Investments by big Chinese companies in Europe have made the headlines in recent years, but it is the entrance of mid-sized private Chinese companies into Europe through acquisitions that is now gaining attention. These companies are motivated by bringing advanced technology and know-how back into China for their domestic market as well as gaining sales channels for their products in Europe. These mid sized companies are also often able to move more quickly than the state-owned and mega private Chinese companies.
In particular, investments in, and strategic acquisitions of, European manufacturing companies are starting to become more common, and this trend looks set to continue. Chinese and European manufacturing companies in the same business sector can often quickly understand each other and indeed may already be working together. An initial small investment can lead to closer cooperation, giving the Chinese manufacturer the opportunity to build its reputation with its partner and in the relevant market before making larger strategic acquisitions.
The recent acquisition in the automotive sector by Shandong Yongtai of one of our clients, Covpress, in the Midlands is a good example. Shangdong Yongtai is recognized to have built a strong local reputation through its partnership with another Midlands company that then introduced it to Covpress. That reportedly gave Shangdong Yongtai access to Covpress’s key customer, Jaguar Land Rover. The deal was welcomed by the local media and business community as a good news story and we believe it will definitely open the way for other similar investments by Chinese companies in that region.
One important recipe for synergy in these deals is for Chinese buyers to look after their new employees and build mutual trust with their European management team. In this area, Chinese companies could perhaps learn from Japanese companies like Toyota and Nissan, which became model employers in Western eyes when they set up factories in Britain in the 1980s. The resulting positive reputation has rubbed off on many Japanese companies that followed them into Britain.
Additionally, it is useful for Chinese companies to localise after making the acquisition, or maintain some local European characteristics of the target companies they have bought. It is not necessary for all of the senior managers to be European. It is expected that a Chinese company will have senior Chinese managers at the very top and that they will have to regularly communicate with their headquarters in China. However, having European managers in certain key management positions, such as human resources, is often welcomed, as are other local staff.
Another important factor for establishing a good reputation and local credibility is engagement with local businesses. Fostering relationships with accountants, corporate finance specialists, law firms and local banks is crucial. It gives a local edge and access to key local contacts who are more than happy to help secure deals for Chinese clients. A top tip is not just to focus on businesses in the capital cities. If the deal you want is in a region, focus on that region, as Shangdong Yongtai did so well in the Midlands.
Europe has an abundance of opportunities for Chinese companies, and Britain has declared itself ‘open for business’. How Chinese companies make their moves over the next few years will dictate whether China is seen in Europe as a great business partner, or one to avoid. The Chinese proverb “A good reputation lasts a hundred generations” is as true as another one that says “A bad reputation lasts for 10,000 years”. If Chinese companies establish a reputation as great business partners in Europe, we can look forward to many years of Chinese companies working alongside European ones to the benefit of both economies.
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