Why Chinese Company Go Abroad

Why Chinese Company Go Abroad

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1. Introduction
With the encouragement of the government policies and the development of the national economic, many Chinese enterprises now have begun to pursue new foreign direct investment. This case has described TCL, Lenovo, BENQ’s acquisitions and takeovers in the west and shows the importance of decision making and management skills during this transcultural management process.

2. Response to the questions
Reasons of Chinese investment in the West its problems
The reasons why China has sought to invest in the West can be divided into several aspects. Firstly, domestic market has been saturated; therefore, China had to seek to invest in the West so as to solve the problem of overcapacity. Moreover, China could obtain more market share in the West through global investment while niche market would also be available to China in the West. Furthermore, economies of scale would be formed through the distribution both in domestic and abroad and as a result Chinese companies could reduce operating cost and earn more profits. Fourthly, investing in the West is a wise option to avoid anti-dumping measures. It is the evidence that Schneider Electronics AG of Germany is acquired by TCL in September 2002. Last but not least, through merger and acquisition of a global brand, Chinese companies could be acknowledged by local customers easily and then attract them with the image of original brand. In addition, a Western company is more mature than Chinese one; hence it is a good chance for Chinese companies to learn advanced technologies and skills from Western companies. Overall, the investment in the West could bring about mutual prosperity for both China and West.

When it refers to the problems posed by further investment, cultural difference is a main factor, which then would result in adaptive problems. It is mainly reflected in the operations after merger and acquisition. Take TCL for instance, the integration between TCL and Thomson is painful since the former was characterized by its flexibility while the latter emphasized procedures and systems. To Lenovo, the American style of communication is a major challenge. On the other hand, IBM measures outcomes whereas Lenovo controls both the process and outcomes. As to BenQ, Siemens’ manual reporting system made it hard for BenQ to oversee the business situation in Germany in real time. In addition, human cost is another major concern for both Lenovo and Siemens as the average annual salaries of original companies are at least three times of Chinese ones.

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The briefly evaluation of the business and management performance
• The business and management performance of TCL
In the case of mergence and acquisition of TCL, it had some success and failure in business and management performance. In term of business performance, TCL had a good vision, good entry timing and product positioning. This made TCL become the seventh largest cell phone maker in the world after acquiring Alcatel Mobile. At the same time, this made TCL enter large-screen segment at an appropriate moment and successfully occupy it. However, there were some limitations in TCL business performance. First, it failed to get in LCD TV market, which leaded to huge loss. Furthermore, because of inappropriate operation, TCL incurred several losses. It could be easily seen from losses of TTE and T&A.

On the other hands, regarding TCL management performance, it was wise that TCL sent their employees to study oversea. This was because this way could make employees better adapting to international working environment and gain advanced acknowledge. Nevertheless, TCL managerial limitations blocked its international development. Firstly, Thomas Li was too nice to those executives who have good performance, but are not in line with TCL’s culture and values. Second, he failed to stop the formation of different factions and interest groups inside TCL. Third, he failed to replace those executives who were incompetent for their positions.

• The business and management performance of Lenovo
As far as business performance of Lenovo, it had some merits. First, it was effective to emulate HP’s distribution system, which reduced costs on sales team and made distribution more convenient. Moreover, it launched marketing and Pentium campaigns, which facilitate to establish the image of Lenovo and reduce the price of Pentium PC per unit. At the same time, these campaigns all helped Lenovo build its brand equity. In addition, Lenovo had an end-to-end model and paid much attention to emerging markets, these effectively helped it control each procedure in the process of production and successfully explore new markets. Though Lenovo merge and acquire IBM laptops successfully, there was still disadvantage existing in Lenovo. It is apparent that Lenovo’s road to diversification was not so smooth. This made Lenovo incur big loss.

Turning to the management aspect of Lenovo, there were three main elements of management model leading to its enormous success. First, it has made a clear strategy such as Lenovo gradually paid most attention on PC world. Second it established a good management team which could enhance the efficiency and reduce the administration cost. Finally, Lenovo lead the staff effectively especially focused on constructing favorable humanities environment. Liu Chuanzhi who was the founder of Lenovo had a significant contribution on building an effective management system of Lenovo.

• The business and management performance of BenQ
In the term of business performance of BenQ, it had several failure aspects. Firstly, when it buys a losing-money business, it does not have enough capital. Secondly, if it attempts to buy a subsidiary of a large corporation, it has not the target thoroughly cutting off from its mother enterprise before buys. Thirdly, the management team of the target has not been turned over. Finally, BenQ used to lose 1.2 million EUR every day after it acquired Siemens Mobile industry.

Regarding to the form of management of BenQ, the shortage was that it was poor at collaborating and communicating between two sides. This would cause unnecessary misapprehension and increase the management cost, besides, it may lead the inefficient production.

Lessons learned
In the process of integration, both eastern and western managers should learn the lesson from three aspects: cross-culture management, problems in acquisition venture and entry timing.

First of all, managers should learn to tolerate different cultural behaviors. Working in the environment of harmony, managers could figure out an applicable management model which combines the advantages of both western and eastern management style. The applicable model may reduce the impact of cultural conflict in the venture.

Secondly, there will be some problems at the initial phase of the acquisition, managers should try to ease the predicament and find an approach to solve the problem. For example, during the acquisition process, the company may face the tactic of redundancy, how to stabilize the employees as well as customers is an important issue because the operation of the company needs the good relationship with employees and the reliability with customers. The integration of operating system could be the key point among the process. Different system could the increasing of costs and time consuming in the venture. For instance, in the case of BenQ and Siemens, BenQ found that it was hard to help Siemens because they applied different systems. BenQ adopted Windows CE while Siemens used Symbian platform. The company needed more resources to transform the information between two different interfaces.

Finally, while trying to modify the original managing model to implement in the acquisition venture, managers should also keep an observation on the emerging market. The failure of TTE in Europe was a good example. The managers in the Europe did not notice that the market had been swift away from CRT TV to LCD TV yet the company still focused on CRT TV. The organization loosed the opportunity to lead the market and the big loss of the profit had made the plan of integration more difficult to execute in the Europe.

Managers cannot minimize the problems that cause by the difference of two organizations while they become a joint venture. If the problem does not been solved or eased in time, the gap between two organizations will expand generally which may influence the company’s performance in the future.
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