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Chinese IT firms go global via M&As

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CIOL Bureau
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MUMBAI: The conventional view has long been that Chinese companies can compete only in the domestic market. But after China's accession to the World Trade Organization, companies have started thinking global rather than focusing merely on the domestic opportunity. The recent global acquisitions by Chinese companies could spur fresh competition not only among Chinese vendors, but could also pose a threat to MNCs.



The Lenovo-IBM deal, and also the much hyped JV between TCL and Alcatel, helped fuel the then-swirling rumors that Ningbo Bird planned to buy Siemens' struggling handset business, which was eventually bought by Taiwanese major Benq.

The question here is not whether Chinese companies have the capability, but whether it can be sustained. There are huge risks involved in these acquisitions, as most companies that are bought by Chinese firms are running into losses and making a profitable venture of them, could become an uphill task. If Chinese vendors manage to do so, they would become truly global in nature.

According to analysts, Chinese firms have adopted a short cut for global expansion - overseas mergers or acquisitions. They believe that this is the right strategy at this point of time.

Consolidation in the hardware sector is inevitable, as big hardware vendors running into losses are ready to give up. And that's where the Chinese companies have the edge. They have strong financial muscle and a huge low-cost talent pool to sustain their balance

sheets. But, it takes more than a low cost base and manufacturing ability to be successful in the highly volatile hardware business.

Near-saturation levels and cut-throat competition in China's domestic market is forcing firms such as TCL, Lenovo and Huawei to find overseas opportunities. For example, Lenovo has been struggling with a declining domestic PC market forcing it to chase export markets.



Another reason for the trend is the need to acquire technologies to strengthen product lines, to obtain fresh IP or to eliminate a competitor.

The M&A route seems an easier way out compared to the strategy of creating brand awareness.

Not that M&As are completely hassle free. However, Chinese firms are now ready to take on the challenge of cultural differences arising from mergers, rising costs of foreign labor and the possible lawsuits resulting from job cuts.

Where is India?



When compared to China, India is way behind in the hardware sector. It needs to open its market first and will have to boost local manufacturing. Though the government has laying emphasis on hardware manufacturing, there still is a lot to be done for

Indian hardware players to compete in the global market.

Although India does have an edge over China in software exports, the Chinese government has been offering various sops to lure software companies to set up development facilities in the country. English has been made a mandatory subject in schools and engineering colleges, to make the local talent more competitive.

Around 18 Indian software companies have set shop in China and are expanding operations rapidly. There is no doubt that there are tough times ahead for the Indian IT industry, if it does not get its act together soon enough.

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