Chinese Brainpower and Cross- Border Deals

Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM - Chinese Brainpower and Cross Brainpower Chinese Deals Border Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 2018 - www.jefftowson.com www.jefftowson.com digital China and Asia’s latest Asia’s China and digital 1 My Background My LinkedIn Top Voice for Finance and China for 2016 China for and Finance for Voice Top LinkedIn Huawei.Alibaba and by Influencera Global Named Followers. in China?+3.1M followed Professor Most • • • MBA from Columbia, MD from Stanford, BA Physics. in BA Stanford, from MD Columbia, from MBA Vegas. Las and in Bangkok Based Do healthcare PE deals and M&A advisory in the US and Asia. and US in the advisory M&A dealsand PE Do healthcare others. and CEIBS Peking University, at Teach My writing and speaking are on are speakingand writing My trends. tech • • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com with 3 biz staff with 3 – the “Arabianthe – 2 Warren Buffett” Warren portfolio companies portfolio Owner of 200+ hotels 200+of Owner years 20 billion over $28 into $200k Grew and hotels, of lots JD, China, of Bank include assets China The largest foreign investor in the USA in the investor foreign largest The world in the media of owner largest2nd The The largest owner of Citigroup of owner largest The Middle East in the investor largest The The world’s 4th richest person (2004) person richest 4th world’s The Prince Alwaleed Alwaleed Prince • • • • • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com 3 Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com 4 Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com 5 Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com 7 style digitalstyle - My Asia Tech Class Tech Asia My www.jefftowson.com www.jefftowson.com or via podcast. or via at Available combat. combat. online90 week minutes per Requires Stay Stay on the frontier rapidly of the tech Asiaworld. changing Asian Become a guru in Become an expert an expert Become tech the in leaders Asia. of China and • • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM www.jefftowson.com www.jefftowson.com 8 Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 9 Suntech www.jeffreytowson.com Latin America Hockey Stick Latin - Domestic JVs II Domestic JVs I - -

The China Foreign Foreign Chineseand Brainpower

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 10 www.jeffreytowson.com Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 11 www.jeffreytowson.com The Shocking Rise of Suntech of Rise Shocking The 10 most innovative companies in China. And Time Magazine listed then listed then Magazine Time And in China. companies innovative most 10 Environment. the of its Heroes of one as Shi Zhengrong CEO The MIT Technology Review listed Suntech as one of the world’s 50 most 50 world’s the of one as listed Suntech Review Technology MIT The top the of one as Suntech named Company Fast companies. innovative In 2011, it reached a record 2 gigawatts in annual solar cell production. cell solar in annual gigawatts 2 record a it reached 2011, In It had over $3.4 billion in revenue and 13 offices worldwide. offices 13 and billion in revenue $3.4 over had It At its height, Suntech had approximately 15,000 employees and was the was and employees 15,000 approximately had Suntech height, its At volume. and revenue by manufacturer panel solar largest world’s • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 12 ). He ). 施正荣 www.jeffreytowson.com Founder Dr. Shi Zhengrong Shi Dr. Founder –

His parents, suffering through a famine and already raising two other other two raising already and a famine through suffering parents, His adoption. for him up gave children, Nanjing and Shanghai. Shanghai. and Nanjing He was born in a poor farming community in 1963 on Yangzhong Yangzhong on in 1963 community farming poorin a born was He between halfway about River Yangtze the island in a small Island, The man behind the Suntech story is Dr. Shi Zhengrong ( Zhengrong Shi Dr. is story Suntech the behind man The 1990s. early in the age of came

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• Background Background Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 13 electric technologies. electric - www.jeffreytowson.com Founder Dr. Shi Zhengrong Shi Dr. Founder –

of New South Wales in photovoltaic and solar and in photovoltaic Wales New South of abroad for graduate work and in 1989 arrived in Australia as a foreign foreign a as Australia in arrived in 1989 and work graduate for abroad University the from doctorate a earned eventually He scholar. exchange Following the now common path for top Chinese students, he went students, Chinese top for path common now Following the Technology in Manchuria and later completed his Master’s degree from his Master’sdegree completed later and in Manchuria Technology Sciences. of Academy Chinese the From there, he went on to Changchun University of Science and and Science of University Changchun on to went he there, From have excelled at school. His adoptive parents famously gave a banquet gave famously parents adoptive His school. at excelled have school. high from graduation his upon teachers his for Zhengrong’s adoptive parents supported him and he is reported to to is reported he and him supported parents adoptive Zhengrong’s

