The rub with China has always been they are excellent at volume manufacturing but when it comes to developing global brands they are non-starters. Li-Ning the famous Chinese gymnast tried to develop a global athletic brand to rival Nike and Adidas. No traction so far. Apple earns the lion’s share of the profits from its phone sales. The Chinese manufacturers and assemblers get the crumbs.
China does have a number of companies which have created products that sell well on the global stage; Huawei in computer servers, Xiaomi in cell phones, Haier in white goods and Lenovo in computers are some examples. But in general China has not broken through internationally.
Recently however there have been some significant changes. Chinese companies are spending big bucks today to buy global brands. This year alone the Chinese have announced offers of $17 billion for U.S. and European companies. The chart above shows some of the recent deals. And there are more coming. ChemChina, a conglomerate with significant agribusiness sales is bidding for Syngenta, a Swiss developer of crop seeds. Zoomlion, China’s #2 company in cranes has bid for Terex, the American maker of heavy equipment.
And the Chinese are after technology too. Tsinghua Unigroup a spin-off of Tsinghua University in Beijing (aka China’s MIT) is trying to buy into a number of technologies including disk drives (Western Digital) and memory chips (Micron Technology). Most recently a Chinese group attempted to buy a unit of Dutch electronics company Philips. U.S. regulators have stepped in to block this purchase as well as the Micron deal by Tsinghua, citing national security concerns.
But as long as the Chinese stick to manufacturing and consumer brands their reach for global markets will probably not be challenged. They have been smart about their buys, saying they will leave existing management in place and running the businesses as separate entities. What Haier is looking for in its acquisition of GE Appliances is not management control but access to global markets, global talent and global technology. The same goes for Geely Auto of China which purchased Sweden’s Volvo. Geely is looking for the global technology sophistication embedded in Volvo which will eventually be used in the manufacture of Geely’s own brands.
This new round of acquisitions by Chinese companies will get Brand China to the global stage much faster than previously expected and faster than even the Japanese, the Koreans or the Taiwanese after World War II. The drawdown of Chinese foreign reserves (see chart) is in part due to the appetite of Chinese companies for foreign competitors. The BIG question now is how and when will the Chinese internet behemoths (Alibaba, Baidu, Tencent, etc) start flexing their muscles globally. Stay tuned.
