Tuesday, August 16, 2005

Reversal of Fortune: Learning from Haier and CNOOC

(Published in Mandarin in China Business August 12, 2005)

The Haier/CNOOC chapter of US-China business relations has drawn to a close. The withdrawal of both bids for US companies – even before Maytag/Unocal shareholders could vote to accept or reject the offers – effectively returns us to where we were before: Lenovo remains the only example of a successful Chinese acquisition of an American company. The bloodbath that followed both bids was regrettable and avoidable. China’s overall business community – collectively dubbed “China Inc.” in the West – has been soundly defeated.

There is an opportunity now that China Inc. should seize. For Chinese companies to succeed in the US, they must adapt their approach to the market and learn how to bring a positive and cooperative message directly to the American public. China’s opponents and competitors learned very quickly how easy it is to undo even well intentioned Chinese efforts: frame the debate and drive the press coverage. If China harbors any hope of success in the US, its business messengers must learn to bypass the anti-China filters that now pervade American media coverage and public opinion.

In an August 3 editorial on the “sunk” CNOOC deal, the Financial Times wrote: “surprisingly, given the importance of China to so many US companies, there was no sign of a balancing pro-China” message to counter Chevron’s opposition to CNOOC’s bid for Unocal. In Haier’s case, there was no message at all – only deafening silence from the company as it tried to purchase an iconic US brand in America’s heartland. Contrast this to the visibility of Lenovo executives following the announcement of its acquisition of IBM’s PC business.

There is plenty of blame to go around for this outcome and not all of it is for China – the Western advisors both Chinese companies hired share in that blame.

Bankers and lawyers, marketers and lobbyists have lined up to help China’s business navigate the US market – one that is as foreign to the Chinese as China’s market is to America . Western businesses working with Chinese companies will share in successful cross-border M&A activity, but those businesses must offer the very best and most strategic counsel possible. Western “experts” did not distinguish themselves with a successful pro-China balance, as the Financial Times observed, and their clients failed. We must do better.

The Chinese business community can do better as well. Executives from both Haier and CNOOC were conspicuously absent in US media – particularly TV. Opponents of both efforts, however, maintained high visibility and honed their message to a consistent and constant warning against these acquisitions. Neither language barriers nor cultural expectations can serve as an excuse for not communicating. Come to the US – the Western press and public have always been open to new ideas and information.

When the influential Nightly Business Report televised its interview with Lenovo’s CEO, media reports indicated that this was Yang Yuanqing’s first interview with the American press. While it is surprising that an officer of a global company like Lenovo was a complete “unknown” to the American media, the company’s public communications in support of its acquisition were commendable. Simlarly, prior to its highly successful IPO last week, baidu.com’s CEO was also visible on US business channels.

There is a seemingly endless flow of consumer and market data produced in the US. This insightful information should be required reading for any Chinese executive with international designs. Chinese businesses can learn about their target markets – what are the pressure points, who are the stakeholders that drive action, what do American consumers want? Plenty of opinions abound, of course, and there are no “sure things,” but taking advantage of analysts, researchers, pollsters and pundits is a valuable way of better understanding a market that China so clearly wants to enter.

There is no “next chapter” for Haier or CNOOC, management will determine what each company does next; they have both been bloodied and battered in the Western media. But there will be a “next deal” for a Chinese company that sees opportunity in an American acquisition. Across the globe, there are American companies that also recognize that same opportunity. By honestly and thoroughly assessing what went wrong in both efforts to acquire two very different companies, Chinese businesses and those they count on for advice and counsel can help ensure that the next chapter in China-US business is a “success story.” After these past two defeats, all of China Inc. will be able to celebrate such a reversal of fortune.

-Josef Blumenfeld