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• Background Background Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 14 and were and – www.jeffreytowson.com The China Solar Situation in 2001 in SituationSolar ChinaThe -

These were the earliest days of solar, especially in China. especially solar, of days earliest the were These become Suntech. Suntech. become In 2001, Dr. Shi left his academic post in Australia and returned to returned and Australia in post academic his Shi left Dr. 2001, In would This company company. energysolar a start China to Wuxi, The solar industry was dominated by First Solar, GE and other major other and GE Solar, First by dominated was industry solar The competitors. Chinese few were There companies. Western Both Chinese and Western governments were interested in renewablein interested were governments Western and ChineseBoth energy. beginning to move to more advanced products advanced more to move to beginning China manufacturers have achieved global scale global achieved have manufacturers China

• • • • • Case Case Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 15 www.jeffreytowson.com Initial Customers and and CustomersInitial where? where? – – Competitors – where? – International? Domestic? Large companies Small companies Government Questions Questions

What would you What wouldyou do? What are you capable of doing? you Do have an advantage? Who are your competitors? your are Who Who are the primary customers for solar equipment? solar for customers primary the are Who • • • • •

4. 3.

2. 1. Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 16 . his technical his www.jeffreytowson.com Dr. Shi Targets China Targets Shi Dr.

entire market would be his. He accomplished his goal within the first within the his goal He accomplished his. be would market entire operations. of year panel from $5 per Watt to $3 per Watt. When he presented this idea to idea this presented he When Watt. per $3 to Watt $5 per from panel the that do could he if that told he was officials, government Chinese expertise into China’s massive manufacturing scale manufacturing massive China’s into expertise a solar of cost the drop to was goal first his stated has he this, Against His approach was to take his own developed technology from his from technology developed own his take to was approachHis leverage to Basically it. produce mass and laboratory

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 17 and Taps Taps and – . www.jeffreytowson.com Brainpower and Infrastructure and Brainpower

million in backing from Wuxi government entities. entities. government Wuxi from million in backing and favorable government policies government and favorable $6 in particular support, government significant into tap able to was He This would eventually become the epicenter of solar manufacturing. manufacturing. solar of epicenter the become would eventually This workers technical of mass critical a local infrastructure, had Wuxi train ride from Shanghai. Shanghai. from ride train He set up operations in Wuxi, a city of 4.5 million people located a short a located people million 4.5 of city a in Wuxi, operations up set He

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• He Gets Government Support Support Government Gets He Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 18 www.jeffreytowson.com How Did He Win in the West? the How in Win He Did especially Germany. especially – – 2005, both China and West began offering subsidies for subsidies offering began West and China both 2005, -

What would you What wouldyou do? Howwouldwin?you Do you have Do you have an advantage China?in theIn West? What are your primary What are your primary customer targets? numbers. Other local governments offered support. Government support. offered local governments Other numbers. increase. to began loans backed By 2004 By products solar in large founded be to began competitors Chinese Additionally,

3. 2. 1. •

• Questions Questions Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 19 and Targets the the Targets and – head with the smartest Western Western smartest the with head art innovations and on sales to sales on and innovations art - - to - the - West West of www.jeffreytowson.com -

The goal was to compete head compete to goal was The markets. own their in companies Western markets. Western Suntech emphasized state emphasized Suntech

Suntech Goes Global Global Goes Suntech

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 20 - www.jeffreytowson.com . For better or worse, Suntech did this on a far a on this did Suntech worse, or better For . The Winning Formula Winning The

cost manufacturing scale plus technical expertise plus plus expertise technical plus scale manufacturing cost -

having dethroned Western solar players in their home markets and in a and markets home in their players solar Western dethroned having governments. Western for high priority a was that field At its peak, Suntech was the market leader in China and the West West the China and in leader market the was Suntech peak, its At Exchange in 2005. Suntech aggressively expanded its manufacturing its manufacturing expanded aggressively Suntech in 2005. Exchange in China. person richest the Shi became Dr. 2006, In capacity. Having only been founded in 2001, it went public on the New York Stock Stock York New the on public went it in 2001, founded been only Having government support government else. anyone than scale bigger Low

