Lenovo wins at US game
11/3/2005 13:22
Zhu shenshen/Shanghai Daily news
With strong national
economic growth, a number of Chinese companies issued global expansion plans
recently. But they faced trade barriers overseas in the name of national
security concerns or penalty tariffs. In the end, they pay much higher
tariffs or even cancel ambitious plans because they can't afford expansion
costs. For example, more than a dozen Chinese shrimp producers, including
Liaoning-based Zhonglian Aquatic Product Co Ltd and Guangdong-based Yilin Haida
Frozen Aquatic Co Ltd, faced antidumping tariffs from 27.9 percent to 112.8
percent when they tried to export products to markets in the United
States. The US complained that low-cost Chinese and Vietnamese shrimp
products hurt its shrimp industry. The average penalty tariff to Vietnamese
shrimp firms was only about 4 percent. Meanwhile, Wenzhao-based lighter
companies faced similar barriers when they exported products to European
nations. But the country's biggest personal computer maker, Lenovo Group Ltd,
proved to be an exception to the rule. On wednesday night, Lenovo won
clearance from the Committee on Foreign Investment in the United States (CFIUS)
to go ahead with the US$1.25 billion acquisition of the personal computer
division of International Business Machines Corp (IBM). In january, the deal
met unexpected resistance from American lawmakers and the US media. The
committee investigated the proposed sale on the grounds of national security.
Both US lawmakers and the media said state-owned Lenovo poses a potential risk
to US government bureaus and current IBM customers. Passing the clearance
hurdle was an obvious victory for the Chinese PC maker as many US government
bureaus will now become new Lenovo-IBM customers. America often plays the
national security trump-card to protect its own companies, though it is
obviously a form of trade protectionism. After the merge, Lenovo-IBM will
become the world's third-biggest PC maker, according to US-based IT consulting
firm Gartner Inc. Lenovo will now compete directly with global leaders Dell Inc
and Hewlett-Packard Inc. Meanwhile, government bureaus are relatively stable
customers and usually bring high profit margins to PC vendors, said Binbo Liu,
an analyst at China Southern Securities Co Ltd. The new Lenovo at least will
have an equal opportunity to keep high-end customers from Dell and HP. In a
wider view, Chinese firms can learn from Lenovo's success. Finding a local
partner before aiming to penetrate an overseas market has many benefits. The
advantages? A local partner can help a firm avoid trade barriers to some extent.
Meanwhile, they can use their partner's brands and do not need to build
distribution channels in a different market environment. Tcl-Thomson and
Huawei-3COM are other examples that show Lenovo's strategy is sound.
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