You may not have heard of Fosun Group. It’s more likely that you’re familiar with Club Med, the French travel group that pioneered the all-inclusive vacation.
In June, China’s largest non-government controlled conglomerate Fosun bought a 7.1% stake in Club Med, making it one of the biggest shareholders of the French resort operator. According to Reuters, the stake is worth about $28 million. As part of the deal, Fosun agreed not to lift its stake beyond 10% in the next two years.
Liang Xinjun, chief executive of Fosun, maintains that its interest in Club Med is strategic and that it will not get involved in management of the company. But Fosun will partner with Club Med to promote the brand in China.
Despite the global economic crisis, the number of Chinese tourists travelling abroad rose 5.2% last year to 42.2 million, up from less than 7 million in 2001. Total spending rose 16% from 2008 to about $42 billion. The domestic tourism market is also estimated to be growing by 10% a year.
So perhaps the deal shouldn’t come as a surprise. The French group has been looking for partners to help it finance and develop resorts in new markets, while Fosun is making an investment in a ‘luxury’ holiday operator. For Americans and Europeans, Club Med may not fit that bracket – not being on a par with, say, the Aman Resorts. But in the last few years Club Med has been trying to reposition its brand with a more upmarket image. It closed many of its all-inclusive resorts (which it now calls villages) and focused new investment on developing exclusive clubs to target wealthy travellers.
Chinese tourists will likely be more receptive to Club Med’s repositioning efforts since they have fewer preconceived notions about the brand.
Club Med now hopes to attract 200,000 Chinese customers annually by 2015, by which time the company says they will become its second-largest customer base. That’s quite a leap, considering only 30,000 of the 1.2 million guests at Club Med resorts last year were Chinese.
The plan includes the opening of resorts in China itself, up to five over the next five years. Club Med will unveil its first resort in Yabuli, the largest ski area in northeast China, in November this year, says CBN Weekly.
Others have interpreted Fosun’s stake in Club Med in a broader perspective, heralding it as a shift away from China’s more frequent M&A focus on mines and oilfields towards a strategy of taking minority stakes in famous brands, says the Financial Times.
“This is more exciting than Geely buying Volvo,” argues Shaun Rein of the China Market Research Group in Shanghai, referring to the recent sale of Swedish carmaker Volvo to the Zhejiang-based Geely Group. “This shows the maturation of Chinese companies, they are not just trying to control everything or just buy a mine: 2010 is the year when they will start buying brands.”
Fosun was founded by four Fudan University graduates in 1992, including billionaire chairman Guo Guangchang, one of China’s richest men (see WiC38). The company quickly grew from a small consultancy to an investment conglomerate. Its businesses encompass finance, property, pharmaceuticals, steelmaking, media and now tourism.
The company, which says it models its investment strategy on Warren Buffett’s Berkshire Hathaway, often takes minority stakes in an array of companies and works with existing management teams.
“We look forward to our partnership with Club Med,” Liang told 21CN Business Herald. “It is, after all, the first time for a Chinese private enterprise to become a shareholder of an old French company with 60 years of history.”
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.