual and exceptional group who are not traders seeking short-term momentum, get-rich-quick, syndicates-driven ideas. We are especially grateful to our initial subscribers including the astute private investors Mr K (whose investments in Malaysia’s wide-moat innovator DKSH is up nearly 200% since March 2013) and Mr W. This reminds the Bamboo Innovator of what Harvard’s Michael Porter remarked in a recent interview last month:

“The concern is that it seems like the vast majority of energy and effort in investing has become about other things. It’s about momentum. It’s about program trading to capitalize on tiny movements in share prices. It’s about locating your servers closer to the exchange so you can trade in and out a little faster. I’m all for price discovery and liquidity, but improvements here have diminishing returns for fundamental wealth creation. One investor’s gain is often another investor’s loss.. I believe that the fundamental purpose of investing is to deploy capital to productive uses in the real economy. It’s the ability of businesses to use capital well to meet needs at a profit and grow that creates all the wealth in society. Directing capital to companies that can use it productively to create economic value, and thus wealth, is ultimately the most profound benefit investors can have on society.”

With knowledge, we have a choice to invest in the hardworking Asian entrepreneurs and capital allocators who are serious in building a wide-moat business. And we are intrinsically motivated to keep the flames burning to highlight these exceptional innovators for our subscribers who are just as unique!

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

Dear Friends and All,

New Year’s Greetings by Asian Patriarchs: Implications for Value Investors

“Let us boldly throw away the business models and strategies of the past five and ten years,” said the 71-year-old Lee Kun-hee in a New Year message to Samsung Group’s 420,000 employees around the world. More than 60% of the profits of Samsung come from the flagship vehicle Samsung Electronics (005930 KS, MV $180bn), and 60% of Samsung Electronics’ profits come from mobile phones. “Let us move beyond our hardware-oriented processes and corporate culture. “Our leading businesses are constantly being challenged by competitors, while time is running out for our less dynamic businesses. It is therefore time to change once again. Economic slowdowns can present opportunities too. Let us see farther from a higher vantage point and create new technologies and markets. We must push ourselves to improve our business structure so that we can lead industry trends. We must innovate technologies that can help us compete in an uncertain future. And we must invest in systems to enhance our global management capabilities. As we move forward, we must resist complacency and thoughts of being good enough, as these will prevent us from becoming better. We should not be complacent and be armed again with a sense of crisis. We need to be a management that thrives on innovation, autonomy and creativity, that accepts challenge and is not afraid of failure. We must create an environment of ingenuity, where autonomy and creativity abound. There are social expectations on us. We will take another first step toward becoming an eternal, super first-class corporation that can’t be shaken by any obstacle. Once again, we will move strongly.” Like Nokia and Blackberry, Samsung was also disrupted by Apple but it managed to accomplish something the others did not — it bounced back, stronger than ever; to bend, and not break, like the bamboo.

Top: On June 7, 1993, at an emergency executives meeting in Frankfurt, Germany, he told his assembled managers: “Change everything except your wife and children.” Bottom left: Samsung Electronics Chairman Lee Kun-hee walks into the Hotel Shilla in Seoul, holding hands with the hotel’s CEO and his daughter Boo-jin, to attend the 2014 New Year’s greeting ceremony; Bottom right: Hyundai Motor Group Chairman Chung Mong-koo walks into a hall to attend a New Year’s greeting ceremony at the group’s headquarters in Yangje-dong, Seoul.

