International Law

China Companies Going Outward. Where Are They?

By Dan

A few weeks ago, I had a great conversation with a very sophisticated Chinese businessperson on Chinese companies coming to the United States. His company is in the United States and he told me that Chinese companies very much want to come to the United States, for the following reasons:

1. They have heard about and want the high margins;
2. If they can make it in the United States, that is a huge selling point in China;
3. There is the view that if you can make it in the United States, you can make it anywhere.

But then he said that, when push comes to shove, most Chinese companies are "scared to death" of the United States both because they do not know the first thing about doing business in the United States and because about all they do know is that the rules there generally do need to be followed. He said that he had worked with two Chinese companies that were all set to go into the United States and then, at the very last minute, they got cold feet.

I thought of that conversation today while reading an article a reader sent me on how Bright Foods had discontinued its talks to buy General Nutrition Center (GNC) in what the Financial Times said "underlined the difficulties of sealing deals with emerging market buyers." 

The reader had this to say about Chinese companies going overseas:

It is a internal contradiction in China. The government is pushing these companies to "go out". The companies then discover that even though they have the money, money on its own is not sufficient. They need expertise and a Chinese legal environment that allows them to act quickly. Buying 100% of a real company in the U.S. is much different than buying a minority stake in a mining company in South Africa. The question is: will they ever learn?

I think the question is somewhat unfair since some Chinese companies have already learned, but at the same time. 

But what is going on here? Why do Chinese companies so often seem to walk away from their U.S. deals? And when will a Chinese consumer company really succeed in the United States? 

Full post as published by China Law Blog on February 01, 2011 (boomark / email).