Saturday, March 19, 2011

Lessons From Huawei: Practical Tips for Investing in the United States

Investors in the United States, particularly those who invest in U.S. technology firms, might have watched Huawei's recently-failed attempt to acquire U.S. intellectual property and dismissed it.  While they might believe that Chinese investment in the United States raises a host of issues that do not apply to Indian firms, this latest Huawei episode teaches some useful lessons for every foreign company doing business in the United States.
Recently, the Chinese company Huawei attempted to acquire the intellectual property of a San Francisco, California firm named 3Leaf.  This wasn’t an acquisition of 3Leaf itself – just its I.P. and a few executive hires.  Huawei was forced to abandon the transaction after the Committee on Foreign Investment in the United States (CFIUS) a U.S.-government committee that reviews foreign investments – objected on national security grounds.  Significantly, Huawei did not proactively seek CFIUS approval.  Rather, CFIUS initiated its review after the Pentagon raised concerns, and it rejected the deal after many U.S. congressmen objected during its 45-day review period.
On the one hand, it would be easy for Indian investors in U.S. companies to dismiss the Huawei example or the troubles of any Chinese investor in U.S. companies.  First, Huawei itself has had problems in the United States before, in part because of concerns that it is connected with the Chinese government.  Second, China overall has been the target for some time of U.S. policymakers and companies because of I.P. infringement, hacking, and other concerns.  Some observers (including the Chinese government) believe that CFIUS’ review has become a tool for scoring diplomatic and political points.
Third, India is not China.  The U.S.-India trade relationship occupies a different place in the United States.  Indeed, last November the White House issued a fact sheet on Indian investment in the United States that praised its benefits, stating that “Indian companies have aided the turnaround of struggling U.S. firms, saving jobs and improving company performance,” and that they have “made important new investments, stimulating innovation and production in the American economy.”  Thus, Indian investment in the United States appears to raise little political scrutiny compared to Chinese investment.
Nonetheless, companies would be wise to heed one overall lesson that Huawei teaches: companies that ignore elected officials and other policymakers do so at their peril.  Many U.S. companies have learned this lesson the hard way.  For example, although U.S. technology firms had been employing great masses of workers and were great U.S. economic contributors in the 1990s, some still found themselves the targets of substantial governmental scrutiny.  They had not taken the time previously to educate policymakers about their businesses and build critical relationships.
So, what should firms that invest in the United States be doing?  There are two key steps.
First, get to know the local, state, and federal elected officials in the geographic areas in which you are investing.  Let these representatives know how much you are doing for their constituents and communities.  If your investments draw scrutiny later, you will at least have significant policymakers who understand what you do and contribute, and maybe you will have friends who will advocate on your behalf.
Second, be proactive if you are contemplating a transaction that you think might be controversial with the general public, media, regulators, or politicians.  Do not wait for these stakeholders to come to you; reach out to them first. Otherwise, others will have the first chance to define who you are and what you are doing, and you will be forced to play defense.  You might still win, but reaching out to someone early who is going to get involved later is usually the best option.
The best course for Indian and other foreign investors is to pay attention, engage, and build understanding and relationships.  You can be sure that is what your U.S. competitors are doing.

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