Chapter 7 Case 1 BenQ: This year, the pain of integration

On June 8, 2005, Taiwan's BenQ Dentsu Co., Ltd. (BenQ, hereinafter referred to as BenQ) announced in Beijing that it had formally signed an agreement with Germany's Siemens AG (Siemens, hereinafter referred to as Siemens) to acquire Siemens' mobile phone business unit.According to the acquisition agreement, BenQ will acquire 100% of the shares of the Siemens mobile phone subsidiary, and the transaction will eventually be completed before September 30 of that year.This acquisition made BenQ become "the world's fourth largest mobile phone manufacturer with an annual output of more than 50 million mobile phones."Li Kunyao, chairman of BenQ Dentsu, once told the interviewed media after the successful completion of the acquisition that BenQ's business territory centered on Taipei has already spanned three continents: Asia, Europe, and the United States. ", "It used to be 'Japanese Style' (Japanese), then it was 'Korean Wave', and now it's the era of 'Han Chao'." Li Kunyao's pride and pride were beyond words.

Just one year later, these rhetoric seems to be still remembered by people, but on September 28, 2006, BenQ unexpectedly announced that BenQ would stop injecting capital into its German mobile phone subsidiary, BenQ-Siemens, The subsidiary will file for Chapter 11 bankruptcy, acknowledging that "the chances of running this business well are slim."Statistics show that in the past three quarters, BenQ has lost a total of 600 million euros in the BenQ-Siemens mobile phone business. In the year since the acquisition of the Siemens mobile phone business, the total market value of BenQ's stock has evaporated by half.

So, why did this merger case, which was once optimistic by all parties, come to an abrupt end in just one year, with such unexpected results?What is the problem and what is the reason for this result?Let's go back and revisit this remarkable M&A event. BenQ, who was born as an OEM, began to cultivate its own mobile phone business by combining OEM and its own brand in 1994.Combining low-cost manufacturing advantages and strong R&D capabilities, BenQ was once the main OEM manufacturer of mobile phones for companies such as Siemens, Motorola, and Nokia. In 2004, the global output of BenQ mobile phones reached 15 million units, and it has more than 100 technical patents In 2005, BenQ became the world's largest mobile phone OEM.

In terms of foundry, it can be said that BenQ, like many foundry companies in Taiwan, China, has successfully brought the foundry industry to its peak. Although enterprises have earned huge profits from OEM for major Western brand companies, as customers continue to demand lower prices, gross profits are also decreasing.Although the sales of foundry companies, especially PC manufacturers, have increased significantly, their profits have gradually become very meager.Li Kunyao, who has joined Acer since 1976, is undoubtedly very aware of the shortcomings of this industry: the lack of independent brands, and the long-term development of enterprises must transform from OEM to independent brands.Therefore, Li Kunyao, who does not want to see the emerging mobile phone business fall into the same trap as the PC business, hopes to control his own destiny. "We have to elevate our brand," Lee Kwan Yew said.Therefore, how to transform from an OEM to an independent brand and how to create its own independent brand has become a difficult complex in Li Kunyao's heart.

Li Kunyao, who hoped to control his own destiny, finally made a decision. In December 2001, BenQ ended its long history of using the Acer brand and officially launched its own "BenQ" brand.Li Kunyao had a deep affection for this brand. In the next few years, BenQ invested more than 100 million US dollars in brand promotion.In order to create the "BenQ" brand, in 2004, BenQ even invested heavily in cooperation with UEFA, thus becoming the first Chinese brand to sponsor the European Cup, the top international sports event. The popularity and reputation have been rapidly improved, and the sales volume in the European market increased by nearly 300% that year.In addition to the huge investment in marketing, in order to build its own brand, BenQ did not hesitate to offend its big customers. After BenQ launched its own brand of mobile phones, BenQ lost an order from Motorola, a big customer in the past.

It should be said that Li Kunyao's painstaking efforts in promoting his own brand have achieved some success. Today, BenQ has become one of the successful brands among the rare Taiwanese companies. "BenQ", a young brand in the Asia-Pacific , the United States, Europe and other places in the market influence has been gradually established. However, after hard work, BenQ finally obtained a mainland mobile phone license in May 2005. Although it promised to seize a 10% share of the mainland market within three years, the market performance of its own brand mobile phones is not satisfactory. In 2005, BenQ's self-owned brand mobile phones only occupied 2% of the global market share, which obviously made Li Kunyao feel that his dream of self-owned brand was still quite far away, and he began to feel that the road to become a world brand by relying on his own strength seemed a bit long Yes, BenQ, who has been pursuing speed to win, hopes to find a shortcut to success.

