M & a of China Automobile Industry Essay

The searches on Overseas Mergers and Acquisitions of chinaw be Automobile pains in Post-Crisis Period? ZHU Qin prepargon of Economics, Zhejiang Gongshang University, P. R. chinaware, 310018 Zhuqin9871163. com Abstract Since the 2008 pecuniary crisis, the oversea mergers and sciences (M&A) of chinaware travel diligence have bring to pass a matter the worlds ccapable simple machinemobile market most concerns ab step up. This paper views that the rapid growth of the domestic motorcarmobile market, the adjustments in oversea machine attention and much support from presidencys policies provide a close background and favorable conditions to foreign M&A of china railway carmobile industry.It also points out that although Chinas state-owned enterprises are still the main trunk of overseas mergers and learnings of China auto industry, head-to-head enterprises are playing an much and more important role. Through studying specific cases, the paper proposes countermeas ures concerning overseas mergers and attainments of China automobile industry in post-crisis period. Keywords Post-crisis period, the automobile industry, overseas mergers and acquisitions 1 IntroductionThe rapid growth of Chinas economy since the reform and opening, the explosive increase of automobile industry in recent age and disposals supporting policies on the automobile industry altogether offer new opportunities and conditions to overseas M&A of China automobile industry. At present, China has become the largest automobile producer in the worldwide. In 2009, the top ten automobile manufacturing countries were China (13791000), Japan (7. 935 billion), f each(prenominal) in States (5. 697 million), Germany (5. 206 million ), Korea (3. 513 million), Brazil (3. 183 million), India (2. 628 million), Spain (2. 17 million), France (1.935 million), Mexico (1. 561 million).Large-scale production capacity endows China auto companies with a base to expand overseas. Following the 2008 monetary crisis, the global economic downturn has had the outside(a) self-propelling Group faced with overcapacity problem meanwhile, the global accredit shortage has brought great pressure to the survival and development of the automobile business. Funding gaps emerged in many inter national auto giants. After the pecuniary crisis, the asset revalue of many outside(prenominal) enterprises is seriously underestimated, which gives a good chance for Chinese enterprises to take a shot.Through overseas M&A access to the stargaze planetary auto brands, the core technology and planetary marketing channels hobo be farmd at low costs. At the same time, Chinese auto companies have sufficient capital reserves at the present stage, and with the strong support from the government and national financial institutions, there is a potential for them to become competitive buyers for part of the international Automotive Groups quality assets. It is worth mentioning that related depar tments in the Chinese government treat the auto industry as a pillar industry of national economy, giving it much positive policy support.The automotive industry restructuring and rejuvenation program, promulgated in 2009 increased efforts to support the automobile industry. First, the program states that it is required to promote the restructuring of the automotive industry, to support M&A of large-scale automobile enterprise groups, to expand the scale of major auto parts enterprises through M&A. Previously, the major auto companies were not willing to conduct cross-regional restructuring because of too many barriers. The automotive industry restructuring and rejuvenation program seat impellingly solve this kind of concerns.In related detailed ? Sustentation Fund National information Fund of China (70703030) , Zhejiang Province Science Fund (Y6080222), Humanity and Social Science Fund of Chinese Ministry of Education (07JA790083, 09YJC790240) 43 M & D assemblage regulations, associated guidelines are made which involve the acquirer and acquiree, such(prenominal) as the source of acquisition financing, tax issues that may arise in acquisition, the asset disposal of acquired companies and employee resettlement and other problems prone to cause disputes or already existing barriers.At the same time, it will upgrade the standard of admitting foreign asset and acquiring related domestic enterprises to (protectively) enhance the competitiveness of domestic auto companies. In addition, in jar against 16, 2009, the Ministry of Commerce issued procedures for the administration of foreign investment to move on reform foreign investment charge system, promote the facilitation of foreign investment, support Chinese enterprises to go out and participate more(prenominal) in international economic cooperation and competition.These help to raise strong and positive support for overseas M & A of China automobile industry. 2 The Main Body of Overseas M&A of China Automobile manufacturing Before 2008, although there were many cases of overseas M&A in China automobile industry, such as SAICs acquisition of Ssang Yong in 2004, Nanjing Auto s acquisition of scouter in 2005 and so on, the overall have-to doe with and scale were still limited and attention from the domestic and international was not intense enough.From 2006 to 2008, the scale of M&A Chinas major automobile companies has been further reduced, with the total number of only 7. It only covered 19% of the total number of Chinese car companies various overseas investment. Other overseas investment approaches were 21 cases of joint ventures or strategic alliances, accountancy for 57%, 8 cases of factory founding directly, accounting for 22%, and 1 case of technology transfer. unless after 2008, when the world auto market is still full of financial cold haze, the Chinese auto companies went against the trend.A number of enterprises joined with foreign auto brands in carrying out cros s-border marriage. In this short year, both(prenominal) the vehicle industry or parts manufacturers lunched many acquisitions