Business Asian giants scent blood in the West
An army of Indian and Chinese firms is poised to move into Europe and the US, says Elliot Wilson. When India’s Tata Steel stretched its finances to the limit last month to buy Corus, it heralded more than simply an audacious coup, or a neat reversal in colonial fortunes.
By shelling out £6bn for the Anglo-Dutch steel firm (a record overseas acquisition by an Indian firm) Tata Steel put the West on notice: Asia’s emerging corporate giants are coming, and they’re richer and thirstier for success than you think.
To many in Europe, India and China seem to be on the verge of inheriting the Earth. Bald figures seem to bear this out. India’s economy is growing at just shy of 10 per cent and its largest industrial groups are expanding rapidly. China’s treasury officials, meanwhile, are literally wallowing in cash: their foreign reserves recently passed US$1 trillion. Behind the scenes, an army of lesser-known corporates are quietly growing ahead of steam in their substantial home markets. Their names aren’t yet widely known to the British public at large but they will be.
Take Huawei, (pronounced Hwa-Way) a fast-growing, privately owned Chinese producer of routers and switches – devices that act as ‘bridges’ or ‘translators’ for text or information between networks. Founded by a former People’s Liberation Army officer, Ren Zhengfei, the Shenzhen-based firm posted £4.5bn in sales last year. While that’s not a patch on its much larger US rival Cisco, Huawei is growing faster – earnings are up by 42 per cent a year – and it isn’t afraid of touting for work anywhere it can, even in war-torn regions of Africa. After winning a pitch it sets up camp, quite literally, around its client, providing temporary homes for thousands of Chinese engineers.
Controversial and undeterred by Western opinion (it installed a telecommunications system for Saddam Hussein in 2000 and recently shelled out to sponsor Zimbabwe’s national football team) Huawei is in many ways the archetypal fast-growing Chinese corporation, churning out the building blocks of modern life.
Other products cut closer to home. The UK may have lost much of its manufacturing base but it is producing more cars than ever, thanks largely to an influx of Japanese and Korean car-makers in the 1980s and 90s. Now both India and China are looking to muscle into this most competitive of markets.
China’s most likely export success story here is Geely (Jee-lee, or ‘I am lucky’ in Mandarin), based in the eastern province of Zhejiang. Unusual in China’s auto sector for being privately owned, Geely’s founder and chairman Li Shufu surprised the industry last year by unveiling a small, sleek, silver sedan at the Detroit auto show. The company hopes to export 33,000 cars this year, up more than 100 per cent from 2006, but that number will rise exponentially in the coming years. Geely has several joint ventures, including one with Manganese Bronze, manufacturer of the iconic London black cab, and its marques will start appearing in British showrooms soon.
A swathe of Indian car makers is also gearing up to expand abroad. Mumbai-listed Mahindra and Mahindra, an old-fashioned family-run group, is readying itself to unroll a swanky new four-by-four vehicle targeted at mid-range American and European consumers, while Tata Motors is pressing ahead with its long-standing vision of a ‘1 lakh’ car costing a mere £1,150. Two thousand of Bangalore-based Reva’s electric cars have sold in London to buyers taking advantage of free parking for ecologically friendly vehicles, and a price tag of £7,500.
Meanwhile, India’s leading telecommunications firms, notably Reliance Communications and Bharti Airtel, are well-run, cash-rich and hungry for acquisitions in the US and Europe. Don’t be surprised if in five years your mobile provider is owned by a Delhi- or Mumbai-based corporation. Then there is Pantaloon, which has transformed the country’s retail sector, bringing cheap, high-quality clothing to the country’s penny-pinching consumers. Pantaloon’s low-profile founder and CEO Kishore Biyani has already announced his determination to set up camp in Britain.
In China’s consumer space, a number of corporations stand out. Lenovo, which two years ago bought IBM’s personal computer division for about £650m, should within a few years rival US giants such as Dell and HP. Then there is Haier (pronounced ‘High-Are’), manufacturer of cheap-and-cheerful dishwashers, fridges and air conditioners. Haier built a factory in South Carolina in 1999 and has since become the leading global maker of mini-fridges – mostly used by American college students.
But Haier’s experiences in the past two years show why China, in particular, and its rapacious corporates will not have everything their own way in the future. The first issue is brand. So long as Haier builds low-cost goods for low-earning consumers, its margins and profits will never compete with global rivals like Samsung, Whirlpool or Electrolux. Then there is poor management. Once a slimline organisation, Haier has somehow ended up with hundreds of separate working designs for potato-washing machines on its inventory list – hardly good for trimming costs. And there’s the biggest elephant in the shop – China’s all-powerful state. A bureaucracy of mind-mangling proportions, meddling by Beijing has already led to upheaval and decline at several promising Chinese electronics makers, notably TCL and Guangdong Kelon.
India has fewer such problems, but it is still hamstrung by a protectionist government and an almost comically poor infrastructure.
However, just as Tata Steel’s Corus deal has shown the company’s determination to carve out new markets in the West, it won’t be long before rival corporates from India and China begin to show their own acquisitive mettle.
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