As a century-old company, Siemens has already become a world-class famous brand. Although it has always mastered high-level technology and its products have been selling well, its engineering-oriented design philosophy makes it rarely develop products. Taking into account the differences in the habits of people in different regions, Siemens has also been criticized for its too old-fashioned appearance due to the lack of sufficient research on consumers.At the same time, due to being too rigorous, the speed of launching new products will naturally slow down.For example, "Even if only changing the color of the mobile phone, Siemens will even spend 10 months to study the deviation of the color, requiring absolute precision." This approach may not be suitable for consumer electronic products such as mobile phones , The demanding details have formed a habit of shrinking.

In recent years, due to the failure of Siemens consumer electronics products to perform better, especially the mobile phone department has suffered consecutive losses of 500 million euros. On January 27, 2005, after Siemens' new president Kleinfeld officially took office, he reorganized the mobile phone department, but ultimately failed to recover from the situation. In April, Siemens announced that it would spin off the mobile phone business and seek one or several partners for the mobile phone department to concentrate on the production of industrial products such as turbines, trains, and automation equipment.Years of losses have become the root cause of the global mobile phone giant giving up the mobile phone business.

After Siemens decided to sell its mobile phone business, it negotiated with Motorola and other manufacturers. For a while, there were rumors of acquisitions of various versions, but the failure of the negotiations between Siemens and Motorola made BenQ, who was looking for a shortcut, see an opportunity and finally joined the company. Among the ranks of mergers and acquisitions. Li Kunyao is not unaware of the risks involved in acquisitions.However, Lee Kon Yew and BenQ's desire to grow rapidly over the past few years has finally overcome the hesitation of risk considerations. In Li Kunyao's view, "the acquisition of Siemens can shorten the brand growth time by 7 to 8 years." Moreover, through the acquisition of Siemens' mobile phone business, it can also make use of Siemens' international sales network and relationships with operators in various countries. The brand quickly spread to the world and eventually became an international brand.At the same time, BenQ also saw that, as the fourth largest mobile phone brand in the world, Siemens has many core patented technologies in the fields of GSM, GPRS and 3G, which can be a supplement to BenQ's own shortcomings.This is regarded by BenQ as a perfect combination of its own OEM manufacturing and Siemens technology and sales network. It seems that once the acquisition is successful, it will be just around the corner to leap into the world's number one mobile phone camp.Morgan Stanley analyst Ben Uglow (BenUglow) analyzed at the time: "If BenQ wants to enter the developed market, the acquisition of the Siemens brand is a shortcut." This seems to be a shortcut indeed.

In addition, the successful precedent of joint venture between communication giant Ericsson and consumer electronics giant Sony in the industry to establish Sony Ericsson with their respective mobile phone businesses is also a huge temptation for BenQ. The negotiation process was smooth, and the result made BenQ and many people feel that this was a deal that couldn't be more cost-effective. On June 8, 2005, BenQ announced in Beijing that it had officially signed an agreement with Siemens to acquire the Siemens mobile phone business unit.According to the agreement, BenQ will obtain Siemens' valuable core patented technologies in the fields of GSM, GPRS and 3G.At the same time, Siemens promised to purchase 2.5% of BenQ's shares for 50 million euros and become a strategic shareholder of BenQ.In addition, Siemens will provide more than 250 million euros in technical services to assist BenQ in successfully undertaking the business.In terms of trademark use, since October 1, 2005, Siemens has authorized BenQ to use Siemens' brand trademark for 18 months and the joint brand of both parties for 5 years.

