Team PAG-Hercules: Driving Profits in the Chinese Auto Market

Meet Team PAG-Hercules:

Thomas Ho was initially bashful about his mandarin skills since he left Taiwan 15 years ago to move to the US. Be assured, the team would have been left lost, starving and ridiculed were it not for his language skills. Sarah Swigart ensures the team gets fresh air (tough in Beijing) and exercise. When the air quality index, or “AQI,” is better than mildly unhealthy she enforces group runs and Heyrobics (Swedish exercise dance class a la Richard Simmons). Shivaun Iten is the team’s key social coordinator. She leads the charge with hot restaurants, neighborhoods and tourist attractions. She also ensures that while we travel the world, we stay in touch with national gossip of Amanda Bynes, Kardashians and other scandals. Scott Bailey has impeccably groomed facial hair and freshly pressed dress shirts that give the client a credible signal that he is a consultant. He may be a hipster on the inside, though. Scott is currently working on the Triple Crown – the epic challenge to eat fried rice at all three meals, followed by a barbequed scorpion for dessert.

Credible Signal: He's a consultant

Credible Signal: He’s a consultant

Project:  The phrase “you’re one-in-a-million” implies uniqueness and value.  However, with 1.3 billion people in China it means that you share that distinction with 1,300 others. China is a massive marketplace, and growth opportunities make it a very exciting economy. Relatively new companies can have sales volumes that dwarf the American leaders because of this population / transaction advantage. Did you know that in 2012 the Alibaba online auction platform had more transactions than Amazon and e-Bay combined ?

The automobile industry is primed for rapid growth and will be very profitable for companies who can capitalize on increasing domestic consumption spending. PAG Asia is a private equity firm with growing interests in the automotive space. A PAG portfolio company, “Hercules” (code name), is a successful financing leasing firm located in Beijing. PAG is investing in its growth and asked the Berkeley-Haas team to research operational leasing best practices and evaluate how those lessons may be applied to the Chinese market. As an industry first-mover, Hercules Leasing is primed to capture large and lucrative market share.

The team creates a custom Audi A6

The team creates a custom Audi A6

The progression of our project is largely dictated by the state of the Chinese Internet. “The internet is down today” and “you can’t Google Chinese history” are two phrases which capture the connectivity and censorship of the country. Our research has been impaired by this connectivity, and when available, we connect through UC Berkeley VPN to access IBISWorld, Bloomberg and Facebook.  For five days the team had to share one Ethernet cord for the two PC’s in our group of four people.

Deep down a quiet, deserted alley in the bustle hipster neighborhood of Beijing there is a wonderful brewery – The Great Leap Brewery. Filled with expats, there were friendly dudes playing banjos on the patio, with the locals continuing to chain-smoke in any public areas. These hearty beers were worth the seedy neighborhood. In comparison, domestic beers tend to be light and are prone to counterfeit production. Another beverage option is Miju – a fruity rice wine served in a mighty bamboo bucket. Sharing encouraged. During working hours we hydrate with Milk Tea with Pearls (“Bubble Tea”) from our favorite chain, CoCo’s. Other milk tea brands, such as “I Eat Tar” are not up to our standards.

A consultant’s lifestyle can be sedentary and unhealthy. However, Heyrobics is the exciting and fun exercise class that makes you dance, jump and sweat like crazy. Using fun music and easy-to-imitate dance moves, you get a cardio workout with intense pushups and core work as well. This style of class originated in Sweden, and the Beijing chapter is taught by Europeans (the French or Swedish accent gives an extra intensity to the orders they are yelling at you). The pink mini-shorts are also very inspiring.  Sarah and Shivaun are considering launching a California franchise.

Heyrobics: The team that sweats together, stays together.

Heyrobics: The team that sweats together, stays together.

One weekend Shivaun and Scott joined another IBD team in Hong Kong. Wanting to enjoy the blue skies which don’t exist in Beijing they went for a hike.  Bad news: they lost Michael Larcher for several hours when he took off running without a map, phone, money or keys. Good news: That afternoon, they ran into a mob of teenagers oogling over Chinese-born Korean pop-star Victoria of K-Pop. The teens were appalled that they were not familiar with this sensational personality. Ashamed, the group then bought new neon wardrobes at Uniqlo and 6 inch platform heels to better fit in. Just kidding.

Speaking of fashion, China is land of the luxury stores! On every corner, joined to every hotel, office and food court there is a plethora of high-end aspirational brands shining in its windows: Prada, Louis Vuitton, Montblac, Hermes, Rolex, etc. It was not uncommon to have multiple stores of the same franchise within a 1-mile radius. This came in handy when a 3-day trip to a client site in Shanghai turned into an 8-day affair. Shivaun and Sarah had only packed for 3 days, so they simply worked with a personal shopper at Gucci. Just put that on the expense account. Oh wait? No expense account? …shoot….

One of the four Pradas in this square kilometer

One of the four Pradas in this square kilometer

We have thus enjoyed all these diverse experiences in just one country. With an exciting 2 weeks done, we are looking forward to the unexpected adventures, more spicy noodles and our final client presentation to Hercules Leasing CEO.  Also, we hope to get a “test-sitting” with a professional driver in an Audi A6L, the preferred vehicle of Chinese government officials.

Shanghai skyline

Shanghai skyline

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