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 21 www.jeffreytowson.com

SolarWorld SunPower Corporation Energy Renewable Canadian Solar Canadian Solarone Hanwha Yingli (China) Yingli Solar Trina Suntech (China) Suntech (American) Solar First Solar Sharp

Top 10 Solar Producers in 2010 by MW by 2010 in Producers Solar 10 Top 10. 8. 9. 7. 6. 5. 4. 3. 2. 1. Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 22 aptly aptly The New York Times York New The 2012 and Suntech was particularly particularly was Suntech and 2012 - www.jeffreytowson.com The Fall of Suntech of Fall The

Chinese subsidiary) filed for bankruptcy. bankruptcy. filed for subsidiary) Chinese industry”. power solar the of “Icarus the Suntech labeled Suntech’s revenue declined 48% between 2011 and 2012. In 2013, In 2012. and 2011 between 48% declined revenue Suntech’s main (the Power Suntech and CEO as removed was Shi Dr. founder Western and Chinese government subsidies that were disappearing. were that subsidies government Chinese and Western There was too much manufacturing capacity, margins were thin, thin, were margins capacity, manufacturing much too was There on depended industry whole the and debts significant had companies The solar industry declined in 2009 in declined industry solar The exposed. was industry the of economics bad fairly the And hit. hard

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 23 . As Suntech rode a rode As Suntech . . www.jeffreytowson.com how rapidly competition emerged competition howrapidly how powerful the combination of government support, support, government of combination the powerful how

trend to billionaire status, other Chinese companies quickly companies Chinese other billionaire status, to trend Lessons from the Rise and Fall and Rise the from Lessons -

There was the last man standing strategy we discussed. we strategy standing man last the was There and the government fueled overcapacity. overcapacity. fueled government the and jumped in. The fierce price war between them (many were selling were (many them between war price fierce The in. jumped big borrowing, the margins,small the do with to lot a had cost) below The second is second The mega brainpower and manufacturing is manufacturing and brainpower The first is first The

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 24 www.jeffreytowson.com Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 25 - www.jeffreytowson.com 3x. The number of colleges has effectively doubled. doubled. effectively has colleges of number The 3x. - Chinese Education is Surging is Education Chinese States.“ increase in China's postsecondary enrollment since the turn of the of turn the since enrollment postsecondary in China's increase United in the enrollment postsecondary total the millennium exceeds capacity is without precedent. China has built the largest higher largest the built China has precedent. is without capacity the fact, In time. decade's a in merely world in the sector education Former Yale President Richard C. Levin has said, "This expansion in "This expansion said, hasLevin C. Richard President Yale Former And the number of college graduates has gone from approximately 1 approximately from gone has graduates college of number the And in million 2017. 7.95 to million in 1998 Since 1998, the percentage of GDP dedicated to education has education to dedicated GDP of percentage the 1998, Since 2 by increased • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 26 www.jeffreytowson.com Science Innovation Yet Innovation Science Away #1: We’re Not Seeing Lots of of Lots Seeing Not We’re #1: Away -

Science innovation Science Engineering innovation Engineering Customer / marketing innovation marketing / Customer Cost innovation Cost

Take

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 27 . Dropping . and at and - Innovation is Innovation - www.jeffreytowson.com key for market expansion in China in expansion market for key Having a Powerful Effect Powerful a Having Getting cheaper is how you grow in Mainland China. China. Mainland in grow you howis cheaper Getting tier cities where incomes are much lower. lower. much are incomes where cities tier - Away #2: However Cost However #2: Away

When China Mobile began offering lower priced mobile services to rural to mobile services pricedlower offering began China Mobile When 18 million in only 100 by base subscriber their increasedthey areas, months. to third to Such cost innovation is innovation cost Such like Beijing cities tier first from expand to you enables is what cost the making them cheaper and cheaper. cheaper. and cheaper them making Chinese companies are showing themselves to be exceptionally good good exceptionally be to themselves showing are companies Chinese products existing to improvements incremental making at

