Monthly Archives: October 2007

Can you name 3 Chinese technology global brands …?

Forget about IBM Thinkpad! When 联想 (Lenovo) agreed in 2005 to purchase the computer-manufacturing division of IBM, the contract stipulated that it could use the IBM brand on its notebook-computer products for three years. With the end of that period approaching, Lenovo is preparing its strategy to launch its own-brand line of consumer-electronics products in North America and Europe in early 2008.

By now, China-produced goods have more or less conquered the world. Moreover, Chinese investment abroad (FDI) is growing rapidly – USD 20 billion in 2006. But can you name 3 Chinese technology brands which are global?

For a starter, China Mobile, the world’s largest mobile operator, with more than 340 million subscribers, a 75% share of the mainland cellular market… and 5 million new customers every month! The company is making forays into a number of “neighbour” markets (e.g. Pakistan) and has had a partnership with Vodafone for a number of years. In the equipment industry, keep an eye on ZTE (Zhongxin Telecom Equipment) and Huawei (who just bought 3Com). Both companies have been growing their international sales at an amazing pace. And, in addition to numerous deals in less mature markets, they have managed to convinced the BTs of this world too. Finally, remember Sina, one of the most influential Internet operator, with more than 230 million registered uses worldwide and over 700 million daily page views.

But what about the global identity of Chinese multinationals? Many companies are hoping to emerge as truly global players. Some of them are getting a hand from the government to become national champions. if one was to draw a key factor from successful global MNCs, the ability to think global and act local. Are the emerging Chinese multinationals up to the task?

« Made in China » = « Made by everybody but China »

As you can guess, the iPhone is manufactured in China. But in fact, it is made by everybody else but Chinese companies…

About 17 Taiwanese companies – none a household name – provide parts ranging from the camera lens to the battery charger. Japanese companies are responsible for printed circuit boards and the lithium ion battery. Then, there îs the German touch screen, worth around USD 35, the Korean microprocessor chip – itself based on a British technology… In other words, while most components are produced in China, no wholly-owned Chinese company appears in the iPhone food chain. As a result, of the $280 manufacturing cost of each iPhone unit, less than 5% actually stays in China.

In fact, during the first 6 months of 2007, Chinese exports from solely foreign-funded and joint-ventures amounted to 84% of total IT exports… or close to USD 200 billion. And don’t forget that electronic information products account for 36% of China’s total exports of all products.

No surprise then that, in order to counter the supremacy of foreign multinationals, the government has designated integrated circuit, software and new type of electronic components as “the fundamental core sectors”, and new-generation telecommunication and high-performance computers as the “strategic growth sectors” for the 2006-2010 period!

If history repeats itself, should be the most popular domain name requested at the launch of the .asia regional domain name. At least, that’s what happened with the .eu extension when it was launched last year.

Following the European Union (.eu), a regional domain name for Asia (.asia) is, as of this week and after 6 years of deliberation with ICANN, available for government and companies. The public will have to wait till February 2008.

For the time being, domains will be offered using the Latin alphabet and there is no hint about when addresses will be available in local alphabets. This is unfortunate. Some countries, notably China, have already set up a system that makes it possible to use net domains written in Chinese characters – the government was tired of having to wait for ICANN to officially approve non-Roman alphavets in domain names.

Is there a need for .asia? The 20 or so sponsor members running country code domains who signed up to back the .asia registry run by DotAsia seem to think so. And there is room to grow: the geographical reach of the .asia domain extends from Australia to the Middle East, that’s about 49 countries. Looking westwards, the .eu regional domain name has currently close to 2.6 million .eu registered domain names – not bad after one year but still only a third of the 7.5 million .de domain names!

Actually, .asia will really become interesting next year with the introduction of an auction system for domain names having received more than one qualified application!

Infra-Tech – When the buying gets tough…

Redberry, Red Flag Linux… These are just a few Chinese technology companies operating under the radar. Most of them limit their operations to the domestic market. When they venture abroad, they do so via direct sales or subsidiaries. Seldom do they go on merger and acquisitions (M&A) buying sprees, for when they do so in the USA or in Europe, it usually raises (red) flags in the capitals.

In fact, it looks like there is a red line that Chinese technology companies are not allowed to cross. Latest in case is Huawei’s attempt to buy 3Com, a struggling US company, because of fears that «China» will find it easier to spy on other countries while better encrypting its own communications! Despite having the US government as a customer, 3Com’s products fall within the infra-technology category: they are neither high-tech military stuff nor low-tech for that matter (3Com supplies the Pentagon with intrusion prevention technologies). To be fair, Chinese companies are not alone: recent deals involving the transfer of network technology to non-US entities, including Alcatel and Nokia, raised scrutiny.

While the 3Com case reminds us of the ridiculous accusations leveled against a couple exporting x386-based computers to China on the ground that the processor could be used to power a missile, it should not distract us from the core question: when does a Chinese company’s strategic technology investment become a national security risk?

Ironically, the question will probably be solved by the market. What will happen when private equity firms, backed by Chinese funds start to acquire US technology companies?