The result of this negotiation was beyond people's expectations. In the words of a securities analyst in Taipei, "For BenQ, this is a business that couldn't be better." "They got the entire business and A nice brand." After the completion of the merger, some industry insiders pointed out that Siemens spent 350 million euros before tax to get rid of the "burden" of the loss-making mobile phone business, and did BenQ really pick up a big deal? Is there really a "free lunch" in the world?Things are obviously not that simple. The merger was followed by the integration of the two parties. In terms of specific operations, BenQ established a 100%-owned overseas subsidiary to undertake the Siemens mobile phone business to facilitate integration and avoid possible risks. In July 2005, a subsidiary named BenQMobile Holding BV (hereinafter referred to as "BMH") was registered and established in the Netherlands, and officially began to gradually undertake the assets and liabilities of Siemens' global mobile phone business on October 1. Siemens' mobile phone department in Germany Adapted as BenQ Mobile GmbH & CoOHG transferred to BMH's control. In terms of integration strategy, Li Kunyao adopted three plans. One is to complete the merger and integration through Siemens' existing human resources; the other is to use Siemens' original mobile phone department to lead the original BenQ Netcom business group; The co-branding of BenQ repositions the brand of BenQ. "BenQ doesn't need to send many people to Germany, and the Germans themselves will manage themselves well." At the beginning, Li Kunyao believed so. Therefore, at the beginning, BenQ headquarters only sent two executives in charge of brand marketing and finance to incorporate the German company. A team of 6,000 people, but subsequent developments have shown that this strategy is impossible to achieve effective results. The most complicated thing for BenQ is the integration of employees.Due to the relatively high labor costs in Germany, local trade unions in Germany have a greater say in terms of employee compensation systems.For example, in China, it only needs to add a few night shifts to get out of the task. When BenQ wanted German employees to work overtime, it was warned by the local trade union.And layoffs often involve sensitive political and social issues, which is difficult to achieve.Previously, Siemens had also hoped to relocate factories to non-German regions with lower wages, but it had to give up under strong resistance from trade unions. In terms of the merger benefits of the two parties, during the integration process, BenQ soon discovered that compared with the big bargains he "picked up" in the agreement, it was completely different from what he had paid for the integration. In August 2006, BenQ even announced that it wanted to re-evaluate the Siemens mobile phone division because it had been losing money year after year. Similarly, in terms of technology transfer, things are not as simple as BenQ originally imagined.For example, in terms of transferring the equity of Siemens' mobile phone operating system, major international mobile phone manufacturers such as Nokia, which is also a shareholder of the company with Siemens, enjoy the first right to purchase, and Siemens cannot immediately transfer the equity to BenQ along with the merger agreement. Obviously, the management and integration speed in Germany failed to achieve the results as expected by Li Kunyao. The rigorous style of the Germans seems a bit out of date in this industry that emphasizes speed. What is important is that due to the difficulty in reducing management integration costs and the delay in launching new products, there are not enough products to be launched, resulting in a huge deficit in costs and deteriorating financial conditions. It was originally hoped that the mobile phone business could carry 60% of BenQ's performance after the merger, but in the second quarter of 2006, a total of 236 million mobile phones were sold worldwide, an increase of 26% over the same period of the previous year, and BenQ only sold 7.3 million units Mobile phones, whose performance contribution only accounted for 36% of BenQ's total business, far below the expected 60%.Moreover, BenQ originally expected to use Siemens' brand influence to promote products such as computers through mergers and acquisitions, but it also failed because of poor performance in mergers and acquisitions. With the deepening of the integration, BenQ began to increase capital to the registered company BMH. At the end of April 2006, Li Kunyao announced that "the most difficult time for BenQ to acquire Siemens mobile phones has passed." It is only possible to turn losses into profits in the second quarter; on August 24, BenQ announced the separation of brand and OEM business, and listed the mobile phone business as a separate Netcom business group. At this time, BenQ found that this was a "hole" that was difficult to fill. "If the department is to continue to operate, BenQ still needs to inject 800 million euros into BMH in 2007"; on September 28, the board of directors of BenQ finally Decided to terminate the capital increase, the company filed for bankruptcy protection. It can be seen that from continuing to increase capital to stopping capital injection, a huge change occurred in just one month, and the speed of decision-making was unexpected.According to some media reports, the reason for such a change is a new mobile phone plan submitted by BenQ Mobile CEO