China Goes global

Chinese firms are set to give MNCs a run for their money

The conventional view has long been that Chinese companies can compete only
in the domestic market. But after china's accession to the world trade
organization, the companies are thinking on an international basis rather than
focusing only on the domestic market. The recent global acquisitions by Chinese
companies could spur fresh competition not only among Chinese vendors but would
also pose threat to MNCs.

The Lenovo-IBM deal, in addition to much hyped joint venture between TCL and
Alcatel, helped fuel the then-swirling rumors that Ningbo Bird planned to buy
Siemens struggling handset business which later on bought out by Taiwanese major
Benq.

The heart of the matter is not whether Chinese compan-ies have the
capability, rather it is the potentially huge risk to be incurred by the
acquisi-tions, as most of the compan-ies that got acquired by Chi-nese firms
were running into huge losses. To turn them pro-fitable now would be an uphill
task. And if Chinese vendors manage to do so, they are truly going global.

Chinese firms have adopted a short cut for global expan-sion-overseas
merger or acquisition. According to analysts, this is the right strategy at this
point of time as consolidation in hardware sector is inevitable and the fact
that big hardware vendors which are running into losses are ready to give-up.
And that's where Chinese companies have an edge. They have strong financial
muscle and huge low cost talent pool available to sustain their balance sheets.
The hardware business is considered to be incredibly volatile. It takes more
than a low-cost base and manufacturing ability to be successful.

Overseas M&As are strate-gic moves by many Chinese technology companies
that hope to make their marks globally while they survive intense competition at
home. The glut and increasing satu-ration of China's market is forcing firms
such as TCL, Lenovo and Huawei to find overseas opportunities. For example,
Lenovo has been struggling with a slowing domestic PC market, therefore it has
to chase export markets and M&As offer a shortcut compared with creating
brand overseas.

M&As are common in global market, but a Chinese firm's acquisition of a
foreign com-pany is often reported as a 'heroic' move. That's because
Chinese companies lack man-gers and talented staff capable of overseas
acquisition. But the scenario is changing and big Chinese firms are ready to
take the challenge of cultural difference, rising costs of foreign labor and the
possible lawsuits resulting in job cuts.

What prompted Chinese firms to go for M&As is the need to acquire
technologies quickly to fill in their product sets or to strengthen their
strategic competitiveness to obtain fresh IP, or to scale up or to eliminate a
competitor.

Where are we?

As compared to China, India is way behind as far as the hardware sector is
con-cerned. It needs to open its market first and will have to boost local
manufacturing. Though the government has started giving lot of emphasis on
hardware manufacturing but still there's lot that needs to be done for Indian
hard-ware players to compete in the global market.

Though India has an edge over China in software exports, the Chinese
government's move of giving sops to MNCs to set up development facility in
China is expected to boost local software industry. Chinese government has made
English language mandatory in schools and engineering colleges so that local
talent pool is made available to software firms. Around 18 Indian software
companies have set-up their shops in China and are expanding their operations
very rapidly. No doubt, it's going to be testing time for Indian IT industry.

Rahul Gupta

CyberMedia News