In China, certainly, foreign companies receive a warmer welcome if you are an operating entity in the country, rather than just a factory location. A decade ago, the process to set up a business and/or acquire in China was extremely time-consuming and tedious. Has the red tape been reduced, or is it the appeal of capital infusion that's changing things?
Western high-tech companies have been in China now for well over 20 years and it's time they moved on to the next stage of their relationship with the country. China's can still be a difficult business terrain and I don't expect the challenges to disappear anytime soon but foreign companies are learning to cope with the challenges, often by tapping local talents for support. If global economic integration continues as expected, the idea of companies merely setting up subsidiaries in China will fade away. To be fully integrated, companies must be both willing to establish Greenfield operations or buy local rivals. Chinese companies will similarly go West as Western companies go East. That process will benefit all parties and we may as well start removing the roadblocks to this.
Interestingly, Avnet Inc., one of the world's biggest electronic components and IT equipment distributors, announced today it had acquired some assets from Eurotone Electric Ltd., a Chinese distributor that is more focused on engineering design support. Avnet said it made the acquisition to broaden its offerings in "critical components in solar and wind power applications," areas seeing strong growth in Asia. That's the future of expansion in Asia for Western companies.
Thanks for the questions. Most of the major acquisitions that have taken place over the last year in the high-tech sector have been largely within the United States and in Europe but there are signs some of the industry's biggest players are seeking new ways to tap into opportunities opening up in China, Japan, Korea and in Eastern Europe. Among OEMs, Hewlett-Packard and companies like Dell have been most active as they fight for dominance in emerging cloud computing areas with the goal of becoming one-stop shop for companies seeking hardware, software and consulting services.
HP for instance fought a public battle over 3Par with Dell and won with a bid of $2.4 billion, much higher than the starting bid price of $1.6 billion. That's just one of the more high-profile acquisitions announced by HP over the last year. Earlier this year, it closed the acquisition of Palm Inc., for which it paid $1.2 billion. Also this year, HP bought ArcSight ($1.5 billion), Stratavia and Fortify Software (terms not discolsed.).
Other companies have been similarly active. Dell lost the bid for 3Par but it won KACE, a systems management appliance company, Late in 2009, Dell bought Perot Systems for $3.9 billion.
These are some of the biggest acquisitions on this side of the pond. Companies in Asia have been very busy too and some have made forays into the U.S. and Europe. In the non-high tech area, China's Sinopec bought 9 percent in ConocoPhilips for $4.7 billion. In the high-tech area, Alibaba.com, a China-based electronic commerce giant acquired Auctiva, based in California. Western companies have also been active in other segments of the economy. Massachussetts-based Charles River this year paid $1.6 billion for China's Wu Xi PharmaTech. The trend is in this direction despite obstacles governments and politicians will throw in the way.
On the issue of potential cross-continental acquisitions that I think should take place, I have always thought China needs to make a big splash in the telecommunication equipment market. The acquisition of Alcatel-Lucent, for instance, by a major Chinese player in the sector is a possibility, if national governments in the U.S. and France would step aside and remove boundaries imposed over the transfer of dual-use (consumer and military) technologies to China. There are other struggling Western companies that could benefit from a strategic merger or other partnerships (such as buying minority or controling stakes) with south East Asia rivals. An example is Motorola, which wants to spin off its mobile handset business. It would seem to make sense for Motorola wireless division to seek a partnership with a major Chinese or Taiwanese handset vendor. The payoff would be huge for both parties; Motorola would get increased access, local/home grown design expertise and, of course, "adoption" in China's huge market while the Asian rivals would get validated as a genuine and potentially major player in the west. Taiwan based HTC (formerly High Tech Computer Corp.) is a potential candidate for acquisition or merger with the like of Motorola.
Will any of these happen? There are numerous obstacles on the way, including political and cultural. Western governments, for instance, are loath to open access to critical technology to China. But problems like this can be resolved. IBM succeeded in selling its PC business to the Lenovo Group after satisfying regulatory and other government concerns. My argument is that businesses and economic regions go through growth and development phases. It's now the next phase for the high-tech sector and this will involve cross-continental deals that many once thought were highly unlikely or simply impossible to orchestrate. They will eventually happen as the consolidation in the West wraps up and the East begin to see it needs more than "home grown demand" to make a big splash in the global market.
