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Chinese companies are increasingly looking toward Europe to extend their business operations, according to a China Daily report.

The report highlighted a number of recent high-profile deals. In August, Zhejiang Geely Holding Group Co completed its takeover of Swedish carmaker Volvo Car Corporation. And late last month Shanghai-based Bright Food (Group) Co Ltd emerged as the frontrunner to acquire United Biscuits, the UK biscuit maker currently owned by private equity firms.

Other recent deals include Shanghai industrial conglomerate Fosun International Ltd acquiring a 7.1% stake in French holiday resort operator Club Mediterrane, commonly known as Club Med, in June.

Eric Thun, lecturer in Chinese business studies at the Said Business School at Oxford University, was quoted saying that Europe was now often more attractive than the United States for Chinese companies looking for investments.

The Chinese, he said, were interested in capital-intensive manufacturing processes and countries like Germany are world leaders in the area.

According to China’s Ministry of Commerce, 5.8% of Chinese overseas direct investment in 2007 was directed at Europe, behind Asia (62.6%), Latin America (18.5%) and Africa (5.9%), but ahead of North America on 4.3%.

There were 252 investments by Chinese companies in Europe in the 10 years up to 2007, according to research by international business adviser Ernst & Young.

Of these, the largest number, 101, went to the United Kingdom with 40 going to Germany, 24 to France and 15 to Sweden.

Zhang Tianbing, a partner in global management consulting firm A.T. Kearney, who is based in Shanghai, said bridging China’s technology gap is one of the main aims for Chinese companies investing in Europe.

“If you look at the car industry and the acquisitions of companies such as Rover and Volvo by Chinese companies, these allowed Chinese businesses to acquire technological ability that had been built up over almost a century,” he said.

Zhang said that Chinese companies were not always looking to take over European companies so they could bring their manufacturing facilities back to China.

“Keeping the manufacturing in Europe, and even most of the research and development, is part of the value of these acquisitions. Maybe some of that manufacturing will migrate to China over time,” he added.

Eric Schmidt, chairman of Beijing-based China Entrepreneurs, which organizes forums and conferences in China linking Chinese and European companies, said Chinese companies represent the perfect exit strategy for many European family-owned businesses.

Mike Bastin, a brand expert and visiting professor at the China Agricultural University, warns there are dangers for Chinese companies that overestimate the value of European brands.

“Brand values can be intangible and might not always compensate for the difficulties in integrating corporate cultures. Chinese companies need to pay more attention to modern methods of quantifying intangible brand values,” he said.

The appetite for major acquisitions in Europe by Chinese companies is unlikely to be sated any time soon, however.

There is continued speculation that vulnerable European banks could be the next acquisition targets for Chinese companies. – Source: China Daily

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