Chinese retailers are busy joining hands with their former competitors. This way, they hope they can rival powerful foreign counterparts. But experts say rushing into a big conglomerate is not the key to winning this Sino-foreign retail battle.
 
The latest business merger was a trans-industry deal in Beijing. Besides the retailer, the Beijing New Yansha Group, it also involved two big potatoes in the tourism and catering sectors, namely, the Beijing Tourism Group and the China Beijing Quanjude Group, which is famous for its roast duck.

So the new group is a commercial Colossus, with assets totaling nearly US$2 billion, revenue surpassing one billion and profits of over 70 million. It owns more than a hundred hotels, of which ten are five-stars.

Chairman of the new group, Duan Qiang, says the merger will greatly benefit the city's retail and tourism industries.

"After the merger, the industrial chains are connected. It will help reduce trading costs."

To Duan Qiang, alliance is necessary for domestic players, when they face increasing competition from foreign companies.

In line with it's commitment to the World Trade Organization, China will abolish all policies protecting local retailers by the end of the year.

As a countermeasure, many Chinese retailers are resorting to merger and acquisition to strengthen their forces.

But Professor Yang Deyong, with Beijing Technology and Business University, has doubts about this strategy.
"That merger and acquisition may bring about more profits is overstressed. Whether one plus one is more than two depends on whether the rise in operation costs can be covered by increased profits."

Professor Yang says the United States also saw a Merger &Aquisition trend in the 1970s and 80s, but three quarters of the cases ended in failure.

And in Beijing, the eye-catching alliance of several retailers two years ago has also met problems. One of the partners has already left the Shoulian Group. The general manager of the group quit only one year after the founding of Shoulian. And reports say the restructured group lost more than US$8 million last year.

So Professor Yang Deyong concludes, "I believe the core issue for Chinese enterprises wishing to enhance their competitiveness and efficiency is to refine their corporate management mechanism. If there need to be priorities, the refinement of the corporate system should come first."

So bigger is not necessarily better.
 
(CRI April 20, 2004)