The Chinese Are Coming, Part XV -- India Says It's So

Thanks for the link. I never knew any real people were actually reading my blog.

I will try to provide readable copy of premier subscription-based publications to real readers in the future.

We laugh now, but these guys are working hard to figure out how to make it overseas. It will not be a pretty process, and it will not happen this year or next, but give China's companies a decade, and you can be sure that there will be anything from 6-12 Chinese companies in the global brands list.

There are actually 12 Korean companies on the Fortune Global 500 list. It's more than just Samsung.

How well a nation's MNCs perform largely depends on how well its labor force is educated. If you want to look into your crystal ball, bear in mind the 2 trends:

* The Baby Boomer generation in the US is the best educated compared to their peers in the world. Yet the education of Gen-X and Gen-Y, relative to the other developed nations (including South Korea), ranks fairly low.

* The education of the post-Jiang/Zhu generation (1998 and onward), has caught up the lower-end of the OECD nations. Only 21 years prior to this generation, China didn't even have any meaningful college education!

Baltimoron --

1. Define "real person."
2. You write an excellent blog, so I am highly skeptical I am the only real person reading it.

CLB and Chris Carr:

China's exports of death are way beyond food, beware of medicine. Now let's thank corporations for outsourcing basic life needs to sloppy commie bosses:

http://www.iht.com/articles/2007/05/05/asia/web0505-toxic-46350.php

Duncan --

You are truly the master of source material. I actually remember the Business Week article on this about a year ago, but never checked the BCG background story. It does look like a really good read. Thanks.

"I am 99% certain Lenovo is not state-owned. I am pretty certain Haier is pretty much not state owned either. I also do not think Huawei is state owned either."

Lenovo is the western varient of the chinese manufacturer "Legend" which was founded by a group of computer scientists who were wholly funded by the Chinese Academy of Sciences, itself one of the main R&D arms of the PLA (just as Northern Industrial Company, or NORINCO, is the main industrial arm of the PLA).

Now, as anyone who really knows business in China will tell you, when chinese companies get to a certain valuation and need licenses for inter-provincial export, international export and stock listings, they must get their licenses and pay fees directly to Beijing's various offices, but this is no big deal.
What is the big deal is that the "hidden fee" for license approval, as well as large commerical loans from the banks (who are ALL state owned), is to sign over majority interest in the company to the CCP as the majority investor. And this carries over into IPOs from Shanghai to HK to the NYSE and LSE.

Doubt me? Try looking into acquiring a majority stake in Haier, Lenovo, Baidu, etc. and see what happens.

CLB, some random thoughts.

I have been Korea a few times so personally have heard of all the names. Posco isn't shabby. Its revenue is close to twice of the US Steel's, and its market cap is about 3 times of US Steel's. Hyundai cars are made by Hyundai Motor. They surely are not quite Mercedes-Benz or even Toyota yet. The Hyundai chaebol can be loosely compared to GE, if you will. Of its plethora of babies, Hyundai Heavy Industries is the largest shipbuilder in the world.

Sometimes "cachet" can be quite deceiving. At the end of the day, it's revenue, profit, & market cap that count. For instance, very few people heard of a Brazilian company called Companhia Vale do Rio Doce. But do you know that its market cap is equal to the market caps of Dell & Texas Instruments combined?

One major thing Samsung Electronics has done right is trusting and promoting its young people. South Korean youths are quite possibly the best educated bunch in the world. Fledging businesses such as online gaming, where young people excel at, are thriving in South Korea.

A tidbit: LG Chocolate cell phone is hugely popular among young people. In Brazil, LG phones are considered of better quality than Nokia and Motorola. Don't know if LG can capture that buzz there though...

Going back to China. The old saying is that past performance isn't indicative of future result, which in this context means China may not be able to duplicate what it has done in the last 20+ years. However, very few realize the huge disadvantage China had had during most of that period: an important age group didn't have any college education. As it stands, the age group is gradually sliding out to retirement. My money is in the next 2 decades, China will have more upside surprises -- may not in the form of higher raw growth numbers but rather creating things like iPod, ideas like movies that capture the worldwide imagination... We shall see, I guess.

"So you are saying if someone wants to buy out either Lenovo Group Ltd. or Baidu.com, Inc. with significantly more money than either's total market cap, let's say $20 billion, approaches either BOD and the deal will be rejected? Man, you are dumber than I thought."

Apparently you don't understand the concept of "a controlling stake".

JXie --

I concur with you, but let's play nice.

CLB, about brand cachet, profit margin & others:

A couple of companies come to mind, Coach & Louis Vuitton. My brain wavelength is just not in a range to know a good hand bag from a bad hand bag, or why a hand bag can cost thousands of dollars. LV charges a hell lot more than Coach, but LV (under LVMH) isn't necessarily better. LV's profit margin is somewhat higher (low-30% to Coach's mid-20%), but LV's growth rate is half of Coach's (low-10% to mid-20%). You can make a strong case that Coach is better than LV. It can't be quite confirmed by the market though since LV isn't a public company by itself.

Two Chinese examples: Huawei & Lenovo. Lenovo has gone a long way to try to appeal to the Western world. Even its CEO now is an American. Other the other hand, due to a host of issues, Huawei still can't quite crack the North American market -- one of which is its name that is difficult to be pronounced correctly for most native English speakers. Yet even without detailed knowledge of Huawei's financial data given it's still privately owned, it's beyond any doubt that Huawei is a far superior company than Lenovo financially, or in international expansion.

Yes, LG Chocolate sells well in the US too but the LG brand name isn't quite like Nokia or Motorola yet.

JXie --

Coach is a really strong brand name and though their bags cost peanuts compared to LV bags, I'm guessing they sell for double a comparable quality no-name brand.

nh --

I agree with you that Beijing is not going to let someone like Carlyle come in and buy up Haier, but even that may eventually change. China itself chose to join the WTO and the repurcussions from that will continue to be felt.

Also, if you had the money and wanted to buy a public company you'd have to go through anti-trust and possibly national security review in any developed country. It would also be likely to be impossible to buy out a Japanese or German company since Japanese or Germans company are owned through a series of interlocking directorships with a bank involved.

Also not all of the Chinese banks are state-owned. China Merchants and China Minsheng aren't, and the CEO of China Merchants is quite publicly proud of that fact.

As far as the inability for China to change. The Chinese economy is very different now than it was five years ago, and it will be very different five years from now.