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China 3C Group Gets Catalysts From Best Buy, Intended U.S. Listing

Another new day, another overhyped China story.

SmartGuyAB gets all the validation he needs for an investment in 3G group when Best Buy opened its first branded store in Shanghai and chose 3C Group as a supplier. Validation of what? They can open up a store? The modern business history of China is filled with the greatest American companies that have struggled big-time in China: Google (minority market share), Ebay (losing market share, bad acquisition), and Wal-mart (losing to competitors). Best Buy is way late in the game playing with companies with entrenched leadership position, localized market knowledge, and huge amounts of cash. Best Buy is a non-factor in the China market. SmartGuyAB can talk about Gome, Carrefour, and Suning as "nothing you’d expect to see at your local mall," but yet can't see that Best Buy is "nothing you’d expect to see at your local mall [in China]?" Isn't it ironic, don't you think?

Let's do some due diligence here. The two areas that the China 3C Group focuses on are cell phones and...drum roll...fax machines and corded phones. You're going to place a huge bet on a company that does most of their sales in the distribution of largely commoditized products like fax machines and corded phones? Right...

They have no competitive advantage when it comes to fax machines and corded phones. These major retailers in China Gome, Carrefour, and Suning can go direct with the suppliers like Brother, Samsung, HP, and others any time they want. 3C's agreement with these China chains is very, very weak. All these huge retailers in China have to do is pick up the phone and they can cut out 3C anytime to boost their margins. Or, maybe these retailers think that this market segment is way to way to weak to get involved in. Either way, this does not portend the kind of growth estimates that 3C is overhyping.

Second, mobile phones. The market for mobile phones is highly, highly competitive in China with thousands of companies selling a huge range of handsets. Even if they manage to grow in this area, they are by no means the leader and margins will be slim to none.

3C group is another example of a way overhyped China story that is easy to fall for. It is not the real deal. Your money would be way better spent on China market leaders in rapidly growing industries of which 3C is obviously not.