BenQ's disastrous takeover of German electronics company Siemens AG's handset unit, which cost the mobile phone maker NT$25 billion (US$750.8 million), shocked Taiwan. It has also prompted other Taiwanese companies that intend to go global and establish international brand recognition by acquiring foreign companies to think carefully before taking action.
However, using foreign acquisitions as a form of direct international investment has already become an irreversible global trend. The US$297 billion in worldwide foreign acquisitions in 2003 accounted for 53.2 percent of total foreign investment. That figure rose to US$716.3 billion last year to account for an incredible 78.2 percent of total foreign investment.
Foreign acquisitions are especially big in the EU, where total spending on them rose to US$445.1 billion last year. The biggest players were Britain (US$171.7 billion), Germany (US$63.1 billion), Italy (US$41 billion), France (US$33.2 billion), the Netherlands (US$29 billion) and Spain (US$23.6 billion).
But foreign acquisitions among Asian countries fall far short of Western Europe. Japan's total foreign acquisitions only reached US$2.5 billion and Taiwan had a mere US$760 million.
Are acquisitions the ideal way of expanding abroad? They certainly make it faster to break into a new foreign market by lessening the work and risks of establishing a foreign office or factory, such as finding a location, filing applications to build facilities, recruiting employees and actually constructing the buildings.
However, if the differences in corporate culture are too extreme, the consequences may be difficult to deal with. This is one of the reasons why most foreign acquisitions by US and European companies take place in Europe and the US instead of in Asia, and even when they do come to Asia, they take place in more internationalized locales like Hong Kong and Singapore.
The limited foreign acquisitions in other areas of Asia reveals how cautious international enterprises are. Even the foreign banks that have acquired Taiwanese banks in recent years have needed years of experience investing here and an understanding of the nature of Taiwanese banks before committing.
BenQ's gobbling up of Siemens' handset unit was risky and the consequences have confirmed the thinking of many people at the time of the purchase.
Speed is becoming ever more important in a globalizing world. Investing in international markets by setting up factories can take years, so shortening the process by acquiring another company has its advantages. However, businesses need to be forward-looking, have a long-term global strategy and be willing to develop talented employees who are familiar with the cultures of the countries in which they operate. Simply acquiring a foreign company without taking these factors into consideration will likely end in disappointment.
South Korean electronics company Samsung established a joint venture in Portugal in 1982, invested in the US in 1984 and then continued to invest in Mexico, Central Europe, Eastern Europe and Southeast Asia. However, it didn't start expanding through acquisitions until 1990.
Singapore's state-run Temasek Holdings investment company now controls a total of US$80 billion, which it invests in enterprises in 48 different industries throughout the world, including the US, Europe, Asia and Australia, making it Singapore's biggest foreign investor. Since 1974, gains from compound interest have reached 18 percent.
We have a lot to learn from the acquisition examples of BenQ, Samsung and Temasek Holdings.
Tu Jenn-hwa is an associate professor in the Graduate Institute of National Development at National Taiwan University.
Translated by Marc Langer
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