Yu Kemeng from Munich to Li Kunyao in August. The worst thing is, "The plan shows that not only the product cannot be completed on schedule, but also It may be postponed for 4-6 months." The postponement of the plan also means that "BenQ will bear greater losses", which completely shattered Li Kunyao's expectations. At the beginning of the acquisition, Kent Chan, an analyst at Citigroup in Hong Kong, said: "The danger is that the Siemens business may eat up BenQ's profits in 2006." Unexpectedly, this sentence became a prophecy, and the merger ended in failure. . The failure of BenQ to integrate Siemens mobile phones is just like the unexpected acquisition results that caused many controversies at the time of the acquisition. Once the news of the failure came out, it caused an uproar, and many speculations followed. Some speculated that BenQ mobile phones may be resold by others , There are also speculations that BenQ may return to the old way of foundry, and there was a lot of discussion for a while, until October 24, when the third quarter financial report was officially announced, Li Kunyao announced a new development strategy for the mobile phone business, saying that he would continue to stay. In the brand mobile phone market. However, what kind of performance will BenQ have in the mobile phone market after the failed integration with Siemens mobile phones?What kind of results will the failure of mergers and acquisitions bring in the next step of BenQ's development?For BenQ, which has an international team, the result is still the same, but what does it mean for many domestic companies trying to make a difference in the international market?I am afraid that these issues are not just what BenQ needs to think about. BenQ acquired Siemens mobile phone a year ago. At the end of September, it was overwhelmed and announced that it would stop further capital injection and apply to the court for the bankruptcy of BenQ German mobile phone company.A year ago, Taiwan's BenQ acquired Siemens mobile phones to become the world's fourth largest mobile phone manufacturer. Now it suddenly gave up, causing huge waves. Various views can be roughly divided into three categories: First, from the perspective of Europe, BenQ's abandonment led to The bankruptcy of the company and the unemployment of its employees have caused condemnation in Germany; secondly, it is believed that BenQ’s move may lead to many obstacles in the future for Chinese companies and Asian companies to make international acquisitions; The failure was due to management problems. International acquisitions are not impossible. The key lies in mastering the internationalization capabilities.In the course of the debate, no one thinks that Mingji made the right choice but suffered.However, from the perspective of BenQ, we will find that perhaps this choice is the most important experience for Chinese enterprises on the road to internationalization. Shi Zhenrong, the founder of Acer, came out and said that if BenQ does not stop investing in BenQ Mobile, it is in danger of being dragged down by Siemens' mobile phone department.He said that the cessation of investment was not a hasty decision, and the board of directors of BenQ would give the company opinions on the financial statements every time.BenQ is a company spun off from Acer, and Shi still serves on the board of directors of BenQ.Indeed, no matter how big BenQ is now, it really cannot take this risk: According to the data released by BenQ, as of September 30, since the acquisition of Siemens mobile phone division in October last year to form BenQ Mobile, the German mobile phone business includes its own brand And OEM losses have exceeded 840 million euros.In conversion, it is equivalent to a loss of more than 10 billion yuan. You can compare two figures: the total amount paid by Lenovo to acquire the IBM PC department, including debts, is more than 14 billion yuan. TCL announced at the end of August that due to the European multimedia business (ie The loss of 738 million yuan in the first half of the year due to the acquisition of Thomson TV business has been unbearable. Li Dongsheng himself wrote "The Rebirth of the Eagle" to reflect on the international setbacks encountered by TCL and encourage employees to take action and change. Probably no one is more qualified than Shi Zhenrong to come out and explain for Mingji, because no one has experienced more failures on the road to internationalization than him.Shi Zhenrong reviewed Acer's history "Reinventing Acer: Creation, Growth and Challenges" has a chapter titled: "Be a winner who knows how to admit defeat", and he was indeed a winner in the end.In terms of the ratio of investment to loss, Acer’s acquisition of SI in Los Angeles in 1989 is probably rare in the corporate world. Shi Zhenrong called it “the most serious mistake in Acer’s history”——Acer bought the company for $500,000, and waited until it was too late. When the acquisition was not closed by closing the company, it lost a total of 20 million US dollars, which was 40 times the original investment amount. The difference between external commentators and people who do things is that people who do things focus on how to solve the current problems.BenQ survived with a broken arm in order to solve the current problems.Li Dongsheng's reflection is also to solve the current problems.Li Dongsheng reflected in "The Rebirth of the Eagle" that the main problems and difficulties of our company at present seem to be related to internationalization, but