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• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 28 Innovation is Innovation - www.jeffreytowson.com Having a Powerful Effect Powerful a Having based strategies, Chinese companies have broken into foreign foreign into have broken companies Chinese strategies, based - Away #2: However Cost However #2: Away

higher prices to survive. So they are vulnerable to low costlow to vulnerable are they So survive. to prices higher competition. Niche manufacturers with smaller scale tend to be dependent on dependent be to tend scale with smaller manufacturers Niche cost Chinese products. For example, targeting high priced targeting example, For products. Chinese cost versions. Chinese cost with lowerwines for refrigerators One example is targeting Western specialty manufacturers with low with manufacturers specialty Western is targeting example One -

• • Using costUsing markets.

• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 29 2012, 490 of the of 490 2012, - www.jeffreytowson.com Away #3: R&D is the Big New Thing New Big the is R&D #3: Away -

R&D centers and regional headquarters had been opened. been had headquarters regional and R&D centers According to China’s Ministry of Commerce, by mid by Commerce, of Ministry China’s to According 1,600 over and in China, presence some had companies500 Fortune increasingly tapping into China’s increasing brainpower. increasing China’s into tapping increasingly This is a direct reflection of Chinese and multinational companiesmultinational and Chinese of reflection is a direct This surpassed Japan and is now second only to the USA in R&D USA the to only second now is and Japan surpassed investment. development investment. By 2009, it had reached 12.8%, well ahead of aheadwell 12.8%, reached had it 2009, By investment. development China 2011, In countries. European most and England France, In 1993, China accounted for 2.2% of the world’s research and research world’s the of 2.2% for accounted China 1993, In

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• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 30 doing? www.jeffreytowson.com what are they actually doing? they what are They’re opening big facilitiesbig in openingThey’re technology parks. They’re hiringThey’re parks. technology What are these R&D centers actuallycenters these are What R&D engineers and technical specialists. But specialists. technical and engineers Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 31 , which has which , , which has over 400 branded 400 over has which , www.jeffreytowson.com Dutch Unilever Dutch – pharmaceutical giant Merck & Co. Merck giant pharmaceutical Anglo Away #3: R&D is the Big New Thing New Big the is R&D #3: Away

clinical trials). research in China, in the future approximately 600 scientists will scientists 600 approximately future in the in China, research to research basic (from there development drug of all stages perform invested $1.5 billion in China and plans to open an R&D headquarters headquarters R&D an open to plans and billion in China $1.5 invested its of some only conducted previously company the While in Beijing. Another example is example Another reported to have 450 employees working on product development and development producton working employees 450 have to reported research. basic consumer products including Dove, Toni & Guy and Ben & Jerry’s. They & Jerry’s. Ben and & Guy Toni including Dove, products consumer are and 2009 since in Shanghai R&D center a strategic had have An example is example An

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• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 32 . www.jeffreytowson.com Volkswagen example is example - Away #3: R&D is the Big New Thing New Big the is R&D #3: Away -

concern and VW continues to conduct its basic research outside of outside research its basic conductto VW continues and concern China. for existing products. products. existing for key a remains property intellectual of infringement the However, and currently sells the most cars in China. cars most sells the currently and to solutions developing on focusesChina R&D in VW’s of Much innovations cost generating and demands market Chinese satisfy VW was the first foreign automaker to enter the Chinese market Chinese the enter to automaker foreign first the VW was

• • • A counter A

• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 33 Young Thomas Edison Thomas Young www.jeffreytowson.com the Winning Formula Winningthe Away #4: Manufacturing Plus R&D is is R&D Plus Manufacturing #4: Away -

research laboratory. is credited with creationthe of the first industrial industrialization And he theof process of invention. was was in many ways the architect of the intersection of invention and mass production. He 1,000 patents), Edison sat strategically at the While viewed historically as an inventor (he had over mind is Thomasmind Edison. is manufacturing and R&D, the person who comes to Looking theat combination of Chinese Take

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 34 www.jeffreytowson.com the Winning Formula Winningthe Away #4: Manufacturing Plus R&D is is R&D Plus Manufacturing #4: Away - laboratories that complement their manufacturing platforms. platforms. manufacturing their complement that laboratories skilled professionals to draw upon. draw to professionals skilled researchindustrial building effectively are they Edison, Like They have massive manufacturing scale. manufacturing massive have They highly other and engineersof numbers large have increasinglyThey

