Chinese Multinationals PDF
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CHINESE MULTINATIONALS TThhiiss ppaaggee iinntteennttiioonnaallllyy lleefftt bbllaannkk Foreword by Liu Chuanzhi CHINESE MULTINATIONALS Editor Jean-Paul Larçon HEC, Paris World Scientific NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. CHINESE MULTINATIONALS Copyright © 2009 by Jean-Paul Larçon All rights reserved. For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher. ISBN-13 978-981-283-500-0 ISBN-10 981-283-500-8 ISBN-13 978-981-283-559-8 (pbk) ISBN-10 981-283-559-8 (pbk) Typeset by Stallion Press Email: [email protected] Printed in Singapore. Sandhya - Chinese Multinationals.pmd 1 10/2/2008, 4:38 PM October10,2008 14:56 9inx6in B-682 b682-fm TSINGHUA SCHOOL OF ECONOMICS AND MANAGEMENT As one of the first economics and management schools in China, Tsinghua SEM is among the premier schools in China and in Asia. The School was established in 1984. Professor Zhu Rongji, Founding Dean, later became the fifth Premier of the People’s RepublicofChina. Since 1984, Tsinghua SEM has thrived along with the reform, opening-up,anddevelopmentoftheChineseeconomy.Todayitcon- tinues to strive for building a world-class school of economics and management.The School benefits from the synergy of bringing two academic disciplines, economics and management, into one insti- tution.TsinghuaSEMiscommittedtotheexcellenceofbothresearch andteachingforthepurposeofadvancingknowledgeandeducating futureleaders. HEC PARIS Founded in 1881, HEC School of Management, Paris (HEC Paris) is among the top European schools of business. It has built its reputation through the highly selective French “Grande Ecole” system,attractingindividualswithbothhighacademicpotentialand entrepreneurialspirit. LocatedintheheartoftheParisbusinesscommunity,theSchool has earned international reputation through a portfolio of advanced v October10,2008 14:56 9inx6in B-682 b682-fm vi management programs such as the Master of Science, the MBA, andEMBAs.ThisisfurthersolidifiedbyHEC’sstronginternational presencefoundedonitsnetworkofallianceswithleadinginstitutions andcompanies. HEC’sstrategyischaracterizedbytwomajororientations:astrong emphasisonresearchandpublication,andcloselinkswiththeinter- nationalbusinesscommunity. October10,2008 14:56 9inx6in B-682 b682-fm FOREWORD LiuChuanzhi PresidentandCEOofLegendHoldingsLtd ChineseMultinationals,whichistheproductofacooperationbetweenHECParis andtheSchoolofEconomicsandManagementofTsinghuaUniversity,discusses theinternationalizationstrategiesofChineseenterprises.Inmyopinion,thisbook goestopressatanopportunetimeandthereforebearsgreatsignificance.AsIdid inthechaptersanalyzingLenovo’sacquisitionofIBM’sPCbusiness,Iwouldlike tosharemythoughtsandexperienceofthisphenomenon. I will begin by explaining the significance of this acquisition. The current businessenvironmentdemandsthatChineseenterprisesgototheglobalmarket.A largenumberofChinesecompanieswillchooseto“goglobal”fordevelopment. Intheprocessof“goingoutward”,theyareboundtobeconfrontedwithvarious kindsofproblemsanddifficultiesthattheyhaveneverexperiencedinChina.This juncturecallsforcompaniestotaketheleadandspearheadthemovementbeyond China’sborders.Ifbreakthroughsareachieved,thesepioneeringcompanieswill serve as examples; subsequent Chinese companies will be able to avoid similar pitfallsandgainconfidenceinthisendeavor. ThisiswhatIseeofprimesignificanceinLenovo’sacquisitionofIBM’sPC unit.Acquisitionandthesubsequentintegrationofthetwocompaniesisaclassic problemstudiedintextbooksofanybusinessschool.WhileLenovorepresentsa companyoperatinginadevelopingcountry,IBMisconsideredaniconiccompany featuringAmerican-style capitalism. In this sense, Lenovo’s merger with IBM’s PCbusinesscanbeviewedasarelativelyweakercompany’sbuyoutofastronger one,whichisconsideredthemostdifficulttypeofacquisition.Lenovo’sexperience can therefore provide management academics, both at home and abroad, with a vividcaseofoverseasacquisition. Therisksassociatedwiththeacquisitionarethreefold.Thefirsttworisksare whetherthebrandofthenewentitycanberecognizedbyinternationalcustomers, andwhetherkeyemployeesintheacquiredcompanyarewillingtostay.Theseare vii October10,2008 14:56 9inx6in B-682 b682-fm viii Foreword typical issues generated when a relatively weaker