Just the other day, in part 15 of these series, I expressed skepticism at the ability of Chinese companies to become big time international powerhouses any time soon. Today, I just came across a Business Week article by Bruce Einhorn saying pretty much the same thing, but focusing on the technology sector (h/t the Informed Reader). The article is entitled, "The Tech Dragon Stumbles: China’s upstarts are finding life in the big leagues tougher than they reckoned," and it nicely sets out why Chinese technology companies are having a tough time becoming world beaters.
The article talks about how Chinese technology companies generally are not adjusting well to international competition and cites the following to support this:
- Nokia and Motorola are taking cell-phone market share in China from TCL and Ningbo Bird
- Declining profit margins at telecom equipment makers Huawei Technologies and ZTE
- China’s biggest maker of liquid-crystal displays (LCDs), BOE Technology Group, is seeking a government bailout
- Chipmakers Semiconductor Manufacturing International Corp. (SMIC) and Grace Semiconductor Manufacturing Corp. "are limping"
- Computer maker Lenovo Group is "struggling overseas."
Though Einhorn attributes these Chinese companies’ failings to market forces and mismanagement, he also sees them stemming from Chinese government interference:
What was supposed to be a major advantage for Chinese tech companies�the backing they receive from Beijing�has in many cases turned into a liability. In exchange for preferential loans, tax breaks, and sweetheart property deals, Communist Party bosses often get to influence key business decisions.
Take SMIC. The chipmaker will soon operate plants in five cities across China. By contrast, SMIC’s Taiwanese rivals, United Microelectronics Corp. and Taiwan Semiconductor Manufacturing Co., have built most of their factories in two science parks just a few hours drive from one another in Taiwan, making it easier to manage the plants. So why has SMIC spread out so much? Every [local] government wants to go into high tech, says Pranab Kumar Samar, an analyst in Hong Kong with Daiwa Institute of Research. That might make for good politics, but it’s not exactly smart business. Many Chinese companies are also paying the price of a government effort to spur the development of homegrown technologies. State-owned Datang Telecom Technology & Industry Group, for instance, has squandered hundreds of millions of dollars and almost a decade on a Chinese standard for so-called third-generation (3G) mobile telephony when it could have easily adopted one of the international standards already in use. This has also hobbled Huawei, ZTE, and the country’s dozens of cellular handset makers. Chinese companies "don’t have a [3G] market in which to cut their teeth," says Mark Natkin of Marbridge Consulting Ltd. in Beijing.
