Caine: May I ask, master? When I leave the temple, what will be expected of me?
Master Poe: To walk the roads of the land, and use what you have learned for the needs and benefit of the people.
Cain: Will I always know when to act and when to stand off?
Master Poe: That which you do not know, the doing will quickly teach you.

Kung Fu, Episode 26
For years there has been talk of Chinese companies coming to America. And for years, my law firm has been involved in such deals that quickly failed over something as minor as the Chinese company refusing to pay more than $5 million for something that was clearly worth at least $50 million.
Not entirely sure why, but Chinese companies have recently started getting much more sophisticated and serious. And FAST.
My law firm just started working on two deals where we are representing Chinese companies seeking to buy minority shares in well established American companies and things are actually progressing rather nicely. But because these deals are still ongoing I cannot discuss them in any detail. But I can discuss a completed deal of which I just read that is quite similar to our two, though on a much bigger scale. The Wall Street Journal just came out with a story, entitled, “Haier to Take 20% Stake in New Zealand Company,” detailing Haier’s minority share purchase in NZ’s Paykel & Fisher.
The deal gives Haier “exclusive rights to sell Fisher & Paykel appliances in China, while its New Zealand counterpart can exclusively sell Haier’s products in Australia and New Zealand.” Haier says this deal will allow it “to share the marketing, and research and development resources of Fisher & Paykel in the high-end whiteware market.” Fisher & Paykel says it will give it “a unique opportunity to fully globalize Fisher & Paykel Appliances and really drive our global expansion into parts of the world that had previously been very difficult for us to penetrate.”
I see this as a brilliant move by both companies, as it will almost certainly very quickly achieve the following:
— Give F&P the money it needs to keep operating.
— Give F&P easier access to low cost manufacturing.
— Give F&P easier access to Asian markets.
— Give Haier a bit of high end panache, thereby helping build its brand and solidifying its reputation as one of China’s most respected companies.
— Give Haier access to F&P’s globalization, marketing, and engineering skills.
I see many of the same reasons for the parties in our deals as well and I see a ton more of these deals, both large and small, coming down the pike in the next few years. Get ready.
In fact, a very reputable Chinese PE fund has asked me to be on the lookout for US buying opportunities. This fund is looking to pay between $5 to $20 million for all or a portion of small US companies with a strong brand name that are failing to or unable to take advantage of cheaper manufacturing in China. Its thinking is that it will be able to do exactly what Fisher & Paykel is seeking to do with Haier: cut production costs while also expanding the product’s global reach.
What are you seeing out there?

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

  • Dan, any very rough estimates how many Stateside operations there who specialize in this sort of thing? Or are these China-to-US acquisitions still being consummated through lawyers’ offices, such as you describe? Curious…

  • Very timely post, Dan. The world has been turned upside down and it is no longer all about going to China to break into the market there. Chinese companies need assistance on US soil- big time. Unfortunately, there are few services readily available to them and there is also a great mistrust in hiring a foreign firm or consultant. From my 5 months in exploring this area, most Chinese companies prefer to hire local partners (in China) to figure out how to navigate the new Wild West. Some of these companies acknowledge that they are making a mistake and cite protocol over common sense. This arrangement will change, eventually. The majority of Chinese company reps that I have spoken with acknowledge that.
    On another note, commercial and residential real estate is being snatched up in New York by Chinese investors- to me, that has been the most apparent trend, visually.
    My 2 cents? Expat China consultants may want to consider setting up shop in the West, too. That stated, patience is KEY.

  • The dilemma that the Chinese face is that they have kept their currency cheap so that they can export and also so that imports are too expensive for the normal guy on the street. That is a double-edged sword in a number of other cases, however. It also makes buying companies outside of China very expensive in terms of the local money. It also makes their huge reserves of foreign currency precarious. They need Western expertise but they are loathe to admit it, and they try to both contiune on their same course, knowing that it cannot work, yet they know that they have to change.
    If and when they Yuan does get to its proper purchasing power parity level, the only thing that they will have to offer is a place for others to come and build plant to give their people jobs. Also, at that point, while their currency will buy more, their businesses will no longer have the wherewithall to buy foreign companies. Thus, they will continually be between a rock and a hard place.

