In 2008, the Goldman Sachs Commodities Trading team out of Singapore launched a search to find a junior trader. The three main criteria they searched for in candidates were
- Korean Heritage
- Understanding of Oil Markets
- Understanding of Financial Derivatives
After two years of scouring the markets with little to show, the hiring manager decided to relax the bar slightly, later saying “we figured a new hire could learn the oil bit, while derivative knowledge takes longer to pick up. And being Korean… well that’s pretty difficult to learn. So we started looking for Korean Derivatives traders who we could teach oil to.”
In early 2011 I was contacted about the role and in my first interview the manager explained to me that every trader on the desk held a different passport.
“While our colleagues in New York have all sorts of public information published by the government and various consultancies, in Asia information is much harder to come by. Because we need information from a number of different countries around the region, we make sure we have folks who can develop deep relationships in these countries to help us get a more complete picture, and Korea is a big hole for us right now.”
I had heard many times that Asia is a more opaque and more relationship driven business environment than the west, but it only really sunk in when I got the job, arrived in Singapore and found myself drinking 6 nights a week until 3am (and arriving at the office at 7am the next day) with the Korean refiners and shipping companies. I had to get my oil chops up over time, but a common cultural heritage and overlapping human network counted for much more than domain knowledge.
Because information is sparser in Asia, and because the culture leads to a focus on relationships as a competitive advantage, we have seen families that started in one line of business, then leverage their competitive advantage to enter other industries. While focus on one industry vertical is the norm for western companies, in the east a handful of families in a given country often control every industry through diversified, sprawling conglomerates.
The combination of a relationship driven culture and paucity of information leads to a unique concentration of wealth and power in Asia.
In the west the public citizens, through institutionalized asset managers, generally control the largest companies. Only 20% of the top 50 companies in the S&P are family controlled whereas that number jumps to 61% for Asian indices.* The Forbes Asia Fab 50 is even higher at 82% family controlled.
One could argue that state owned enterprises also act much more like family businesses in their control structure and “strategic” considerations than typical public companies. (Political dynasties within party and family control are also much more common in Asia than the west). Adding SOE’s to the mix ups the number even more.
So what does this mean for startups looking to do business in Asia? Building the best product and dominating with domain expertise are necessary but not sufficient. Influence sits with a much more concentrated group than in the west, so deals can get done incredibly quickly with the right sponsorship. But if you don’t have necessary access, make sure you find partners who do.