“The economic condition is still difficult, especially with the strengthening of the won and the dragging out of the economic recovery,” said Koo Bon-moo, chairman of LG Group, as he asked each employee to be ready for the challenge of difficult times ahead. “We are in a crisis,” he said. “A leading firm could collapse due to a careless mistake.” LG Electronics (066570 KS, MV $10bn) has since lagged far behind Samsung Electronics. Hyundai Motor (005380 KS, MV $46bn) Chairman Chung Mong-koo, 75, also called for innovative approaches to tackle challenges. “The global economy has entered the era of low growth, which has led to a fiercer competition. Uncertainty has grown, due to technological conversions,” Chung said. “It is necessary to innovate the management system of global networks to obtain efficiency to cope with challenges.” Hyundai Group Chairwoman Hyun Jeong-eun said 2014 will be a turning point for the group. “We are in a time we can’t survive with old sales strategies, business models and management measures,” she said. “We should be reborn to carry out innovative strategies.” Hyundai Group has recently decided to sell all three of its financial affiliates – Hyundai Securities, Hyundai Savings Bank and Hyundai Asset Management – for $3.1 billion in a bid to avoid a liquidity crisis and lower its high debt ratio from nearly 500% to less than 300%. It also expects to raise $320 million by selling the Banyan Tree Hotel in Seoul which it acquired for $155 million in 2012. Hyundai Group is a conglomerate with businesses ranging from shipping and logistics to finance and machinery, but it does not include Hyundai Motor or Hyundai Heavy Industries (009540 KS, MV $18bn), which were spun off following the 1997/98 Asian Financial Crisis. Creditors have piled pressure on cash-strapped industrial conglomerates to accelerate restructuring, following a string of bankruptcies including STX, Tongyang and Woongjin.

The New Year message by these successful and crisis-aware Asian patriarchs and entrepreneurs has been sober. What are the implications for value investors? The increasing pace of business disruptive changes will accelerate the restructuring efforts of many Asian business groups to spin-off, divest, merge and acquire the different business parts to stay relevant and competitive, to make decisions and execute faster on business opportunities, and to aim for the highest valuation with an improved governance structure. Take for instance Korea’s internet giant NHN which announced the spin-off of its games division (Hangame, renamed NHN Entertainment) on 8 March 2013 from its search and mobile chatapp LINE business (Naver) with the actual split date on August 29. The rationale is for the separate entities to respond to challenges and opportunities more nimbly and quickly. Naver Corp (035420 KS, MV $21.8bn) is up 57% since the split as shown in the price chart, compared to a flat Kospi index over the same corresponding period. Understanding the company’s motivations for restructuring is critical to provide clues to the future values of new and existing entities.

To read the exclusive article in full to find out more about how restructuring aimed at improving corporate governance will be a major investment theme in Korea and Asia in 2014, please visit:

• New Year’s Greetings by Asian Patriarchs: Implications for Value Investors, Jan 6, 2014 (Moat Report Asia, BeyondProxy)

Impatient Optimists Vs Value Investors in the New Year 2014: The Billion Dollar Stories of Bill-Melinda and Lupin (Bamboo Innovator Insight)

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

Dear Friends and All,

Nearly ten years ago, the Bamboo Innovator had met with the founder of a Chinese drugmaker who was seeking to list his firm in Singapore. As this Chinese entrepreneur hails from the northeastern Shandong province and Shandong men are generally stocky like rugby players, this particular entrepreneur stood out for being unusually small-build. So the Bamboo Innovator asked him and found out that he had been afflicted with polio when he was young and he managed to recover from the disease. The gritty entrepreneur remarked that I am the only fund manager who observed this condition and made an effort to ask; he is usually bombarded by questions about profit margins and guidance on sales figures. The Bamboo Innovator is positive on people who have overcome personal adversities in life as they tend to be resilient in creating value for others. We invested in the shares of this Chinese pharmaceutical company and not only did the market value climbed four-fold from around $75 million to $300 million, but importantly it was also possibly the only Chinese S-Chip firm whose accounting was clean and did not suffer when the wave of accounting fraud revelation swept across the statistically-cheap Singapore-listed Chinese firms during the 2007/09 Global Financial Crisis.

******

As we step forward into the New Year 2014, the Bamboo Innovator was captivated by a WSJ article “What I Learned in the Fight Against Polio” written by Bill Gates on Nov 10. It talks about how the Bill and Melinda Gates Foundation has helped India stayed polio-free for more than two years and the lessons for solving other human welfare issues worldwide. Impatient Optimists is the name of the blog (www.impatientoptimists.org) of the influential Bill & Melinda Gates Foundation featuring the work and stories of the people working every day to help alleviate suffering, poverty, diseases, promote health, and to help students realize his or her full potential. These are all urgent problems requiring innovative solutions that have long-term investment implications which we will discuss shortly with the story of the Indian compounder Lupin (NSE: Lupin, MV $6.5 billion) and how its focus in the neglected niche of anti-TB drugs transformed the firm into India’s third-most valuable listed pharmaceutical firm, compounding shareholders’ wealth by over 138-fold. Bill Gates wrote in a blog post on Dec 23 about a summary of “Good News You Might Have Missed in 2013” that include how we got smarter and faster at fighting polio and that funding commitment to the Global Fund to fight TB and malaria was renewed. Gates also shared a tweet expressing his excitement on what he is looking forward to seeing in 2014: a new vaccine called pentavalent that can prevent five diseases.

