How I Help Chinese Companies Acquire Expertise
BOCCONI ALUMNUS EMANUELE FRANCIA'S EXPERIENCE AS A CONSULTANT IN BEIJINGThe growth in foreign investments by Chinese companies is not slowing: what do they want and how do they work? Emanuele C. Francia explains. After a degree from Bocconi in Business Economics and an MBA from SDA Bocconi, he has worked in Beijing since 2009. He supports Chinese companies getting ready to expand abroad at Allpku Management Consulting Group, one of the leading consulting firms in China. Francia also does research on corporate governance at Tsinghua University and is a faculty member at CAU-ICB China Agricultural University in Beijing.
➜ According to Baker Mckenzie, Chinese investments in the US and Europe reached a record of $94bn in 2016. How has the approach of Chinese companies changed?
The change is not only strategic, but also a change in goals and in the organizational approach. Especially for State-Owned Enterprises (SOEs), the majority of large companies in China, which are undergoing a reform to make them more efficient and allow them to focus on outside China.
➜ What is the strategy of Chinese businesses when looking abroad?
They have a systematic approach, in sync with the government and institutions. Then, when they make acquisitions, they favor majority control that is amicable, not invasive. A Chinese company coming in often provokes a concern that the acquired company’s brand and nature will be stripped. But Chinese companies want to leverage and preserve the qualities of the company that is acquired. Like in 2008, when CIFA, an Italian machinery company, was acquired by Zoomlion, a state group, but with private equity. It was the first and largest acquisition by a Chinese group in Europe and was turned into a Harvard Business Case on the creation of value. ChemChina, a majority partner in Pirelli since 2015, acquired a large Israeli agrochemical company, Mai, in 2011. Its value then increased, making it the parent company of an umbrella of Chinese companies, optimizing organization with Israeli best practices.
➜ And what do they want?
When a Chinese company makes an acquisition abroad, it is pursuing alliances common to many M&As. These include cross-leverage of technology, the opportunity to introduce a premium product on the Chinese market and disseminate products made in China to markets controlled by the target company. There is thus no reduction in production or loss of skills or jobs. The acquired company maintains control of the high quality, often expanding production capacity. Most of all, the Chinese company wants to acquire skills and knowledge, from marketing to brand strength. It wants to learn foreign best practices in terms of organization and corporate governance. Lastly, it aims to develop international collaborations and partnerships. For SOEs, M&As represent a chance to understand how global industry benchmarks operate.
➜ Which industries and which geographical areas are most affected?
Chinese companies focus on most industries, from the automotive industry to high tech to financial services, but definitely the new frontier is Green Tech. The US and Europe remain the main objectives for this kind of operation, but Chinese companies are looking everywhere: including Israel and Eastern Europe. Attempts by the Chinese government to keep foreign investments under control has been much discussed. Chinese companies certainly have more constraints and stricter legislation. The Chinese system is, after all, a socialist market system, and international activities are coordinated. But investments outside of China are not slowing, but in fact growing.
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What Our Country Can Give You
by Allegra Gallizia
Translated by Jenna Walker
