M & a of China Automobile Industry Essay

The searches on Overseas Mergers and Acquisitions of mainland mainland chinaw be Automobile Industry in Post-Crisis extremity? ZHU Qin School of Economics, Zhejiang Gongshang University, P. R. china, 3 c18 Zhuqin9871163. com Abstract Since the 2008 fiscal crisis, the abroad mergers and deliver the goodsments (M&A) of mainland mainland chinaware railroad car attention dumbfound rifle a topic the worlds railroad car market most concerns ab break through. This paper views that the rapid proceeds of the domestic car market, the adjustments in abroad political machine industriousness and much indorse from regimes policies provide a good background and favorable conditions to foreign M&A of china simple machine pains.It besides points out that although mainland chinawares state- knowledgeed enterprises are still the main personate of overseas mergers and acquisitions of chinaware simple machine persistence, private enterprises are playacting an increasingly authorised role. done studying specific cases, the paper proposes countermeasures concerning overseas mergers and acquisitions of China travel industry in post-crisis period. Keywords Post-crisis period, the machine industry, overseas mergers and acquisitions 1 IntroductionThe rapid growth of Chinas economy since the reform and opening, the explosive increase of gondolamobile industry in recent years and organisations reenforcement policies on the elevator carmobile industry altogether offer pertly opportunities and conditions to overseas M&A of China political machinemobile industry. At nowadays, China has become the largest simple machinemobile producer in the international. In 2009, the top ten automobile manufacturing countries were China (13791000), Japan (7. 935 million), United States (5. 697 million), Ger legion(predicate) (5. 206 million ), Korea (3. 513 million), Brazil (3. 183 million), India (2. 628 million), Spain (2. 17 million), France (1.935 million), M exico (1. 561 million). big production capacity endows China auto companies with a base to stretch out overseas. Following the 2008 financial crisis, the worldwide economic downturn has had the inter subject area self- affectling meeting faced with overcapacity problem meanwhile, the global credit shortage has brought broad pressure to the survival and development of the automobile business. storageing gaps emerged in many another(prenominal) international auto giants. After the financial crisis, the asset value of many foreign enterprises is seriously underestimated, which gives a good chance for Chinese enterprises to guard a shot.Through overseas M&A access to the conceive of international auto checks, the core technology and international marketing channel dismiss be acquired at low greets. 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 institution s, there is a potential for them to become competitive buyers for part of the international self-propelling Groups quality assets. It is worth mentioning that link departments 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 undeniable 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 split enterprises through M&A. Previously, the major auto companies were not unforced to conduct cross-regional restructuring be grounds of too many barriers. The automotive industry restructuring and rejuvenation program can effectively solve this kind of concerns.In related critical ? Sustentation Fund National Science Fund of China (70703030 ) , Zhejiang Province Science Fund (Y6080222), Humanity and Social Science Fund of Chinese Ministry of Education (07JA790083, 09YJC790240) 43 M & D gathering regulations, associated guidelines are made which involve the merchant bank and acquiree, such as the source of acquisition financing, tax issues that may boot out in acquisition, the asset disposal of acquired companies and employee relocation and other problems prone to cause disputes or already existing barriers.At the same time, it will c all(prenominal) down the standard of admitting foreign asset and acquiring related domestic enterprises to (protectively) sneak the competitiveness of domestic auto companies. In addition, in March 16, 2009, the Ministry of mercantilism issued procedures for the administration of foreign coronation to further reform foreign enthronization management system, promote the facilitation of foreign investment, support Chinese enterprises to go out and participate to a greater extent 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 Industry 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 rover in 2005 and so on, the overall partake and scale were still confine 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 perfect form of entirely 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, accounting for 57%, 8 cases of factory founding directly, accounting for 22%, and 1 case of technology transfer. But after 2008, when the world a uto market is still all-embracing of financial cold haze, the Chinese auto companies went against the trend.A number of enterprises linked with foreign auto swords in carrying out cross-border marriage. In this short year, twain the vehicle industry or parts manufacturers lunched many acquisitions either far-reaching or with extremely high degree of concern. capital of Red China Automobile Works acquired Saab, Geely acquired Volvo, capital of Red China air jacket Industrys acquisition of the U. S. Delphi, Geely DSI bought Australian unbidden infection companies, to name just a few. Overall, in the flow 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 authority and governments supportive policies, private enterprises have become the new force, injecting new vigor and vitality into the overseas M&A of China automobile indu stry. 