Lessons for Chinese Companies as They Go Global

(page 3 of 3)

It purchased Seiyu Wing-On, a Singapore department store chain, in 2005 for $2.36 million. Beijing Hualian kept Seiyu's executives and employees as a way to learn the skills necessary to smooth operations in the Singapore retail market. Only last year did it change the store name from Seiyu to BHG, a name created specially for its overseas locations. Since the acquisition, BHG has opened another store in Singapore and brought the international brand name back to China to help boost sales in its Hualian stores.

M&A is not just an easy solution, though. While Lenovo has ultimately done very well in establishing itself as an international brand, Chinese companies should learn from Lenovo's initial struggle with its M&A endeavors. The company purchased IBM's (IBM) PC division for $1.35 billion and came away with a marquee brand in the ThinkPad line, offering laptops with a clearly defined image as a bulletproof business workhorse. Lenovo ran into problems, however, integrating IBM into its overall operations. It ended up focusing key resources on the resolution of management disputes, thereby detracting attention and resources from its core market in China. In the meantime, Dell (DELL) and Hewlett-Packard (HPQ), which initially had vastly inferior supply networks in China, were able to steadily gain market share and compete with Lenovo at home.

Cash-rich Chinese companies can and should attempt to gain expertise and market share through acquisitions. However, companies must consider carefully the specific strengths and problem areas the acquired company will bring to the table and how best to incorporate and benefit from them.

The Chinese companies that get the right marketing and human resource strategies in place will be able to take advantage of the world's slowing economy to emerge as global brands.

Shaun Rein is the Founder and Managing Director of the China Market Research Group, a market intelligence firm that helps companies make smarter decisions in China. He can be reached at shaunrein@researchcmr.com. .