China wants eight new Lenovos by 2015
Government decree says local firms should merge to reach global scale
Western technology companies' view of China as the biggest pool of potential customers ever is looking less accurate than ever, after the Chinese government called for the formation of up to eight super-companies through mergers and acquisition by 2015.
The calls came as part of government plans designed to urge the consolidation and reorganisation of companies across nine key sectors – including rare earths, pharmaceuticals and shipbuilding – so that they can better compete overseas.
In the IT sector, the government wants between five and eight “backbone enterprises” – these must be internationally competitive multinationals with high brand awareness and annual sales of over 100 billion yuan (£10.2bn).
As pointed out by the Wall Street Journal, as of 2011 only Huawei and Lenovo of China’s tech firms can lay claim to such impressive revenue figures.
The grand scheme is to move China away from producing cheap, low-end tech products and instead focus a handful of big global brands on producing high-end goods as well as software and services – an area where domestic firms have until now failed to make a significant impact.
There was no detail on which firms the government hopes to grow into the next Huawei or Lenovo. However, the overriding focus in the document was on the need for mergers and acquisitions among Chinese firms to build the new breed of super companies and improve competitiveness by integrating vertical supply chains.
It has not always been possible for Chinese firms to acquire abroad, of course.
Creating several more Lenovos in the space of two years may be a push even for a country as ambitious and full of cash as China. ®
Well, it's been working out pretty damn amazingly for the Chinese over the last couple of decades. I wish them all the best.
All your Base are belonging to us!
Re: It's a good idea, one western economies should follow
"If the ultra paranoid USA won't allow Chinese sons to come and marry their darling NASDAQ daughters, then this is a great way for China to force western economies to give consent to future marriage proposals,"
You need to read up on your industrial history, sunshine. The history of state involvement in industry is a grim one, whether in Soviet Russia, in 1960's Britain, or anywhere else. You can bang two companies together and call them a national champion, but you just end up having to subsidise the things until you can no longer afford to.
Britain used to make excellent and innovative aircraft - but the result of government industrial policy now means we have a single aerospace company that hasn't built an aircraft in its entirety for thirty years of more. France established Areva as its nuclear energy champion, but now its hoping to quietly fold that back into the state electricity monopoly in the hope of disguising the appalling performance of both.
Other evidence of industrial history is that competition generally strengthens an industry. So by reducing the number of competing outfits in China, they will reduce Chinese innovation and weaken the domestic tech base, but they will strengthen the rest of the world's technology companies who have to evolve or die (because for a few years post integration, the "new" combines can cruise on the innovation of the predecessor companies). Look at Lenovo, if we ignore last year, it's true to say that even underperformers like HP are earning net margins three times those of Lenovo.