When they first entered China, many Western companies made costly mistakes. Not knowing the ropes, they underestimated the complexity of operating in such a huge domestic market, were blissfully unaware of the nuances of Mandarin bureaucracy and flew in Western bosses often accused of arrogance.
What goes around comes around--and this time it's the Chinese who are getting burned. Now that they've begun gobbling up Western companies, it turns out they haven't learned much from others' mistakes. "Chinese companies investing in the West are not the turbocapitalists everyone expects them to be," says Wang Wei, M&A consultant with Deloitte & Touche in Düsseldorf. They often arrive unprepared, overpay for acquisitions, fail to do their due diligence and aren't sure how their new Western holdings fit into their global strategies. The result: a recent series of nasty corporate disasters.
Exhibit A may be BenQ, the Taiwanese cell-phone maker that last week announced it would shut the struggling German plants it took over from Siemens only last year. Despite investing in new models and assembly lines, the new brand has seen its worldwide market share plummet, from 5 percent in 2005 to just 3 percent today, leagues behind market leader Nokia's 33 percent. Last year BenQ CEOK. Y. Lee bragged that the Siemens purchase would help him catch up to the likes of Nokia or Motorola, the latter of which operates a profitable German plant to make its state-of-the-art multimedia cell phones. Consultant Wang says it's clear BenQ underestimated the costs and complexities involved.
The litany of Chinese mistakes eerily echoes Europe's own in the China market. When consumer-electronics maker TCL took over the defunct German TV brand Schneider, the Chinese thought it was their ticket to the lucrative Western market. After then buying France's Thomson, TCL was suddenly the world's largest maker of TVs. But TCL hadn't done its research: Schneider hadn't been anywhere on consumers' radar for years. New Chinese management also had zero experience operating in Europe's fragmented and cutthroat consumer markets. When Jiang Zhou bought industrial-cylinder maker Welz out of insolvency in 2003, the young CEO from Shanghai was baffled by the local bureaucracy. When he wanted to build a new factory, he spent weeks haggling with officials, who made him construct an earthen wall to protect a valuable bird habitat next door. Today, says Jiang, the birds have happily settled on his side of the wall.
Done right, Chinese investment is a win for both sides. Just a year after it was taken over by Beijing No. 1 Machine Tools, for instance, the once struggling Waldrich Coburg has hired 30 new workers and is planning for 20 more. Thanks to the new parent company, the Bavarian maker of highly complex milling machines has improved its access to the Asian market--and Beijing No. 1 can now sell its machines in Europe. Chinese management has been hands-off, says finance director Uwe Herold, with a clear division of labor between Bavaria and Beijing. Investor Jiang, too, is expanding operations at Welz. For neither company do high German wages seem to bean issue. "Quality production and access to markets is much more important," says Jiang. Too bad for BenQ.