Ibm @ MindSay

Allright - this is not Thomas Watson the golfer (although he would probably agree). It's from Thomas Watson - the former CEO of IBM. He is quoted as saying: "Would you like me to give you a formula for ...success? It's quite simple, really. Double your rate of failure.... You're thinking of failure as the enemy of success. But it isn't at all.....You can be discouraged by failure - or you can learn from it. So go ahead and make mistakes. Make all you can. Because, remember that's where you'll find success. On the far side of failure." - Thomas J. Watson.

Mr. Watson is describing one of the basic principles of success. Success is going from failure to failure with a learning attitude. Orrin Woodward was a self admitted slow starter in our business, but unlike many others, he decided to never quit learning.

If you ever stop learning, in whatever business you are in, you're done. I'll bet you know people who have quit their business mentally and are still in the business physically. Orrin never quit. He stayed mentally alert and continued to learn and grow. Even though he confessed to going slowly, Orrin did report that his growth bonus alone in 2003 was over 5 times his best earnings year as an engineer. Obviously, our business pays for those who are willing to fail, learn, grow, and win.

Be willing and never quit. You WILL win.

A couple entries ago I mentioned the M&A opportunities available to foreign investors in China.  I used FedEx as a positive example.  Today I’m going to provide some examples from the other end: Chinese investing outside of China.  I will cite two famous examples and one infamous example.

The first is Lenovo’s purchase of IBM’s pc division. Last May, Lenovo purchased IBM’s pc division for $1.75 billion dollars.  As a result, Lenovo became one of the largest pc providers in the world.  And its revenue for the 2005 Oct-Dec quarter was $4 billion dollars, almost five times the profit earned in the same period a year earlier.  And Lenovo continues to advertise the Thinkpad brand during the Olympics.

The second is China National Petroleum Corporations’ purchase of the Canadian PetroKazakhstan Inc. last October for 4.18 billion dollars.  And, apparently, the output of oil rose from 150,000 to 200,000 barrels a day one month after the takeover.  This is part of a general move from China to acquire foreign resources.

The third is China National Offshore Oil Corp’s (CNOOC) failure to buy US based Unocal for $18.5 billion.  They did not fail because their bid was too low, but because of intervention from Washington.  The US considered an acquisition of Unocal by a Chinese company to be a threat to national and economic security.  So Chevron got Unocal for $17.8 billion.  But  CNOOC, though it has currently shifted its attention to purchasing smaller companies, has not given up on purchases in the US—but they have learned that having a positive media perception of a deal is just as, if not more important than the bid price and will plan accordingly in the future.

What is the conclusion to all of this?  China is starting to invest in foreign resources, whether those resources are tangible like petroleum or intangible like technological and brand name.  However, the foreign FDI in China still dwarfs China’s outbound investment: $60 billion to $6.9 billion.  Nevertheless, the growth rates are incredible, 93% from 2003 to 2004 and 26% from 2004 to 2005.

However, just as there are restrictions on what companies foreign investors can buy, there are restrictions that are slowing down Chinese foreign investment.  Right now, Chinese companies have a set a cap on the amount of foreign currency Chinese companies can buy at $5 billion.  That was raised from $3.3 billion in early 2005.  As caps are raised and laws are relaxed, more and larger deals can be expected from China.

Again, it seems that China’s growth is providing great opportunities.  But this time it is for companies that want to sell to China.

Everyone knows that thousands upon thousands of investors are coming to China.  People are building factories and outsourcing work to take advantage of cheap labor, others are selling products and services to China's massive consumer population.  It's a big, cheap deal and everyone wants in.

But who's heard of the Chinese beginning to invest outside of China?  Those who are in the know have heard that China's largest PC maker, Lenovo, is buying IBM's pc division, forming the largest pc making company in the world.  (My firm, Lehman, Lee & Xu took part in the Real Estate aspect of the trade here in China.) And this is really just the tip of the iceberg (if you can call a 1.75 billion dollar deal a tip).  As Chinese firms begin to grow, they will want to join the international market as well.  And they are.  Don't be surprised if your hometown hammer factory is bought out by Chinese investors.  Seriously, it could happen.

And the Chinese might invent a better hammer to make at Uncle Joe's factory. They invented gunpowder and paper, why not better hammers?  A real life example:  titanium drill bits.  A Chinese fellow finds out that a local Chinese university has the ability to research better titanium coating for drill bits.  He checks it out, finds a partner (luckily he has a son in law that speaks perfect English and has business smarts) and pays the local Chinese researchers to develop the technology for cheap.

Two years later they have the technology and start building a factory in Texas.  In the first year of business they do three million in sales.  And the Chinese technology starts putting "advanced" American firms out of business.  That happened ten years ago.  Now everyone is investing in China so Chinese businessmen have a lot of money.  Their technology is improving, their business smarts are expanding...

Just a thought, maybe a warning, and obviously some good business advice: the tide is turning.  Now that China has everyone's money, they are going to start spending it by investing outside of China.