In 1998, Haier chairman Zhang Ruimin became the first Chinese entrepreneur to give a speech at Harvard. And he grasped the opportunity, offering up his personal take on mergers and acquisitions, success in which he approximated to “reviving shocked fish”.
Not a business philosophy familiar to much of the Harvard faculty, perhaps. But actually rather a striking analogy. According to Zhang, shocked-fish companies have potential but lack solid management. Get the leadership right, and they stop flapping about. Replete with a new sense of energy and purpose, they are ready to compete.
(Zhang is famous in China for his innovative management philosophies. When he became Haier’s boss in 1984 one of his first acts was to take a sledgehammer to a poorly-made fridge. After that dramatic gesture, quality control improved rapidly. )
Zhang’s fans will now be looking to see whether Haier’s recent acquisition of Sanyo’s white goods business accords with his fish fundamentals. The Chinese company agreed to pay Panasonic a reported $130 million for its Sanyo washing machine and refrigerator units in Japan and southeast Asia. As part of the deal, Haier has also purchased rights to Sanyo’s Aqua washing machine brand.
The two companies have a history of working together. In 2002, they established joint venture, Sanyo Haier, which sold Haier products through Sanyo sales channels in Japan. It was met with intense competition from local rivals keen to keep the Chinese newcomer off their patch, leading to Sanyo Haier’s closure in 2007.
But Haier didn’t give up on the Japanese market. Although it focused on sales of cheaper appliances at first, it changed strategy last year by releasing a higher-end product range, along with a target to quadruple local sales to ¥30 billion ($390 million) by 2015. The incorporation of some of Sanyo’s local assets into the business will be expected to help achieve that goal.
The deal has drawn criticism too, with some analysts questioning the worth of the Aqua sub-brand. Sanyo’s overall image is also perceived as weaker than most of its Japanese competitors.
Nor did Panasonic sell all of its Sanyo assets to the Chinese, keeping businesses like the company’s world-class solar panel manufacturing facilities.
This also looks in keeping with a trend among Japanese conglomerates to defend higher-value sectors, while ceding ground on lower margin businesses like white goods. Upstream materials, components and their applications “will be the foundation of success in the future international electronics industry,” an industry insider told the National Business Daily.
Haier will be hoping that its low-cost manufacturing model will be able to squeeze more cash out of the Sanyo name. And it’s following in the steps of other Chinese companies to turn a little Japanese this year. In March, BYD bought a factory from metal die maker Ogihara Corp, and Shandong Ruyi, a textile group, also became the largest shareholder in Renown, a Japanese clothing company. The acquisitions suggest that completing of overseas deals is becoming less of a problem for Chinese companies than it once was. But the real work then starts in integrating the international assets into a profitable operation.
“The current level of internationalisation of domestic enterprises is not high,” says He Maochun, professor of international relations at Tsinghua University. “The key for them is not the M&A itself but rather the ability to manage effectively post-merger, which will then allow the company to develop sustainably.” Or as Haier’s Zhang would put it rather more pithily: they need to make sure the fish stops flapping once they’ve caught it.
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