International Takeovers by Chinese Companies

Topics: Automotive industry, Mergers and acquisitions, Volvo Cars Pages: 6 (2318 words) Published: July 27, 2013
International Takeovers by Chinese Companies: The Challeng

31/08/2012
Abstract
While a multitude of multinational companies are entering the Chinese market, there are very few Chinese companies going multinational. Therefore, the Chinese government has formulated the “Go Global” strategy in order to encourage Chinese companies to invest in business abroad. Takeover (Acquisition), which can be defined as one company being purchased by another, is generally believed to be a straightforward and effective method to achieve that goal. However, it is challengeable to make the takeover successful, especially between companies from different countries. This paper will explore the challenges that Chinese companies may encounter while taking over multinational companies. Through the analysis of the case of Volvo acquired by Geely, it is found that the challenges mainly come from cultural differences, corporate finance and brand image. It is necessary for Chinese companies to focus on making appropriate strategies to overcome these difficulties so that benefiting from acquisitions. These strategies include cultural integration, expanding the Chinese market and brand positioning.

Introduction
International takeover (acquisition) is a straightforward method of Outward Foreign Direct Investment (OFDI) which can be defined as the action of investing in business abroad. China, as the second largest economy of attracting foreign investment, has developed its scale of OFDI tremendously. Acquisition plays a significant role in this progress. According to the National Bureau of Statistics of China, the capitals of Chinese OFDI reached as large as 68.8 billion USD. In terms of the patterns of OFDI, it was reported by the Xinhua News Agency which is the official media of China that more than 40% of the investment came from acquisitions. However, for Chinese companies, international takeovers could be highly risky and challengeable since most of them lack the experience and skills of managing the multinational. In the past two decades, overseas acquisitions conducted by Chinese companies have increased at the rate of 17% annually, but the rate of failure is 67% (Zhang, 2011). The high failure rate reflects that Chinese companies are facing a multitude of difficulties after acquisitions. The main reason of these difficulties is that most of those companies are domestic enterprises instead of multinationals. After acquisition, those companies suddenly become multinationals, which brings them into a total unfamiliar environment. This short essay is going to analyze the challenges faced by Chinese companies after acquiring multinationals. Furthermore, the specific case of Volvo’s acquisition by Geely will be discussed in order to explore the difficulties practically. The first section of this paper aims to give a brief explanation of merger and acquisition. The next section will focus on the challenges faced by acquirers in order to profit from the acquisition. It will be followed by the case of Geely and Volvo, through which those challenges can be analyzed more clearly. Finally, this paper will summarize the findings and give according suggestions.

The concept of takeover
A takeover (acquisition) can be defined as a corporate action that the stakes or assets of one company are purchased and owned by another (Reed, Lajoux, & Nesvold, 2007). It can be described as a transfer of ownership, from the target company to the acquirer. Takeovers can be either friendly or hostile. Friendly acquisitions mean the target firm agrees to be acquired while there is no agreement from the target firm in terms of hostile acquisitions and the acquiring company needs to purchase large numbers of stakes of the target company. Takeovers can be divided into domestic acquisitions and international acquisitions or cross-border acquisitions according to the locations of the companies. An international takeover refers to an acquisition in which the acquiring...

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