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Peggy Powell Dobbins Sociology as an Art Form www.peggydobbins.net Begin forwarded message: > From: Marv Gandall <marvg...@gmail.com> > Date: December 30, 2010 5:16:34 AM CST > To: peggy dobbins <pegdobb...@gmail.com> > Subject: [Marxism] Joint ventures go global on Chinese terms > Reply-To: Activists and scholars in Marxist tradition > <marxism@lists.econ.utah.edu> > > ====================================================================== > Rule #1: YOU MUST clip all extraneous text when replying to a message. > ====================================================================== > > > China Squeezes Foreigners for Share of Global Riches > By SHAI OSTER, NORIHIKO SHIROUZU And PAUL GLADER > Wall Street Journal > December 28 2010 > > BEIJING—Foreign companies have been teaming up with Chinese ones for years to > gain access to the giant Chinese market. Now some of the world's biggest > companies are taking a risky but potentially rewarding second step—folding > pieces of their world-wide operations into partnerships with Chinese > companies to do business around the globe. > > General Electric Co. is finalizing plans for a 50-50 joint venture with a > Chinese military-jet maker to produce avionics, the electronic brains of > aircraft. The deal with Aviation Industry Corp. of China would give GE access > to a Chinese government project aimed at challenging Boeing Co. and Airbus in > the civilian-aircraft market. > > General Motors Co. established a joint venture this year with SAIC Motor > Corp., its longtime partner in China, to produce and sell their no-frills > Wuling-brand microvans in India, and eventually in Southeast Asia and other > emerging markets as well. > > The two deals show China Inc.'s growing international ambitions, as well as > its increasing leverage over foreign partners. To make the GE deal happen, GE > Chief Executive Jeffrey Immelt made an extraordinary concession, agreeing to > fold into the venture all of GE's existing world-wide business in nonmilitary > avionics. GM, in its deal, contributed technology, its manufacturing > facilities in India and use of its Chevrolet brand name in that market. > > Several forces are motivating China's foreign partners to strike global deals > that would have been unthinkable a few years back. China's big > government-backed companies now have enormous financial resources and growing > political clout, making them attractive partners outside China. In addition, > the Chinese market has become so important to the success of multinational > companies that Beijing has the ability to drive harder bargains. > > But such deals also carry risk. Several earlier joint ventures inside China > have soured over concerns that Chinese partners, after gaining access to > Western technology and know-how, have gone on to become potent new rivals to > their partners. > > "Foreign partners are seeing they will have to sometimes sacrifice or share > the benefits of the global market with the Chinese partner," says Raymond > Tsang, a China-based partner at consultancy Bain & Co. "Some of the > [multinational corporations] are complaining. But given the changing market > conditions, if you don't do it, your competitors will." > > Big energy companies, too, have been pursuing international deals with > Chinese companies. China has supplanted the U.S. as the world's biggest > energy consumer, making access to its market vital for global companies. > Foreign firms hope that teaming up with Chinese companies abroad will help on > that front. Foreign companies supply technology and experience, and their > Chinese partners provide geopolitical clout, low-cost labor, and easy access > to credit that China's government-backed companies enjoy. > > State-owned China National Petroleum Corp. was one of the first foreign oil > companies to sign a major contract in Iraq. BP PLC teamed up with it last > year for a $15 billion investment to increase output at the giant Rumaila > field. Over the summer, Royal Dutch Shell PLC joined with PetroChina Co., a > publicly traded subsidiary of China National Petroleum, on a $3.15 billion > acquisition of assets from Australian energy company Arrow Energy Ltd. > > China has been gaining clout in some resource-rich parts of the developing > world where U.S. companies don't have strong footholds, partly by spending > lavishly on infrastructure projects, and it can help broker deals in places > like Venezuela and Myanmar, where it has good relations. > > In financial services, foreign banks long have coveted access to China's > fast-growing securities business. China has allowed a number of companies > into the market in recent years through joint ventures, with their stakes > capped at about 33%. Chinese regulators also restrict which parts of the > securities business they can