Western companies may want to go East and Eastern businesses may also want to go West but will the politicians get out of the way? That's the main problem I see with the theory that acquisitions will increase over the next few years between Western and Eastern companies. There are no doubts it is desirable and, under any other circumstances, it should be happening already. However, China is determined to grow as quickly and rabidly as it can at the expense of the West.
That's why China will continue to welcome foreign investments but not allow its currency to float freely--otherwise it will have to face the spectre of potential unrest in its countryside if the cost of manufacturing in the country rise and foreign manufacturers stop outsourcing as heavily to the region. China also seems to think it can have its cake and eat it, that is, welcome foreign investment but make it difficult for foreigners to buy local companies or invest in certain market segments.
China is not the only problem, though. Western governments, too, are very wary of China and can't seem to get over their concerns over the transfer of sensitive technologies and industry segments to Asia. So, some companies will not be, for now, available to Chinese buyers. In turn, Western companies will also not be allowed to invest in certain Chinese business areas. There you have it: stalemate. Any solutions?
Barbara, can you simply forsee a change in Red tape in China? I think not.
However, I deem this as "changing times". The era of Globalisation. The option is to open and relax their rules to encourage more investor in order to aid further growth.
Smart move--the Chinese government is investing a lot in solar and wind power to both reverse pollution in the country and establish jobs and technology leadership in renewable energy.
Avnet first dipped its toe into China 15 or so years ago by forming an arm's length partnership with a Chinese trading company. At the time, that was the most viable option in terms of China's in-country operating requirements and risk management on Avnet's behalf. An outright acquisition certainly marks progress.
Can a company maintain its identity after a merger or does it just get swallowed up.
Yes business is business but culture is also involved.
In an east-west merger, how do the companies still manage to remain themselves wihtou loosing their identity to one another.
I know an Acqusition is a complete swallow up, but what are the implications of a Merger on two companies with two different aproach to business, customer relations, and from different cultures.
A company can still maintain it's identity after a merger. However, for this to be effective,there will be undoubtedly a refection on varied diversity of the parties involved. This in my view can only be addressed in the spirit of agreeing to disagree, instead of imposition of unformity. Bearing in mind that each Nation has it's strength and week points. They ought to share and learn from various skills involved, rather than impose it's value,system and developmental way of life. It may not always turn out this way, this I believe ought to be the model, if merger is the order of the day rather than complete take over.
Hi Anna--thanks for your feedback and excellent point.
From what I hear, there hasn't been any dramatic progress in cutting through the red tape in China. The policies still favor local companies, local content and local development. But as long as China remains a potential market for foreign goods, Western companies will do whatever is necessary to play in that market.
It will take some time for China to be fully integrated into the global economy and along the way the country will need to make many more concessions to enable foreign companies fully participate in local business transactions. Already, due to economic weakness in the West and high unemployment, governments across the globe are clamoring for China to let its currency float, meaning they want the Yuan or Renminbi to appreciate against other major currencies.
The belief is that a stronger Yuan will make Chinese exports more expensive in the West and help level the playing field. China has objected to the push for a free-floating Yuan for years but there are signs it is more willing to somewhat relax its hold on the currency. China has also over the years, under pressure from foreign companies, improved its intellectual property protection efforts and is helping to counter the incident of counterfeiting, which has in the past hurt and continues to hurt high-tech companies.
I see the same happening on the issue of M&A activities. China may not readily yield to the need for companies to engage in mutually beneficial trans-continental transactions but it must eventually if it wants to continue to be a thriving member of the world economy. That's the hope, at least. The reality may turn out different if China feels further liberalization could negatively impact its political stability.
Agreed. Almost all the companies listed in your article have presence in India. But I guess what you meant was manufacturing. Yes with growing economies of China and India its inevitable but to merge and acuquire.
East-West High Tech Mergers and Acquisitions will increase as the price is high for procurement of instruments and also manpower is challenging. Eastward countries are still manufacturing at low cost and hence comparing the cultural traditions the manpower is quite low which is affordable. Although in sofistication purpose I do suspect they are farmore improved and user friendly. Depending on the innovation capability and the novelety the probability for acquisition and discovering with patented ideas are on a rise for their demand.
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Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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