Increasing Chinese Companies Acquiring Japanese Companies – How and Why?

Osaka - Sunday, July 31, 2011




Nikkei, Japan’s leading newspaper specialized in business and economy, reported on July 29 that more Chinese companies have been acquiring Japanese companies, taking the opportunity of reporting the announcement made by Panasonic on July 28 that refrigerator and washing machine business originally of Sanyo is to be sold to Haier, a leading Chinese consumer electronics company.



1. What is the acquisition by Haier of Panasonic’s business all about?






1) What is the overview of the acquisition?



On July 28, Sanyo reached a basic agreement with Haier to transfer stocks of 9 companies of refrigerator and washing machine business including Sanyo Aqua by the end of the year. Sanyo will also transfer home appliance businesses including air conditioners for 4 South East Asia countries including Vietnam, allowing the use of “Sanyo” brand for a few years.



The business size of the business to be acquired by Haier is approximately 70 billion yen (for 2010), engaged by 2,300 employees worldwide. The acquisition cost is not revealed but experts estimate that it is around 10 billion yen. Panasonic (Sanyo) and Haier are to reach the final agreement by the end of September.




2) Why Haier decided to acquire Sanyo’s refrigerator and washing machine business?



It is to develop high value products leveraging leading edge technologies of washing machines and refrigerators that Sanyo poses. In this way, Haier will be able to meet the needs of drastically increasing middle class in emerging countries and accelerate globalization of their businesses. Such technologies include washing clothes without water using Sanyo’s washing machines and minimizing noise during operation of Sanyo’s washing machines and refrigerators.



Haier started to globalize their business from the end of 1990s and has been expanding sales channels in the U.S., the Middle East etc. The company also had established development sites outside China to launch products meeting local needs. In addition, the company had been manufacturing locally to improve cost competitiveness to grow their business.



Today, their 1/4 of the worldwide business (1,640 billion yen in 2010) is generated from production and sales outside China. The company’s vision is to become the worldwide leader in home appliances, with their business generated from production and sales outside China reaching 1/3 of their worldwide sales.



With the acquisition, the company will be able to obtain sales/distribution channel in Japan and in some major South East Asia, a great “weapon” to achieve their vision. Sanyo had spent 40 years establishing production sites and sales channels and penetrating their brand in South East Asia. That is why recently Sanyo has been enjoying market share of 30% in washing machine and refrigerator business in Vietnam and 10% in Indonesia. In fact, 1,600 employees out of 2,300 employees that have been engaged in the businesses acquired by Haier are in Vietnam and Indonesia.



3) Why Panasonic decided to sell Sanyo’s refrigerator and washing machine businesses to Haier?



It is to focus their limited management resources to other businesses and markets especially emerging markets such as India and Latin America. This would enable them to strengthen product competitiveness and grow business.



Panasonic’s home appliance business for April – June was strong with operation income of 9.8% largely attributing to strong demand of energy saving products after the Japan disaster. However, to further grow their business, strengthening their overseas business in such markets as India, Latin America and Europe is a challenge they currently face.



2. What other acquisitions of Japanese companies/businesses have been made by Chinese companies?



The major ones are summarized in the chart below, followed by a brief outline of a few major M&As.



Recent acquisitions and funding of Japanese companies by Chinese companies

(Source: Nikkei, translated by the author)



Japanese Companies (business seller) / Chinese companies (acquirer or investor) / Timing of announcement / Overview of the M&A

Panasonic Haier July 2011 Acquire Sanyo’s home appliance business

Laox Suning June 2011 Raise investment ratio to make Laox its affiliate. Open new shops in Greater China

NEC Tianma Feb 2011 Acquire 70% stock of small-mid sized LCD panel business affiliate

Panasonic Hunan Corun New Energy Feb 2011 Acquire Nickel-Hydride battery business for bicycles with 500 mil yen

NEC Lenovo Group Jan 2011 Merger in PC business. Lenovo invests 50%+

Renown China Ruyi Group May 2010 Acquire 40% stocks with 4 bil yen

Ogihara BYD March 2010 Acquire factory to obtain molding technologies

Evatech A-Power Feb 2011 Acquire solar battery venture under restructuring with 4.5 bil yen

Honma Golf Marlion Holdings Acquire 50%+ stock owned by the 2 parent companies



1) Why Lenovo acquired NEC’s PC business?



After announced the M&A in January 2011, Lenovo completed acquisition of management right of NEC’s PC business in Japan, a big step forward to gain #1 market share in Japan as well as in Greater China. Lenovo aims to enhance purchasing power and reduce component cost.



2) Why BYD acquired Ogihara’s factory?



It is to expand manufacturing capacity of high quality molding of automobile bodies. Thus, BYD, a new and growing Chinese automobile company, acquired molding factory of Ogihara, a leading Japanese molding company in March 2010.



3) Why Suning made Laox one of its affiliates?



It is to absorb know how of Japanese style shop management and acquire more customers in the Chinese market leveraging Japanese brand.



3. Why have acquisition of Japanese companies by Chinese companies been increasing despite high yen?



It is, as prominent from the above cases, Chinese companies would be able to leverage leading technologies, brand and sales/distribution channel cultivated by Japanese companies, to accelerate their growth and globalization of their business.



It is case by case for Japanese companies. Japanese companies can sell businesses that have little value to them such as the case of Panasonic and Evatech, or obtain an access to Greater China market such as the case of Laox.



In addition, a Japanese M&A advisor pointed out that the mindset and attitude of Japanese companies towards M&A has been changing. He says that more Japanese executives now believe that selling their businesses of little value to them to Chinese companies would result in more growth than restructuring and integrating their domestic businesses.





Resources:-

Increasing Chinese companies have been acquiring businesses of Japanese companies to leverage technologies, brand and sales/distribution channels that Japanese companies have been cultivating for years, to boost their business globalization and worldwide business growth. Such trend is driven by the change in mindset of Japanese executives, many of whom now believe that selling their businesses with little value to them to Chinese companies would result in greater growth than restructuring and integrating the businesses.