1

Des entreprises chinoises aux ambitions planétairesDominique Jolly, Professor at SKEMA Business

School (Sophia-Antipolis, France), Visiting Professor at CEIBS (Shanghai, China)

Shanghai, le 5 mars 2015.

2

1.The macroeconomic picture2.Two types of operations3.Managerial issues

3

Foreign Direct Investment (FDI)

“Investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses” (Financial Times online lexicon, 2014).

4

Foreign Direct Investment (FDI)

中国

South Korea

Taiwan

Japan

USAHong Kong

UnitedKingdom

GermanyFrance

(inward, outward)

India

5

1. The macroeconomic picture

6

Inward & Outward FDI (1980-2006)

7

How outward FDI has evolved?Chinese Outward FDI

8

In 2014, for the first time, Chinese investment abroad exceeds investment of foreign companies in China!

9

Examples of big Chinese deals2005: IBM PCs division takeover by Lenovo2005: Cnocc fails to acquire United Oil of California2007: Huawei fails to acquire 3COM (USA)2008: Industrial and Commercial Bank of China (ICBC) takes 20% of Standard Bank (South Africa)2009: Zoomlion acquires Compagnia Italiana Forme Acciaio SpA (Cifa) (I)2010: Geely successfully acquires Volvo (SW)2012: Bright Food acquires Weetabix (UK)2012: Xuzhou Construction Machinery Group (XCMG) acquires Schwing Stetter (G)2012: Weichai acquires Ferretti (I)2013: Weichai Power acquires Kion (G)2013: Shuanghui acquires Smithfield Foods (USA) for $4,7 bn2014: Bright Food acquires Tnuva (Israel)2014: Sanpower acquires 89% of House of Fraser (UK)2014: Anbang Insurance acquires New York Waldorf Astoria from Hilton (Blackstone) for $1,95 bn2014: Hebei Iron & Steel acquire a controlling stake in Duferco (Lux) metal trader

10

Entries of Chinese Companiesin Europe

11

Acquisitions of French companies by Chinese companies (2004-2014)

cible française acquéreur chinois date de fondation montant transaction

2004Le Cabanon transformation de tomates Chalkis 55% du capital = 7 millions d'euros

2007Rhodia Silicones chimie des silicones BluestarNFM Technologies matériel de construction NHI Group < 50Marionnaud distribution pdts cosmétiquesMoteurs Beaudoin moteurs pour bateaux < 50

2010Château de Viaud exploitation viticole Cofco 10 millions d'euros

2011GDF Suez branche exploration-production China Investment Corporation 200730% = 2,3 milliards d'eurosMc Cormick France fabrication de tracteurs Yto < 10Robert Clergerie chaussures de luxe Li & Fung 10 millions d'eurosAigle Azur transport aérien Hainan Airlines 48% du capital

2012Eutelsat communication par satellites China Investment Corporation 20077% du capital = 484 millions $Diva négociant en vins Bright Food 70% du capital = 30 millions d'euroschâteau Bellefont-Belcier exploitation viticole Wang (particulier) estimée à 30 millions d'euroschâteau Latour-Laguens exploitation viticole < 50

2013Manoir Industries fonderie Yantai TaihaiLouvre Hotels Group hotelerie (Campanile, Kyriad, etc.) Jin Jiang International entre 1,2 et 1,5 milliards d'eurosLisieux Plysorol fabrication de contreplaqué

2014Laiterie d'Isigny Sainte-Mère production de lait Biostime (Canton) 199920% du capitalPSA construction automobile Dongfeng 14% du capital = 800 millions d'euros

Aéroport de Toulouse-Blagnac gestion aéroportuaire Consortium Symbiose (+ SNC Lavalin)49,9% du capital = 308 millions d'euros

Shandong Hi-Speed Group + Friedmann Pacific Asset Management

Club Méditerranée Fosun 897 millions d'eurosBeaugrenelle centre commercial Safe (State Administation of Foreign Exchange) 700 millions

12

Acquisitions of German companies by Chinese companies (2012-2013)

