Showing posts with label Morgan Stanley. Show all posts
Showing posts with label Morgan Stanley. Show all posts

Tuesday, October 04, 2016

Why did Expedia and Morgan Stanley fail in China - Jeffrey Towson

Jeffrey Towson
Jeffrey Towson
Failing foreign companies are all too common in China. Peking University business professor Jeffrey Towson dives into two specific cases, trying to learn from the mistakes by Expedia and Morgan Stanley, at his LinkedIn page.

Jeffrey Towson:
It all looked pretty good. So why in 2015 did they sell their entire eLong stake for $671M? Why after almost ten years of work did they exit China? What happened? 
My assessment is that they got tired of losing money. eLong was frequently losing money and impacting Expedia's overall returns. In the most recent quarters before Expedia's exit, eLong was still occasionally losing around $20M per quarter. 
This is an example of the situation I call "last man standing". Competitors ramp up spending on capacity or price subsidies and everyone loses money. The market then becomes a contest of who is willing and able to lose the most cash. In the end, whoever is "left standing" gets the market. Uber and Didi recently had this situation. It can be a particularly effective strategy against foreign companies. 
So even though Expedia won big in China, becoming one of the three major players. They were still losing cash after ten years of work. And they eventually cut their losses. They sold their stake in eLong, much of which was then quickly purchased by ctrip. 
Morgan Stanley and CICC: A case of "what have you done for me lately?" 
CICC (China International Capital Corp) was launched in 1995 as a joint venture between Morgan Stanley and China Construction Bank (i.e., People's Construction Bank of China). For Morgan Stanley, this was their single largest investment in an emerging market to date ($35M for 34.3% ownership). And it was their primary strategy for becoming a player in China's domestic capital market. 
And the enterprise was very successful. CICC has gone from the 40 employees at launch to over 4,200 employees today. Revenues in 2015 were over 8B RMB. 
However, Morgan Stanley sold its stake in CICC in 2011 - and had been trying to sell as early as 2008. There are various reasons for this, including the financial crisis and dealing with limits on how many banks / JVs a foreign company can have in this sector. But underneath this was also the fact that CICC was no longer an operational vehicle for Morgan Stanley in China. It had become a passive investment. 
So what happened? 
My standard question for any company in China is "what is your advantage or value-add?". Good answers to this can be technology, foreign customers, a well-known brand, and cross-border operations. But my follow-up question is always "and how long will this advantage or value add last?". This is the question that often catches companies.
More at Jeffrey Towson´s LinkedIn page.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts to deal with your China risks? Do check out this list.  

Tuesday, March 31, 2015

Missing audits for Tianhe and Sihuan red flags - Paul Gillis

Paul Gillis
+Paul Gillis 
Two major companies backed by Morgan Stanley, Tianhe and Sihuan, have told security regulators in Hong Kong, they cannot meet the deadlines for filing their audits, reports AP. Two red flags, causing serious problems for Morgan Stanley, says accounting professor Paul Gillis.

AP:
The twin filing delays raise uncomfortable questions for Morgan Stanley, which picked the companies from obscurity then promoted them as multibillion-dollar growth stories. "This is not something an auditing firm would do lightly," said Paul Gillis, a former Partner for PricewaterhouseCoopers LLP in China who now teaches accounting at Peking University. "There are only two reasonable explanations for being late. One is management incompetence. Two is they're fighting with the auditors. And neither one of those is good." Tianhe and Sihuan could eventually receive a clean bill of health, although announcements about earnings delays due to unfinished audits are generally regarded as portending bad news. Any material problems that led to the delay would have to be disclosed once the companies file their financials. 
As U.S. investors increasingly consider Chinese stocks, they rely on investment banks like Morgan Stanley to keep troubled Chinese companies from reaching the market... 
Tianhe was the subject of significant public scrutiny over its financials. In September, a shadowy group tied to speculators betting against Tianhe's stock published allegations that the company had overstated its business in a Morgan Stanley-led public offering just a few months earlier. 
An AP investigation corroborated many discrepancies. Tianhe said records cited by AP were outdated and disputed other findings. But the controversy drew public notice from its auditor, Deloitte Touche Tohmatsu Ltd., which Gillis said would have been expected to put extra emphasis on its next audit process. 
"The auditors have had plenty of time to look into the allegations and dismiss them," Gillis said. "In this case, everybody would have been paying attention."
Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out hist list.