Is your Company on the Shopping List of a Chinese Enterprise?
“The Chinese Are Buying up Switzerland.” “Selling off Switzerland to the Chinese.” “Save the Swiss Companies!” Such headlines have attracted much attention in the Swiss media recently. The sensationalist statements reflect public concern about the increasing number of Swiss companies being bought up by Chinese enterprises.
The largest acquisition made so far by a Chinese company has been the purchase of Syngenta, which went for USD 40 billion. In previous years, other “pearls” of the Swiss industry have also come under Chinese ownership, such as Eterna, Oerlikon Textile, Saurer, Gategroup, Swissport, or Sigg. Interestingly, whenever the Chinese appear as buyers of a Swiss firm, it makes the headlines, whereas acquisitions by companies from other countries hardly make into the news at all. Switzerland obviously fears Chinese foreign investment. Specific worries include the loss of jobs, the appropriation of Swiss expertise and technology, and a decrease in international competitiveness, to name just a few. Put simply: The Swiss are afraid to loose their high standard of living over efforts by the Chinese to further increase their economic and personal wealth.
However, let us look at the bigger picture: The rise of Chinese investment in Switzerland and elsewhere illustrates the current state of the Chinese economy. The last three decades have shown a fast-track emergence of China from a poor developing country into a thriving economy. With its economic business model, “80% of the quality at 60% of the price,” China established its role as the workbench of the world, with global market shares in production of 40 percent or more in many industries.
While China, like any other progressing economy, benefits from the catch-up effect, it also faces a decrease in growth rates over time. In order to maintain a “new normal” level of seven or fewer percent of GDP increase per year, the Chinese government under Xi Jinping has changed its economic policy away from export- and investment-driven to consumption- and innovation-oriented growth. This economic transition is embedded into a long-term strategy known as “Made in China 2025,” based on the goal to turn China into the most advanced economy of the world. An important part of this initiative is the acquisition of foreign expertise and technology in areas such as robotics, aerospace, railway, green energy, medical equipment, and new materials. If a Swiss company is active in one of these areas, there is a probability that it will be added to the shopping list of a Chinese enterprise.
Empirical research has been conducted by the Center for Asia Business at the ZHAW School of Management and Law in cooperation with the China Desk of KPMG on Chinese M&A transactions in Switzerland. Their findings shed some light on the motives, success rates, and future prospects of Chinese foreign investment in Switzerland. Considering the 26 acquisitions between 2010 and 2015, the main motives of Chinese investors in buying Swiss companies are clear: state-of-the-art technology, brand image, superior management expertise, and access to the Western market. On the other hand, the Swiss firms they acquire generally benefit from financial support as well as easier market entry into China.
The post-merger integration of the Swiss and Chinese entities has not been an unmitigated success everywhere. Whereas some companies confirm that it has been smooth sailing, others have substantial difficulties with their Chinese mother company due to inappropriate strategic alignment and a lack of communication with headquarters. Some complain that Swiss business culture is being ignored.
Successful transactions are characterized by due diligence during the transaction phase. In addition, a light-touch integration mode is advisable, in which the strategic interdependencies between the two companies are high while, at the same time, a wide scope of autonomy is granted to the Swiss target firm. The formation of an integration team, strong leadership commitment, and rotation programs for employees are also recommended to reduce cultural barriers and strengthen cooperation.
In light of China’s goal to upgrade its economy, the trend of Chinese enterprises acquiring Swiss companies can be expected to continue. It would however be misleading to draw a picture of gloom or panic. In general, all the Chinese companies interviewed for the study mentioned above, confirmed a strategic, long-term commitment to their investment. A short-term focus on financial gain through job reductions at the staff and management levels could not be detected. And, finally, the bilateral Free Trade Agreement between Switzerland and the People’s Republic of China in 2013 is a clear indication of a sincere interest to achieve synergies that benefit both sides.
As the Chinese say: 孤掌难鸣. You cannot clap with just one hand.