Date German Company Chinese Company Sep 13 Hazemag & Epr GmbH Sinoma International Engineering Co. Ltd Sep 13 FLEX-Elektrowerkzeuge GmbH Chervon Holding Group Ltd. Jul 13 KSL Keilmann Group ShangGong Gruppe Jul 13 Oerlikon Schlafhorst The Jiangsu Jinsheng Group Jul 13 Thielert Aircraft Engines GmbH AVIC International Holding GmbH Jun 13 KION Group GmbH Weichai Power Co. Ltd. May 13 Kugel- und Rollenlagerwerk Leipzig GmbH Wafangdian Bearing Group May 13 HIB - Trim Part Solutions Bruchsal GmbH & Co. KG Ningbo Huaxiang Apr 13 Golden Tulip Hotel (Frankfurt) New Century Tourism Group Mrz 13 PFAFF Industriesystem und Maschinen GmbH ShangGong Gruppe Feb 13 GIW Gesellschaft für innovative Werkzeugsysteme TQM Tianjin Moto Feb 13 Degen Maschinenbau GmbH Suzhou Xinneng Precise Machinery Company Dec 12 Viseon Bus GmbH China Youngman Automobile Group Co. Ltd. Nov 12 Aweco Appliance Systems Zheijang Sanhua Sep 12 ThyssenKrupp Tailored Blanks Wuhan Iron and Steel Group Jul 12 Intermix GmbH Sany Heavy Industry Co. Ltd. Jun 12 Solibro GmbH Hanergy Holding Group Ltd. May 12 Carlsson Autotechnik GmbH Zhongsheng Group Holdings Ltd. Apr 12 Wumag Texroll GmbH & Co KG Yan Siyou Apr 12 Schwing GmbH Xuzhou Construction Machinery Group Co. Ltd. Apr 12 HZ FbZ Formenbau Züttlingen GmbH Ningbo Huaxiang Electronic Co. Mrc 12 Drossbach GmbH & Co. KG i.L. Dalian Sunlight Machinery Co. Ltd. Mrc 12 Kiekert AG Hebei Lingyun Industrial Group Co. Ltd. Jan 12 Putzmeister Holding GmbH Sany Heavy Industry Co. Ltd. Jan 12 Saunalux GmbH Products & Co KG Anhui Saunaking Co. Ltd. Jan 12 Sunways AG LDK Solar Co. Ltd

Strack V. & Schwarzer M. (2014). Chinesische Investoren – Die neuen Weißen Ritter?. PWC Report. Retrieved from http://www.pwc.de/de/transaktionen/assets/m-a-review_januar-2014-weisse-ritter.pdf

13

We are just at the beginning …

Phase 1. Small size companiesPhase 2. Medium size companies (Volvo, Putzmeister, Kion, etc.)Phase 3. Large companies

In 2012, Chinese investments into the EU accounted for 2.6 % of total FDI flows into the EU (up from 1.0 % the year before).

15

Should we be afraid?

16

How do you perceive takeover of a German company by …

Source: Lukas Sobol, SKEMA Business School, Master of Sciences Thesis in International Business.

19; 9%

36; 18%

79; 39%

45; 22%

22; 11%31; 15%

38; 19%

91; 45%

27; 13%

15; 7%

Strongly PositivePositiveNeutralNegativeStrongly Negative

16; 8%

23; 11%

61; 30%57; 28%

45; 22%

… a Chinese company?

… a French company? … a US company?

N = 206(surveymonkey.com)

17

What are the possible changes that might occur after a Chinese acquisition?

Working hours Wage levels Working environment Job security Satisfaction of employees Other0

10

20

30

40

50

60

70

80

90

100

PositiveNegativeNo change

Source: Lukas Sobol, SKEMA Business School, Master of Sciences Thesis in International Business.

N = 206(surveymonkey.com)

18

What are the benefits of Chinese FDI for the recipient?

For the company:• Financial Investment• Access to the Chinese market• Scale effects with the new owner• Symbiotic effects with the new owner

For the local economy:• Job creation• Spillovers to host country companies:

– vertically (in the supply chain, with suppliers and customers)– horizontally (with competitors): turn-over of labor force, stimulation of

competition

19

2. Two types of operations

20

Natural resources or markets?

Natural resource seekers

• Vertical (backward) development

• Large SOEs• Targets: resource-rich

countries• Biggest deals until now

Market seekers

• Horizontal development (same activities abroad) or conglomerate diversification

• Private companies• Targets: developed

countries• Small size

21

Rational # 1: Give access to Chinese market

22

Rational # 2: Gain access to foreign technology

The Chinese “Caterpillar” - German- niche-focused:

concrete machine manufacturer

Acquired in 2012: 360 million euros

23

Rational # 3: Expand brand portfolio

Euro 1,5 billion Euro 1,8 billion

Euro 0,4 billion

24

Rational # 4: Capture a good image

“A Family of Brands You Trust”

25

Sanpower89% 2014

Rational # 5: Market diversification

26

3. Managerial issues

27

Problems faced by Chinese companies in foreign countries

• Different regulations (French Labor Code, French trade-unions)• Different taxation systems• Currency fluctuations• Country political risks (Sudan, Guinea, etc.)• Unexperienced in dealing with foreign political authorities (CFIUS,

Alstom-GE)• Lack of trust, rejection, economic nationalism (more than with

greenfield investments), different leadership styles• Who will be the GM? How to exert management control? How to

recruit?• How to deal with brands? Towards globalization or localization?

28

29

This presentation will be uploaded on: https://dominiquejolly.wordpress.com/