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Poll Respondents Object to Chinese Purchase of Western Firms

Maybe fear is not really the cause of opposition to Chinese merger-and-acquisition activity in the Western hemisphere. It appears many people are simply concerned about equity and balance in business relationships between China and the West.

They want China to open up its own economic system as widely as its companies are demanding of the West and create an environment where foreign companies can invest in any business segment in what is now the world's second-largest economy.

That was the verdict of a recent EBN poll, China Conundrum, that attempted to gauge the level of reception in the West to attempts by Chinese companies — through M&A actions and other business combinations — for access to technologies developed by North American, European, and Japanese enterprises. We asked EBN readers to express their opinion on the subject after Ken Hu, deputy chairman of {complink 2430|Huawei Technologies Co. Ltd.}, wrote a public letter to US regulators complaining about opposition to his company's offer to buy server technology vendor 3Leaf Systems Inc. (See Huawei Challenges US Gov’t: ‘Investigate Us’.)

More than half (53.6 percent) of the 358 respondents to the EBN survey voted in favor of restricting access by Chinese companies to Western technology, while about 40 percent disagreed with this position. Only four respondents (7.6 percent) were undecided. While the absolute numbers confirm the range of opinions, I believe the comments provided to the poll were even more fascinating.

One reader (tech4people) had a bunch of questions related to the issue of fairness in business relationship between countries, including the following:

    Why should they get [Western technology] for free; What have the Chinese done to deserve this act of generosity from Western multinationals; have they treated Western companies really well and especially their IP and; are they assuring Western companies of a steadily growing market?

Tech4people proceeded to answer these questions with a ringing “No.”

Another EBN reader summed up his own objection differently. Rich Krajewski said offering Western IP to Chinese companies would be tantamount to trading off the goose that lays the golden egg. The West, according to Krajewski, should sell high-tech products rather than the means of producing these. “When a farmer goes to the market, he usually sells his produce, not the seeds,” Krajewski said.

These are all valid points, but they may be missing the bigger picture. Chinese companies can no more be kept out of the Western M&A market than China can kick out or forever exclude foreign multinationals operating in its territories. While China continues to operate a socialist political system, its economy is capitalist in all but name, and this trend will most likely continue as the country intensifies efforts to bring development to all its regions.

Moreover, Chinese companies are no longer content to operate only within the borders of their home nation and are actively seeking growth opportunities in foreign lands. They cannot be expected to limit themselves solely to greenfield activities but will surely be looking at transactions that target both sales expansion and the acquisition of technological intellectual property. The era of China being charged — rightly or wrongly — with stealing foreign IP is coming to a close. A new one is opening up, and it does involve Chinese companies legally acquiring Western IP through direct purchase.

This may result in controversies and some accusations of unfair trade practices as in the Huawei-3Leaf case, but even this should be considered progress. European companies have had similar complaints of unfair practices related to transactions and contracts involving US enterprises that were derailed by politicians and regulators.

In one recent example, Boeing in February won a $30 billion US Defense Department contract for aerial refueling tankers that had also been coveted by the North American division of european aeronautic defence & space co. (eads) the contract had been awarded initially to both {complink 9356|northrop grumman corp.} and eads but was resubmitted for competitive bidding after boeing complained.

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15 comments on “Poll Respondents Object to Chinese Purchase of Western Firms

  1. hwong
    March 22, 2011

    I also do not see what benefits are there for the U.S. if Chinese companies acquire U.S. firms.  Is the main reason to put in more investment dollars to stimulate growth? Does the U.S. company executives get alot of financial reward for the acquisition?  I remember at one point in time in the 80s when Japan was prosperous and rich they even claimed that they can purchase most of the companies in the U.S. The response was more antagonism to the Japanese in America. I don't want this to happen in our society

  2. Anna Young
    March 22, 2011

    What it comes down to is fair and balanced trade practices. It's unlikely the West will allow Chinese companies to roam free over all economic segments and the same applies to Western companies seeking acquisition opportunities in China. The problem is that China has numerous restrictions in place for companies that want to invest in its economy and these haven't been lifted. Governments have to find a way to level the playing field on both sides. We can do business together; it's just can't be weighted heavily in favour of one side.

  3. Ashu001
    March 23, 2011

    Bolaji,

    I have a feeling you may be over-optimistic with your rationale here;

    “The era of China being charged — rightly or wrongly — with stealing foreign IP is coming to a close. A new one is opening up, and it does involve Chinese companies legally acquiring Western IP through direct purchase.”

    Most Chinese firms still operate in Rip-off and Copy Cat mode.It would probably help a lot if these companies were not so closely tied with a State that has been proven to gain unfair advantage over Western Manufacturers by manipulating the Value of their Currency(as well as other barriers inside China).

    Regards

    Ashish.

  4. Barbara Jorgensen
    March 23, 2011

    I agree, Bolaji, we can't embrace a market economy and be averse to M&A from one competitive region. We can't play in a global market without expecting companies to come on our shore. If there was a time for protectionism–and I'm not sure there was–we are far beyond that for better or worse.

  5. Ms. Daisy
    March 23, 2011

    Tech4:

    I wonder what happened to the adage “He who pays the piper, dictates the the tune”.

