Saturday, June 6, 2009

Driving into Uncertainty

The day after General Motors announced it was filing for bankruptcy, it said it was selling Hummer to a Chinese company.
That got heads turning.
The Chinese buyer? Sichuan-based Tengzhong Heavy Industrial Machinery Co Ltd.

On the company's website, it says Tengzhong manufactures heavy machinery equipment, like construction and energy industry equipment.
Tengzhong has said it will retain Hummer's senior management and operational team, as well as over 3,000 employees who build these monster vehicles.
"The Hummer brand is synonymous with adventure, freedom and exhilaration and we plan to continue that heritage by investing in the business," said Tengzhong CEO Yang Yi.

The deal is estimated to be worth under $500 million and will be completed by the end of the third quarter. And when it goes through, it will be the first Chinese acquisition of a brand from a major US automaker.

While some in China felt proud of a domestic company taking over an international brand, others were skeptical of how successful it would be in managing the company overseas.

Chinese firms haven't had much luck in figuring out how to not only manage foreign employees, but also in moving the brand forward, particularly in innovation.

Lenovo is one of them. In 2005 it acquired IBM's personal computer division, ThinkPad for $1.75 billion.

Last year the company threw in all its resources into the Beijing Olympics, sponsoring the torch relay by designing the torch, and supplying all the computer equipment and servicing for the Games.

The mass marketing and advertising it generated was a source of national pride, but many outside of China still don't realize that Lenovo acquired IBM ThinkPad. Also with the global financial crisis, overseas customers in places like Europe have cut orders significantly and Lenovo suffered a fourth quarter loss of $96.7 million.

The computer maker is struggling to figure out how to not only get out of the red, and also what it takes to be on top of the game to compete with Apple. It missed a strategic opportunity to move into the consumer market instead of just focusing on corporate sales, but that would have also meant trying to create new products. Lenovo was probably thinking the old adage, if it ain't broke, don't fix it.

But in today's competitive world, just continuing to churn out a product with minor technical improvements here and there aren't enough to stay in the game. And Apple is a perfect example of innovation and being in touch with consumer wants and needs.

That's why some in China are questioning if a privately-owned company -- some even say it is owned by the government -- has the experience to manage not only an overseas company, but also an international brand.

Thankfully there aren't many Hummers on Chinese roads, but they are all owned by rich people, including coalmine owners in Shanxi Province, where many disasters involving coalminer deaths are located. Perhaps these Hummer lovers want to show who really is king of the road.

And maybe Tengzhong is doing the same thing, trying to gain quick notoriety for its purchase. With the environment more focused on people's minds and governments around the world pushing for people to buy smaller, more fuel-efficient cars, how many more Hummers can Tengzhong sell?

It seems like it's purchasing a brand that will soon go the way of the dinosaur. Hummers have run their course. They don't belong on the roads anymore and acquiring it seems like the least forward-thinking decision ever.

While Tengzhong probably got Hummer for a deal, it's probably GM's best business decision in a while.


1 comment:

Anonymous said...

It is really ironic that we here raised money to help the Sichuan earthquake victims while a Sichuan company bought out our Hummmer.