Mucelli IXCimet Ancona 2012 - UNIVPM

Attilio Mucelli 1/24

Cemen%ng the presence in Europe: Zoomlion plays the card of CIFA

Polytechnic University of Marche College of Economics “Giorgio Fuà” – Department of Management

Attilio Mucelli [email protected]

IX workshop C.MET 05 Le leve per la competitività dell’industria italiana:

risorse intangibili, innovazione e internazionalizzazione Ancona, June 7th, 8th and 9th, 2012


Purpose

Study the Go Global phenomenon, with a mul2disciplinary approach, with par2cular a6en2on to effects at industry and firm level for “host countries”

Team of Research

Economics, Interna2onal management, Human resource management, Management and Financial Accoun2ng and Cost Management (interna2onal team)

The General Research Project (1/2)

I output: general understanding of the Go Global strategy (Bellabona, Spigarelli, 2006; 2007)


II output: exploratory analysis of the ini2al effects and primary characteris2cs of Go Global in Italy, iden2fying areas for further academic inquiry (Spigarelli, 2009)

III output: focus on Chinese M&As in the western markets and on M&A cultural and management related problems with a case study approach (Alon, Spigarelli, Wei, 2009; Alon, Mucelli, Spigarelli, in press; Alon, Mucelli, in progress; Mucelli, Spigarelli, Zoia, in progress)

The General Research Project (2/2)

In progress: knowledge transfer and HR management in Chinese investments abroad (compara2ve studies on USA, Canada, UK, Spain, Mexico, Brazil, Italy)


Output III: Chinese M&As in the western markets

§  To analyze the difficul2es and cri2cal aspects of the affirma2on of Chinese MNEs in the global arena -‐ in Italy, in par2cular

§  Focus on M&A, as preferred mode of entry of Chinese firms in Wester Markets

§  Specific a6en2on is driven to economic and financial results, human resource integra2on, cross cultural differences, changes in management prac2ce and approach to business

Purpose of the paper

Structure of the paper §  Literature review on MNEs from emerging countries and on M&A from Chinese companies

§  Assessing Chinese M&As cri2cal aspects: a possible framework for analysis

§  The case study: Cifa-‐Zoomlion


LiMerature on Chinese M&As

Only few research papers available (Deng, 2007 and 2009; Rui & Yip, 2008; Boateng et al., 2009). Theore%cal contribu%ons Chinese interna2onaliza2on: ‘‘Ins2tu2onally embedded rather than reflec2ng a strategic choice by the leaders of firms?’’ (Child & Rodrigues, 2005). Ins2tu2onal perspec2ve (Oliver, 1997; Deng, 2009) and strategic intent perspec2ve (Rui & Yip, 2008). Empirical studies §  Growing importance of M&A as entry strategy (more than 80% of the value of Chinese outward FDI is via M&A -‐ OECD, 2008)

§  Mo2va2on: market development, fast entry into new markets, diversifica2on, strategic resources as advanced technology, R&D, know-‐how, brands (Boateng et al., 2009; OECD, 2008)



§  Main players: large enterprise groups, with compe22ve advantages at interna2onal level (Chen & Li, 2006; Morgan Stanley, 2005).

§  Acquired firms usually based in developed countries, facing financial or strategic difficul2es (Morgan Stanley, 2005).

§  Deals concentrated in key industries (resource and energy, telecommunica2ons, electronics, machinery, home appliances, automobiles) characterized by fierce compe22on between local firms and global rivals (Rui & Yip, 2008).



Problems faced in managing overseas M&As (Hirt & Orr, 2006):

§  running rela2onships with skep2cal regulators, unions and other stakeholders before, during, and amer the deal;

§  globalize the brand, the supply chain and the sales network;

§  unfamiliar environments where business prac2ces, models and rou2nes, as well as administra2ve, fiscal and civil rules completely differ from those prevalent in the Motherland;

§  integrate people and bridge cultural gaps between the Chinese investor and the acquired company.


