Best US companies China

General’s Mills’ Stunning Success in China

Wanzai Matou 湾仔码头

America’s most successful M&A deal in China is also possibly its most clandestine. The reason: an old-line Midwestern Fortune 500 company around since 1856 owns a company that is the dominant brand-name supplier in China of a vital Chinese national asset. No, it’s not missile fuel or encrypted handsets for battlefield command-and-control. It’s dumplings.

America’s General Mills, the iconic maker of US breakfast cereals Lucky Charms and Cheerios as well as Häagen-Dazs ice cream, owns a similarly iconic brand in China – Wanzai Matou (湾仔码头), or Wanchai Ferry, as it’s known in English. It is China’s major premium-priced and premium-quality supplier of frozen dumplings. Since acquiring the business thirteen years ago, it’s become a large and especially fast-growing business for General Mills, with China revenues of at least $300mn. Better still, the margins are probably a lot higher than Cheerios and just about any other product General Mills sells worldwide. The Wanzai Matou dumplings sell in China for equivalent of about $3.50 a pound. You can buy fresh hand-made ones just about everywhere in China for quite a bit less. But, people flock to the General Mills product, because it’s considered both tastier and healthier.

Dumplings are a central aspect of Chinese life and culture, a more potent part of national identity and the national diet than the Thanksgiving turkey, Big Mac, beef hotdog or apple pie are to us Americans. Dumplings (whether boiled, steamed or pan-fried) have been a daily staple of the Chinese diet, as far as anyone can judge, for about 1,800 years. They’re eaten here at breakfast, lunch and dinner. Dumplings are also the mainstay for many Chinese at the most important meal of the year, the one that rings in the Chinese New Year. Dumplings symbolize a prosperous year to come.

For all the many global corporates still edgy about investing in or acquiring businesses in China, General Mills is prime evidence that inbound cross-border M&A can work in China. This one deal combines four aspects often thought to be unattainable in China deal-making: a large US company buys a smaller local Chinese brand, builds it into a national leader while piling up big profits. It is, hands down,  my favorite case study of how to do M&A right in China.

Not that General Mills is eager for the world to know. It doesn’t talk about its booming China business in its annual report. Packages of Wanzai Matou sold in China don’t include the General Mills name or famous blue logo.

While everyone knows about KFC, McDonald’s and Starbucks big success in China, they are actually doing something much easier: introducing and selling exotica, American products to Chinese with a whim to try something from afar. General Mills is making money in China the hard way. Not only do they make the most popular brand of frozen dumplings in China (estimated market share of about 50%) , they also had to convert a large number of Chinese to buy in a supermarket a frozen version of a product only available previously fresh, hand-made.

As General Mills foresaw, making dumplings at home, once a daily chore,  has become something fewer and fewer Chinese have the time routinely to do. Done properly, it can take even experienced hands two hours or longer.

General Mills got control of Wanzai Matou in 2001 when it acquired US rival Pillsbury from British company Diageo. Pillsbury had bought majority stake in Wanzai Matou in 1997, when it was a rather tiny Hong Kong company with very limited presence in the PRC. Today, the freezer section of most larger big city supermarkets in China is stocked to bursting with different flavors and fillings of Wanzai Matou dumplings, along with Wanzai Matou frozen wontons and stuffed buns.

General Mills buys some tv advertising, but mainly the success here in China was earned by word-of-mouth. I’ve been a customer for as long as I’ve been living in China. Take it from me. There is no tastier frozen food sold anywhere than the boiled Wanzai Matou pork-and-corn dumplings (see package above).

Pillsbury made a vital strategic move in the early years after buying control of the Hong Kong Wanzai Matou. It was also an atypical one for big corporate buyers. They decided to keep Wanzai Matou founder, Kin Wo Chong, involved. Her photo is still prominently-featured on every package, in much the same way as Betty Crocker used to be pictured on every box of brownie mix made by that General Mills brand.

Betty Crocker is pure fiction, a made-up name for a made-up housewife. Ms. Chong is very much a genuine entrepreneur, a Hong Kong immigrant from dumpling-loving Shandong province. She started her professional life in 1977 selling dumplings from a push cart in a not-too-tony part of Hong Kong.

Keeping Ms. Chong involved, as both a senior executive and minority shareholder, has evidently worked well for both sides. General Mills gets all the benefits of her extensive knowledge of how to make tasty dumplings. She gets a deep-pocketed partner with the skills and resources required to make her small company into a Chinese household name.

This sort of arrangement is rare in the M&A world outside China. Generally, the buyer gives the current owner a two-to-three year earn-out period and then is sent packing. That’s the way MBA textbooks recommend M&A deals get done. The thinking is founders, once they’ve put a large chunk of cash in their pockets, are distracted, demotivated and anyway not amenable to taking orders on how to run their business from a large, often bureaucratic global corporation.

But, in China, the most successful M&A deals we know of all tend to have this same structure, that the founding entrepreneur stays on, stays active, long after the earn-out period expires. By contrast, the list of failures is long where an acquirer gets control of an entrepreneur-founded Chinese company, shows the owner the door and then tries to run it on its own.