• • • center? So what happens when the world’s largest telecommunications telecommunications largest world’s the when happens what So R&D telecommunications largest world’s the builds manufacturer the same strategic intersection. strategic same the The large manufacturing giants of China today are finding themselves at themselves finding are today China of giants manufacturing large The

• • Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 35 funded funded - term. - parts manufacturer Wanxiang acquired Wanxiang manufacturer parts www.jeffreytowson.com - the Winning Formula Winningthe year prior. prior. year - based lithium battery company A123. This was much to the to much This was A123. company battery lithium based - Away #4: Manufacturing Plus R&D is is R&D Plus Manufacturing #4: Away - good tactic. good They have the resources to invest in R&D long invest to resources the have They a companies technology Western finding acquiring also are They

• • loan only oneonly loan For example, Chinese auto Chinese example, For Boston a taxpayer A123 with provided who officials Federal of dismay Many of these Chinese manufacturing giants are cash rich. are giants manufacturing Chinese these of Many

• • Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 36 www.jeffreytowson.com the Winning Formula Winningthe Away #4: Manufacturing Plus R&D is is R&D Plus Manufacturing #4: Away Compare this to American Cisco, which has 71,800 employees in employees 71,800 has which Cisco, American to this Compare (2016). total doing? R&D employees 80,000 Huawei’s are exactly What -

• • The company has a workforce of 180,000 and fully 80,000 of them are them of 80,000 fully and 180,000 of workforce a has company The (2016). development and researchin now and net profit growth of 37B RMB. This is a big company with a lot of lot with a a big company This is RMB. 37B of growth profit net and research. into back it plowing are they And money. In 2016, Huawei reported revenue growth of 126B RMB to 522B RMB 522B RMB to 126B of growth revenue reportedHuawei 2016, In

• • Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 37 www.jeffreytowson.com the Winning Formula Winningthe Away #4: Manufacturing Plus R&D is is R&D Plus Manufacturing #4: Away

- Most of all, on developing products, not just manufacturing them. them. manufacturing just not products, developing on all, of Most Providing better products and services to its customers its to services and products better Providing markets new to accessGaining

• • • Recall, Thomas Edison’s laboratory became GE. became laboratory Edison’s Thomas Recall, announced the establishment of 28 joint innovation centers. innovation 28 joint of establishment the announced The company has setup 16 research centers in Germany, Sweden, the Sweden, in Germany, centers research 16 setup has company The just also The countries. other and China, India, Russia, Italy, France,UK, Huawei has already won as a large scale, low cost telco manufacturer. manufacturer. telco costlow scale, a large won as already has Huawei on: focused now are They

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• Take Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 38 Suntech www.jeffreytowson.com Latin America Hockey Stick Latin - Domestic JVs II Domestic JVs I - -

The China Foreign Foreign Chineseand Brainpower

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• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 39 based in in based – www.jeffreytowson.com From Diesel Parts to OMG to Parts Diesel From – 756 billion RMB (2016) RMB billion 756 largest company in the world (2016).world in the company largest th

One of big China SOE automakers, along automakers, SOE big China of One Dongfeng. and FAW with Changan, Employees +145,000 (2014) +145,000 Employees 46 Sales

• • • • Case: SAIC SAIC Case: Shanghai. SAIC Motor Corporation Limited Limited Corporation Motor SAIC • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 40 including vehicles commercial and including passenger - including auto financing business. financing auto including - www.jeffreytowson.com SAIC Divisions SAIC including engine, transmission, power interior and chassis, train, power transmission, including engine, - GM Wuling Automobile Ltd. Co., Automobile GM Wuling Ltd. Co., Hongyan Commercial Vehicle IVECO - -

Automotive trade in services services in trade Automotive business Finance Production and sales of vehicles vehicles and sales of Production Components etc. and electric parts, exterior trim, electronic GM India (7%) GM India R&D Shanghai Sunwin Corporation Bus Sunwin Shanghai SAIC USA SAIC Motor UK Shanghai General Motors Corp., Ltd.Corp., MotorsGeneral Shanghai SAIC NAVECO SAIC SAIC Motor Manufacturing Ltd. Co., Manufacturing SAIC Motor Ltd. Company, Vehicle Commercial Motor SAIC Co. Ltd. Automotive Volkswagen Shanghai

