China's Governance Buy Up: Chinese-Owned Lenovo Group's US$1.25 Billion Purchase of IBM's Personal Computer Business Last Month Is More about China's Determination to Understand the West's Model of Corporate Governance to Make Its Companies More Internationally Competition Than It Is about Buying a Technology Business

By Birchfield, Reg | New Zealand Management, June 2005 | Go to article overview

China's Governance Buy Up: Chinese-Owned Lenovo Group's US$1.25 Billion Purchase of IBM's Personal Computer Business Last Month Is More about China's Determination to Understand the West's Model of Corporate Governance to Make Its Companies More Internationally Competition Than It Is about Buying a Technology Business


Birchfield, Reg, New Zealand Management


Professor Jean-Christophe Iseux, a Beijing-based Chinese economic expert, thinks commentators have got the significance of Lenovo Group's purchase of IBM's PC business all wrong. "They think it is about China acquiring an immediate five percent slice of the world PC market. It is of course but," according to Iseux, "it is more about China's desire to enhance the management and governance skills of its senior executives and directors."

Iseux, a Frenchman who has been resident in Beijing for the past eight years, was in New Zealand last month to brief New Zealand business leaders on the trade potential of China's decision to begin free-trade talks with this country. And for the past two or three years he has been researching a book on China's corporate governance and management model.

Most Chinese companies are supervised by the State Asset Supervision Administration Commission (SASAC) in the sense that SASAC takes a shareholding in strategic businesses. China's 'going out' policy has them acquiring companies to "enhance the management and governance skills of their directors and managers as well as enhancing their worldwide market share of key industry sectors", he says.

The deal to buy IBM's PC business satisfied both goals, but in particular it satisfied China's desire to make directors and senior executives "more aware of how other companies in the world are behaving in respect of their internal management", says Iseux.

"The Chinese believe that true and efficient corporate governance will lead their top firms to be very competitive in the world. That is an interesting internal view--not an external view. It is also an assessment they have of the way in which Chinese companies are now run and that they are not run effectively."

As a consultant to the Chinese government, Iseux has an insider's understanding of the way in which China views the world economy and its evolving place in it. And, he says, there is no question that it wants to enhance its management and governance performance.

"The question is; how do we do that? The first way is by physically training their top people by sending them to the National School of Administration and attending lectures by professors from abroad such as myself," he says. "Second, by sending people abroad to universities and lectures from academics in other countries or by visiting other firms.

"But they don't feel that this is enough. The Chinese already realise that the only way you can change a corporate culture and change ways of managing companies to make them more efficient is to have a physical, practical, direct relationship with an organisation that is used to operating in the world outside China."

Joint ventures are one option. But, says Iseux, "when you have two entities, one Chinese and one foreign and you encourage them to build up a new company to run the business you need to have different people working together to achieve learning. That often leads to conflicting views and perhaps deadlock over how to approach an issue and enhance management.

"Consequently--and I was an adviser--we considered acquiring foreign firms outright as another way to achieve the knowledge and experience. For China, this is a more winning way because they are not achieving their goal through conflict but rather by integration. This is very much the Chinese way."

The issue then becomes how to integrate the learning? It is not sufficient to simply apply and adopt America's approach to corporate governance. It is a case of applying what can be useful. "This can only be done pragmatically, step-by-step after the acquisition and little-by-little taking things that can be effectively used in the Chinese [organisational] environment," says Iseux.

There are, obviously, many differences between the US and the Chinese corporate environments? "The Chinese corporate governance model is organised as a matrix level of management and direction which includes an element of the military and the [communist] party in the equation. …

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