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