• • • • • • • • • • • • • • • • The main activities include: activities main The Major vehicle companies under SAIC Motor include: Motor SAIC under companiesvehicle Major

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 41 4% 79% 11% 20% - 16% Gross Margin (‘16) Margin Gross including vehicles commercial and including passenger - including auto financing business. financing auto including 564B RMB 564B 144B RMB RMB 9.8B RMB 28B RMB 10B - www.jeffreytowson.com Operating Income (‘16) Income Operating • SAIC Financials SAIC including engine, transmission, power interior and chassis, train, power transmission, including engine, -

Finance business Finance exterior etc. and electric parts, exterior trim, electronic services in trade Automotive Production and sales of vehicles vehicles and sales of Production Components R&D Trading Other Service and Finance Vehicles Parts

• • • • • • • • • • The main activities include: include: main activities The Major vehicle companies include: Motor SAIC under companies Major vehicle

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 42 1990 1955 1985 www.jeffreytowson.com SAIC History SAIC Still quite small through the 1970’s. the through small Still quite Shanghai Automotive Industry Corporation. Industry Automotive Shanghai By 1999, 90% of parts were locally sourced.locally were parts of 90% 1999,By Closely aligned (part of?) Shanghai government. Shanghai of?) (part Closelyaligned SAIC builds an entire auto supply chain over 10 years. 10 over chain supply auto entire builds an SAIC Shanghai Volkswagen Automobile Co., Ltd was established.was Ltd Co., Automobile Volkswagen Shanghai Shanghai City Diesel Parts Manufacturing Company was established.wasCompany Manufacturing Diesel City Shanghai Parts Shanghai City Tractor Industry Affiliated Company changed its name into name its changed Company Affiliated Industry Tractor City Shanghai Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 43 was established. established.was – a 50/50 joint venture a 50/50 2002 1995 1997 1998 – Guangxi. the market the www.jeffreytowson.com SAIC History SAIC SAIC buys 10% of GM Daaewoo in Korea Daaewoo GM of 10% buys SAIC development center and other relevant projects in Shanghai. projects relevant other and center development

SAIC General Wuling Automobile Co., Ltd was established in Liuzhou, establishedwas Ltd Co., Automobile Wuling General SAIC Motors Company signed a basic agreement. The both parties planed to planed parties both The agreement. a basic signed Company Motors establish an automobile joint venture enterprise, joint venture technology venture joint enterprise, venture joint automobile an establish Shanghai Automotive Industry (Group) Corporation and America General America and Corporation (Group) Industry Automotive Shanghai

Shanghai General Motors Project was completed, and Buick New Century to Century Buick New and completed, was Project Motors General Shanghai Shanghai General Motors Co., Ltd Ltd Co., Motors General Shanghai Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 44 ? What GM Deal (1997) Deal GM - www.jeffreytowson.com Who were targeted consumers for first 3 years? 3 first for consumers targeted were Who premium? vs. economy vs. Value consumers? suburban vs. Urban

Did timing matter? Did timing What was the competitive situation at that time? that at situation competitive the was What • • an advantage? have brands domestic or foreign Will Would Chinese consumers prefer foreign branded cars? Did weDid cars? branded foreign prefer consumers Chinese Would know? • What did the foreign company have to offer? What was the basis basis the wasWhat to offer? have company foreign the did What deal? the of

5. 4. 3. 2. 1. Questions at Time of SAIC of Time at Questions Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 45 11.72 billion 11.72 ＄ a wholly owned subsidiarywholly owned a – 2009 2010 2004 2006 2008 www.jeffreytowson.com 2.7M vehicles sold vehicles 2.7M in the year of 2003. of year the in place among the Global 500 companies.500 Global the among place SAIC History (continued) History SAIC

