Page 2 of
2 China's overseas M&A
challenge By Olivia Chung
billion in 2005. As part of the
deal, the largest information technology services
company in the world held an 18.9% stake in
Lenovo.
After unloading its shares in
Lenovo twice, IBM stills holds an 11.31% stake in
the company, remaining its second-largest
shareholder. But analysts expect IBM to continue
trimming its shareholding in Lenovo. However, Wong
Chi-man said the IBM share sale is expected
because it asked to shorten the lock-up
period
to sell the shares. While IBM sold its own PC
division to Lenovo, it was never meant to be a
long-term investor in Lenovo, Wong said.
"As part of its global transition from
hardware manufacturer to information technology
service provider, IBM has gradually handed over
our personal computer and low-end technology
businesses to Lenovo and concentrated on technical
support and consultancy services.
"Lenovo
could use IBM's networks to assist them in
expanding its business overseas and use the IBM
brand name until 2010," Wong said.
Still,
Lenovo faced the challenge of transferring close
to 11,000 employees from the former IBM business,
not to mention to the cultural differences between
the two companies.
Lenovo has been
aggressively pushing forward with its redundancy
plans, including cutting back on sales and
marketing staff, to enable it to reduce layers in
the sales structure.
"When compared with
the Europe, the labor laws are not so stiff in the
US, which has given Lenovo to solve the labor
issues," Wong said.
Apart from cutting
staff and combining sales teams, Lenovo is trying
to introduce its successful China model to the US
by getting into the US consumer market in a year
or two after marketing a new family of computers
under its own brand name.
"Although their
challenge is that the small business and consumer
segment is quite crowded with the likes of Hewlett
Packard (HP) and Dell, while IBM has been focused
on the corporate market, it indicates that Lenovo
has been adjusting itself in expanding overseas,"
Wong said.
Lenovo held its position as the
top PC maker in the Asia-Pacific, excluding Japan,
with a 21.6% share in the fourth quarter last
year, according to the IT market consulting firm
IDC. For 2006, the company had 19.9% of the
market, followed by HP with 12.6% and Dell with
8.8%. "Continued high growth in our China business
enabled Lenovo to hold global market share," Yang
Yuanqing, Lenovo's chairman, said earlier.
However, globally, Lenovo lagged behind
its two global rivals with a 7.3% market share,
compared with HP's more than 18% and Dell's 14.7%.
"But it's still too early to comment [on
whether] Lenovo's venture is successful or not -
we need to see a few more quarters, particularly
[because] it just replaced the US head last month
and it takes time for the successor to improve the
business,'' said Wong.
However, Chinese
companies have also faced non-economic challenges
when planning to expand overseas. For example, in
2005, CNOOC, the Hong Kong-listed arm of
state-owned China National Offshore Oil Corp,
failed in its $18.5 billion bid to acquire US oil
firm Unocal, amid opposition from the US Congress,
citing national security concerns. Rival bidder
Chevron, a US company, later bought Unocal for $17
billion.
In 2005, Chinese white-goods
manufacturer Haier offered $1.28 billion for
Maytag, one of the most famous consumer brands in
the US, in a bidding war with us company
Whirlpool. The US media said Haier would close the
plants in the US and move production to China.
Whirlpool won the war, with a bid of $1.7 billion
- then announced that it would close three Maytag
plants and eliminate 4,500 jobs.
Chinese
companies face hurdles like political or security
reasons in acquiring overseas assets and have to
deal with cultural integration and team
integration to succeed in expanding abroad.
Jun Ma said many Chinese resource
companies will outperform global competitors on
aggressive overseas acquisitions because of the
long-term growth of these firms, the Chinese
government's diplomatic efforts and supportive
policies, as well as Chinese firms enjoying
low-cost financing.
"On the other hand, we
expect that future M&As in the electronics,
PC, and semiconductor industries will continue to
face implementation difficulties. Key challenges
for such acquisitions include the lack of
managerial skills to integrate overseas
distribution and leverage foreign-grown
technologies," he said.
Olivia
Chung is a senior Asia Times Online
reporter.
(Copyright 2007 Asia Times
Online Ltd. All rights reserved. Please contact us
about sales, syndication and republishing.)
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