Two news bits involving employee movements are casting a spotlight on major developments in China’s corporate world over the past few months.
The first has employees of leading PC maker Lenovo (00992.HK) moving into the Chinese corporate headquarters of faded cellphone giant Motorola, indicating the former is confident of closing its landmark purchase of the latter.
The second has US-owned meat processor Husi laying off most of the workers at its Shanghai plant, which is reeling from a massive downturn after investigative TV reporters uncovered food safety violations at the facility.
The two stories don’t have too much in common, except that both involve the movement of hundreds of workers and reflect the rapid changes that often take place in China’s corporate landscape.
Those changes have seen Motorola, which once dominated China’s cellphone market, rapidly fade into obscurity as it got overtaken by more nimble smartphone makers.
Husi, which is owned by US-based OSI Group, could be set for a similar, though far more rapid, tumble following the scandal that saw it exposed for selling expired meat products to customers like McDonald’s (MCD.US), KFC (YUM.US) and Starbucks (SBUX.US).
Let’s begin with a look at the latest news on Lenovo-Motorola, which has its origins in the landmark deal announced in January for the former to buy the latter for US$2.9 billion. News of that deal came around the same time Lenovo announced a similar sized agreement to buy the low-end server business of IBM (IBM.US) for US$2.3 billion.
Both of those deals were later thrown into doubt after reports said concerns were coming from the US regulator that approves all cross-border M&A for national security issues.
That regulator, the Committee on Foreign Investment in the United States (CFIUS), approved the IBM purchase last month, leading many to predict it would also clear the less-sensitive Motorola deal.
Lenovo hasn’t announced anything in that regard, but its new move of employees into Motorola’s Beijing headquarters indicates it’s confident of such approval.
According to the latest reports, workers from Lenovo’s cellphone division began moving into the massive Motorola headquarters building in Beijing this week, showing the pair were confident of closing the deal within the next month.
From a broader perspective, this particular move is also interesting as it appears to show that Motorola will become the base for Lenovo’s own cellphone operations, which enjoy strong sales but suffer from a reputation as a very low-end product.
I suspect that Lenovo will try to position Motorola as its high-end brand after the deal closes. That would contrast sharply with Microsoft’s (MSFT.US) own reported recent decision to retire the Nokia brand, following its separate purchase of the world’s former cellphone leader.
Next let’s look at the other news bit that has seen Husi lay off 340 employees at its Shanghai food processing plant following the July scandal that saw it exposed for a wide range of safety violations, including selling expired meat. Husi’s parent OSI formally announced the cuts this week on its website, and said it has received government approval for the move.
OSI said it was making the cuts due to huge losses and a drop in business over the last two months, but also said it wouldn’t completely shutter the facility.
None of that is a big surprise, since most of the big multinationals have dropped the company as one of their suppliers and issued numerous announcements to reassure consumers that their food is safe after the original scandal broke.
OSI has brought in a third party to try and rebuild Husi’s reputation, though it’s far from clear if it will be able to recover following the scandal.
I do suspect the company will quietly try to rebuild the Shanghai operation over the next two years, and that it may eventually win back big customers like McDonald’s once the scandal has disappeared from the headlines.
But it could still be at least a couple of years before staffing and business return to previous levels, and it’s also quite possible such a rebound may never happen.
Bottom line: Lenovo’s move of workers into Beijing Motorola headquarters indicate it’s confident of closing the purchase, while Husi’s new layoffs presage a rebuilding period of at least two years for the scandal-plagued meat processor.
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