Here is an article on WSJ today, written by two senior management consultants from BCG (excerpt below). They have advised the CEOs of Fortunte 500 companies and also top enterprises in China, such as GM, Pepsico, Pfizer, Volkswagon, SAIC, TCL and Haier. Their insights speak a lot about the management and strategic implications for these deals. See also p.13 of this Wharton Knowledge Article (right click to download also from this link).
The Talent Behind 'China Inc.'
Thomas Hout and John Wong.
Wall Street Journal, Jul 5, 2005. pg. A.18
you shall find it in Wall St Journal and later on www.bcg.com as well.
A STEREOTYPE IS forming around China's acquisitions in the U.S. -- buy fast rather than build slow. Lenovo's buyout of IBM's PC unit, TCL's buyout of France's Thomson and with it RCA, and now Haier's bid for Maytag all suggest that China is in a hurry to go global and will freely spend low-cost money to acquire our brands and distribution access, plus secure an outlet for their low-cost products made in China.
The problem with this view is that China's most successful acquisitions to date in the U.S. have little to do with China's low- cost money and workers or buying our brands. They are instead all about Chinese management skill and U.S. workers. These no-name Chinese acquisitions are turn-arounds founded on hard-nosed Chinese business practices, and they import less product from China than most U.S. manufacturers do.
Haier in fact doesn't fit the mold either. It has spent 10 years building its own brand in the U.S. and now has its name on 10% of new U.S. refrigerator sales. Large units, too expensive to ship from China, are made in the U.S. Haier succeeded by partnering with a young, market-savvy U.S. entrepreneur, Michael Jemal, who created down-market, niche refrigerator products that the big U.S. brands ignored and won its own distribution access by customizing products for the big box retailers. Haier's bid for Maytag is a turn-around play premised on Haier's proven management practices. Otherwise, sophisticated co-investors like Blackstone and Bain Capital would not be aboard.
Chinese companies that are successfully building slow in the U.S. include Wanxiang and China International Marine Container (CIMC). Wanxiang Group, China's leading auto-parts maker, tried to export auto parts from China to the U.S. but found itself underpriced by Polish and Romanian imports. So it adopted a private equity role in building a U.S. business: it joint ventures or acquires stakes in struggling U.S. manufacturers, then restructures their management and operations based on what Wanxiang learned in China. The Group now has equity positions in over 30 auto-parts companies world-wide, and its U.S. sales of nearly $400 million are more profitable than its business back home.
CIMC may be the world's least visible globally dominant company, making 40% of all shipping containers. In the 1990s it consolidated South China's big container business -- much like GM rolled-up U.S. autos in the 1930s -- by buying up smaller local producers with non- voting stock, then rationalized production among these subsidiaries. Only then did CIMC acquire a U.S. truck-trailer maker from a bankrupt parent and turn it around, using Chinese-made container components and factory floor technology.
Chinese management is an under-rated asset in American discussions of China's global strategy. Almost all large successful companies in China are turn-arounds of formerly politically managed state-owned enterprises. The managers who took them over during the 1980s and 1990s reforms had to learn what any turn-around specialist does -- flatten layers, fire the pretenders, prune losing businesses, and hammer operating costs down. The CEOs of Haier, Wanxiang, and CIMC all started and spent their careers on the factory floor. China's low-cost mentality is just as much about cheap management as about cheap labor.
So it makes sense that China's first and surest global companies will be in mid-tech or modest brand businesses built on ground-level operating skills, opportunism, and local partnerships -- not high- profile consumer brands or high tech. These proven Chinese strengths also play perfectly to deep changes going on in the U.S. economy -- revitalization of distressed small manufacturers through new partnerships, private equity's growing role, and even lower income consumers' trading-down to lower-priced household durables.
Not all Chinese companies, however, think they have the time to build slow. Lenovo and TCL are in fast-moving businesses where strong global competitors are breathing down their neck in China -- especially, Dell, Samsung, Nokia and Motorola. Computers, flat-screen televisions, cell phones, and mobile consumer electronics devices of all kinds may be made in China but controlled by multinationals there who are pulling away from Chinese competitors.
This issue of pace is a problem for China. Product and marketing innovation is rooted in close contact with customers and close collaboration with adjacent, complementary technologies. Chinese state-owned companies have typically been separated from end customers by government-controlled distribution intermediaries. The result is China doesn't have what Silicon Valley and other innovation clusters have -- diffusion of knowledge horizontally and movement of technologists between firms.
Too much can be expected of China's high-profile companies now. The early rounds of Chinese globalizing favor less glamorous, hard-nosed Chinese companies who have a lot to offer to industrial America right now.
Mr. Hout is a senior adviser and Mr. Wong is senior vice president at The Boston Consulting Group's Hong Kong office.