Made in China

By Yuxin He

Yuxin He is a corporate analyst for Dragonomics Advisory and is a guest contributor to Dragonbeat blog this week.

Five years ago, a little-known electronics firm in Guangdong province – TCL – briefly became the world’s biggest television maker.

Countless consultants announced the coming of age of China’s global consumer-electronics champions, following Japanese firms like Sony and Panasonic in the 1970s, and Korean contenders like Samsung and LG in the 1990s.

Whatever happened to it?

TCL exploded onto the global stage when it took over the TV-making operations of French conglomerate Thomson. Shortly afterwards, it bought the mobile phone handset business of French telecommunications equipment maker Alcatel.

But the two high-profile acquisitions proved disastrous: losses from the enlarged TV and handset operations exceeded Rmb4bn in the first three years after the Thomson and Alcatel acquisitions – nearly triple TCL’s combined profit in the three years immediately before the acquisitions.

TCL’s European TV operations are now in liquidation; its North American business still strives to break even; and its handset gambit has shrivelled, leaving the firm as a contract manufacturer for low-end Alcatel phones sold in emerging markets.

Not only did the acquisitions destroy the firm’s global ambitions – they eroded its position in its home market as well.

TCL’s tale of disaster helps us to understand both China’s crazy-quilt corporate landscape, and the challenges Chinese companies face as they try to internationalise. Three broad lessons emerge.

By Tom Miller and Will Freeman

Beijingers call the hot and sticky months of July and August the “sauna” season. On muggy summer evenings, sensible locals sweat it out in the capital’s old lanes with sticks of fatty lamb kebabs and cold bottles of Yanjing beer.

But real men roll up their T-shirts under their armpits, ditch the pansy lager, and instead glug down the local firewater known as baijiu – a potent mash of sorghum, rice, unhusked barley and other grains.

For foreign businessmen forced to drink the stuff at countless banquets, baijiu provides an infamous challenge for the unconditioned palate. But this white spirit – generally 40-60 per cent alcohol by volume, but sometimes 70 per cent plus – is a mainstay of Chinese culture, first popularised during the Xia dynasty 4,000 years ago.

Baijiu, the world’s largest spirits category by volume, traditionally dominated the domestic booze market. But in recent years, sales volumes of China’s national liquor declined as beer, a foreign upstart, gulped up market share.

Now baijiu makers are fighting back with a proliferation of new luxury varieties designed to appeal to the country’s growing band of big spenders. Revenues are shooting up at major distilleries and baijiu is giving beer a run for its money.

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