30 Jan 2015

Are Chinese Companies Set to Conquer the West?

Several notable Chinese companies look set to take their operations increasingly global in 2015.

This raises some questions about how far China’s influence will now extend beyond its immediate region. It’s looking as if we are about to witness a period in which Chinese companies increasingly exert their influence in the West.

Increasing competitive pressure at home, combined with a slowing economic growth, means Chinese companies are keen to tackle new markets in the West and elsewhere. The Chinese government has expanded funding for investment overseas and it seems to be having the desire effect: in the first three quarters of 2014, outbound direct investment was up 22% to $75 billion. Chinese companies have made a series of high-profile investments in Western economies, focusing on a few key sectors.

Construction & real estate

In the UK alone, over £100bn of Chinese investment into the infrastructure and construction sectors is forecast over the next decade.

Real estate has long been a popular choice for Chinese investment overseas in the UK and US. One Chase Manhattan Plaza, in the heart of New York’s financial district, was recently acquired by Fosun International.

The conglomerate Dalian Wanda, whose operations stretch across cinemas, luxury hotels, and department stores, made a huge cinema chain purchase in the US and recently announced plans to add a new skyscraper to Chicago’s skyline.

As is common with Chinese-built skyscrapers, this one will have 88 floors (the number 8 is considered auspicious). The number of stories may not be especially significant but it’s a small indicator of the growing influence that Chinese multinationals are wielding in western economies.

Technology

The technology sector is also seeing investment from China. These investments are often made for a variety of business reasons. When Baidu made a massive investment in Uber (thought to be worth $600m), it was a defensive move to pre-empt rival giants Alibaba and Tencent.

Other Chinese tech firms are looking to the holy grail of becoming a major global tech or digital brand in the vein of Google, Twitter or Apple. One of these is Chinese tech giant Tencent, which has been splashing the cash in Silicon Valley as part of its bid to make its mobile messaging service WeChat an overseas hit. Tencent was a minority investor in the acquisition of hot social media platform Snapchat. It also participated in funding anonymous sharing platform Whisper and small business website hosting and development tool Weebly.

Some Chinese firms are making strategic moves to access new markets and develop new products. The UK tech industry has seen investment by gaming giant Rekoo, which is planning a London base, its first outside China, in order to access European opportunities. Communications company Huawei is booming overseas, launching dozens of ambitious products, and the firm is planning to create a research and development centre in the UK.

Some of these acquisitions are so massive that the competitive landscape is being affected. It’s been speculated that Hong Kong-based Hutchison Whampoa could be about to buy Britain’s second-largest mobile provider, O2.

This will be subject to approval by anti-trust regulators. As the company already owns the Three mobile network, this would potentially lead to the creation of the UK’s biggest mobile group. Hutchison Whampoa is owned by Asia’s richest man, Li Ka-shing, who has already spent over £20bn on overseas acquisitions in the last few years.

Entertainment

Very recently we ran a blog examining how Hollywood is keen to cooperate with China in order to access this market’s growing box office sales. Co-operative agreements have been signed between both US and UK film bodies and studios seem to be considering how to produce ‘fusion’ films that will appeal to both Eastern and Western audiences. It remains to be seen exactly how film plots will be creatively influenced by growing Chinese consumer power.

But China isn’t only wielding creative influence on what we watch. It’s likely that Chinese brands such as Lenovo computers, Haier refrigerators and Huawei mobile phones may soon become household names in the US and EU.

Lenovo in particular has big plans in the West: the company made two significant acquisitions last year including the iconic Motorola Mobility. With 60% of its business now located outside China the company has expressed its intention to prioritize profitable markets overseas and it is experiencing rapid growth in Europe.

Another Chinese smartphone maker, Xiaomi, is also increasingly looking like a serious competitor to Apple and Samsung. With competition very intense in their home market (China has been described as the world’s most competitive smartphone market), it looks as if success could be determined away from home for these brands.

Another Chinese company looking to overseas expansion overseas this year is Alibaba, which recently launched on the New York stock exchange. Founder Jack Ma has expressed a desire both to supply to small businesses in the West and also enable them to sell to the Chinese consumer. It will be interesting to see the effect this has on Ebay and Amazon: Alibaba effectively drove Ebay out of China a few years back and the company has aggressive plans to expand in the EU and US. It’s even been suggested Alibaba could see Ebay as an acquisition target.

Food and drink

Perhaps the most surprising name to be breaking outside its domestic market is food company Bright Food. Whilst western households are accustomed to consumer products from condoms to refrigerators being manufactured overseas, it’s less common to think of China as a food exporter.

The food group has made some food brand acquisitions in Europe, including Weetabix breakfast cereals and an Italian olive oil manufacturer. It’s also thought to be hunting for new acquisitions in sugar and dairy. The company has said it plans to acquire international assets to the value of 25% of its entire operations by 2017, possibly including products such as cheese and wine that are of increasing interest to Chinese households open to unfamiliar tastes.

The tendency of Chinese households to value saving, and the long-term outlook of many Chinese investors, have resulted in huge purchasing power by many huge Chinese firms as they mature enough to look to overseas expansion. Over the next few years it’s likely we will further significant investment overseas by Chinese companies as they expand their influence in the West.



 
 

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