Wisconsin Public Radio

Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference

 

 Clyde Prestowitz giving presentation to CDI...

 

Steve Olson teaching trade negotiations at the Mekong Institute...

 

Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(06/22/08)Clyde Prestowitz quoted in the Chicago Tribune

(06/22/08)Clyde Prestowitz quoted in the Chicago Tribune
Chinese companies look to purchase American firms
Chicago Tribune (KRT)
Copyright 2005 Chicago Tribune
June 22, 2005
David Greising


Jun. 22--For years, American workers have worried about losing their jobs to low-cost workers in China. Now a new trend is emerging that could be nearly as big: Wealthy Chinese companies are coming to the U.S. looking to swallow American companies whole.

Maytag Corp.--the maker of such quintessentially American products as Maytag refrigerators, Amana microwaves and Hoover vacuum cleaners--disclosed Monday night a $1.28 billion takeover bid from a group led by Haier America Trading, a unit of China's Haier Group. If Haier is successful in outbidding an investor group led by New York-based Ripplewood Holdings, the company that is the bedrock of Newton, Iowa, likely would see much of its production move to China.

While Haier is known in the U.S. for the low-cost refrigerators and air conditioners sold at Wal-Marts and Targets, in Europe and Asia it sells designer-quality appliances as part of a wide-range of appliances. It ranks among the top-three makers of refrigerators in the world by sales volume.

Now Haier may be taking on one of the biggest challenges yet: Snatching up a big-time U.S. branded goods giant.

Haier's move to buy Maytag follows Lenovo Group's purchase of IBM's personal computer business completed in May. And more moves by Chinese industrial giants to buy up western brands almost certainly are on the way. Chinese refiner China National Offshore Oil Co. (CNOOC) is considering a bid for U.S. giant Unocal.

Clyde Prestowitz, author of a new book focused on the competitive threat posed to the U.S. by China's economic expansion, said the Haier takeover bid for Maytag is an important symbolic step. "This is the debut of China into a global brand, a global presence," Prestowitz said. "It also signals that China has moved beyond just being a place for cheap labor. They're going for technology. They're going for brands."

To Sir Martin Sorrell, chief executive of advertising giant WPP Group, these first moves by Chinese companies are just the beginning of a major trend to snatch up global brands. Chinese companies have been unsuccessful in building brands from scratch for export around the world, so they are buying them instead.

"They're all looking very carefully at what opportunities there are around the world," Sorrell said. "It's dangerous to underestimate them."

Still, warns Sorrell, Chinese companies face a steep learning curve. At first, they tried to buy brand recognition by saturating markets with advertising. Now they're beginning to follow a proven model from western companies, building brands by creating emotional connections with consumers.

Haier is beginning to understand that. The company's English language slogan, "Haier and Higher," sounds like the handiwork of a western-style marketing agency.

For Newton, the Haier bid comes on the heels of Ripplewood's offer last month, which itself shocked the local citizenry. Newton is an old style company town that has owed as many as half its jobs to Maytag since the company was founded there in 1893.

Still, in recent years Maytag has foundered. Lackluster product development, high labor costs, management miscues and cut-throat pricing competition in the appliance market have cut into the company's financial results and left it with nearly $1 billion in debt. Maytag lost $9 million last year on $4.7 billion in sales.

It is unclear precisely what Haier would plan to do with Maytag. Haier America Trading L.L.C. teamed with Bain Capital Partners LLC and Blackstone Capital Partners IV L.P. late Monday night to bid $16-a-share for Maytag. The bid is contingent on completion of due diligence on the company, a process that could take as long as eight weeks, and on arrangement of debt financing through Merrill Lynch & Co.

The Haier group's bid tops a $14-a-share definitive merger agreement struck in May between Maytag and Ripplewood. That deal values Maytag at $2.1 billion, including the assumption of $975 million in debt.

Officials from Maytag, Ripplewood and Haier did not return phone calls seeking comment.

Ripplewood, which owns or controls as many as 60 U.S. companies, made its name during the 1990s with the turn-around of Japan's biggest failed bank, now called Shinsei bank. It is known for an ability to restructure and reposition companies, shutting unsuccessful operating units yet retaining work force and operations in the U.S. that can compete in a global marketplace.

"If Ripplewood is successful, they'll rebuild the business. They'll turn it into a global business that can be competitive. That's a different model than what Haier would do," said a source knowledgeable about Ripplewood's strategy.

Haier would be expected to move production of most of Maytag's branded products to China. Company officials have indicated an interest primarily in Maytag's strong distribution and product-repair networks, and not necessarily its brands.

That strategy might make sense, said Hal Sirkin, a partner with the Boston Consulting Group, who is knowledgeable about the production and distribution strategy of Chinese companies.

"If your goal is to use your product base, what you'd like is to have your brands and put your brands through Maytag's distribution network," Sirkin said.

Haier could leverage the deal by shipping its own branded appliances through Maytag's existing distribution channel. Ripplewood, as a financial buyer with no other major consumer products companies in its portfolio, could not.

A source knowledgeable about Ripplewood's strategy conceded that the strategic fit could give Haier an advantage. But the source said Maytag would be better off if the issue were resolved quickly. "Every day that goes by that Maytag isn't working at fixing Maytag is one more lost day," the source said. "That's not good for Maytag."

Join our mailing list

Latest Publications


The Betrayal of American Prosperity.


The Trans-Paific Partnership and Japan.


Making the Mexian Miracle.


Industrial Policy and Rebalancing in the US and China.


The Evolving Role of China in International Institutions.

 

Contact us

Economic Strategy Institute

1730 Rhode Island Avenue, NW, Suite 414 |  Washington DC  |  20036
Ph (202) 213-7051  |  Fax (202) 965-1104  |  info@econstrat.org