Walmart to make Chinese Acquisition

[Tom Yum]

http://news.yahoo.com/s/ap/20061017/ap_on_bi_ge/wal_mart_china

BEIJING - Wal-Mart Stores Inc. is bidding about $1 billion for a chain of 100 hypermarkets in China in a deal that could vault it ahead of competitors to become the country's biggest food and department store network, reports said Tuesday.

Wal-Mart plans to buy the hypermarkets from Trust-Mart, a Taiwanese company, The Wall Street Journal said, citing people familiar with the transaction.

The Financial Times, citing people close to the negotiations, said Wal-Mart had emerged as the leading bidder for the chain but said no agreement had been reached. The New York Times reported that Wal-Mart expects to close the purchase by the end of the year, but still needs government approval.

"We don't have any comment on any of this market speculation," said Jonathan Dong, a spokesman for Wal-Mart China.

Calls to Shanghai Trust-Mart Co. rang unanswered Tuesday. Staff at Taiwan's Taichung-based Shing-Taik Group, a part owner of the retail chain, said they could not comment on the reports.

Foreign retailers are rushing to tap China's fast-growing economy, large population and expanding middle class.

The Wal-Mart deal, if completed, would follow the Bentonville, Ark.-based company's recent exit from both Germany and
South Korea.

Such a deal would vault Wal-Mart past its rival, Carrefour SA of France, in the number of hypermarkets in China. A hypermarket combines a supermarket and a department store in a giant facility with a full line of groceries and general merchandise.

In March, Chinese state media reported that Wal-Mart was among several international retailing giants vying for Trust-Mart. Others named included Britain's Tesco PLC, France's Carrefour SA and Shanghai-based Lianhua Supermarkets.

Wal-Mart beat out Carrefour for the Trust-Mart purchase, the Journal said, citing people involved in the deal.

Trust-Mart was founded in 1997 by Taiwanese tycoon Winston Wang. The company has 100 outlets scattered in some 20 provinces, including inland cities that lag behind affluent coastal centers such as Shanghai and Beijing.

Wal-Mart has 66 stores in China and says it plans to increase in size fivefold in the next five years.

Wal-Mart's purchase of Trust-Mart is structured to take place in phases, with Wal-Mart acquiring 31 stores initially, the Journal reported.

It said Wal-Mart will acquire the remainder of Trust-Mart's stores over the next three years as each outlet meets various criteria, including compliance with fire codes.

Details of the payment were not reported.

With China's economy growing more than 10 percent a year, the retail market is booming. Retail sales surged 12.9 percent in 2005 over the year before, to 6.7 trillion yuan ($847 billion). By 2020, industry forecasts say the market could expand to about $2.4 trillion.

According to a recent retail industry report by Jones Lang LaSalle, foreign retailers have flooded in following the wider opening of China's retail sector to foreign competition, part of its commitments for joining the
World Trade Organization in 2001. The report said that 1,027 retailers won permission from the Ministry of Commerce to do business in China in 2005, triple the combined total in the previous 12 years.

Carrefour is China's biggest foreign retailer, with some 76 supermarkets. It expects to open about 20 new outlets in 2006.

A recent report in the state-run newspaper China Daily noted that the average Carrefour customer spends only about 110 yuan ($14) per visit.

[GonzoStyles]

so much for using economic pressure to influence China to actually do something besides securing their border with North Korea.

[Tom Yum]

so much for using economic pressure to influence China to actually do something besides securing their border with North Korea.

We've been economically married to the country for the past 20 years. Did we ever get a proper honeymoon? Most folks think of tube socks and the cute panda bear at Panda Express eatery in the mall, maybe Yao Ming. Any ladies wanna marry Mr. Ming (and not for his bling)? The bling is the heart of the issue here with US-Sino relations.

In 2005, the trade defecit approached $800 billion with China making up some $200 billion alone. This means that we are buying $200 billion more goods originating from China than we are selling them goods orginating from home.

This makes sense to some degree since we are becoming a service based economy: from serving food and beverage to providing financial market information to informational brokerage services. Most of our services are not exportable due to the fact that they are done at a lower cost overseas and earn even thinner margins abroad. China has become a manufacturing economy, producing things that people world-wide use directly or indirectly.

