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Stephen Olson at Chinese Development Institute Conference

 

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

 

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

Chiangmai, Thailand Sep 8-12.

(06/23/05) Clyde Prestowitz quoted in the Kansas City Star

(06/23/05) Clyde Prestowitz quoted in the Kansas City Star
NEW CHINA SYNDROME
Kansas City Star (MO)
Copyright 2005 The Kansas City Star
June 23, 2005


Nation's cash-rich firms move into mergers and acquisitions Suitors from the East: NEW CHINA SYNDROME

SHANGHAI, China -- China is moving into the merger-and-acquisition major leagues as its star corporations shop for American household names such as Unocal, Maytag and IBM.

SHANGHAI, China -- China is moving into the merger-and-acquisition major leagues as its star corporations shop for American household names such as Unocal, Maytag and IBM.

The latest move comes from China National Offshore Oil Corp., whose board met Wednesday and reportedly is moving ahead with a nearly $20 billion bid for Unocal Corp., the ninth-biggest U.S. oil and gas company.

Also this week, Chinese appliance maker Haier Group got into the picture as a possible buyer of U.S. competitor Maytag Corp., which is reviewing a $1.28 billion buyout offer from Haier and two U.S. private equity firms, Bain Capital and Blackstone Group.

Whether or not the two big deals succeed, they come on the heels of Chinese computer maker Lenovo Group Ltd.'s takeover of IBM's personal computer business and reflect China's growing appetite for Western corporate icons.

"I'd expect at least half a dozen similar deals by the end of the year," said Jack J.T. Huang, chairman of international law firm Jones Day's Greater China practice.

Cash-rich companies such as China National Offshore Oil, buoyed by fat profits from higher oil prices, are keen to secure oil and gas reserves to help fuel China's economic boom. The company had no comment after its board met Wednesday. But the Reuters and Agence France-Presse news agencies both reported that sources said the board was proceeding with putting together a $19.8 million bid for Unocal, which has international oil and gas operations, mainly in Asia.

The Chinese are newcomers to the international mergers-and-acquisitions scene, and initially most of their purchases were focused on energy and minerals. But consumer product companies recently have joined the fray, hoping to tap into overseas distribution networks and claim well-known brand names.

Haier, which is based in the eastern Chinese city of Qingdao, was one of the first Chinese companies to expand internationally, setting up factories in Algeria, Mexico, Iran and Southeast Asia before it started its first U.S. factory, in Camden, S.C., in 2000.

But the company's inexpensive refrigerators and washing machines have generally been sold only by discount chains such as Wal-Mart. Taking over Maytag would net it a household brand name and a nationwide distribution network that could vastly expand its sales.

Clyde Prestowitz, author of a new book focused on the competitive threat posed to the United States by China's economic expansion, said the Haier takeover bid for Maytag was 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.

Maytag agreed a month ago to be acquired by Ripplewood Holdings, a New York investment firm. But in a statement late Monday, Maytag said it was considering a preliminary bid from Bain Capital, Blackstone Group and Haier America of $16 a share, $2 a share more than the offer from Ripplewood.

"We continue to support the Ripplewood transaction; however we also believe that it is incumbent on us to pursue the possibility of achieving a higher price for our stockholders," said Maytag's lead director, Howard Clark.

High-profile takeovers can run into myriad problems, as Lenovo found with its $1.75 billion purchase of IBM's PC business. In that case, the deal was completed only after a U.S. government panel concluded that the merger would not pose a national security threat.

Already, the possible takeover of Unocal by a Chinese state-controlled company has raised political hackles, with some members of Congress reportedly lobbying President Bush to review the deal if it occurs.

Haier's ambitions have raised questions back home over its ability to effectively manage a company such as Maytag, which has been struggling against rising costs, slipping profitability, sliding stock value and intense competition from Asian manufacturers.

"Watch out, Haier!" cautioned an editorial in the state-run newspaper China Business News.

Prize acquisitions can turn out to be liabilities, it noted, pointing to the case of TCL Communication Technology Holdings Ltd., whose joint venture with France's Alcatel SA foundered amid rising losses for the intensively competitive cell phone business.

"When these situations can indeed be turned around by reducing costs or otherwise adding value, it's a big win for Chinese companies," said Huang. "If not, it could be a nightmare."

IBM's PC unit

Suitor: Lenovo Group, China's biggest personal computer maker.

Status: A done deal. In December, Lenovo agreed to pay $1.25 billion for a majority stake in IBM's personal computer operations.

Maytag

Suitor: Chinese appliance maker Haier, along with U.S. private equity firms Bain Capital and Blackstone Group.

Status: They made a $1.28 billion offer this week, but Maytag is also considering an offer from the Ripplewood Holdings investment firm.

Unocal

Suitor:China National

Offshore Oil Corp.

Status: It reportedly is putting together a $19.8 billion bid for Unocal, which would trump a $16 billion offer by Chevron.

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