SAIC launches SAIC Passenger Cars Passenger SAIC launchesSAIC

Shanghai Automotive Industry (Group) Corporation was ranked No. 461 in the in the 461 No. rankedwas Corporation (Group) Industry Automotive Shanghai Revenue of 22.6 billion USD of SAIC Group in 2007 financial statements. 373th financial statements. in 2007 Group SAIC billion of USD 22.6 of Revenue SAIC purchase 1% of Shanghai GM giving it 51% ownership. Reversed in 2013 Reversed ownership. it 51% giving GM Shanghai of 1% purchaseSAIC World Top 500 of Fortune for the first time by the sales revenue of revenue sales the by time first the for Fortune of 500 Top World Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 46 DOA - owned owned - www.jeffreytowson.com with a history that dates from that dates from with a history The group's products have included cars, included have products group's The buses. trucks, and In the 1950’s, the workshop was transferred was transferred workshop the 1950’s, In the 1958. trucks in making Began to a Ministry. In 1947, a repair service center attached to attached center service repair a In 1947, in workshop auto of an control took army the Nanjing. automobile manufacturers although First although manufacturers automobile firstto actually was the Works Automobile cars. make Nanjing Automobile is a stateis Automobile Nanjing enterprise the Chinese of it the oldest 1947,making Case: Nanjing Fiat Automobile Automobile Fiat Nanjing Case: • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 47 DOA - www.jeffreytowson.com 35,000 annually from 2002 to 2006. annually 35,000 - Nanjing Fiat Automobile Automobile Fiat Nanjing Perla sedan Perla sedan Siena compact Palio wagon. station Weekend Palio • • • • Chrysler. Fiat found a new partner, Guangzhou Automobile Group Group Co. Automobile Guangzhou partner, a new Fiat found began Production months. in 18 the car Designed (GAC), 2009. in 20% of bought Fiat also of 2012. in September sales and June in JV ended in 2007 when Fiat ended and Nanjing later became part part later became Nanjing and Fiat ended when in 2007 ended JV of SAIC Sales averaged 25,000 averaged Sales 50/50 Joint venture established with Fiat in 1999. 1999. Fiat in with established venture Joint 50/50 models: four producing it was of 2006, As • • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 48 ? What www.jeffreytowson.com Who were targeted consumers for first 3 years? 3 first for consumers targeted were Who premium? vs. economy vs. Value consumers? suburban vs. Urban

5. 4. 3. 2. 1. Questions At Time of the Fiat Deal (1999) Deal Fiat the of Time At Questions Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 49 Local Local Capability Govt Govt Relations Foreign Capability Deals You Add? You www.jeffreytowson.com Capital Reputable Reputable What Value Do Do What Value

Management

Add Add Inbound and Development - Value Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 50 development? Against the market? the Against How important is timing? important How Againstindustryand capabilities Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 51 term - term versus short versus term - added value matter for GM? matter value added Does longDoes Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 52 – term or not at all - term, short -

Know where you can win long YOU START BEFORE the market emerging)is You never have clear customer information at that time (i.e., You You have to time your deal to the development curve of the You industry

• • • The Problem With Developing Economies Developing With Problem The Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 53 term ONLY term ONLY - term (technology, customers, term (technology, - Fix this,get out or you’re in trouble Never Never upend as the foreign partner in a competitive industry with a declined value add brands, scale,access politicalfor locals,etc.) Some have power in the long Some capabilities have power the in short (reputation, political access foreigners) for • Some Rules for Inbound Development Inbound for Rules Some • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 54 Local Local Capability Govt Govt Relations Foreign Capability Deals You Add? You www.jeffreytowson.com Capital Reputable Reputable What Value Do Do What Value

Management

Add Add Inbound and Development - Value Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 55 Robert Robert Bosch (age 27) , industrial , www.jeffreytowson.com

Case 2: Bosch in Chinain Bosch 2: Case automotive components automotive

Has 440 subsidiaries in +60 countries with 390,000 countries in +60 subsidiaries440 Has (2016). in revenue euro +73B (2016). employees products, consumer goods and building products and goods consumer products, etc.) tools, power appliances, home (including Specializing in Specializing multinational electronics and industrial company. industrial and electronics multinational Robert Bosch GmBH, founded in 1886, is a Germanis a in 1886, founded GmBH, Bosch Robert

•

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 56 Bosch HQ www.jeffreytowson.com Case 2: Bosch in Chinain Bosch 2: Case