company acquires a stronger company.However,thethirdrisk,thatofblendingthedifferentcompanycultures, iscommoninallcasesofacquisition.Itseemsthatuptonow,thefirsttworisks havebeenproperlyhandled.Butwhethertheacquisitionwillexperiencesuccess depends on how well the new Lenovo can integrate the two cultures.While top- notchcompaniesinChinaandAmerica—especiallywhentheyareinthesame industry — are quite close in terms of core values, differences in thinking and behaviorbetweenChineseandAmericanpeoplearenumerous.Forexample,Icon- scientiouslygrantsomeconcessionsduringnegotiationswithmybusinesspartners becauseIalwaysoptforlong-termcooperationandbenefitsandatthesametime want to express my sincerity and respect for the other party. But international companies,generallyspeaking,willnotshowanyappreciationandmayhavethe feeling that I don’t know what I’m giving up.Another example of cultural dif- ference is that while in theWest employees tend to be very direct when talking aboutcompensationwiththeirbosses,theirChinesecounterpartswouldbemuch moreindirectandsubtleinthehopethattheireffortandvaluewillberecognized andtheywillberewardedwithbetterpayaccordingly.However,shouldChinese employees approach this more aggressively, their employers, not being used to suchbehaviour,willmostprobablynottolerate. As a representative of Legend Holdings — the controlling shareholder of LenovoGroupLimited—Ihope,firstandforemost,thatthewholevalueofthis alliancewillbegreaterthanthesumofitsparts.ThenewLenovoisexpectedto improveinturnoverrateandprofitratioandthuscreatehigherreturnfortheshare- holders.Thisshouldbeconsideredthebasicrequirementforanacquisition.Yet, thisalonewillnotsuffice.Weaspireforfurtherstrategicpursuitsinthatwewantto seeChinesepeoplecontrollingortakingpositionsinthecoremanagementteam. Of course, the most important results are higher profits and a greater return for shareholders.Mystrategicconcernwillbegraduallyaccomplishedduringthepost- M&Aintegration,becauseasenseofwhentoadvanceandretreat,orwhetherwe shouldbeflexibleorrigid,isanart.Whilealackofpreparationspellsfailure,more haste may produce fewer results. The key lies in the capabilities of the Chinese managersandtheattitudeoftheirAmericancolleagues. October10,2008 14:56 9inx6in B-682 b682-fm PREFACE ZhaoChunjun EmeritusDeanofTsinghuaSchoolofEconomicsandManagement ViceChairmanofChinaAcademyofManagement Since launching reform and opening up the country, China has experienced sus- tainedrapideconomicdevelopment,andmanyChineseenterpriseshavegradually beguntoincreasethepaceoftheirinternationalization.“Goingoverseas,”soasto seizegreatermarketshare,moreresources,andricherandadvancedmanagement experiences, has become a common undertaking of many Chinese enterprises. Thanks to China’s access to the World Trade Organization (WTO) in 2001, the internationalizationprocessofChineseenterprisesthoughstillinitsinitialstage, hasdevelopedwithgreatdynamismanddiversity.Thisisyetanother“longmarch” forthegrowthofChineseentrepreneursandChina’seconomicdevelopment.There arebothsuccessfulexperiencesaswellasbitterlessons.ChineseMultinationals,a bookjointlywrittenbyprofessorsofHECParis,professorsoftheTsinghuaSEM, andotherChinesescholars,offersasnapshotofthisprocess. Economicglobalizationisanirreversibleprocess.Theyear-on-yearincreaseof thetotalglobaltradevolume,foreigndirectinvestments(FDI)internationalflows offinancialcapital,social,political,cultural,scientificandtechnologicalexchange andintegration,allserveasthebestproofofthegrowingtrendofglobalization. China has only opened up to the rest of the world for less than 30 years. Undoubtedly,aChinesecompanywillfindmakingaleaptoatransnationalenter- prise arduous and formidable. There are far-reaching challenges to investing in anunfamiliarmarketandestablishingapresence.Atthestrategiclevel,ithasan impactongrowthalternatives,internationalmarketing,technologicaltransferand competition,intellectualpropertyrights,potentialstrategicpartnerships,accessto theinternationalcapitalmarket,M&Aetc.Atthesametime,theimpactofsocial, culturalandpoliticalfactorsonthecorporatestrategyandpolicieshavetobedealt with actively by senior management. At the operational level, almost all tradi- tionalmanagementfunctionsandprocessesneedtochangeinordertoadapttothe ix
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