either far-reaching or with extremely high full stop of concern. capital of Red China Automobile Works acquired Saab, Geely acquired Volvo, Beijing West Industrys acquisition of the U. S. Delphi, Geely DSI bought Australian autoloading(prenominal) transmission companies, to name just a a few(prenominal). Overall, in the current automobile industry, Chinas M & A main body is evolving towards a diversed boom.Chinas automobile companies participating in overseas M & A are no longer confined to state-owned ones. Due to their growing strength and governments supportive policies, clandestine enterprises have become the new force, injecting new vigor and vitality into the overseas M&A of China automobile industry. However, state-owned enterprises are still the most important main body in cross-border M & A activities 7. In this M & A wave, the Beijing Automotiv e, as one of the state-owned enterprises, successfully finished the acquisition of the Swedish brand Saab in December 2009.State-owned enterprises have an advantage of large scale, merely often there is a serious deficiency in the governance, a general lack of want of in the management. A majority of state-owned operators have an incomplete momentum for cross-border M & A. The private enterprise, with their natural tidy property rights, fewer policy constraints, and a flexible structure and mechanism are playing an increasingly important role in the wave of automotive M&A.Thanks to less intervention from the government and following less protection compared with the state-owned enterprises, private enterprises possess stronger self-awareness, risk awareness and a sense of competition. more and more powerful private enterprise group is supposed to become an important force in the cross-border M & A in the future 15. In this M&A wave, the most distinctive translator of private e nterprises is China Geely Group. As a leader of Chinas private auto enterprise, in March 2010, it successfully reached an contract with General Motors, purchasing 100% of the shares of GMs Volvo.3 A take apart of Overseas M & A Cases in China Automobile Industry 44 M & D FORUM 3. 1 Overseas M & A cases of automobile enterprises In the choice of overseas M & A targets, Chinas auto enterprises prefer developed regions like Europe and the United States, peculiarly concentrating on worlds top 10 auto-producing countries besides China such as the United States, France and other places. The vehicle industry in these areas has long history, with many powerful brands, more developed economy, higher(prenominal) living standard and stronger consumer ability.In the choice of specific targets, Chinese enterprises are in favor of those enterprises that are of highly well-known brands, a long history, as well as advanced technology and experience management. However, during this financial cr isis, a serious setback in operating performance led some of these companies or brands to great losses or even near-collapse. Geelys acquisition of Volvo and Beijing Autos of Saab is representative ones. They are truly typical in this M&A wave starting after the financial crisis. 3. 1.1 Beijing autos acquisition of Saab On December 28, 2009, Beijing Automotive Holdings formally announced the acquisition of relevant intellectual property rights of Saab cars at a cost of 200 million U. S. dollars. By then, Beijing Automotive has gotten the core data of the complete look for, production, marketing, quality control system. This international accomplishment is the first successful case for a domestic automobile enterprise to carry out the acquisition of foreign advanced and complete vehicle power technology since 2009.As one of a few Chinas Automotive Groups who not yet have their own brands, Beijing Automotive is very urgent on owning its own brand-related technology. So the successf ul marriage with the Saab is of great signifi substructurece for Beijing Automotive to speed up the process of independent R & D and internationalization. 3. 1. 2 Geelys acquisition of Volvo On December 23, 2009, cover Motor Company released a statement of reaching a framework agreement to sell its Volvo to Geely.In March 28, 2010, Geely write a definitive stock purchase agreement with Ford to buy 100% of the shares of Volvo Car at a cost of 1. 8 billion U. S. dollars and then signed a definitive agreement concerning related assets 32. This saliva battles full of troubles ended with Geely tenaciously achieving its dream of serpent swallows elephant. It is a spur for other domestic auto enterprises, also a major step for Geely towards the international market Simultaneously it helps the Volvo brand to further open the Chinese market,.However, it is not easy for Geely to digest Volvo. Whether it is because of the particular European Union, or high operating costs for brand, or cul tural integration, especially the integration and management of Volvos distributors, factories and suppliers scattering over more than 100 countries and 2,400 regions. There are a series of commodious problems. 3. 2 Overseas M & A cases of automobile parts enterprises After the financial crisis, overseas auto parts enterprises were faced with greater difficulties than full-vehicle enterprises.Bankruptcy and M&A happened frequently. Influenced by this round of auto industry structure adjustment, the integration of parts suppliers intensified, and M & A wave aimed at supplier groups resurged. Foreign well-known auto parts enterprises like Australian transmission company DSI, Delphi in the United States and so on occupy pivotal positions in the auto parts industry, and even have a significant impact on the development of the full-vehicle market. Direct purchase of foreign auto parts enterprises is local suppliers one panache of gaining access to core technology.After the current fina ncial crisis, the M&A cases of auto parts enterprises are quite frequent and also larger and more far-reaching than that of before the crisis. Such as Geelys acquisition of the Australian transmission company DSI, Beijing West Industrys acquisition of U. S. Delphi, WanXiang Groups acquisition of the U. S. DS automobile steering shaft and so on. 3. 