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Home >> Opinion
UPDATED: 15:46, June 21, 2005
Why Haier hesitates?
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The temptation is simply there, and Haier's interest is apparent. However, in the face of Maytag Corp., one of American appliance giants, Haier appears hesitant. To buy or not to buy, that is a question. At noon of June 17, the deadline of Maytag bid predicted by overseas media, Haier, however, chose to remain silent. Haier fully understands that the purchase, once set, will lift itself into the top four appliance manufacturers in the United States, neck and neck with Whirlpool, GM and Electrolux. So, Haier earlier repeatedly announced his concern about the deal. However, it has been reluctant to take action.

This is certainly not Haier's style. In April 1999, Haier laid the foundation stone of its production base in South Carolina. The bold act was applauded by domestic media but questioned overseas, for it was thought unwise to give up the cheap labor resources at home. Haier at that time brushed off the opposition, but why does it hesitate now?

Perhaps Haier is afraid of the "internationalization trap". TCL, at least up to now, serves a case in point. This China's leading appliance maker went into loss after it acquired Thomson's TV and Alcatel's mobile business. In 2004, TCL saw its profits declined 57 percent from a year earlier, and further reported a deficit in the first quarter this year. At this, most insiders were not surprised. Given the present strength of Chinese enterprises and the risk of entering the international industrial chain, a few years in the red is just normal for an acquisition as TCL's.

It will be nothing unexpected, some say, if Lenovo, who bought IBM's PC business at US$1.25 billion, announces loss a year later.

Haier's hesitation at the moment is well grounded in the face of these forerunners who plunged themselves into international markets. Yet Haier still leaves itself room for maneuver, saying that "June 17 is the deadline set by the Financial Times", an indication that the matter is still under consideration.

"Hesitation" is far from a bad word in business circles, but it's certainly unadvisable for one to shilly-shally when resolution is needed. For Haier, it must make a decision now. But first, what does it want from the deal?

One possibility is that Haier wants to thrust itself into American market relying on Maytag's brand and production capacity. But only having this point in mind will be very dangerous. Maytag, once an American flagship household appliance maker, has been dragged down by excessively high production costs in recent years. Once the purchase is completed, it means that Haier has to shoulder Maytag's high production and workforce costs. It is a question that must be cautiously addressed by Haier and other Chinese companies who rule with low cost and price.

Another possibility is that, what Haier settled on is Maytag's sales network, through which it can expand its European and American markets and put an end to its history of having no overseas sales channels. This is a good point of view indeed. But the questions is, is it worth buying the whole mess only for channels?

As an experienced person in this respect, TCL chairman Li Dongsheng recently warned that when it comes to international M&A, one has to be prepared for the worst. It's absolutely necessary to draft a scientific and detailed plan under the help of experienced consulting companies. If Haier has been preparing itself during the period of hesitation, then that's not a waste of time.

This is perhaps a progress, for how to "go global" more successfully has become a common, difficult question for more and more domestic enterprises. It is a question that TCL and Lenovo had thought about and faced, now it's Haier's turn. Even if Haier ultimately chooses to drop the plan, it may still serve a good case for study in Chinese enterprises' "going global" process.

By People's Daily Online

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