Lupin (NSE: LUPIN) – Stock Price Performance, 1995-2013

To read the exclusive article to find out more about the story of Lupin, of Australia’s CSL which is up 85-fold to $29 billion and how value investors can potentially gaze at the next Lupin/CSL, please visit:

• Impatient Optimists Vs Value Investors in the New Year 2014: The Billion Dollar Stories of Bill-Melinda and Lupin, Dec 27, 2013 (Moat Report Asia, BeyondProxy)

Keepers of the Flame: Revisit into the Origins of Compounders in India and Asia (Bamboo Innovator Insight)

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

Dear Friends and All,

Keepers of the Flame: Revisit into the Origins of Compounders in India and Asia

“A person or an organization may be down temporarily due to circumstances beyond himself or herself. But he or she may rise up from the values they held fast as keepers of the flame”, a Tata executive shared with me this belief over lunch during our business trip to India from 7-17 Dec and he handed us the Keepers of the Flame: A Century of Trust, a limited-copy DVD film on the life and times of the three great Tata stalwarts: Jamsetji, JRD and Naval.

Tata Group, with a total revenue of over $100 billion, is special among all MNCs in the world. Its mission is more than just economic. What makes Tata different is that its societal purpose powered its economic progress. Like Korea’s Samsung Group with Samsung Electronics as the flagship cashcow vehicle accounting for 70% of the market value of the sprawling conglomerate, the flagship Tata company is Tata Consultancy Services (TCS IN) which has a market value of $67 billion. Other major listed companies include Tata Motors (TTMT IN, MV $17.7bn), Tata Steel (TATA IN, MV $6.5bn), Tata Power (TPWR IN, MV $3.5bn), Titan Industries (TTAN IN, MV $3.2 billion), Tata Global Beverages (TGBL IN, MV $1.5bn), Tata Communications (TCOM IN, MV $1.3bn), Tata Chemicals (TTCH IN, MV $1.1bn), Taj Hotels (IH IN, MV $750m), Voltas (VOLT IN, MV $610M), Tata Teleservices (TTLS IN, MV $222M) and Tata Elxsi (TELX IN, MV $182m). The increasing criticism for these mega Asian giants is that they have grown too diverse and unwieldy to manage and potential internal family conflicts fighting over the economic ownership of the flagship cashcow vehicle has distracted the management in neglecting the value creation of the other multiple smaller pieces in the entire group.

As I buy a Titan Edge watch as a gift for my dad, the Bamboo Innovator pondered upon how Tata demonstrated their commitment to the idea that local society can develop local talent in the most adverse of circumstances. In 1987, the Tata Group formed a JV with the Tamil Nadu government (TIDCO) to open a watch-making factory in the remote south Indian city of Hosur, training the locals to be world-class horologists instead of taking the “efficient” short-cut way of staffing the place with professional engineers from elsewhere. Today, Titan Industries is the world’s fifth largest wrist watch manufacturer with more than 60% domestic market share and exports watches to 32 countries around the world, with their core expertise in precision engineering powering innovations such as the world’s slimmest wrist watch branded as Titan Edge. The Tata Group talks not of conquering markets but of serving people. As JRD always say, “What comes from the people must go back to the people, many times over.” The Tata experience suggests that the most resilient value companies are those created by action, by doing things, by engaging with people, by revealing and making explicit the firm’s values and then living by them, consistently, day after day after day.

What was shared by the Tata executive echoed the lifelong research work of the Bamboo Innovator: Why is it that some companies or people are able to bounce back from a crisis or challenge to scale greater heights, while others, particularly previously successful ones, remain in a state of protracted consolidation or even decline? Answering this question will illuminate the path for value investors to identify and invest in the emerging compounders and undervalued wide-moat innovators in Asia in the next five years.