Diagnostics Engine Engine management systems Energy Systems Spark plugs Injection systems diesel Lighting technology Braking systems Filtration

• • • • • • • • includes: The world’s largest supplier of supplier largest world’s The revenue, by components automotive • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 57 – Co. Ltd. (UAES) Lian Automotive Electronics Lian Co. - www.jeffreytowson.com United Automotive Automotive Electronic United Systems Case 2: Bosch in Chinain Bosch 2: Case UAES manufactures,UAES markets and sells engine management systems that control injectionthe and ignition of gasoline engines. a subsidiary of SAIC Established Established 1995,in is a 50:50 joint venture with Bosch and Zhong • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 58 www.jeffreytowson.com Shanghai, Wuxi, Wuxi, Shanghai, - Case 2: Bosch in China in Bosch 2: Case China (across all its businesses) its businesses) (across and all China sales. in $11.8B recorded giving them 51% ownershipthem 51% giving employees in 55,000 Bosch had In 2015, By 2009, UAES annual sales had reached reached sales had UAES annual By 2009, RMB billion 7.15 to 1% Bosch sold 2008, ZhonglianIn UAES has enjoyed market about a 40% enjoyed UAES has Chinese mainland. the share in and Xian, and an application and application an and and Xian, EU4 where in Shanghai, center development carried out. be test can emission UAES has three plants three plants has UAES • • • • • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 59 ? What www.jeffreytowson.com Do Chinese consumers care? consumers Chinese Do

Did timing matter? Did timing Will foreign or domestic brands have an advantage? an advantage? have brands domestic or foreign Will time? that at situation competitive the was What Do Chinese car companies need foreign engine systems? engine foreign need companies car Do Chinese • What did the foreign company have to offer? What was the basis basis the wasWhat to offer? have company foreign the did What deal? the of

5. 3. 4. 2. 1. Questions for Time of the Bosch Deal (1995) Deal Bosch the of Time for Questions Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 60 Add Deals Deals Add -

Scalable Value Scalable www.jeffreytowson.com – in Partnership with Larger Companies Larger with Partnership in “Bird on a Rhino” Rhino” a on “Bird Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 61 term term - term or short term - 4 Years After the Deal the After Years 4 - www.jeffreytowson.com term in this sector as a foreigner? foreigner? a as sector this in term - term? Not at all? at Not term? - Can you win long win you Can Short to the deal? the to Now? Then? environment? competitive the is What Did the foreign partner add value long value add partner foreign the Did What was important in the local partner? local the in important was What partner? foreign the in important was What Questions for 3 for Questions 5. 4. 3. 1. 2. Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 62 Suntech www.jeffreytowson.com Latin America Hockey Stick Latin - Domestic JVs II Domestic JVs I - -

The China Foreign Foreign Chineseand Brainpower

• •

• • Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 63 www.jeffreytowson.com Google and Baidu? Starbucks Softbank and Yahoo and Alibaba and Yahoo Softbank and and CCTV NBA Danone Danone and Wahaha Coca Cola and Cola and Coca COFCO 6. 5. 3. 4. 2. 1. Other Inbound China Development Deals DevelopmentChina Inbound Other Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 64 www.jeffreytowson.com Questions at Time of Deal of Time at Questions What wasWhat the of the basis deal? add? the wasvalue What What What environment? is the competitive Does foreign foreign inDoes local matter this sector? vs. How important wasHow the important timing? What What did offer? foreign the company • • 4. 3. 2. 1. Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 65 Local Local Capability

Govt Govt Relations

Foreign Capability Deals www.jeffreytowson.com You Add? You Capital Reputable Reputable What Value Do Do What Value Management Value Add and and Add Inbound Development Value Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM 66 - term to the term deal? - term winterm win?or can’t - 4 years after the deal: the after years 4 - www.jeffreytowson.com term or short - term term Short as a foreigner? in this sector - term term win,long - Is this short What What environment? is the competitive Can you win you Can long all? Not term? at Is the value add Is the value long How important wasHow the important local partner? Questions for 3 for Questions 5. 4. 3. 2. 1. Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM at: 67 writing/ - Asia Tech Class Asia Tech Contact Information

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