I propose to continue our analysis of the relationship that China has with brands by focusing on a phenomenon that started about 5 years ago: the purchase of European brands by Chinese companies. Here is a list (not exhaustive … I would be delighted if readers of BrandWatch complete it):
- In cars, examples abound: in 2005 Nanjing Auto bought MG, and SAIC (Shanghai Automotive Industry Corporation) acquired the rights of several Rover models. These were redeveloped and marketed under the name Roewe, with great success. Since SAIC had acquired Nanjing Auto, the new group re-launched the MG in Britain in 2009/2010, with models that were well received by critics. The group's portfolio also comprises the rights to Austin Healy, purchased in 2007. This year, Geely bought Volvo from Ford.
- In 2008, Weichai Motors, the first Chinese manufacturer of boat engines, trucks and construction equipment, bought Motors Baudoin – recognized experts in marine engines.
- A similar phenomenon is appearing in fashion. In 2008, the group Hembly International bought Sergio Tacchini. In 2009, Zhongfu bought the rights to Pierre Cardin in China. This year Shandong Ruyi (world leader in spinning and weaving, one of the Hugo Boss sub-contractors) acquired 41% of Renown, the Japanese fashion comppany, and Tombolini, the Italian clothing company.
Chinese companies have been building on the low-cost business model so far: the price made the difference, and some even resorted to dumping to get rid of competitors in markets. They have now clearly understood that owning a brand generates higher margins than being a manufacturer for the owner of the brand. This explains why over 20% of company heads surveyed in a recent study by The Economist ("A brave new world: The climate for Chinese M & A abroad", 2010) say they are in search of brands.
However, Chinese companies are faced with significant managerial shortcomings - especially where integration of foreign teams and marketing are concerned. The Economist's survey shows that Chinese companies have acquired 298 foreign companies in 2009 (including 13% in Europe and 13% in the U.S.), but only 39% of top managers surveyed believe they have the skills to integrate these acquisitions. The challenges ahead are therefore significant. However I am persuaded that the Chinese companies in question will acquire these skills rapidly ... not least because the European and U.S. business schools are setting up centres in the very lucrative MBA market in China with important local partners.
