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Motley Fool Global Gains / GGM: Global Gains Philosophy


Subject:  Re: Investment Biker Discussion Date:  5/27/2009  2:11 PM
Author:  TMFCogitarius Number:  1725 of 5166

Hi Tim – my compliments on your championing the 'educate' in our Foolish motto. Have you considered highlighting this as a unique value add in your GG marketing /blog?

“The best way to invest in China is through Chinese companies, not multinationals”

That certainly is the best way to capture the initial takeoff of a nascent economy. But it isn't necessarily the best/ only way to capture both long term profitability and sustainability. Inevitably, globalisation comes into play, and powerful MNCs take over the most profitable mass segments, driving local brands/ companies into less profitable corners, buying them out, or squishing them.

No matter what the category, if it has space for a powerful, global brand equity, it has MNC written all over it. Many a retail chain has learnt this lesson from Wal*Mart. In country after country, across generations, youngsters want the brands they see on TV/ movies/ online - i-Pod, BMW, L'Oreal, Tag Heuer, etc. And it's no different in corporate purchasing of products from 3M, Sony, Cisco, GE ...

That is not to belittle the tremendous potential in essentially local businesses like China Mobile, Tsingtao, or Baidu. Such context-sensitive franchises should be able to build a sustainable competitive advantage, though not necessarily as purely Chinese companies.

As for Rogers' assertion that the “Chinese frame of reference won’t allow outsiders to make the big money”, a 2006 Shanghai AmCham survey of US MNCs found that 65% of them had profit levels equal to or better than that in other countries, with some enjoying >26% operating margins. Gross margins may be lower, but volumes are much higher - which is what market penetration is all about anyway.

No wonder the US is so eager to claw back those billions in overseas profits – the bulk is sitting in China!

Thankfully, Rogers covers all bases by concluding that companies who invest there for the long term “will get rich, of course, because the market is so huge”. That, I suspect, is how most MNCs became top dog in market after market, worldwide :-)
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