do. > > Crédit Agricole SA already is involved in such a joint venture through its > Asian brokerage arm, called CLSA Asia-Pacific Markets, but it is a minor > player in China. In May, its investment-banking unit announced a preliminary > deal with China's government-owned Citic Securities Co. to form a joint > venture beyond China's borders. The French company plans to contribute CLSA > and other pieces of its international operation. Citic Securities would throw > in its small international unit, based in Hong Kong. Crédit Agricole hopes > that helping Citic Securities realize its international ambitions will enable > the French bank to expand its business in China. > > But talks have gone slower than expected. The two companies said this month > that they had agreed on certain key terms, but extended a year-end deadline > for a final deal to June 30, without explaining the delay. > > Some joint ventures in China have stumbled because of spats with local > partners or because the partnerships enable Chinese companies to learn enough > about industries to become new competitors to their Western partners. > > Kawasaki Heavy Industries Ltd. and Siemens AG, for example, worked with > Chinese partners to help build China's high-speed rail network. Now the > Chinese companies are bidding against them for international contracts—using > products at least partly based on the foreign firms' technology. Last year, > France's Groupe Danone SA accepted a cash payment to terminate its joint > ventures with China's Hangzhou Wahaha Group Co. after a nasty public feud. > The French company had alleged that Wahaha's boss had produced and sold > Wahaha-branded beverages supposedly owned by the joint venture through a > separate network he owned. Wahaha denied the accusation. > > GE's avionics deal with Aviation Industry, or AVIC, also is vulnerable, says > Jim Wasson, president of Growth Strategies International LLC, an aerospace > and defense consulting firm, and a former GE Aviation executive. The fear is > that "once AVIC knows enough about how to do this, they'll kick [GE] out and > be on their own," he says. > > Lorraine Bolsinger, chief executive of GE Aviation Systems, acknowledges > there were concerns within GE about protecting technology. "It was very > controversial," she says of the proposed deal. "It was really us > knuckle-dragging technology guys that think we had a lot to protect." In the > end, she says, "when we and the Chinese together create intellectual > property, we are darn right going to protect it." > > These days, big Chinese state companies with access to cheap funds and other > government support are gunning to dominate some of the same industries that > firms like GE have targeted as growth opportunities, from clean technology to > turbines. > > Even so, GE has such high hopes for China that Mr. Immelt has called it "our > second home market." Two years ago, Mr. Immelt said China revenue would > double to $10 billion by 2010. But last year it reached just $5.3 billion. > > GE saw working with AVIC as a chance to boost its avionics business, which > has lagged behind Honeywell International Inc. and Rockwell Collins Inc. The > planned venture, to be based in Shanghai, has been chosen to supply China's > planned C919 jet, which has the potential to grab a big slice of the Chinese > civilian-aviation market. Boeing estimates that market will be worth more > than $400 billion over the next 20 years, second only to the U.S. > > In negotiations, GE is asking AVIC to match the value of the technology GE is > contributing with a cash investment, according to people at GE. If a deal is > finalized, all of GE's existing and future civilian avionics contracts will > go to the joint venture. Negotiations were supposed to be done by mid-2010, > but the parties now hope to finish them by early 2011. > > GE executives say the AVIC deal is their closest cooperation ever with a > Chinese partner. GE has 45 people in China on the project now, and it is > hiring or moving several hundred more people there, even before final terms > are hammered out. > > AVIC, which makes fighter jets and helicopters in addition to civilian > products, has ambitions outside of China. "For the aviation industry, there > is no regional market, only the global market," the company said in a > statement. "AVIC's strategy is to actively integrate itself into the > industrial chain of the world's aviation industry, and to become a truly > global company." > > Last month, China unveiled the first life-size mock-up of the C919. Other > foreign companies have negotiated similar joint ventures to make other parts. > > "Our hope and desire is that this joint venture maintains a working-together > partnership that benefits both," says Kent Statler, executive vice president > at Rockwell Collins, which has a joint venture to supply the