(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
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
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
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
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
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 &
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,"
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."