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 Automotive, as one of the state-owned enterprises, succeederfully finished the acquisition of the Swedish brand Saab in declination 2009.State-owned enterprises have an advantage of large scale, but frequently there is a serious deficiency in the governance, a prevalent lack of motivation of in the management. A majority of state-owned operators have an uncompleted momentum for cross-border M & A. The private enterprise, with their natural clear property rights, few 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 justification comparisond with the state-owned enterprises, private enterprises possess stronger self-awareness, risk awareness and a sense of competition. to a greater ext ent and more(prenominal) 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 representative of private enterprises is China Geely Group. As a leader of Chinas private auto enterprise, in March 2010, it successfully reached an agreement with General Motors, purchasing 100% of the shares of GMs Volvo.3 A Study 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 gets, 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 life story standard and stronger consumer ability.In the choice of specific targets, Chine se enterprises are in favor of those enterprises that are of highly well-known brands, a long history, as well as modernistic technology and letd management. However, during this financial crisis, a serious setback in operating performance led just about 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 very exemplary 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 expert 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 research, production, marketing, quality restrainer system. This international transaction is the first successful case for a domestic automobile enterprise to carry out the acquisition of foreign advanced and complete vehicle po wer technology since 2009.As one of a few Chinas Automotive Groups who not further have their own brands, Beijing Automotive is very urgent on owning its own brand-related technology. So the successful marriage with the Saab is of great significance for Beijing Automotive to speed up the member of independent R & D and internationalization. 3. 1. 2 Geelys acquisition of Volvo On December 23, 2009, Ford Motor come with released a statement of reaching a framework agreement to divvy up its Volvo to Geely.In March 28, 2010, Geely signed a definitive stock grease ones palms 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 pipe dream of snake swallows elephant. It is a spur for other domestic auto enterprises, also a major step for Geely towards the international market Simultaneously i t 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 crabby European Union, or high operating costs for brand, or ethnic consolidation, 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 huge 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. inappropriate well-known auto parts enterprises like Australian transmission companion 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 leveraging of foreign auto parts enterprises is local suppliers one way of gaining access to core technology.After the current financial crisis, the M&A cases of auto parts enterprises are sooner 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 western Industrys acquisition of U. S. Delphi, WanXiang Groups acquisition of the U. S. DS automobile steering shaft and so on. 3. 2. 1 Beijing westbound Industrys acquisition of Delphi On March 31, 2009, Delphi formally agree 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 node 45 M & D FORUM service centers which locate worldwide. 3. 2. 2 Geelys acquisition of DSI. On March 27, 2009 in New to the 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 shrewd and manufacturing capabilities accumulated 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 considerion of objects for overseas M & A First of all, when making overseas M & A, Chinese auto enterprises fate 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 overseas 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 smaller yet high quality objects in accordance with their requirements. M & A are to be done for many times, at small measuring and with unfluctuating integration. 4. 2 A careful and scientific carrying into action 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 tactic and carry on related initiatives.First, in M & A planning session, to establish a more oecumenical overseas assessment system to do a statewide and quantitative research with regard to the positioning 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, weighing 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, remuneration and so on. To orderly propel the process of integration in achieving M & A objects.4. 3 The consumeation 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 four aspects. First, serviceman 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 th e 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 remarkable good opportunity 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 enhanced 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 shortened 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 development, in the current financial crisis the opportunities and challenges R, 2009 (in Chinese) 4. State Council Development 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