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Chinese Companies Face Challenges Shopping Overseas


Chinese companies have been flexing their muscles recently by acquiring or bidding for high profile Western brands. Chinese firms face significant challenges as they seek to expand through acquisition.

Business analysts say it is inevitable that as Chinese companies accumulate wealth, they look for acquisitions and investments overseas.

The companies are seeking to expand their market, acquire new technology and build international brands. One way of doing that is to piggyback on established competitors.

Computer maker Lenovo is a household name in China, but few in the United States had heard of it until it bought the personal computer business of IBM last year for $1.75 billion.

Also last year, the French television manufacturer Thomson, maker of the RCA brand, was sold to China's TCL.

But now Chinese companies are realizing that acquiring overseas assets may not be that easy. Two high-profile Chinese bids suffered setbacks this week.

Haier, a Chinese appliance maker, lost out to a higher bid from Whirlpool for U.S. household appliance manufacturer Maytag.

And the board of U.S. oil company Unocal has maintained its support for a takeover bid from Chevron, over a larger $18.5 billion offer from China's CNOOC.

Some U.S. lawmakers have opposed CNOOC's bid on the grounds that it would mean a U.S. oil company being controlled by a firm whose majority owner is the Chinese government.

Politics aside, business analysts say some Chinese companies may stumble because of a lack of international experience.

"Expanding internationally is very hard," said Michael Thorneman is a mergers and acquisitions expert with Bain & Co in Hong Kong. "It is highly likely that a number of these Chinese firms are going to struggle as Western companies struggled in markets outside their domestic terrain."

Analysts point to the lessons of the 1980s, when Japanese companies made several high-profile acquisitions in the United States. Some of those deals eventually unraveled because of management culture conflicts and financial difficulties after Japan's asset bubble burst in the early 1990s.

Business experts warn companies eager to expand overseas to beware of deals that do not add value to their businesses. Mr. Thorneman says Chinese companies need a clear plan from the beginning.

"There are two other big risks - the risk of overpaying. As the price goes up, you better have a very clear idea on 'what is my walkaway price'? The second thing is the loss of focus. The Chinese domestic market is very competitive. You better protect core business in your domestic market before going overseas," he said.

How far will Chinese companies go to get what they want? Stock analysts in Hong Kong, where CNOOC is listed, say the Unocal bid would bury the company in debt, but the company's doggedness also reflects China's determination to find stable sources of energy for its fast growing economy.

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