A wave of Chinese outbound investments is coming

13 Aug

China’s economy has grown exponentially over the past decades. In the beginning, western companies saw China as a mere low-cost hub for their own manufacturing needs. Over the years, Chinese local companies have been catching up and started competing with their western counter-parts. By now, many domestic players are on par with their western competition and have claimed respectable market shares in the China market. The local players understand the requirements of the Chinese consumers oftentimes better and have developed advantageous positions not only in pricing but also in product or business model innovation. More and more of these local champions like Lenovo, Alibaba, Haier and Huawei are starting to go overseas as part of their globalization efforts. In comparison with other nations however, China is still lagging far behind in number and value of outbound investments and overall M&A activities. This will most certainly change in the near future.

Where the first wave of overseas cross-border investments was predominantly aiming at securing natural resources, desperately needed to fuel the heavy production industry in China, the next wave has a different set of objectives. Chinese companies are increasingly looking at investment targets to obtain advanced technology and intellectual property (IP) as well as market access to overseas consumers. This shifts the focus from countries that are rich in natural resources to ones that have superior technology, IP and attractive market places. The U.S. and Europe (namely Germany) have become prime targets for Chinese investors.

At this place, I am starting to write a regular column about opportunities and challenges that Chinese investors face on their road to globalization and how these could be best addressed. I will explain which transactions have been successful and why and more so look at the large number of failed deals to understand what went wrong. At the end, it is still a long way to go for Chinese investors.

Topics for the next few episodes will include:

  • Why is a detailed globalization strategy necessary BEFORE looking at investment targets?
  • How can Chinese companies improve their investor branding & communication to be more openly accepted in the west?
  • Why do most Chinese investors pay a large premium for their investments and how to avoid that?
  • How to identify attractive investment targets overseas that fit the culture of the Chinese investor?
  • Why is an in-depth Due Diligence so important?
  • How can Chinese investors bridge the cultural gap between their own (corporate) culture and the one of the target they are looking at?
  • What is the best model to integrate a western company with its new Chinese owner?

My goal is to create a dialogue here and have other guest writers contribute their experience and views to this forum.

Please feel free to post comments, suggestions, feedback or criticism!

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