2. 1 Beijing West Industrys acquisition of Delphi On March 31, 2009, Delphi formally agreed to sell its global businesses of braking and suspension to Beijing West Industry.Beijing West was prepared to pay 90 million U. S. dollars in cash to acquire Delphis related machinery and equipment, intellectual property and real estate, including its businesses of braking and suspension in eight plants, five technology centers and 14 technical support and customer 45 M & D FORUM service centers which finalise worldwide. 3. 2. 2 Geelys acquisition of DSI. On March 27, 2009 in New South Wales States Government Building, the signing ceremony of Geely acquiring Australian Automatic Transmission Company was held.According to a statement from Li Shufu, the Chairman of Geely Group, Geely conducts a wholly-owned acquisition of DSI for it values DSIs complete designing and manufacturing capabilities pile up over 80 years. DSI Automatic Transmission Company is an automatic transmission specialist centralizing research and development, manufacturing, and sales altogether. What is more, it is one of the only two global automatic transmission companies that are independent from all automotive vehicle companies.4 Countermeasures and Suggestions for Overseas M & A of China Automobile Industry 4. 1 The selection of objects for overseas M & A First of all, when making overseas M & A, Chinese auto enterprises need to be careful of those M & A targets who already have no competitive advantage within the industry, and just to sell companies to reject the burden. Therefore, they should be especially cautious in the choice of Objects for oversea s M & A and take various factors into consideration.Second, while doing overseas M&A, Chinese auto enterprises can not just focus on targets of low purchase price, but on the potential value of the enterprises after the acquisition. Therefore, the Chinese auto enterprises ought to choose targets that are consistent and coordinated with their own strategic objectives, and can complement their own businesses to achieve synergies to choose overseas assets with low cost but are able to produce better results through the integration.Finally, in assessing M & A targets, priority should be given to little yet high quality objects in accordance with their requirements. M & A are to be make for many times, at small amount and with steady integration. 4. 2 A careful and scientific slaying of overseas M & A After enterprises have determined the strategic premise of overseas M & A consistent with their own development requirements, they need to compare the key links in tactical maneuver and carry on related initiatives.First, in M & A planning session, to establish a more comprehensive overseas assessment system to do a comprehensive and quantitative research with impact to the status of the host country market, national policies and regulations, competition pattern, the main risks to do further accurate assessment of the target companys technology, independent intellectual property rights, operation status and potential value, measure the risks and opportunities.Second, after selecting the target of M & A, a comprehensive understanding of the business-related technology, the details of intellectual property rights should be gained, and the specific items and amounts of M & A be finalized. To maximize benefits at the lowest cost by conducting effective negotiations. Third, after the transaction is completed, to assess comprehensively the differences of both managements in management philosophy, and the differences of staff in culture, values, benefits, salary and s o on. To orderly propel the process of integration in achieving M & A objects.4. 3 The instruction execution of the strategic resource reserves in overseas M & A To obtain opportunities of overseas M&A, auto industry are required to carry out resource reserves in quaternion aspects. First, human resources reserves. The Chinese auto enterprises should consciously reserve all kinds of overseas M & A professionals as soon as possible. Second, M & A experience reserves. By continually accumulating experience through practices, enterprises can learn more about related laws and regulations, operating procedures, and precautions to reduce risks, and then improve the success rate.Third, M & A financial reserves. To fight for access to financial support from the government or large financial institutions. To ensure enough amount of money while minimizing financial costs. 46 M & D FORUM 5 Conclusion During post-crisis period, the China automobile industry is facing an unprecedented good opp ortunity in overseas M&A. With the support of concerning policies, the China auto industry is adopting an active global strategy. Through the integration of global auto industry resources, the international competitiveness force of China auto industry is heighten in a great degree.In the process of overseas M&A, the China auto industry needs to actively carry out relevant strategic resource reserves, scientifically select acquisition targets, and carefully as well as scientifically implement specific overseas M & A strategy. Author in brief Zhu Qin, PHD, Associate Professor, School of Economics, Zhejiang Gongshang University Email zhuqin9871163. com.References 1. Stefano Rossiand Paolo Volpin. Cross-Country Determinants of Mergers and Acquisitions M. London Business School, 2002 2. Guo Jianhua.The global automotive industry changing situation report R. Beijing Equality in Automobile Research Institute, 2009(in Chinese) 3. RolandBerger Strategy Consultants. Chinas auto industry deve lopment, in the current financial crisis the opportunities and challenges R, 2009 (in Chinese) 4. State Council exploitation Research Center of Industrial Economics Research Department, Society of Automotive Engineers of China, Volkswagen Group. China Automotive Industry Development Report M. Beijing Social Sciences Academic Press, 2009. 7 (in Chinese) 47