The Strategic Position of China and HP's Merger

First, I apologize for not posting recently, we were out of town on vacation, then a relative (my wife's grandfather) died and we have been pretty busy, but since I have a little time (and since the little motel we are in has a wireless network), I thought that I would answer a few reader's questions: First, A reader writes (see complete post here):
What do we do about china? China is currently trying to develop a plan to conquer Taiwan and fight the U.S. It is preparing to fight a "dirty"(with chemical, biological weapons, and even terrorism) war against the US, at least that’s what they have said. Should we even be trading with China? Doesn’t this help the Chinese government? China is not even communist anymore. Even the communist themselves have admitted that communism have failed. They are now just plain old post-modernist that don’t stand for anything.
My short answer is that yes, strategically we should be trading with China. A strategic position is never defined by what people say but by what they do. No matter what China says, it is well on its way to becoming a modern, free-enterprise-based country. Once the Chinese leaders accepted the idea of free-enterprise, that is, that individuals are better at making all kinds of decisions than the elites, they started down a road where they are eventually forced to accept the rule-sets of the rest of the world. Economic reform in China leads inevitably to political reform. The major problem with post-modernism is that it rejects the everyday values of regular people. Though China still has a political elite based upon those who played leading roles in their Revolution, that old system is gradually being replaced by a new group of entrepreneurs, who are arising from the regular people of China. Their importance in shaping the future of China is already eclipsing the hereditary elite of the revolution. Though the "old guard" in China has to say certain things to preserve their "legitimacy," if we look at what China is doing in the world, it is clear that the Chinese people believe that they can compete in the mutually dependent world of free enterprise. They see no other path to winning a better life for themselves; certainly they don't think they can fight a war of Taiwan or anywhere else to win a better life. Postmodernists only exist among a protected class, shielded from the realities of the world by society. Today's Chinese businessmen do not live in that artificial world. They live in the real world of real strategy. They are looking at ways of expanding their opportunities in that world in a very long-term, strategic way. China is, after all, the original home of strategic thinking. Speaking of free enterprise, another reader writes:
If I may shift gears a little… I was wondering if you could break down the mistake made by the former CEO of HP. Looking back it was a mistake to aquire Compaq, and the strategy did not work. I am wondering where in the cycle you think that the mistake was made. Was it the vision? or bad implementation?, or other factors?
First, strategic analysis is built on detailed knowledge and, lacking that knowledge of HP's situation, I hesitate to comment on their decisions specifically. Instead, I can make some general observations about the strategy of mergers and acquisitions based upon my own experience. First, strategy teaches that success is built on continuous expansion into new territories. You grow or die. With this in mind, mergers often seem like a good idea because the resulting organization is larger than two original ones, but Sun Tzu taught that this was something of an illusion. First, size is not valuable in itself. It increases your capacity, but it also slows you down. Secondly, it is the process of WINNING new territory that creates a vital organization. In order to win, you have to do a number of things right. A merger is less like winning new territory than it is like a mutual surrender. Working in high-tech for fourteen years, I saw many mergers and very few of them worked. We used to say that if you sew together two dead horses, you don't make a live horse. Sun Tzu taught that each organization, whether they realize it or not, is built on a unique philosophy. When you combine two organizations, there is almost always a destructive conflict of philosophies within a company. Organizations that do acquisitions well take one of two routes. They acquire small companies that can be completely subsumed into the larger organization's philosophy or they leave each company they acquire independent, to work from their philosophy. The first route requires a strong leader and a clear philosophy (Bill Gates at Microsoft) while the second requires management that is willing to keep its hands off the day-to-day operations (Warren Buffett at Berkshire Hathaway). I think Oracle's acquisition of Peoplesoft may fall into the first category, but HP’s acquisition of Compaq fell between the two. By pitting the often false economies of scale against the new business model of Dell, I never thought that they had much chance.