Summary and comments on “The dragon tucks in”

It is true that overseas expansion becomes one of the favorite ways for Chinese enterprises to further develop its activities and explorations in the world market. According to the author’s opinion, the motives behind the Chinese companies’ M&A bids are not quite purified. Besides the synergy, economies of scale and geographical diversifications that Chinese companies are usually looking for, there are always political wills behind the bids. Although with the help of the cheap cash provided by the government, Chinese firms (usually state owned) may have more attractive bids in M&A cases compared to their competitors abroad who are usually private firms, it’s really hard for them to acquire companies they want in the energy and other political sensitive sectors, and even they do acquire the companies they want, Chinese firms are not experienced enough to deal with the after-acquisition situation which is far more complicated than they thought.

One of the examples the author cited is CNOOC. Just like what the author believed in the end of the article, finally, CNOOC withdrawn its bid for Unocal, citing the political tension in US as the key reason. Although at that time, the Bush administration practice the hands-off policy on the bid, Congressional delays and calls for extensive research into the bid created significant additional risk for CNOOC, and shareholders finally vote to accept an increased buyout offer from Chevron for 17.1 billion. Actually, what CNOOC was facing at that moment were the new tougher competitions in domestic market brought by China’s entry into the WTO, which introduce a lot of challenging competitors like BP, Exxon Mobil etc in the oil retail and wholesale market. So the 13 billion of CNOOC’s bid from the Chinese government are more for the purpose of protection state-owned energy company than threaten the US security. However, I agree with the author that when politician are involved, the truth about the overseas expansion of China’s companies becomes more complex.

As for the other examples the author cited in the paragraph to prove his believe that: when the Chinese buyers in the more civil like domains are not qualified enough to manage the situation after the acquisitions, I would like to say: they are 50% true. What’s true is the phenomenon: most of the Chinese companies fell into difficulties or even worse situations after they had had some foreign acquisitions successfully. But what’s not true is that: the reason is not they are unqualified, but it’s usually too late for them to hand on the unsolvable situation left by the predecessors.

The civil high-tech domains, especially the computer technology and communication technology sectors are considered as Chinese (Taiwanese) predominance industry where Chinese fabricants may have chances in overseas expansion. The recently famous M&A cases could be the Lenovo-IBM case and the BenQ-Siemens case.

The earlier one ends up with frequent adjustment in high-level managers to sustain the shareholders confidence in front of the unfavorable quality-degrading news relating to the laptop and desktop PCs sectors acquired from IBM. Levnovo was expected to have a better use of complementary resources: its own fabrication ability and Asian market share with IBM’s brand and cutting-edge research capacity. But what our Chinese top computer company got in the end was only the IBM brand image like Thinkpad. Because the IBM research strategy is not fit to the tendency of PC market’s development and it’s impossible to change a company’s R&D strategy in only 3 years…

The latter one is almost the same case, but what’s worse, BenQ Mobile finally debranded today because of bankruptcy resulting from out-of-date technology in development in R&D strategy from the Siemens Mobile. And for an industry like mobile phone with a development rate at 2 digits, wrong estimation in technology development is a fatal mistake…

You might ask why the Chinese companies can’t choose some defect-free firm to acquire. The answer is yes, they can. But except for the newly established industries like IT, telecommunication etc and the nitch markets (the Haier case), Chinese companies are usually not competent enough to face the challenges from the foreign competitors regarding their experiences and management skills. There are some successful cases, but not so frequently appear: Watsons, a Hong Kong-based conglomerate in retail and consumer division becomes the world’s largest health and beauty retailer after its acquisition of European retailer Marionnaud.