Cri%cal issues in managing overseas M&As

Management of the phases that follow the transac2on (Haspeslagh & Jemison, 1991). Key choices (Zollo & Singh, 2004):

§  level of integra2on between the two par2es; §  possibility/need to replace managerial resources of the acquired firm.

In M&As from emerging countries acquirers tend to leave the target firm structurally separated (Kale & Singh, 2008).

To push synergies and leverage interdependence, the acquirers need to follow a “partnering approach to acquisi2ons” (Prashant & Singh, 2009).

Specific mechanisms must be ac2vated to coordinate human resources and to develop trust and rela2onal capital.


The case study: Cifa -‐ Zoomlion

The industry: Machines for construc%ons industry

Several key compe2tors share the majority of worldwide sales. The industry is global and highly compe22ve. Price, technology, innova2on and engine performance are the key elements in customer choice.

The “story”

In 2008 the Zoomlion Group, a Chinese Company, producing and selling machines for construc2ons industry acquired the Italian Cifa Company, leader in the produc2on of cementer mix industry, to expand its business in the World market.


The acquired: Cifa (1/2)

§  CIFA, Compagnia Italiana Forme Acciaio, was founded in 1928 as a family firm;

§  the growth of the Company has been steady and par2cularly relevant in the 50s when the concrete became one of the founding element of the rebuilding following WWII in all Europe;

§  the Company has undergone a constant evolu2on focusing on concrete and it’s history is made of research, perseverance and passion leading the Company to become an Interna2onal innova2ve benchmark in the fields of cementer mix industry;

§  In 2006 control of the company moved into the hands of a group of investors


Strengths §  A big player: 3rd place in the world field of machinery for concrete; §  Brand: history and tradi2on §  R&D Department: technical skills in projec2ng machinery for cementer mix with a specific focus on the real expecta2ons of the customers and of the users of these machines

§  Full control on the whole engineering process, from the in house R&D dept. design phase to the final checkout, leads to a great apprecia2on of Cifa’s products by the specialist users

Problems faced before the acquisi%on §  disagreements among members of the private equity fund (the majority shareholder – Magenta Fund)

§  inten2on to liquidate the private equity fund “Magenta”

The acquired: Cifa (2/2)


The acquirer: Zoomlion Group (Zhonglian -‐ 中联)

§  a large Chinese scale owned group, founded in 1992, with 22,000 employees and a turnover (2010) of more than 50.8 billion yuan (about 6.4 billion euro);

§  listed on the Shenzhen Stock Exchange (2000) and on the Hong Kong Stock Exchange (2010);

§  specialized in the R&D and manufacturing of advanced technologies and equipment for Chinese key infrastructure construc2on projects, including construc2on, energy engineering, environment engineering and transporta2on engineering projects;

§  at the 2me of the acquisi2on the Company was listed at the 5th place in the world field of machinery for concrete (1st in the China market);

§  rapid growth in size thanks to several M&As, especial in an interna2onal prospec2ve


Strategic goals of the acquisi%on

§  to became the world leader in the machinery for concrete industry (the most important Chinese investment in Italy and the second largest in Europe) and to extend the range of product;

§  to capitalize on Cifa’s professionalism and knowledge (and patents too), in order to offer high-‐quality products in segments that had not yet been penetrated by the Zoomlion Group;

§  to enter in new markets not yet covered by the Zoomlion Group (high professionalism of Cifa’s management in an interna2onaliza2on prospec2ve) and to further diversify produc2on to new categories of clients;

§  to acquire a solid (in a financial prospec2ve) Company with a strong ability to generate cash;

§  to become more and more compe22ve to face the leading German companies in the machinery for concrete market.


The pre and post acquisi%on ac%vi%es

Before the acquisi2on, teams of top managers Italians and Chinese spent a lot of a6en2on to cultural media2on, working to integrate the two companies (strong role played by Mandarin Capital Partners).

