In the last few months Japan and China have gone head-to-head in a battle for a contract for the Jakarta-Bandung High Speed Rail in Java, Indonesia. China won.
 
The contract was originally under discussion between Indonesia and Japan, following feasibility work undertaken by the Japan International Cooperation Agency. As those two-party negotiations proceeded China suddenly entered the picture and the negotiations became a contest between Japan and China. On 5 September Indonesia announced that neither had won, the project was too expensive in the context of the substantial infrastructure needs of Indonesia (notably outside of Java), and Indonesia would look at new ideas on doing the rail using lower-speed train options. Japan and China appeared to return to their drawing-boards at home. Then, unexpectedly, on 1 October, Indonesia announced that the contract had been given to China. The reported momentarily churlish reaction by Japan’s Chief Cabinet Secretary indicated Japan’s annoyance.
 
All around the world China is investing in new developments. And it is also buying existing assets, for example dairy farms in Australia, banks in Europe, infrastructure in Africa, electricity generators in Western Europe, a port in the Mediterranean, a car manufacturer in Scandinavia.
 
The Western model of similar takeovers is usually undertaken using the format of takeover and absorption of an existing business by the Western company in the same industry. Or by a Private Equity format wherein the Western company takes over the entity with a view to rationalizing the business and then often packaging and selling-off particular business-lines in the target company.
 
In the first Western format style, the target company is incorporated into the Buyer’s company which increases the Buyer’s market presence. Rationalization normally follows to eliminate duplicating branches (eg, for a bank) or products (eg, for a groceries manufacturer), and ‘synergies’ and ‘economies of scale’ are achieved by sacking workers. Good economies of scale are often achieved by eliminating the back-office of the target company (eg, for an insurance company). This rationalization is led by the Buyer’s Chief Executive Officer (CEO) whose heroic efforts will later be rewarded by increasing his/her remuneration package to an even higher obscene multiple of the average wage of the workers sacked. Generally, the more workers sacked the more heroic the CEO is perceived to be. Capitalism at its best, or, if you are one of the dismissed workers, at its worst. The gigantic global takeover of brewer SABMiller by brewer Anheuser-Busch InBev is an example, with the belief by some observers that Anheuser-Busch InBev will make this takeover work financially by thousands of sackings at SABMiller. Still, what the heck! - they’re only workers, whereas some 1,700 managers at SABMiller are reportedly expecting an average payoff from the merger of USD 1 million each. 
 
In the second format style, the Private Equity company tidies up the target company by initiating efficiencies and also sells-off component parts of the target company. This format is often based on the assumption that the combined value of the target company’s component parts is greater than the value of the target company as a whole.
 
Enter China. 
In 2008, China’s Cosco took over part of the Port of Piraeus in Greece. There was much fear of job losses. However, now the Port of Piraeus is operating far more efficiently - in just 4 years the Chinese-run portion of the Port has quadrupled container traffic. So, how many jobs have been eliminated at the Port of Piraeus? Well, actually, none. Over 1,000 new jobs have been created by the Chinese. (Although wages are lower than the sky-high wages of the union-politicians alliance in the pre-Chinese days.)
 
In 2010, China’s Geely took over the Swedish vehicle manufacturer, Volvo Cars. There was much fear of job losses. Now Volvo is operating more efficiently. The Chinese have expanded manufacturing capacity and are turning Volvo into a more globally accepted brand. So, how many jobs have been eliminated at Volvo? Well, actually, none. Thousands of new jobs have been created. 
China has also bought Norway’s chemical company, Elkem; Germany’s concrete pump manufacturer, Putzmeister; and a quarter of the Italian tyre manufacturer, Pirelli. In these examples the Chinese have invested more funds and expanded the activities and the jobs. Chinese companies have bought big stakes in the Portuguese insurance company, Caixa Seguros; Portugal’s power-generation company, EDP-Energias de Portugal; Portugal’s power-distribution company, REN; and France’s Club Med. 
 
Possibly, the explanation for China’s benign attitude to job sackings is that, unlike the Western takeover, the Chinese company is not seeking to integrate the target company into an existing Chinese company. Rather the target company and its markets represent brand new markets for the Chinese company. Further, the Chinese are acquiring more than just a company: they are acquiring technical and business processes and culture. New technology can be attained also, for example wind-power technology was gained in the Chinese acquisition of Portugal’s EDP-Energias. The target contributes to the rapid learning process which is sought by China’s rapid national advancement. And, of course, China achieves a presence in a foreign country which has advantages in itself.
 
So, unlike the Western companies engaged in takeovers, the Chinese companies are tending to develop the target companies, retain the management, retain the workforces, and enhance their research and development. And jobs are not being shifted to China. The Chinese want the target brand, they want the expertise of the employees, and they want to add to their own competitiveness. Hence, the target companies are being expanded after a takeover by the Chinese.
An interesting comparison of takeover motives could be suggested in the recent struggle by three companies which are trying to buy the Portuguese bank, Novo Banco. The first is the Spanish bank, Santander, which might be expected to amalgamate the target bank’s activities, which would lead to large job losses. The second is an American Private Equity firm which might be expected to sell-off components of the target bank, which would lead to large job losses. And then there are two Chinese companies trying to buy Novo Banco and they, on the examples of other Chinese takeovers of Portuguese companies, would not sack the employees. It is easy to understand why Novo Banco managers and workers would prefer the Chinese to win.
 
In Asia, China is currently being viewed with suspicion because of its apparent exhibition of ‘hard power’ - military, diplomatic. It has not been noted for the use of ‘soft power’. ‘Soft power’ is a whole new ball-game for China, and its only adventures in this field have been development projects in Africa, where the end results have had mixed interpretations. There are many forms of ‘soft power’: France takes its promotion of the French language very seriously with good results for it in West Africa. Britain’s origin of cricket yields substantial benefits to its influence in the Indian sub-continent and in the Caribbean. South Korea’s K-Pop music gives useful identity benefits to Korea.
 
A belief that a takeover by a Chinese company will not lead to mass layoffs of jobs - which usually occurs when a target company is taken over by a Western company - is making any proposed takeover by a Chinese company welcomed by the employees. This represents a useful cache of ‘soft power’ for China.
 
Mike B. Bradshaw has been an officer of the Treasury, Canberra, an investment banker, and a consultant in Europe, the USA and Asia. He now works on project financing.
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