Lenovo’s Purchase of Motorola an Exercise in Buying Brands
Op-Ed Commentary: Chris Devonshire-Ellis
SINGAPORE – Amongst all the recent hype of Chinese outbound investment going to the United States comes the news that Lenovo have purchased Motorola from Google for US$2.9 billion. I’m not a great believer in the stories of Chinese manufacturers heading in droves to buy up struggling American or European businesses – China has emerging Asia right on its doorstep and is investing heavily in these countries both for sound business and political incentives. I wouldn’t be expecting Motorola’s plants in the States to be undergoing mass transformation and expansion anytime soon.
In fact, what we are really seeing is a well planned out, but longer term strategy, consistent with emerging Asian entrepreneurs as a whole: the buying of brands that the West no longer knows what to do with, and the re-positioning of them for the Asian – not Western – markets.
With Lenovo, we’ve been here before. They purchased IBM’s Thinkpad back in 2005 and acquired a whole new platform of laptop technology – and crucially a brand – that they’ve been able to reposition for the Chinese and Asian markets in a way that IBM had proved incapable of doing.
Interestingly, India’s Tata did the same thing with the acquisition of Jaguar and Land Rover from Ford. The American auto manufacturer had been unable to do anything with the brands, but under Indian management both auto brands are now highly sought after in Asia. The combined Jaguar-Land Rover (JLR) unit posted profits of US$2.78 billion last year against turnover of US$26billion in 2013, with sales of these vehicles up 20 percent year-on-year. JLR are now building a plant in China to satisfy the demand there. Under Ford, as well as its previous British owners, JLR had made consistently high annual losses.
Lenovo are doing exactly the same thing with Motorola. In fact the brand is all there really is left in the deal; Google have transferred the useful technology patents Motorola possessed to their own business and that technology is not part of the Lenovo acquisition.
Brands therefore have an intrinsic value for Asian consumers; they are recognisable as long term players and that denotes staying power and quality. While Lenovo’s US$2.9 billion purchase of Motorola may seem steep for a company whose main IP assets have already been stripped out – it’s a lot cheaper to buy a brand like that than it is to develop an entirely new one from scratch.
There are other lessons here as well. The undervaluing of brand name value to the Asian consumer, the failure of Western MNC’s to understand the positioning of products in Asia, and the emergence of a significant consumer class in Asia as a whole. While Western manufacturers may be stuck with brands that they now cannot position in their own markets, Chinese and Indian entrepreneurs are now buying them up to reposition for the Asian consumer. If Western manufacturers per se want to survive in an increasingly globalised market place, then they need to look to where the smart money is going – the consumer in Asia. If they don’t, all they’ll eventually have left is the shell brand, and a missed opportunity.
Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.