Opera2ons rela2ng to administra2on, produc2on and R&D were maintained in Senago (Milan, Italy).

A new produc2on plant was built in China.

Maintenance of the exis2ng management for preserving the group strategies (with the redefini2on of roles and responsibili2es).

Integra2on of the R&D departments of the two Companies. The Cifa R&D director is now the R&D director of Zoomlion Group.

Restructuring of the business strategy in order to manage the two brands in various markets.


1.   Poor performance

“Troubles” in post acquisi%on phases

The poor performances were mainly caused by the financial crises that has hit the construc2on sector, the tradi2onal export market of the Italian Group, a few months amer the conclusion of the M&A

Cementer Consump2on in Italy (source: Ufficio Studi AITEC)

!3,40%' !2,90%'

!9,70%'

2,60%'

!2,00%'

!10,90%'

!1,30%'

!17,00%'30,5'

31'

31,5'

32'

32,5'

33'

33,5'

34'

34,5'

35'

35,5'

!20,00%'

!15,00%'

!10,00%'

!5,00%'

0,00%'

5,00%'

II' III' IV' I' II' III' IV' I'

Annual'Trend' Raw'series'

2012'2010' 2011'



0"

5"

10"

15"

20"

25"

30"

35"

40"

45"

50"

1950"1952"1954"1956"1958"1960"1962"1964"1966"1968"1970"1972"1974"1976"1978"1980"1982"1984"1986"1988"1990"1992"1994"1996"1998"2000"2002"2004"2006"2008"2010"2012"

millions'of'ton'

years'

Raw"series" Trend"(5"years"smoothing)"

Cementer Consump2on in Italy (source: Ufficio Studi AITEC)


Cement�production in�CEMBUREAU�and�EU27�countriesMillion�tonnes

310

330

CEMBUREAU

EU27

270

290EU27

230

250Var�2010/09

Ͳ0.7%

170

190

210

Var�2010/09Ͳ5.4%

150

170

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Note:�Cement�production�includes�cement�produced�with�imported�clinker



300

World�Cement�Production�by�Region�Ͳ Evolution�2000Ͳ2010Index�2000�=�100

270

300

210

240

180

210

120

150

90

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Africa America Asia CIS CEMBUREAU EU�27 Oceania


1.   Poor performance (sales/opera%ng results)


-‐50.000.000

0

50.000.000

100.000.000

150.000.000

200.000.000

250.000.000

300.000.000

350.000.000

2006 2007 2008 2009 2010

Sales

Opera%ng results

Source: Cifa’s Financial Statements

Pre-‐acquisi%on Post-‐acquisi%on


1.   Poor performance (trend of ROE)



Pre-‐acquisi%on Post-‐acquisi%on


1.   Poor performance (trend of ROI)




1.   Poor performance (trend of Interest expense)



Pre-acquisition Post-acquisition


2. Development of rela%onal capital

Cultural differences between the Chinese and the Italians (behavior, management prac2ce and business approach):

§  at individual level -‐ communica2on difficul2es;

§  at intra-‐firm level -‐ different “ins2tu2onal” context in terms of laws, civil and fiscal rules.

Problems stem from differing organiza2onal cultures and from the differing working environments in China and Italy.



1.  Cifa-‐Zoomlion is the most important M&A opera2on realized in the Italian market by a Chinese Company;

2.  the transac2on didn’t present the typical features of the most Chinese acquisi2ons in Italy;

3.  difficul2es in the integra2on process arise in the mid term even when in the pre-‐acquisi2on phase was paid par2cular a6en2on to the cultural media2on. Communica2on and interac2on among people turn out to be frustra2ng;

4.  the integra2on between the two Companies is recent and perhaps it’s too early to understand the real implica2ons and to suggest the defini2ve interpreta2on of the case study.

In sum The case analysis shows that:

Documents

Mucelli IXCimet Ancona 2012 - UNIVPM