Cases of Chinese cronyism and corrupt practices as they relate to China's foreign direct investments ("FDI") in third world countries may be embarrassing but are not unique or exceptional. Yes, Chinese officials maximize their advantages by exploiting human weaknesses (e.g., greed, lust, gluttony, etc ...) of administrators from Africa, Philippines and other yet-to-emerged countries with vast nature resources. Its motivation has been clearly documented in news articles such as the above linked report from the New York Times. I neither condone the perpetuation of corrupt practices from ill-moral Chinese officials, most of whom are indoctrinated into corruption and immoral practices by way of the Party School reinforced through the Cultural Revolution and its aftermath nor care to elaborate more of their well exposed cases. I prefer to highlight China's strategic acquisitions and investments overseas and how one can benefit from them.
Apart from China's vast needs for resources (e.g., oil, natural gas, iron-ore, copper and other industrial metals as well as commodities), its industries need innovations and established best practices to compete and grow in the coming decades. The global financial crisis has demonstrated to Chinese industrialists and officials that they can no longer depend on exports and rapacious demand of US and EU consumers for their low-cost and medium-quality goods spewing out of their factories over the last decade and a half. They further see that world class companies (e.g., Toyota, IBM, Apple, Research in Motion, Exxon, Nestle Foods, Goldman Sachs and others) not only survive economic downturns but gain market share, customers and earnings while lesser competitors fall down. It is not size or dominant market position that enables a superior competitive advantage but an emphasis on innovations, the ability to provide greater customization, quality, value and enhancements that target the unmet or soon-to-be discovered needs of customers. Apart from the traditional 5 Cs, 4 Ps and 6 forces that B-school teaches its MBA students, innovative companies anticipate market-needs at the customer level and create products and/or services that are tailored to their audience. Its one part science and three parts art! Since this is not a discussion about creating a dynamic and innovative culture within learning organizations, I will focus on China's needs and opportunities to benefit from them.
A simple SWOP analysis will yield clearly defined sectors where China can compete effectively in the coming years and decades. One needs only to focus on its automotive, consumer electronics (e.g., smart phones and portable internet-enabled devices), healthcare, professional education and financial services to understand its enormous growth and earnings potential. In terms of applying industry and cross-industry best practices, innovations and advancements (both incremental and quantum), Chinese companies lack essential resources, capabilities and building blocks. As leading and secondary Chinese companies engage in fierce battles to compete both domestically and globally, suppliers, partners, investors and strategic customers (those who can support channels or add value in the distribution chain) will be highly valued. It is noteworthy to add that many or all of the missing pieces are available in developed markets (e.g., US, EU and Japan). This is a great formula for a new generation of cross-boarders M&A.
In my next posting, I will highlight several sectors and Chinese companies that can benefit from either strategic alliance or investment with foreign parties.
