China’s quest for dead horses – the WTO column

(later also at Chinabiz)
Brussels - Now the shock of the bomb attacks in London is subsiding a bit, British media focus on other amazing stories again. So, together with the anchor people of the BBC’s Breakfast show I was wondering the other day why Shanghai Automotive (SAIC), competing with two other Chinese automotive companies, resumed bidding for the heritage of MG Rover, the erstwhile famous British car producer of the Jaguar.
“Don’t do it,” I told the TV screen when they said that SAIC would resume its bid for this relic of British industry.
It was not unlike the adventures of foreign companies entering China more than twenty years ago. They also bought or teamed up with Chinese companies that were gone, dead and too often paid a lot for the privilege to buy a dead horse.
Now Chinese companies are trying to enter the global market and they tend to make the same mistakes. There are a few reasons why acquiring a firm could make sense. The purchase of the IBM PC-business, Haier’s efforts to enter the US market and the MG Rover deal seem to make less sense, to put it mildly. For me the jury is still out concerning the friendly offer oil company CNOOC is making for its US competitor, but I keep my nose open to notice any possible signs of decay.

There might be three main reasons to buy another company, to acquire the latest technology, to buy into a market or to buy a cool brand. Five years ago MG Rover stopped investing in research and development, say British media. What is left is their heritage with no trace of new models or developments. MG Rover itself decided already five years ago it was not worth to invest in a dead horse. When SAIC and Nanjing Automotive are looking for new technology to improve their own operation, they might be looking in vain.
Will they get access to a lucrative market? Just like foreign companies entering China in the past, they might not find that market anymore after they have bought the assets. When MG Rover was unable to turn their product into a viable market, I do not see what SAIC could add to that, especially now the whole operation is defunct for some time. A few streets away here in Brussels there is still a MG Rover showroom and it looks pretty sad and dusty.
Could the last argument be valid? Getting a brand that was erstwhile pushed by James Bond himself? I would today rather be in charge of selling Harry Potter’s broom. Just getting an outdated brand name could be a good strategy in the past for selling consumer goods in China to an ignorant market but might not work anymore when other fundamentals, like a solid market and good technology, is lacking.
Getting an outdated production unit dismantles and moved to China might have worked in some industries. For example China bought a full steel factory in German, dismantled it and brought it to China. But that might be a losing concept for an industry that focuses on high-quality and where the latest factories in China are cheaper and less fault-prone than the older production units in Germany and the US. SAIC should know that.

So, what might drive the Chinese executives in pursuing an antiquated, bankrupted car company in Britain? I guess some of the buy have a Jaguar themselves, they are just looking for a hobby.

Fons Tuinstra