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IBM moves into the hinterland

By Wang Xing (China Daily)
Updated: 2009-02-11 08:04

Like many other IT producers taking a hit from the global economic slowdown, International Business Machines Corp is looking for new markets to shield it from the slump in the US, Europe and Japan.

Related readings:  IBM weathers global storm  IBM buys Changhong Electric stake for 108m yuan  IBM opens new lab in Shanghai

IBM has cast its eye on relatively less-developed western China, the backyard of Mianyang-based Changhong Group. Not content to be the nation's largest producer of television sets and other consumer electronics goods, Changhong has cooperated with IBM for years on developing its capability to provide telecommunications and other IT services in Sichuan province.

That arrangement has deepened with IBM's acquisition of nearly 30 million shares of Sichuan Changhong Electric, Changhong Group's TV manufacturing subsidiary that is listed on the Shanghai Stock Exchange, on Jan 15 at 3.64 yuan apiece, valuing the transaction at 108 million yuan, a 1.56 percent stake in the company. IBM is now the second-largest shareholder in the company after Changhong Group.

A sales clerk at a Zhengzhou store in Henan province explains Changhong flat-screen TV sets to customers in this file photo. Ma Jian [China Daily]

The acquisition is seen by analysts to have gained IBM a foothold on the market that is thriving on the reconstruction of the region devastated by the May 2008 earthquake. The rebuilding of infrastructure is creating a strong demand for telecommunications equipment and software systems in many different applications.

Charles Wu, vice president of IBM China, said the acquisition of a holding in Changhong could help IBM penetrate the earthquake-ravaged western China market.

"The market potential in that area of Sichuan province is tremendous," Wu told reporters. "It is a great opportunity for IBM."

An estimated 1.67 trillion yuan of investment will be needed to rebuild the area. Much of the money will go to development of new buildings, roads and telecommunication networks.

A week after the IBM acquisition, the two companies jointly announced that they are offering to help companies and local governments in Sichuan set up telecom networks and IT systems.

Among their first clients was the Sichuan Health Department, which is in the process of rebuilding its IT systems and e-government platforms in Beichuan, Qingchuan, Guangyuan, and Mianyang.

These projects are expected to receive a further boost from the central government, which launched a 4-trillion-yuan economic stimulus package last December. Part of that expenditure has been earmarked for reconstructing projects in Sichuan.

Changhong is one of the biggest home appliance and consumer electronics makers in China and has established a great presence in western China.

In December 2007, China's securities regulator blocked a deal under which Microsoft Corp was to have bought a nearly one percent stake in Sichuan Changhong for $12.9 million, reportedly because it felt the purchase price was too far below the market price of the Chinese firm's shares.

Changhong's share price increased to 3.95 yuan on Feb 6 from 3.59 yuan on Jan 16.