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The fact is, despite restrictions on foreign competition here, few powerful brands have emerged in China over the past two decades. Now that some of those restrictions are being lifted as part of China's membership in the World Trade Organization, some of China's biggest companies are being forced to adopt global strategies.
With its International Business Machines deal, Lenovo, which had been virtually unknown outside of China, has suddenly become the world's third-largest computer maker after Dell and Hewlett Packard.
For Chinese brands, an effort to 'go global' By David Barboza The New York Times WEDNESDAY, JUNE 29, 2005 http://www.iht.com/articles/2005/06/29/business/brands.php
SHANGHAI Never heard of brand names like Great Wall, Hisense, Konka, Amoy and Panda? Outside China, few have. But someday that may change.
In a policy termed "go global," China's leaders have been quietly encouraging Chinese companies for years to set up overseas operations, acquire foreign assets and transform themselves into multinational corporations - in other words, to make their own brands more competitive in a world increasingly dominated by Wal-Mart, Microsoft and Coca-Cola.
Now, it seems, Chinese companies have got the message.
Earlier this year, the computer maker Lenovo acquired IBM's personal computer business. Haier, one of China's biggest companies, recently made a bid for Maytag.
In the biggest move of all, the state-owned oil company China National Offshore Oil Corp., or Cnooc, has made a hostile $18.5 billion bid for the American oil major Unocal, one of the world's largest petroleum companies.
Yet many of the companies seem to be acting partly out of desperation, as more foreign brands line shelves of retailers in China.
Rather than being seen as a sign of strength, analysts say, the flurry of deals announced over the past year suggests that Chinese companies are actually desperate to either gain energy resources or make themselves more competitive in the global marketplace.
"Chinese companies are now facing serious foreign competition at home," said Marshall Meyers, a professor of management at the Wharton School at the University of Pennsylvania.
"So they have to do something," he added. "They've got to grow to global scale."
The fact is, despite restrictions on foreign competition here, few powerful brands have emerged in China over the past two decades. Now that some of those restrictions are being lifted as part of China's membership in the World Trade Organization, some of China's biggest companies are being forced to adopt global strategies.
With its International Business Machines deal, Lenovo, which had been virtually unknown outside of China, has suddenly become the world's third-largest computer maker after Dell and Hewlett Packard.
TCL became the world's biggest maker of television sets last year after it acquired the television set business of Thomson, the French technology company that also owned the old RCA brand.
"The Chinese government has been preparing the top 100 to 150 companies to go overseas and expand," said Jack J.T. Huang, a chairman of the China practice at the law firm Jones Day. "The government wants to use this as a testing ground, to see how well the companies stand up to international competition."
Dozens of companies stand in line, and they are not shy about their global ambitions.
"The future goal of the company is to make the name Great Wall known across the world," said Liu Rengang, a spokesman for the state-controlled Great Wall Computer Group.
A spokesman for Ningbo Bird, one of China's biggest cellphone makers, sounded equally ambitious: "Our future goal is to become one of the top three cellphone manufacturers in the world."
China's Ministry of Commerce issued a report this month that said that even though China's exports were dominated by consumer products, there were few famous Chinese brands involved in the export trade. Most goods are being shipped abroad with foreign brand labels.
To rectify the situation, the ministry called on Chinese companies to start exporting their own "famous brands." Every region was ordered to produce its own famous brands.
"We need to cultivate a group of independent famous brands that have international influence," the report stated. "Each industry needs to have its own famous brand for export."
The memo reads like a Communist Party document from a state planning commission. But the thinking behind the effort seems to be simple: imitate the foreigners.
Japanese and Korean companies like Toyota, Sony and Samsung made the moves from national to global brands quite successfully. But it took years.
Analysts say Chinese companies do not have that luxury because the rapid pace of globalization means that markets are now quickly won and lost.
"Chinese companies don't have that much choice but to acquire overseas companies," said Joe Chang, a China specialist at McKinsey & Co. "Very few companies can build organically any more. If they wait 10 to 15 years, they could be dead."
By acquiring well-known brand names, experts say, Chinese companies are hoping to get access to global distribution networks, sophisticated research and development and recognizable brand names.
"What these companies are looking for is to build up capabilities," said Oded Shenkar, a professor of management at Ohio State University and author of "The Chinese Century." "This is a shortcut. They don't have billions of dollars to invest in the growth. But here in one fell swoop, you're acquiring a venerable brand name."
The hurdles, however, are steep. The most serious problem facing Chinese companies, analysts say, is a lack of international experience and weak marketing and management structures.
"The most valuable asset we have acquired through IBM's PC business is its world-class management team and their extensive international experience," the Lenovo chairman, Liu Chuanzhi, said in a December interview.
Analysts are skeptical because, they say, most mergers fail.
"It's very difficult to make overseas acquisitions," said Gavin Geminder, a partner at KPMG, the global advisory firm. "Chinese companies have the same issues, and they probably have less-qualified management teams."
Chan Chun, a professor of finance at the China Europe International Business School in Shanghai, said Chinese companies have also struggled to manage their finances in a corporate environment.
"In terms of managing for shareholder value, they are weak," he said. "They lack international experience and have poor financial controls."
But no one expects that to slow China deal making. In fact, largely unnoticed this month was a $1.4 billion bid by China Mobile, a huge state-owned telecommunications company, for control of Pakistan Telecommunication. China Mobile lost out to Emirates Telecommunications, but its cross-border bid is notable.
Many of the Chinese companies are sparing no expense to hire Western lawyers and advisers.
Lenovo used McKinsey and Weil Gotshal. Haier is teaming up with Blackstone Group and Bain Capital to acquire Maytag. And Cnooc has hired Goldman Sachs, J.P. Morgan, Skadden Arps and a team of seasoned lobbyists to make its pitch for Unocal.
Being the world's low-cost factory floor is no longer the country's singular ambition, analysts say. That is perhaps why China Entrepreneur Magazine recently devoted a cover story to the question, Should China Buy Wal-Mart?
Xiang Bing, the dean of the Cheung Kong Graduate School of Business in Beijing, wrote that if Chinese investors can pool their resources, they can acquire a controlling stake in the ultimate global retailer. That, he surmised, was one way a country with few global brands but lots of goods could move up the value chain.
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