China's economic strength is in its manufacturing game. Most of the manufacturing capacity has come from joint-ventures between the Chinese government and with American, other western, Japanese and Taiwanese corporations. Hitch a cab ride from Beijing International Airport to your hotel and you'll see this presence. Its huge.

The Chinese have a large, well trained, inexpensive and determined workforce. Remember the asian guy from your dorm studying in the library from 5am until 12 midnight who namelessly busts the curve on every exam? This guys Chinese counterpart is doing the same thing - except he's in a Microsoft computer chip plant in Guangdong. He will work his fingers to the bone on $600 to $1,000 per year. Corporate America has many eggs invested in the Chinese basket; everything from simple electronics parts to specialty chemicals (i.e. coatings, basic pharmaceuticals).


China has floated between 1st and 3rd greatest lender (depending on the source) on our $8.2 trillion in national debt. This means that they've also been one of our top financial supporters for the war in Iraq. At the same time, China has exported missles and weapons technologies to Iran. China has been Iran's trade partner for about 3,000 years since the completion of the Silk Road from Shandong province (N.E. China) to Tehran, Iran...(Jubaji, is my timeline correct?)

There's a funny paradigm about China; the country has been Communist for some 60 years, but has otherwise been a laissez-fair, market economy (in the public retail sector i.e. street markets) for the remaining 3,900 years of history. Prices of essential goods have always been set by market forces (how much is the other guy selling it for in the other alley) where's this customer from and the buyers ability to negotiate, compare prices down the road and product substitution. Negotiating is a full-contact sport and the Chinese love it.

Thus capitalism has been in the hearts and minds of the Chinese people for millenia. Our economic strategies should take this into consideration and must be well thought out, long-term and strategic.

Can we turn the tide?

We will probably continue to borrow to finance the war and if necessary, we could spread out our trade defecit from China into other countries that compete with Chinese manfacturing if economic exposure becomes a political risk.

Thailand, Phillipines and Vietnam can both make high quality threads and electronics at near Chinese-level prices. Several former eastern-block countries are also entering into the international manufacturing and service industry.

One of the things that we have over alot of nations is our ability to innovate and our ability to lead.

Innovations in the area of manufacturing, energy production and agriculture will keep the US in the top of the world.

In order to keep our country in the playing field, we need to pay more attention to the quality of our education system which has more to do with family influence than educational policy. We also need to make innovation pays off financially through grants, scholarships and entreprenurial endeavors.

President Bush knows this; that's why he's created the alternative energy plan, despite being an oil man himself.

[npk9]

I fear that US company's or the government truly do not understand the mindset of the Chinese and I don't mean in the national level. As Tom Yum stated - the Chinese love to negotiate - one could say its more of an art of acquisition. But to get to my point - despite what governments agree on, it's essentially up to the US companies to ensure profitablity in the Chinese market because the locals will find a way to just make cheap a knock off - or will just acquire the same merchandise at a cheaper price. The one thing that Asian companies are familiar with is counterfiet products and low priced "look a like" merchandise. Their business model accounts for it. US companies aren't used to that since it's not looked highly upon here.

Just my random thoughts - I'm getting lunch now.

[Tom Yum]

I fear that US company's or the government truly do not understand the mindset of the Chinese and I don't mean in the national level. As Tom Yum stated - the Chinese love to negotiate - one could say its more of an art of acquisition.

You're right, npk9.

As I've recently learned, understanding the hearts and minds of people goes much, much deeper than pre-conceived labels, quick judgements and fears of differences.

But to get to my point - despite what governments agree on, it's essentially up to the US companies to ensure profitablity in the Chinese market because the locals will find a way to just make cheap a knock off - or will just acquire the same merchandise at a cheaper price. The one thing that Asian companies are familiar with is counterfiet products and low priced "look a like" merchandise. Their business model accounts for it. US companies aren't used to that since it's not looked highly upon here.

I think most JV investment is China is in mature, slim margin items, with the exception being internet related technology since its not mature and not really a fixed asset per se.

New, cutting edge technology usually starts out here until it catches on overseas and the Chinese and others can reverse engineer it. By the time it gets over there, its being produced regularly here for a long enough time and has lost some of its profit margin.