    For as long as China has the money to buy not only the products but the technology too, and the capitalists are willing to sell IPs to China, then the optimism by Bolaji may be right. Chinese merger-and-acquisition activities in the Western hemisphere will happen, it is a matter of when and we cannot do anything about it as long as capitalism is the rule of business.

    Like many others, I am concerned about equity and balance in business relationships between China and the West. China has the undue advantage of controllling its business community, which the West lacks. A few in the West will sell their birthright for the sake of profit and competitive edge, hence the – when the mergers will occur. 

    The big fortune 500 companies that have businesses in China need to partner with their home governments to force the issue of fairness and make China slowly become a place where foreign companies can invest in any business segment.

  6. Ashu001
    March 24, 2011

    Miss Daisy,

    You are talking about Greed and how Greed tends to overcome every other emotion for most Senior Corporate Executives.

    I agree and understand your rationale entirely.However,you underestimate how Angry the electorate in most Western Nations is today[They are unemployed and totally broke today]&the impact this is having on most Politicians and their dialogue with the Chinese[Its getting more and more acerbic…].

    This situation reminds me a lot about the Smoot-Hawley act after World War 1.We are for sure heading for another severe round of protectionism today.

    Regards

    Ashish.

  7. Hardcore
    March 24, 2011

    One major issue is the IP

     I can be a little more open on this subject than I previously could, part of my recent employment history related to technology being bought from the USA & Japan, shipped to 'dummy' third parties in countries that were perhaps not as tightly audited, then trans shipped to China specifically for reverse engineering of the technology, part of my job description was to disassemble and reverse engineer this technology.

    Generally such analysis included both the physical mechanical parts, PCB's & electrical systems, general overview and the integral software of the device.

    Being involved in this area, and having the unique perspective of being on the inside, I can safely say that if anything there is an ongoing increase in this behavior but that the acquisition of the products is becoming more professional and harder to detect , resulting in the appearance of a general decline and cleaning up of  Copyright/ IP protection in China

    Unfortunately the reality of the situation is far more interesting.

     

    HC

     

  8. Ms. Daisy
    March 25, 2011

    Ashish:

    Thanks! It is my hope that the populace in the West will be acerbated enough to hold these greedy executives accountable and not send us into a monoply in which China is in full command. But based on the current state of affairs, I am still worried!

  9. stochastic excursion
    March 25, 2011

    There will always be rip-off artists in business and greedy executives, but there wasn't this kind of outcry about greed when businesses were deserting communities across America over the last twenty years.  Why the double standard?  We have a model–free enterprise–that has yielded advancement for the Chinese and low-priced goods for Americans.  What's good for the goose is good for the gander as the saying goes.  There isn't any principle of free enterprise by which obstructing the right of Chinese businesses to conduct business in this country the same as any other business is advised.  There's no justification for worries about the Chinese handling our defense, other than xenophobia.  Would the US government be crazy enough to contract out to a foreign firm, let alone a Chinese one?  Actually they are when it comes to interrogating suspected terrorists, but that's another story.

  10. Kunmi
    March 27, 2011

    The poll had shown the true perception of the populace with China's business style. I do not condemn China from investing in the Western world but there is no reason for any bate.

  11. Backorder
    March 29, 2011

    The poll is actually pretty balanced. I am surprised, considering the trade imbalance as it now appears is quite significant w.r.t. the freedom of operations. There are multiple levels of consolation which will be required before the chinese business truly reflects the capitalistic west; at which point, technology and IP access will not remain a threat.

  12. Ms. Daisy
    March 30, 2011

    I don't believe the outcry you are hearing is due to double standards. It is more of the increased awareness by the populace of the drain of both resources and technologies from the US to China and other outsourcing destinations. It is this awareness, laced with the effects of unemployment that has led individuals to become more vigillant on prospective dangerous business plans. Purchasing Western Firms will be the last nail in the coffin.

  13. Jay_Bond
    March 30, 2011

    In a global economy it is only reasonable to expect that foreign countries will buy American companies. Nobody seems to have a complaint when an American company takes over a foreign one. They don't care if these companies are located in Europe, Asia, or Central and South America. Many people show pride and arrogance that the U.S. has the right to do this, yet if a foreign country, especially a communist country starts buying American plants there is a giant uproar. Some of these foreign countries are coming to the U.S. because they are taking advantage of breaks the U.S government is giving them to keep the American economy moving.

  14. Ashu001
    May 7, 2011

    Daisy,

    The problem is more of keeping ones Currency Artificially suppresed so as to help them grab both market share as well as Foriegn Currency(and Assets).

    This is precisely what the Chinese are doing.All the Inflation that should have been there in the West has been exported East(in China) by keeping costs of all items artificially lower than it should be.

    Regards

    Ashish.

  15. Ashu001
    May 7, 2011

    Bond,

    What typically tends to happen ,when a Local company is taken over by A Foriegn company is that they bring in best management practices in place.Help to take out layers of fat which come in naturally and simplify the entire organizational structure.

    This is why there is so much resistance to these Take overs.It has very little to do with Nationalism and more to do with Laziness(People get used to getting paid for very little or no work) & refuse to compete with the Best talents worldwide….

    Regards

    Ashish.

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