General Mills also did add something Ms. Chong never would have managed to do on her own. It started up a frozen stir-fry-it-yourself business for the US market, under the Wanchai Ferry brand. In its first year, it had revenues in the US of over $50 million. Impressive.

As anyone living here can attest, when it comes to food, Chinese are every bit as jingoistic as the French or Italians. It would shock many of them to think Americans can produce dumplings better and more profitably than any domestic competitor. But, even if General Mills is outed, and more Chinese come to know who’s behind Wanzai Matou, I’m confident they will go on buying dumplings made for them by the company from Golden Valley, Minnesota. “Eating”, as the Chinese saying aptly has it, “is more important than the Emperor”. “吃饭皇帝大“.

3M in China: A Magnificent Minnesota Multinational

3M China picture, China First Capital


Through pain comes wisdom.  US manufacturing giant 3M has a superb business in China that by sales, growth, product diversification, brand equity, market share and margins must place it among the very best, if not the best, US companies operating here.

This overdue realization came courtesy of having a nasty little cavity filled in China. As I squinted through the pain, I saw my dentist reach for a small tube of 3M-branded epoxy to fill up the hole in my tooth. “3M is American, like you, right?” she asked in Chinese. “This is the best product on the market.”

Dentistry didn’t really much exist in China until around 20 years ago. Since then, the growth has been hypersonic. Today there are about 60% more dentists in China than in the US, 135,000 compared to 85,000. The number of dentists is growing by 15,000 a year in China. 3M helped build the dentistry market from the ground up, and now enjoys a level of market penetration and trust in China exceeding the US.

Dental products are just one among many dozens of areas where 3M has built a large and profitable business in China. Another one I know of: reflective tape used on traffic signs and glow-in-the-dark clothing worn by police and other first responders. 3M enjoys something like a monopoly here, during a time when no other country is adding as many miles of roads, and as many bright new road signs as China. I have a Chinese client that tried, without much success, to compete with 3M in the market. Despite having better government contacts and lower prices, this Chinese company has gotten steam-rollered by 3M in China.

In industrial adhesives, photovoltaic components and, of course, Post-It Notes, the situation is the same. 3M has flattened every Chinese competitor that came after it. 3M’s China strategy is as simple as it is successful: premium products, prices and market shares.

3M has been in the PRC since 1984, almost as long as the country has welcomed American investment. Over that time quietly but oh-so efficiently, it has built a powerful business in China, with revenues last year growing 16% to over $3 billion. China sales are growing three times faster than overall 3M revenue. The company’s local CEO is on the record predicting 3M’s revenues in China will overtake its sales in the US ($9.5 billion in 2013) within the next ten years.

That would be a helluva achievement. But, I wouldn’t bet against 3M.  It has as strong a platform for growth in China as any company I know of, domestic and international. It sells hundreds of different products in over eighty separate product categories in China. In a county where no company’s intellectual property (patents and know-how) is meant to be safe from pirates, 3M has defended its secrets, and stayed comfortably ahead of local brand knock-offs and copycats. Counterfeiting is a separate issue, and probably 3M’s biggest problem in China.

In a way few, if any, other US multinationals have, 3M has managed to achieve significant sales and a stellar reputation both in consumer and B2B markets. As China grows richer, 3M’s strategy looks smarter and smarter. Cheap, low-quality products are being driven out of the market here. Consumers, factories and government departments are trading up. This leaves many low-end Chinese brands in a very difficult and life-threatening position. They can only compete on price in a market that’s increasingly price-insensitive. 3M is precisely the kind of manufacturing company China most sorely lacks – a serial innovator with branded products that can command higher prices.

Both my dentist and my handyman still stock lower-quality Chinese-made products. They offer customers a choice – something I never ran across living in the US. You want the good imported stuff or a cheap knockoff? The price difference can be rather high. For cavity-filling compound, using 3M product will cost you about three times as much. To fix a chair leg using 3M glue it’s double the price. But, both my dentist and my handyman say almost none of their clients are opting for the local brands.

3M is admired just about everywhere for the quality of its products. But, in China, it has an almost saintly reputation. During the height of the SARS epidemic in 2003, 3M disposable masks were widely publicized in the Chinese media as the most effective way to prevent the deadly disease. Today, 3M disposable masks are widely used by Chinese for another purpose, to block out the pollution and fumes that envelop big northern cities like Beijing, Jinan and Shanghai.

Other US companies with large China businesses have hit on tough times lately in China. P&G and Coca-Cola Company are losing market share to local competitors. Yum! Brands and Mondelez have both suffered from perceptions they peddle unhealthy food. Their best days in China, from my vantage point,  are probably behind them.

3M, meanwhile, quietly and steadily goes from strength to strength. If any US company can add another $7 billion in revenue in China over next decade, 3M is the most likely.

3M not only introduced its products to China, it also transplanted its rather unique American Midwestern personality. 3M China is, by local standards, modest, self-effacing, even dull. It doesn’t advertise much, or throw its weight around as one of the largest US companies operating here. The Maplewood, Minnesota-based parent barely even mentions China in its 2013 10-K annual report. When you are doing this well in the world’s strongest-growing major market and beating up your competitors, why crow about it?