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Acquiring the Wal-Mart: A Mission Impossible
Last Updated(Beijing Time):2005-05-27 09:32

By Jin Yanshi

Recently some Chinese experts have put forward an idea that Chinese enterprises could become Wal-Mart's shareholder by strategically purchasing its stocks and by this way setting up a most facilitative channel for Chinese commodity". This suggestion immediately incurred strong oppositions .

Insiders believe that acquiring the Wal-Mart is not a difficult task, and the key point lies in whether those enterprises have been well prepared for this. In propaganda, buyers are always described as the winners, but in reality, the true winners are usually those sellers. This is a paradox in the capital market.

For those who put forward the idea of "acquiring Wal-Mart", they think that Wal-Mart has perfect corporate governance structure and sound management, therefore it is a rational anticipation for Chinese side to share the enormous profit brought by Wal-Mart.

It is true that the smooth performance of the whole Wal-Mart system relies on its perfect procedures and an outstanding management team. However, by now in China there has been no such management team that can run Wal-Mart, which makes the idea of acquiring Wal-Mart a dream that can't come true. If now Wal-Mart were acquired by Chinese, it could be anticipated that Wal-Mart go broke within a period of 3 or 5 years.

For a business society, what's most important is to do business according to one's abilities. Here, the abilities don't mean one's financial power which can be easily acquired from the capital market so long as it has a great plan. Instead the ‘abilities' means one's managing capability, which the more one has, the bigger it can grow.

The proposal put forward by domestic experts is established only from a seller's point of view, which put emphasis on acquiring Wal-Mart as a distributing channel to directly "dump" Chinese products. However, it will ruin Wal-Mart.

The business culture in China is still relatively shallow and people are eager for quick success which easily leads to failure. At present most of overseas acquisitions by Chinese corporations are unsuccessful and theyhave to turn to foreign experts for management in the end. The main reason for Haier's success in America is that from the very beginning, Haier has taken itself as an American company and employed foreigners to run its business from the very first day. Haier's domestic employees went abroad only to work as directors or middle managers instead of bosses.

In this sense, even if Wal-Mart is acquired by a Chinese company, its anticipated strategy may hardly get realized.

Now for the business, a professional management team to run the network is needed. With such a team, the network could be expanded very quickly. Without it, it couldn't even sustain. We need to foster  managers of our own, instead of simply buying  stock. We could make ourselves the sellers and the cashiers, instead of the bosses.

Chinese entrepreneurs are not really capable of managing large business network. Although many people have learned how to handle the capital chain, they don't know how to manage the logistics and cash flow. As long as the enterprise is strong enough, there will come the cooperators, for example, when Lenovo Group possibly has the capability, the IBM came to her.

Domestic experts who put forward this proposal believed that, investing in Wal-Mart could probably improve China's single foreign exchange reservation structure and avoid risks. If the government allows the renminbi, China's currency, to appreciate, the investment in Wal-Mart would give the enterprise the most needed strategic resources at a relatively low cost. 

But as we all know, China's huge foreign exchange reserves only exists on the books. The motive behind is to set up an prospect of the appreciation of renminbi, which ensured that in recent years, the foreign investment in China didn't be taken back when it could be. If the prospect was turned into depreciation, then China's foreign exchange reserves may be gone within one week.

Therefore, China must keep such large amount of foreign exchange reserves to prevent the foreign capital from being remitted that might happen at any time.The Chinese Government invested its foreign reserves buying US dollar bond which is equivalent of remitting back the money for American investors. US dollar bond are highly negotiable, so they can be easily turned into cash in case of large scale remittance. In this way it is obviously unfeasible to draw on foreign reserves to acquire Wal-Mart. 
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