Yum! Brands, Inc. (NYSE:YUM)
Yum! is another company that investors should look at, though it is notably more risky than Wal-Mart. This fast food company has been aggressively expanding its Pizza Hut and KFC brands in China, a country it openly calls its top priority. It has also been buying Chinese food concepts, looking to boost growth through domestic brands. One thing that college kids do well is eat out, usually at places that make less than healthy, though relatively cheap, food. Yum! will be there to serve them.
Of course, having a notable exposure to China can be problematic. KFC’s reputation has been tarnished by a scandal over the quality of chicken from one of its suppliers. Although the company ceased using the supplier because it found the chickens didn’t meet its own standards, that hasn’t helped mollify a population that sees a Western food concept associated with low quality food. Sales are likely to be weak for several quarters because of this event. That, however, could be a buying opportunity for more aggressive investors.
General Electric Company (NYSE:GE)
Industrial giant GE isn’t going to benefit from increased spending. However, a new collection of highly educated workers will be a valuable talent pool for the company. The impact of that can’t be understated, particularly in a country that is highly ethnocentric.
While the company doesn’t break out China as a market, it has been pushing into the nation via sales of its airplane engines and gas turbines. It also recently inked a deal to buy mining equipment maker Industrea Limited, which serves Australia and China. Like Yum! using a native brand to expand, General Electric will likely find having more Chinese “brains” on staff highly supportive of growth in the country.
This same thing will be true of International Business Machines Corp. (NYSE:IBM), as well. In IBM’s case, however, the company’s shift toward a services model is actually synergistic with China’s push to graduate more students. Chinese companies would clearly prefer IBM to send programmers and engineers who speak, read, and write Chinese fluently and, more importantly, understand the Chinese culture. The more educated graduates, the more potential to make clients happy.
Long Cycle
China has a long upswing ahead of it as it industrializes. Education is just one more step along the way. However, education can only do just so much. There will be clear beneficiaries that investors should watch. That said, China’s population is large but won’t expand forever. Since highly educated individuals tend to have less kids, this issue could, over the longer term, exacerbate the impact of the country’s ill-advised one-child policy that has the potential to lead China down Japan’s current path.
Such an outcome is years away, however, so investors should keep focused on making money now. Using and serving an educated population is an opportunity worth taking some risks for.
Yours,
The article Benefiting From China’s College Diploma Boom originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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