Non-portfolio investment by Chinese companies in overseas markets slumped almost 42% to $79 billion in the first three quarters of this year, the Ministry of Commerce announced this month.
But the news came as a cause for satisfaction rather than concern, after firms were instructed at the turn of the year to stop spending money on foreign assets deemed wasteful.
“No new projects were reported in property, sport and entertainment,” Xinhua explained of the latest data, adding that outbound investment is still welcome in other areas, especially in projects related to Xi Jinping’s Belt and Road Initiative and deals that fall into the much-vaunted ‘Made in China 2025’ plan, which targets industrial upgrading.
Case in point: local newspaper CBN has profiled Midea and Haier this month, two of the companies at the vanguard of the manufacturing revamp, and praised them for establishing themselves on the global stage.
The duo has taken different M&A approaches. Haier’s main targets have been brands popular in international markets, including a $5.6 billion takeover of GE Appliances in June last year. Midea focuses on the technologies that automate the factories that manufacture them, with the Guangdong-based firm making one of the headline takeovers of last year as it swooped on Bavarian robot maker Kuka (see WiC326).
Thanks to the contribution from their newly acquired units, CBN said both Midea and Haier have reported a 60% increase in revenue during the first half of 2017. And the duo are now generating more than 40% of their income abroad.
The commercial logic in the Kuka bid looks compelling for Midea: the takeover supercharges the sales opportunity in China, the world’s largest market for industrial robots, in an era in which rising labour costs have increased the rationale for robotics-based manufacturing.
Midea is now working on growing Kuka’s market share with carmakers while trying to expand into industries such as logistic automation and pharmaceutical services.
“Midea has also been pivotal in helping Kuka expand in China as well,” Kuka’s research head Rainer Bischoff told CBN. The German researcher was in Guangdong earlier this month to attend Midea’s “Tech Month”. And Bischoff said there have been healthy interactions within the group over the past year. “When we [Kuka] identify acquisition targets with sound technology – Servotronix from Israel being an example – we would ask if Midea is interested in joining the investment.”
Executives from GE Appliances, Japan’s Aqua and New Zealand’s Fisher & Paykel also gathered in Haier’s Qingdao headquarters last month for the so-called “Haier Rendanheyi International Forum”, which, according to CBN, was a company event organised for the foreign units to “share their experience as a member of the Haier family”.
The term Rendanheyi means “integrating staff with customers”. It sounds obscure but it is the brainchild of Haier’s chairman Zhang Ruimin (a big fan of Jack Welch’s Six Sigma theory). Haier is trying to impose the business model on all of its units. Powered by new technologies such as Big Data and the Internet of Things, Haier has eliminated middle-ranking staffers and divided its 60,000-strong employees into 1,000 or so “start-ups”.
Haier says this helps channel financial rewards towards outperforming units. For instance, the year-end bonus for one Japanese manager from Aqua, CBN said, has tripled since Haier’s takeover.
Connectivity across Haier’s global divisions brings new scale and flexibility, comments CBN, that allows its operating teams to respond more immediately to market demand.
Zhang expects great things: he told the South China Morning Post this week that under Haier’s tutelage GE Appliances should double its revenues and profits within the next five years. That would be some achievement, considering that GE’s management approach has long been a popular case study for Ivy League business schools (or perhaps the baton has now passed to Haier: Zhang was invited to Stanford in March to give its MBA students a lecture on his Rendanheyi).
“Haier is on the right track now, with our grip on the internet, and we will bring the know-how to GE,” Zhang told the SCMP.
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