  • another anon

    “Old Hand” expat China consultants may find that they no longer know their home country so well after so long in China and that the business and social behavior many of these guys got away with China because of their white skin will earn them 1. jail 2. a lawsuit 3. a severe butt kicking 4. lost clients and probable blacklisting from the local business community.

  • another anon

    “The U.S. should view China, with its $2 trillion in foreign reserves and appetite for T-bills, more as a lifeline than a potential enemy superpower.”
    It is due to China’s political ambitions, based on very ancient ethnic values, that China should be viewed as a potential enemy superpower. Or more precisely, the CCP and PLA. Just look at all of the territorial claims that China has on all of its neighbors.

  • Jerome Cole

    I would like to point out that numerous westerners have served in senior positions with large Japanese companies. China is a very, very long way from that happening. They might be looking to acquire management expertise from abroad, but I doubt very much that we are going to see white people in charge of major Chinese concerns any time soon.

  • SG

    I have seen and helped several China Inbound Investments in South . All these happened in past 2.5 years. Some go well, some ok.
    Here are something in common: All of them came after they have secured certain market share and wants to expand it. All built plants and make their products here in US. All hired American managers ,and in fact, most are actually for top management level – No.2 or 3. They are also trying to intensively recruit Chinese tech talents, Ph.Ds, Post Docs..directly from US institutions. Without exception, all the owners bought half million house for his/her family. Plus, They all complained about US Visa problem – one guy was actually rejected to entry even after he had purchased the land.

  • another anon

    @ Jerome Cole and SG
    Chinese companies are still all partially state owned or wholly controlled by such, not to mention PLA companies. Dong Feng vehicles is one such operation, Dong Feng also makes all light combat vehicles and utility vehicles for the PLA, Lenovo’s parent is Legend which is still majority owned by the CAS. NORINCO has its hands in most civilian heavy industry operations in boards of directors positions.
    Thus, it is not surprising and it should be expected that westerners are excluded from upper management in China. In the US and Europe, the Chinese want to emulate what the Japanese have been doing for 15 years but still have an obsession with control and secrecy.
    Due to government and military connections it should not be surprising that some Chinese executives would be refused visas. Names do get screened by the NSA and FBI. If an executive’s visa was rejected, chances are he/she pops up on a PLA or senior cadre list.

  • ScottLoar

    SG, you failed to mention, all preferred to work with or through Chinese lawyers and Chinese personnel because 1) they think Chinese are more sympathetic to their situation and 2) they think Chinese have more understanding because they may speak more or less intelligible Mandarin. In short, these mainland Chinese investors still prefer to work through and with other Chinese people, a cultural trait they still cannot overcome.

  • Ruud van Winden

    Interesting people often talk about the money bit in the “China take over western companies” discussion while Dan’s example, is not mentioning any US$ or RMB amount.
    Many businesses in China are still very much focussed on deals in direct money terms. As you show in the Haier example, the aim is to learn from each other. Haier has learned from past experiences that money should not be the focus of short/mid term goals.
    Short / mid term goal is to learn
    Long term is to apply and reap the benefits
    What moves your client to go to the west? If it is money alone, try to convince them otherwise or consider to stay away and avoid wasting your time on their learning.
    If your focus is to really build up a position abroad, you have to be willing to show your trust by paying for somthing even if the direct value is not as apparent or equal to the money you put on the table. Haier did this and it will prove them more successful than their earlier attempts in the US.
    Having foreigners in the top or not really does not matter, as long as the people at the top have the right mindset and are willing to change, including changing themselves.

  • ScottLoar

    No, it is not enough that “the people at the top have the right mindset and are willing to change, including changing themselves”; they must have detailed, objective knowledge of the situation to make intelligent decisions – not simply good intentions or the ability to change – and it is for this reason that talent experienced and knowledgable of the area is so valuable. In my view managers claiming to have the right mindset and the willingness to change are too often mouthing empty euphemisms of good intentions; there is no substitute for the ability to see things clearly, and this is why foreign talent – proven expertise to the area – is so necessary. No matter a foreign company coming to China or a Chinese company going overseas you’d best know the lay of the land and understand the natives.