Table Of ContentCHINESE MULTINATIONALS
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Foreword by Liu Chuanzhi
CHINESE MULTINATIONALS
Editor
Jean-Paul Larçon
HEC, Paris
World Scientific
NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI
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British Library Cataloguing-in-Publication Data
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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
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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)
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Printed in Singapore.
Sandhya - Chinese Multinationals.pmd 1 10/2/2008, 4:38 PM
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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
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vi
management programs such as the Master of Science, the MBA,
andEMBAs.ThisisfurthersolidifiedbyHEC’sstronginternational
presencefoundedonitsnetworkofallianceswithleadinginstitutions
andcompanies.
HEC’sstrategyischaracterizedbytwomajororientations:astrong
emphasisonresearchandpublication,andcloselinkswiththeinter-
nationalbusinesscommunity.
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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
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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.
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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
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