Global Policy Forum

By David Barboza

Never heard of brand names like Great Wall, Hisense, Konka, Amoi and Panda? Outside China, few have. That may change someday, but in the meantime, some Chinese companies are taking a shortcut and adopting widely known names to make their presence felt abroad. China's leaders have been quietly encouraging Chinese companies for years to set up overseas operations, acquire foreign assets and transform themselves into multinational corporations: in other words, to make themselves more competitive in a world increasingly dominated by Wal-Mart, Microsoft and Coca-Cola.

Now, it seems, Chinese companies have gotten the message. This year, the Chinese computer maker Lenovo acquired IBM's personal computer business. Haier, one of China's biggest companies, made a bid last week for Maytag. And in the same week, in the biggest move of all, one of China's state-owned oil giants made a hostile $18.5 billion bid for Unocal, one of the world's largest oil companies.

Yet many of the companies seem to be acting partly out of desperation, as more foreign brands line shelves of retailers in China. "Chinese companies are now facing serious foreign competition at home," said Marshall Meyers, a professor of management at the Wharton School at the University of Pennsylvania. "So they have to do something. They've got to grow to global scale." The fact is, despite restrictions on foreign competition here, few powerful brands have emerged in China over the past two decades. And now that some of those restrictions are being lifted as part of China's admission into the World Trade Organization, some of China's biggest companies are being forced to adopt global strategies.

With its purchase from International Business Machines, Lenovo, a major computer maker in China but virtually unknown outside it, is suddenly the world's third-largest computer maker, after Dell and Hewlett-Packard. TCL, another Chinese company, became the world's biggest television set maker last year after it acquired the television-set business of Thomson of France, which also owned the old RCA brand. And then there was the bid by China National Offshore Oil Corp., or Cnooc, for Unocal, an offer that touched off a Wall Street-style takeover battle with the U.S. oil company Chevron.

Experts say that whether these deals succeed or not, they are symbolic of China's rapid economic rise and its global ambitions. "The Chinese government has been preparing the top 100 to 150 companies to go overseas and expand," said Jack Huang, a chairman of the China practice at the law firm Jones Day. "The government wants to use this as a testing ground, to see how well the companies stand up to international competition." Dozens of Chinese companies stand in waiting and are not shy about their global ambitions.

"The future goal of the company is to make the name Great Wall known across the world," said Liu Rengang, a spokesman for the state-controlled Great Wall Computer Group. A spokesman for Ningbo Bird, one of China's biggest cellphone makers, sounded equally ambitious: "Our future goal is to become one of the top three cellphone manufacturers in the world." China's Ministry of Commerce reported this month that even though China's exports are dominated by consumer products, few famous Chinese brands are involved in the export trade. Most goods are being shipped abroad with foreign brand labels.

To rectify the situation, the ministry called on Chinese companies to start exporting their own "famous brands." Every region was ordered to produce its own famous brands. "We need to cultivate a group of independent famous brands that have international influence," the report said. "Each industry needs to have its own famous brand for export." The thinking behind the effort seems simple: imitate the foreigners.

Japanese and South Korean companies like Toyota, Sony and Samsung made the moves from national to global brands quite successfully, but it took years. Analysts say Chinese companies do not have that luxury, because the rapid pace of globalization means that markets are now quickly won and lost. "Chinese companies don't have that much choice but to acquire overseas companies," said Joe Chang, a China specialist at McKinsey. "Very few companies can build organically any more. If they wait 10 to 15 years, they could be dead."

By acquiring well-known brand names, experts say, Chinese companies are hoping to get access to global distribution networks, sophisticated research and development and recognizable brand names. "What these companies are looking for is to build up capabilities," said Oded Shenkar, author of "The Chinese Century" and a professor of management at Ohio State University. "This is a shortcut. They don't have billions of dollars to invest in the growth. But here, in one fell swoop, you're acquiring a venerable brand name."

One advantage some Chinese companies have is that they have worked for years as joint venture partners or suppliers for some of the world's biggest corporations, giving the Chinese an eye into the process of making premium-priced products. The most serious problem facing Chinese companies, analysts say, is a lack of international experience and weak marketing and management structures. That is precisely why, after acquiring IBM's personal computer business this year, Lenovo asked the managers to stay on and run the entire company from New York.

Analysts are skeptical because, they say, most mergers fail. "It's very difficult to make overseas acquisitions," said Gavin Geminder, a partner at KPMG, the global advisory firm. "Chinese companies have the same issues, and they probably have less qualified management teams." But there are no forecasts of a slowdown in China's deal-making. The British carmaker MG Rover has been pursued by at least three Chinese automakers in the past year. And China Mobile, one of the giant state-owned telecom companies, made a largely unnoticed bid of $1.4 billion this month for control of a Pakistani telecom company. China Mobile lost out on the deal, but its cross-border bid is notable.

Many Chinese companies are sparing no expense to hire Western lawyers and advisers. Lenovo used McKinsey and Weil Gotshal & Manges. Haier is teaming up with Blackstone Group and Bain Capital to acquire Maytag. And Cnooc has hired Goldman Sachs, J.P. Morgan, Skadden, Arps, Slate, Meagher & Flom and a team of seasoned lobbyists to make its pitch for Unocal.

The Chinese companies are also backed by state-owned banks, private equity funds and company war chests. Cnooc's bid for Unocal, for instance, is backed by a $6 billion loan from the International and Commercial Bank of China, the largest Chinese state-owned bank, and another $7 billion in loans is coming from its parent company at rates considerably below market. "There's probably a lot more deals to come," said Robert Morse, chief executive for Citigroup corporate and investment banking in Asia. "Liquidity is at an all-time high for Chinese companies looking to fund overseas acquisitions."

Being the world's low-cost factory floor is no longer the country's singular ambition, analysts say. That is perhaps why China Entrepreneur magazine recently devoted a cover story to the question, "Should China Buy Wal-Mart?"

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