The “go global” policy makes great sense in theory, but it is patchy in practice, to say the least. While resources are being successfully bought up in some interesting places (see here), and Lenovo’s successful purchase of IBM PCs is still fresh, problems continue to emerge. The latest is China Mobile’s failed US$3.5 billion bid for Millicom International Cellular. The deal would have been the largest foreign acquisition by a Chinese firm had it gone through, according to a report in the FT. The report notes:
“Shares in Millicom plunged by 26 per cent in New York on Monday, after the group said it had concluded that the state-owned Chinese operator ‘[would] not be in a position within an acceptable timeframe to make a binding offer that is suitably attractive . . . or sufficiently certain of closing’.”
Apparently the deal fell at the last hurdle, as “negotiations dragged on”. Whatever the actual reasons, last-minute negotiations are a favorite tactic in China, where it is often assumed that a late goal may be scored when foreign parties start to wonder whether they will make the deal in time for the flight home / quarterly report / cup final etc. Sometimes, however the other party will just walk away with no deal done – or, as with CNOOC’s Unocal bid, protectionist politics may get in the way.
But political, cultural and commercial fit are not the only challenges, as reported in Shanghai Daily (via China Digital Times):
“’It is a dream that you can succeed in overseas markets through the acquired company’s brand’, Meng Fanchen, Siemens Shanghai’s general manager, said. ‘It is a tough way with few successful cases in the world’.”
Despite the difficulties, China Mobile is not the only company looking out. The report adds going-global investors and brands include:
• Lenovo: US$1.25 billion deal for IBM’s PC business
• TCL: The TV leader set up a joint venture with Thompson in 2003
• Huawei and ZTE: These telecoms companies are exporting strongly, based on price competition.
• Ningbo Bird: The leading mobile phone vendor exported 2.8 million phones in the first five months of this year.
“[China’s] overseas direct investment was reported to be US$7 billion in 2005, up 25 percent on 2004, and it is thought that Chinese companies could invest US$60 billion overseas in the next 5 years – largely through mergers and acquisition.”
Such high-profile failures as that suffered by China Mobile are unfortunate, but hopefully the leaders of big state firms will become better at operating outside their comfort zones. China will only be able to produce globally competitive companies when they have globally competitive managers, answerable to stakeholders, who have commercial skills that are as strong as their political ones (see also: “China’s Latest Import: Senior Management“).
See news sources:
China Mobile plan to buy Millicom fails
Emerging markets telecoms operator Millicom rejects a $5.3bn bid from China Mobile. The deal would have been the largest overseas purchase by a Chinese company.
FT (subscription artcle)
Chinese firms ‘Go Global’ to seek openings, grow business – Shanghai Daily
From Shanghai Daily via China Economic Net and China Digital Times:
In crisis, Chinese companies simply shu…
In crisis, Chinese companies simply shut up – The WTO-column