an objective and calm analysis will reveal that most of these problems are not brought about by internationalization, but are caused by internationalization. These problems have always existed within our company, and the company's participation in international competition has exposed these problems in a concentrated manner, and these problems must be resolved sooner or later in the development of our company.When encountering storms, the question is not whether it should be internationalized or whether it made a wrong decision. The key is how to make the right decision now, which is what BenQ is doing now. Shi Zhenrong’s experience of being a “winner who admits defeat” is very simple. He summed up the following four points, each of which probably cost tens of millions of dollars, and they are becoming more and more valuable at the moment: "To learn from mistakes, decision makers must learn to admit defeat." Every mistake is an opportunity for progress, but the difficulty is how to seize the opportunity to make yourself progress.Shi Zhenrong believes that the key is to "admit defeat" - "When a mistake occurs, it is difficult for outsiders to know, but the person involved is quite clear that if you can't admit the failure from the heart and improve immediately, but evade responsibility, the result will only make the mistake more serious. expand." "It's never too late to improve." Shi Zhenrong's admitting defeat is not an acceptance of fate. He said that he never felt that it was too late to correct when he faced shortcomings.That is to say, "Although I may not be able to agree with the causes planted in the past and today's fruit, I must 'admit', but I do not accept the future. If I do not accept the past, but accept the future, There will always be a sense of powerlessness." "If you don't fight, you can't afford to lose." This time he came forward to explain to BenQ, and Shi Zhenrong said this sentence again. This sentence is an important operating principle of Acer.Shi Zhenrong explained this operating principle, "The goals we set must be achieved with a chance and with certainty; if not, even the loftiest ideals will be put aside for the time being, and we will talk about them when we are sure." Even if there is an investment that can earn several times the profit, as long as its risk may endanger the survival of the company, even if the probability of failure is only one in ten million, Shi Zhenrong said that he would not try it.Because of endangering the company itself, BenQ now has to let the German company go bankrupt. In fact, it is precisely because it did not follow Shi Zhenrong's principle. "Don't lose face." This is also Shi Zhenrong's important business philosophy. "When a company has a problem, if the manager only thinks about his own face, he will ruin the company's vitality." This sentence should also be extended to the company's future. Should not just care about face. The scale of BenQ's mobile phone department is smaller than that of Siemens' mobile phone department. This kind of merger and acquisition itself has a high risk.Coupled with the problems of cultural concepts and management models of multinational companies, many difficulties in the post-merger integration process are far beyond BenQ's expectations.In addition, the German subsidiary BenQ Mobile's loss of up to 840 million euros in the past three quarters is also the main reason why the head office no longer invests. The main reason for the failure of Siemens mobile phone is that as a slow follower of the market, it cannot meet the needs of consumers for new products.After the acquisition of Siemens, BenQ failed to launch dual-brand new products in time to meet market demand. At the same time, the impact of cross-border integration caused its brand market share to decline rapidly. BenQ, which originally hoped to quickly improve its performance through this merger Said, caused a big blow. The strategy of BenQ's mobile phone department has always been to maintain the brand through OEM and rapidly develop its own brand. Mergers and acquisitions of major international mobile phone brands are a potential threat to BenQ's long-term OEM customers.And its brand and OEM business model have also affected its source of OEM customers. At present, the global mobile phone production base is shifting to Southeast Asia, where labor costs are low, and China has become the world's largest mobile phone production base.Many Taiwanese companies, including BenQ, have also moved their factories to the mainland.In this case, the cost of its German mobile phone production factory is too high, and gradually abandoning factories in Germany and even Europe conforms to BenQ's overall development strategy. BenQ's acquisition of Siemens' mobile phone division ended in failure less than a year later. The impact on BenQ was not limited to financial losses, but also severely damaged the reputation of BenQ's brand globally, especially in Europe.At the same time, Siemens will evaluate whether BenQ can continue to use its brand in the future. If it abandons the continued use of the Siemens brand, the acquisition of BenQ will fail completely.This case also warns domestic companies lacking experience in cross-border mergers and acquisitions to comprehensively consider potential factors such as culture, management, and products in mergers and acquisitions, and conduct comprehensive and detailed evaluations of cooperative partners before mergers and acquisitions, so as to maximize to avoid risks.