Opinion: Daniela Gorza
May 16 – While developing economies account for only roughly 17 percent of global outward direct investment (ODI), this segment is beginning to gain ground. Within this group, China is among the most active outward investors, along with other emerging economies such as India and Brazil.
Although China’s ODI into Europe remains modest, it is growing rapidly with major acquisitions and investments making global headlines. The country’s Greenfield investments, for example, have increased by 500 percent since 2000, but are still considered modest. China accounted for a mere 1.2 percent of Greenfield investments into Europe from 2004-2006, on a par with South Korea, but behind India (1.9 percent).
China has shown a penchant for investing into sectors where the host country has a particular advantage or strength. Examples include machinery in Germany (e.g. Shenyang Group, Huapeng Trading, Dalian Machine) and the automobile sector in the United Kingdom (e.g. Nanjing Automotive and Huaxiang Group). ODI is therefore driven by the will to obtain strategic-assets, supply of know-how, as well as technical expertise.
In terms of locations and technology-sourcing, Chinese ODI has clearly aimed at capturing externalities created by host-country technology clusters. As outlined by UNCTAD statistics, “some Chinese firms are also creating R&D centers in developed economies in order to capture high-tech human capital and to benefit from economies of scale of Marshallian districts.”
This strategy is exemplified by Huawei’s investment into Italy and Sweden, by Haier’s investment into Italy, as well as JAC Anhui Jianghuai’s investment into Turin to benefit from the proximity of the Moncalieri Environment Park. Distribution networks seem to be another important reason for choosing a certain partner rather than acquiring its proprietary technology. In fact, teaming up with well-established firms is seen as more efficient and profitable for gaining quick access to the European market.
Chinese companies have a tendency to launch joint-ventures with Western companies within China before investing abroad. This is frequently seen via joint equity ventures and M&As as a means to acquire advanced production, technology as well as managerial expertise.
China has been aiming at three main business groupings in Europe, namely:
- Ailing and financially troubled firms (Shenyang acquiring Schiess or SGSB acquiring Dürrkopp);
- Competitive niche manufacturers (China Bluestar acquiring Rhodia Silicones); or
- Former associates or sub-contractors (Chalkis and Le Cabanon-Conserves de Provence)
Chinese enterprises also occasionally participate in minority-stake acquisitions in order to fortify their affiliation with European cohorts. Entry into brands and distribution networks remain among the chief goals of many Chinese firms, along with gaining access to engineering competence and customer networks.