Chinese companies are actively pursuing M&A activities to enhance their dominance in the overseas industry and predominate the domestic market. Last year, overseas M&A of Chinese companies grew more than 200% compared to that in 2013. Professor Teng Bingsheng, CKGSB Associate Dean, Europe Campus, forecasted that the large-scale M&A will actively take place over the next 10 years. He explained that this trend will help companies shorten the market entry process to global standards by accumulating R&D capabilities.
With regards to reaching record-high M&A transactions worth USD 260 billion, Prof Teng suggested this trend will be continued for several reasons. Industries with relatively less domestic demand find a way to survive by incorporating large conglomerates with SMEs. Also, multinational companies still find it difficult to IPO in China. Therefore, there are an increasing number of firms attempting to enter the market through acquiring corporate shares and joint ventures, which eventually lead to more M&A activity. Lastly, it is now a good time for Chinese companies to acquire overseas companies suffering from the global market since the price of those companies in Europe and the emerging economies could be reasonable.
Prof. Teng agreed that many multinational companies are facing barriers to enter Chinese market. These barriers include more tightened regulations, Chinese companies’ improved competitiveness, as well as increased labor costs. Also, a strong Chinese Yuan acts as a factor that prevents the growth of multinational companies. That’s why traditional manufacturing businesses have been moving their base to South East Asia such as Vietnam and Cambodia. Although Prof. Teng partly agreed with the view that buying out overseas brands may prevent the growth of the local brands, he argued that more M&A opportunities should be created to accumulate the advanced technologies and help branding. He particularly pointed at Germany to be the ideal counterpart for China for its advanced technologies and relatively smaller corporate scale.
In terms of the government support, Prof. Teng said the government is willing to acquire overseas companies based on its sufficient foreign exchange reserves. However, he predicted that foreign exchange will not be used for supporting overseas business anymore due to the government’s plans to reform SOEs. Prof. Teng emphasized that the government’s role is to create a favourable business environment and it’s up to the companies to prepare for the negative outcomes. He added that the SOEs are gradually sharing their corporate shares and profit systems with private companies. Some representative cases would be China’s largest state-owned oil company, Sinopec that announced to release its shares to the public and Shanghai Motors which made joint venture with Rover.
To lead successful M&A in China, Prof. Teng advised that overseas companies maximize the opportunity to understand Chinese corporate business processes and maximize the opportunity to communicate with the local employees. In other words, to understand the Chinese market and properly evaluate their values, he suggested establishing a network and actively communicating with the local people.