No Rest for Asia's Hot Growth Heroes

The small and midsize outfits on BusinessWeek's annual list of Asia's Hot Growth Companies face fierce competition

by Bruce Einhorn

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Asia's record-breaking Internet stars may be grabbing all the headlines, but the big winners in this year's Asia's Hot Growth Companies, our annual scorecard of the top 100 small and midsize businesses in the region, aren't the region's high-flying dot-coms. They're in decidedly less sexy lines of business, everything from noodle shops to chemical fiber manufacturing.

But these Asia stars do enjoy some big advantages, like relatively high barriers to entry and growing demand from Asia's newly affluent consumers. The No. 1 company, for instance, is Ajisen (China) Holdings, a Shanghai operator of Japanese-style ramen restaurants that operates its own noodle factories. The No. 2 company, Singapore's Raffles Education, is expanding quickly in Chinese cities, where growing numbers of middle-class families are willing to pay top dollar for their children to get advanced degrees. And in a year when news about unsafe food from China has dominated the headlines worldwide, No. 11 Celestial NutriFoods has been able to cash in on growing demand among Chinese consumers for food that is not only safe but also healthy.

Even some of the top performers have reason to worry, though, because of fierce competition from other Asian players. For instance, E-Ton Solar, one of Taiwan's top producers of panels used for solar energy, is No. 7 on the Hot Growth list this year. That's a reflection of rising demand for solar-powered electricity as worries about global climate change increase.

Raw Materials Shortage

Trouble is, there's now a group of hungry Taiwanese and Chinese rivals, led by China's New York Stock Exchange-listed Suntech Power Holdings (STP), crowding into E-Ton's territory. "There are too many companies," complains Tsai Chin-yao, president of E-Ton. Barriers to entry are low, since there are plenty of talented engineers with experience in the semiconductor and liquid-crystal-display industries, which Tsai says are not that different from the solar-panel field, so finding capable staff is no problem. This year alone, the number of solar companies in Taiwan has tripled, to more than 20. "It's incredible," says Tsai. "Even some companies, I cannot remember the names. It's really very hot."

All the increased competition from Taiwan, as well as from the mainland, is leading to a shortage of raw materials. That's a big reason E-Ton's stock price has dropped more than 16% so far this year. So E-Ton, which sells to customers in Europe, is expanding its reach far beyond its headquarters in the southern Taiwanese city of Tainan. In June, it announced that it would spend $155 million to acquire Adema Technologies, a Mountain View (Calif.) producer of ingots used in the solar-panel production process. Since so many rivals from Taiwan and China are now offering low-cost panel production, "this is why we focus on high quality, high efficiency," says Tsai. "We don't want to compete with them on price."

E-Ton also is boosting its spending on research and development, currently 5% of sales, to come out with more advanced panels that convert sunlight into electricity more efficiently. With the competition getting tougher, the company will need to move fast to ensure it doesn't fall down the Hot Growth rankings next year.

Hammered by a Stronger Rupee

That's what happened to Hexaware Technologies, a Mumbai specialist in outsourcing services such as human resources and transportation for corporate clients. Like many other Indian IT companies, Hexaware has gone through a rough year. India's tech leaders have gotten hammered by the appreciation of the Indian currency. The rupee has gone up 12.6% against the greenback over the past 12 months, making Indian companies catering to U.S. customers less competitive with their foreign rivals.