C919 with > communications systems. "But let's not be naive. We realize that this could > turn into a competitor." > > For GM, the stakes are especially high: China became the world's largest auto > market last year. > > Back in 1997, GM decided to plow more than $1 billion into a 50-50 joint > venture with SAIC to make Buicks. At the time, it was seen as a risk because > car sales had yet to take off in China. This year, GM's China ventures are on > track to sell nearly 2.27 million vehicles in the country, compared to 2.18 > million sold by GM in the U.S., according to research firm IHS Automotive. > > Much of GM's recent growth in China has come through a second joint venture > set up in 2002 with SAIC and another Chinese company. The venture, SAIC GM > Wuling Automobile Co., makes boxy microvans costing as little as $4,500, > which have proven popular in China's smaller cities and towns. Last year > Wuling became the first brand in China to sell a million cars in a year. This > year, it's expected to account for nearly one-sixth of GM vehicle sales > world-wide. Last month, GM reached a deal to buy an additional 10% interest > in Wuling for $51 million from the venture's third investor, raising GM's > stake to 44%. SAIC owns 50%. > > The India joint venture, which began operating in February, is part of GM's > effort with SAIC to replicate its China success in other markets. It will > produce cars based on its Chinese Wulings, but will sell them under the > Chevrolet brand. GM contributed its brand, India factories and dealer > network, while SAIC contributed about $300 million to $350 million, a senior > GM executive said when the deal was announced. > > "We think the business model we have in China with SAIC and the product > lineups we have in China are ripe for export to other parts of the world," > says Kevin Wale, chief of GM's China operations. > > GM and SAIC already have made less ambitious forays abroad together. They > export Chevy Sail compacts designed and made in China to Chile and Peru, and > are jointly developing more new models to be sold globally, such as the Buick > LaCrosse, a sedan designed by teams in Shanghai and Warren, Mich., and sold > in China and the U.S. > > The India deal takes that cooperation a step beyond shipping jointly produced > vehicles overseas. GM and SAIC executives and engineers will be posted in > India to design, produce and market cars locally—something SAIC currently has > almost no experience with. > > One risk to GM is that the venture will better position SAIC to compete > abroad on its own—against GM. > > Already, SAIC has grown into a powerhouse at home, in part through learning > from GM. In 2006, SAIC launched its own solo brand in China, called Roewe. It > now competes domestically with the Buicks that SAIC makes with GM. The Roewe > brand, which is based it on technology acquired from the now-defunct MG Rover > Group Ltd., along with a related nameplate, MG Mingju, sold 146,323 cars in > the first 11 months of this year, up 78% from the year-earlier period, > according to J.D. Power & Associates. Buick's sales in China, while more than > three times as large, grew one-third as fast over the same period. > > "Roewe offers comparable products at lower price points and is taking away > from GM and others," says Michael Dunne, an auto-industry veteran who heads > Hong Kong-based investment advisory firm Dunne & Co. > > Last year, GM agreed transfer 1% of its stake in Shanghai GM, its main > Chinese joint venture, to SAIC, giving its Chinese partner 51% and effective > control. GM said at the time the move would give it better access to credit > from Chinese banks, and pave the way for its bigger stake in the Wuling > venture. > > Last month, GM said the two companies are looking at the possibility of > selling SAIC's MG-branded cars through GM's world-wide sales channels. The > move could open the door for SAIC's cars to make inroads into Britain, where > the MG brand was once based, according to an individual close to GM. Also > last month, SAIC paid $500 million for a 1% stake in GM as part of the > Detroit auto maker's initial public offering. > > SAIC is "very well situated to meet Western [car companies] head on," says > Michael Robinet, a U.S.-based senior analyst with consulting firm IHS > Automotive. "There's no doubt in my mind, MG and Roewe are going to be both > very good launch pads for SAIC to look at new markets beyond China." > ________________________________________________ > Send list submissions to: Marxism@lists.econ.utah.edu > Set your options at: > http://lists.econ.utah.edu/mailman/options/marxism/pegdobbins%40gmail.com ________________________________________________ Send list submissions to: Marxism@lists.econ.utah.edu Set your options at: http://lists.econ.utah.edu/mailman/options/marxism/archive%40mail-archive.com
