What's to Be Learned From Microsoft's Nokia Deal?
Microsoft Corp. will buy Nokia's phone business and license its patents for 5.44 billion euros ($7.2 billion). The deal is expected to be finalized in the first quarter of 2014. This is another legendary acquisition of a hardware company by a software giant, after Google swallowed Motorola's handset business in 2012.
Nokia, which began life as a paper mill in 1865, was once the dominant force in the telecom market before it collapsed in the face of nimbler rivals Apple Inc. and Samsung Electronics in the fiercely competitive smartphone wars.
In June, Chinese telecom equipment maker Huawei expressed its interest in acquiring Nokia but was refused because of opposition from the Finnish company's shareholders. Mistrust of the Chinese company wasn't derived from concerns over financial issues or competence, but from a lack of global brand recognition. Therefore, facing acquisition bids made by Microsoft and Huawei, Nokia naturally chose the former, which is widely recognized as one of the greatest IT firms in the world.
Recently, "made-in-China" companies are striving to go global and acquire foreign companies to move up the value chain of goods produced. But due to a low-end position in the global value chain and a lack of brand recognition, it's very difficult for them to arouse the interest of foreign companies.
The fact is Chinese companies are well behind their foreign rivals when it comes to management and technology innovation. Despite Nokia's collapse in the hotly contested mobile phone market, the brand itself is still associated with producing goods of durable quality, while Huawei made its name by selling cheap and low-quality phones.
The competitiveness of Chinese companies lies in their capacity to produce goods at a low cost. Any company with a lack of technology innovation will only be stuck at the low end of the value chain.
Huawei's failure is a lesson for Chinese companies. They must abandon the tradition of undercutting rivals by ambitiously producing goods at a lower cost and shift to a paradigm of product innovation. That way, companies can transform their products from merely being "made in China" to "created in China."
China is the world's second largest economy, it needs an array of great companies to back up its global economic status. "Going global" is a must for Chinese companies. Microsoft's Nokia deal reminds Chinese companies that when it comes to global mergers and acquisitions (M&As) they should have the knowledge and ability to comply with international rules, the innovation and management competence to run an acquired business, and most importantly, a brand recognized by the world. To this end, Chinese companies have obvious flaws.
The key to "going global" and participating in large overseas M&As lies in creating big brands with global influence and ensuring companies are up to date with the latest in international management practices.
This is an edited excerpt of an article published in Securities Times
Cross-Border Yuan Lending
Coca-Cola Beverages (Shanghai) Ltd. has completed a 250-million-yuan ($40.85-million) inter-company loan to London-based Atlantic Industries, a Coca-Cola subsidiary, with the help of Citibank China.
China's central bank issued a circular in August about simplifying the cross-border renminbi business process, which for the first time allowed multinationals in China to make inter-company loans to their operations globally. The loan makes Coca-Cola one of the first multinational companies in China to benefit from the new regulation.
The transaction also marks the first renminbi cross-border lending operation for Citibank China after the recent regulatory release, prior to which onshore banks had to seek approval from the central bank for renminbi denominated loan quotas on behalf of their clients, a process that usually took roughly two months. Now it takes less than 10 working days.
Fund Management JV
AMP Capital will establish a funds management company in China with China Life Asset Management Co., Australian and New Zealand independent wealth management company AMP announced on September 2.
AMP Capital, a subsidiary of AMP, will hold a 15-percent stake in China Life AMP Asset Management Co., with the rest to be held by China Life Asset Management Co., a subsidiary of China's largest insurer China Life Insurance Co. and one of the largest institutional investors in China.
The joint venture has received approval from the China Insurance Regulatory Commission, and is subject to approval by the China Securities Regulatory Commission.
It will be China Life's first joint venture on the Chinese mainland with a foreign partner in funds management.
Recent regulatory changes in China allow insurance companies to establish funds management companies, offering public mutual funds to retail and institutional investors.
Number of mergers and acquisitions (M&As) in the Chinese market in August. All but two revealed their transaction value, totalling $4.36 billion
Number of M&As among domestic companies in August. Their transaction value totaled $4.27 billion
Transaction value of M&As in the energy and mineral resources sector in August
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