2006-globalization of chinese brands
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0Rollins College: Prof. M. Fetscherin
The Globalization of Chinese Brands
Prof. M. FetscherinProf. M. Sardy
Rollins CollegeDepartment of International Business
1Rollins College: Prof. M. Fetscherin
The Globalization of Chinese Brands
• Why are Chinese companies going global? • In what markets and segments are they going to
compete globally? • How do they enter target markets? • What are the strategies that Chinese firms have used to
go global? • Have those strategies been a success of failure?
2Rollins College: Prof. M. Fetscherin
The Globalization of Chinese Brands
• The current outbound foreign investment of China in 2005 amounts to USD 11.4 bn
• China has overtaken Japan within the last decade to become the largest manufacturer and exporter of consumer goods
• China has not yet created a single brand that is recognized worldwide
• Most literature is about foreign firms entering the Chinese market, but what about Chinese firms entering foreign markets?
3Rollins College: Prof. M. Fetscherin
Why Go Global?
4Rollins College: Prof. M. Fetscherin
Selling/Brand Motives• According to analysis by McKinsey & Co. estimated overcapacity
runs at 30-40% for washing machines, refrigerators and microwave ovens and at nearly 90% for televisions (Lundig, 2006).
• overcapacity left by companies that had previously contracted with Chinese firms (Gao, Woetzel & Wu, 2003)
Resource acquisition motives• China has an increasing need for energy, raw materials and other
inputs due to booming industrial production (Lundig, 2006).• Expanding economy has increased demand for resources beyond
existing capacity• 46% of Chinese M&A’s were for natural resources• (Deutsche Bank Research, M&A investments by sector in 2005)
Selling vs. Sourcing
5Rollins College: Prof. M. Fetscherin
Considerations for Market Entry
6Rollins College: Prof. M. Fetscherin
Building Internationally Recognized Brands
7Rollins College: Prof. M. Fetscherin
Most Recent M&A Activity
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241311Total
660Emerging
18711Developed
TotalSourcingSellingTotal Deals
871Total
440Emerging
431Developed
TotalSourcingSellingAborted or Pending Deals
16710Total
330Emerging
13310Developed
TotalSourcingSellingCompleted Deals
Outbound M&A Activity
9Rollins College: Prof. M. Fetscherin
So the outcome of Chinese M&A with regard to market and motive effects is:
(3)
With the probability of a failure is shown as follows:
(4)
and the probability of success is shown as follows:(5)
0.094 - 2.482*Motive .132*MarketLNΩ = +
(0.094 - 2.482*Motive .132*Market)( ) (0.094 - 2.482*Motive .132*Market)1
ePe
+Ω = ++
11 ( ) (0.094 - 2.482*Motive .132*Market)1P
e− Ω =
++
1.0980.8970.094Constant
0.8860.0080.0840.039*-2.482Motive
8.0580.1611.1410.8950.132Market
UpperLowerExp(B)Sig.B
95.0% C.I. for EXP(B)
Logistic Regression Coefficients
Logistic Model of Chinese M&A
10Rollins College: Prof. M. Fetscherin
0.0840.084Odds Ratio
0.4440.9050.4770.916Success (0)
0.5560.0950.5230.084Delayed
/Aborted (1)Merger
(Outcome)
Selling (0)Resource (1)Selling (0)Resource (1)
Type of Industry (Motive)Type of Industry (Motive)
DevelopingDeveloped
Type of Country(Market)
Results of Logistic Model
11Rollins College: Prof. M. Fetscherin
• We can say that the odds of a successful sourcing acquisition is less than 8.4% or 11.9 times less likely to be as successful as a selling/brand acquisition.
• Given the small number of observations from the original data the effect of the market development is not significant and does not really add much to the equation. The intercept and interaction terms were not significant.
• However, for confirmation due to the relatively small sample size a Monte Carlo resampling or bootstrapping was performed with 10000 replications with replacement.
• Although there was only a small sample of firms that had been involved with foreign acquisitions, the results are significant and a classification test on results showed that 71% were correctly classified by the model.
Bootstrapped Simulation
Confirmation of Model and Interpretation
0.0740.074Odds Ratio
0.4340.9120.4750.924Success (0)
0.5660.0880.5250.076Delayed /Aborted (1)Merger
(Outcome)
Selling (0)Resource (1)
Selling (0)Resource (1)
Type of Industry (Motive)Type of Industry (Motive)
DevelopingDeveloped
Type of Country(Market)
bootstrapped Simulation (10000 Replications)
12Rollins College: Prof. M. Fetscherin
• Our model predicts that M&As in the developed world will focus on brand acquisition and that many of those will be successful.
– In fact, there is much lower chance of failure for selling/brandacquisition.
– There is also a reasonable chance of resource acquisition in developed countries, but they are more likely to meet with regulatory challenges and be aborted.
– Suitable targets in the developed world would be companies with valuable assets, brands, huge customer base, technology or overpriced products due to high production or labor intensive costs (hence potential to get products produced in China) or big brandfirms with negative earning as a result of competitive pressure.
• In emerging markets, there is little chance of Chinese firms pursuing selling/brand acquisition but a high probability of resource acquisition.
Implications of M&A Model
13Rollins College: Prof. M. Fetscherin
Thank you
15Rollins College: Prof. M. Fetscherin
• Regression Coefficient
• Bootstrapped Coefficients
Coefficient comparison
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