When China Invades Germany Wednesday, April 20, 2005
Hanover, Germany Since moving to London six years ago, my trips back to my homeland have regrettably dwindled. Still, I make time for one stopover in Germany every year--for Hanover's annual Computer Exhibition, CeBit. It's the largest computer exhibition in the world and a key meeting place for anyone who works in the industry. It's also a great source of information for researching investments in that sector. Hanover once conjured the image of a dull place. For 40 years, it sat near the East German border, secluded from the rest of the country. But now it's the center of Germany and home to some beautiful landmarks, making it a unique place to live. In economic terms, Hanover has never quite established itself as a significant player in Europe, or Germany for that matter. Except when CeBit comes to town. The capital of Lower Saxony gets the lion's share of publicity around the globe when more than 6,000 exhibitors descend to set up their booths. CeBit is the place where IT innovations are presented to the world and thus an ideal forum for trend spotting. Apple, Hewlett Packard, Sun Microsystems… all the big players are present. But this year, from a tiny booth, it was the Chinese company Lenovo that produced the most interesting headline of the entire event. If you have not yet heard of Lenovo, you'd do well to listen. The company is barely known outside Asia. In Asia, however, Lenovo has become a significant player in the industry. It is not only the market leader for PCs and flat screens in China, but it has also successfully entered other Asian markets. It's the Asian equivalent of IBM. I first heard whisperings of Lenovo's planned entry into Europe by taking over IBM's German PC business after talking to industry experts present at CeBit. Shortly afterwards, it was confirmed. The deal is a smart move. It makes it possible for Lenovo to enter the world's premier league of PC manufacturers behind Dell and Hewlett-Packard, and it gives the Chinese a slice of the established suppliers in the biggest European IT market. And this is only the beginning, as Lenovo is also planning to introduce its brand globally within the coming 10 to 19 months. The deal signals that Chinese expansion is about to enter a new era. For many, China's cheap labor forces used to serve as an extended workbench for European and U.S. companies. Labor-intensive products for the mass market were manufactured in Asia to keep costs low. But few companies had the foresight to capitalize on the highly motivated and well-educated millions of Chinese students who leave university each year. The fact that a Chinese company is now set to win a market share outside an Asian market has unsettled several of my industry contacts at CeBit. German and other European business people have always been fascinated by the great potential of the Chinese market. But there were a lot of worried faces at CeBit when inroads were made into their home markets.
About a month ago, I titled an issue of my subscriber-only newsletter, "When China Invades Germany." In it, I predicted takeovers of German companies by Chinese competitors.
To be honest, I was surprised to see how fast my prediction came true with Lenovo's takeover of IBM's German PC business. At the same time, the transaction has confirmed my position that, despite high unemployment and a stagnating economy, Germany offers attractive opportunities to smart investors. Lenovo will not be the last company from China to set up business in Germany. And like Lenovo, other Chinese companies will try to take over existing players rather than building up their own presences. It simply saves a lot of time, and, as we've seen, the Chinese are keen to expand. And fast. Investors cannot benefit from Lenovo's acquisition--the acquired company was not listed. However, this may be different in the next takeover by a Chinese company seeking market entry in Germany. After all, there are many potential takeover candidates on the German stock list. Sven Lorenz
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