Having spent the past decade plus in the miasmic Asian capital jungles interacting with the top management of Asian companies in various countries and sectors, we started to see how the mental model of the Bamboo can help to explain the underlying sources of moat creation and sustainability in outperforming value creators. We coined these compounders Bamboo Innovators, compounders who bend, not break even in the wildest of storms that would snap the mighty resisting oak tree. Due to their unique business models, the Bamboo Innovators are often overlooked, neglected, misunderstood and underappreciated, presenting mispricing opportunities for the value investors. The usual statistically cheap stocks in Asia are Extractors, either value traps with misgovernance issues with the controlling share owners extracting wealth from minority investors or fraudulent companies with the syndicates-insiders lying in wait.

As we head towards 2014, it is worthwhile for value investors to pause and relook into the wealth creation and destruction process of Compounders Vs Extractors. Value investors need to look beyond the aggregate market PE figures since the widening valuation chasm between the Compounders and the Extractors has distorted the “average” overall PE number; the quality wealth creators are rather pricey while most of the “cheap” companies are Extractors. In one of the figures extracted from Motilal Oswal’s 18^th Annual Wealth Creation Study (2008-2013) forwarded to me by the accomplished and thoughtful value investor Hemant Amin (Part 1, Part 2), also head of the BRKets (www.brkets.com), we can see that the wealth destroyed in the Indian market during 2008-13 is at an unprecedented high of INR 17 trillion ($276 billion), nearly the equivalent of the total wealth created by the top 100 companies!

Source: Motilal Oswal 18^th Annual Wealth Creation Study (2008-2013)

Value investors in Asia cannot look purely at quant “valuation” metrics since many business models and moats are “permanently impaired” and these stocks are the fertile ground for momentum traders and nefarious insiders who have the incentive and power to manipulate prices and volumes. Value investors who attempted to invest in these statistically cheap stocks in Asia have found themselves facing deadweight losses in their portfolio. We observed firsthand how these compounders grew from strength to strength, especially in difficult times during the 2007-09 Global Financial Crisis, while others, such as some Singapore SME business owners, grew to become either contented with what they have achieved or disillusioned with their core business, straying to seek “growth” for their private interests such as property development, or simply numbing/”exciting” their senses with destructive lifestyle at the MBS/RWS casinos while treating both their listed business vehicles as a personal ATM and their employees as disposable expenses rather than as valuable intangible assets. The listed companies belonging to the latter group become dangerous value traps; some even slipped into conniving with “syndicates”. Financial numbers were “propped up” artificially with the prospects of sexy growth projects to lure in funds from investors and the studiously-assessed asset value has already been “tunnelled out” or expropriated. Western-based accounting fraud detection tools and techniques have not been adapted to the Asian context to avoid these traps. And the Bamboo Innovator has seen how the perpetrators go away scot-free and live a life of super luxury on minority investors’ hard-earned money. Of course, it is often said that if one’s hands are kept clean in the front-office of financial services industry in Asia, one cannot be wealthy. When investors have knowledge in their hands, we have a choice to stay away from these people and away from temptations and do the things that we think are right. With knowledge, we have a choice to invest in the hardworking Asian entrepreneurs and capital allocators who are serious in building a wide-moat business.

Note also that the percentage of wealth created by the top 100 wealth creators during 2008-2013 is also at an all-time high of 93%, as compared to merely 2% from the start of the Asian bull market during 2005-2010 when the Sensex index was 6,000 (now 21,000), while the Shanghai index is up from 1,200 to around 2,100 over the same period. The situation in India is a reflection of the broader Asian market: Shareholder wealth gain is increasingly concentrated amongst a core group of compounders whose management have been focused on building up scalable business models quietly to last the distance and were consolidating the industry to make market share gains or introduce new innovative products and services to fulfill unmet needs of the customers.

The Godrej Group is part of this core group of around 200-plus Asian Compounders which have the “highest order of competitive advantage” that is beyond fitting them into the usual Porter-style matrix of “low-cost” or “differentiation” strategy, as shared with us by Mr G Sunderraman, the Head of Innovation and EVP at Godrej & Boyce, the holding company of the reputable Godrej family at their corporate headquarters at Vikhroli in northeast Mumbai…

To read the exclusive article about the inner workings of the Indian and Asian compounders in full, please visit:

• Keepers of the Flame: Revisit Into the Origins of Compounders in India and Asia, Dec 23, 2013 (Moat Report Asia, BeyondProxy)