Study On Overseas M&A Of China's Automotive Industry

With 50years of development, China's automotive industry has made great progress in aspects like sales and production volume, products structure, and industry layout. However, compared with developed countries, China still lags behind in R&D ability, brand building and transnational running management. To break the bottleneck, a lot of automotive enterprises choose to cooperate with foreign enterprises through joint venture. However, companies that chose joint venture do not really become stronger. There are two reasons for this:first, Chinese automotive enterprise is not able to improve its strength because it has no access to core technology which is in the firm hands of foreign company. Second, as the Chinese automotive enterprise puts its main efforts on making foreign brands, its own brands lose the chance to be enhanced.Compared with joint venture, Chinese enterprises would have bigger voice in overseas M&A. If M&A performed, Chinese enterprises would probably be able to improve their ability by virtue of the technology, brand reputation and the management experience of the acquired company. However, as the gap between China's automotive industry and that of foreign countries has been huge and there is no good chance, this kind of investment is rarely used. Until recent years when China's automotive industry makes great progress, the overseas M&A begins to emerge.Overseas M&A of China's automotive industry started around 2003.At that time, global industry layout just experienced a new round of change and the competition of China's automotive industry became more intense. In this background, China's automotive industry experienced an active period of overseas M&A. Several large-amount and far-reaching cases just occurred in this period. For example, Shanghai Automotive Industry Corporation (Group) bought 49% shares of SsangYong Motor Company with 500 million dollars in 2004, and Nanjing Automobile Group purchased MG Automotive corporation and its engine branch company with 53million ponds. However, in spite of this active period, there's no completely successful M&A case when retrospecting all these finished cases.On 28th March 2010, another Chinese brand Geely singed the final purchasing agreement with Ford, buying out 100% equity and all the relevant assets of Volvo. This is the largest acquisition ever since Nanjing Automobile Group purchased MG in 2005. About this case, there are many different opinions. Some people strongly support this purchase, arguing that this is a significant case for China' s automotive industry for it will greatly promote the growth of China's automotive brand. Some other people think that Chinese brand do not yet have the ability to digest an overseas brand. Considering all the failed cases, it's not wise for Chinese brand to purchase overseas brand.In this background, this paper carries out exploration on overseas M&A of China's automotive industry. The current research of this area is mainly on global overseas M&A. Only a small part of research is related to Chinese automotive enterprises. However, even this part is not directly related to the overseas M&A of China's automotive industry, rather it focuses on foreign transnational company's acquisition of Chinese enterprises. Therefore, there is still a lot room in the research of this area. Based on Geely's acquisition of Volvo, this paper deeply analyses the current situation of overseas M&A of China's automotive industry, and the existing problems and difficulties so as to provide some practical and theoretical guidance for the future development of Geely and the overseas M&A of other enterprises.There are six chapters in this paper. The contents of each chapter are as follows:Chapter 1:introduction. This chapter briefly introduces the background and meaning of the study of this subject, the current situation of domestic and foreign study on this subject, and puts up the thinking of study, study method and the innovation points of this paper.Chapter 2:the definition of the M&A of automotive industry and transnational M&A theory. Firstly, this paper defines the "automotive industry"and "M&A" discussed in this paper and clearly specifies that:"automotive industry" refers to entire car industry and "M&A" refers to system and organization restructuring. Then, this part summarizes the overseas M&A theories from aspects of motive, integration, and performance of transnational M&A.Chapter 3:the current situation of overseas M&A of China's automotive industry and the summary of Geely's acquisition of Volvo.Firstly, this chapter states the characteristics and problems of China's automotive industry. The characteristics are as follows:production and sales volume increases fast,production structure gradually becomes reasonable and possessing capacity, especially private vehicle possessing capacity, increases very fast, self-proprietary brands developed very fast, and independent innovation has risen onto a new stage. However, despite the good aspects, there are a lot of problems as well:too much government interference restricts the development of enterprises to some degree, independent innovation ability is weak, supporting service system is not complete, and spare parts industry development lags behind.Secondly, this chapter summarizes the current situation of overseas M&A of China's automotive industry. Seen from the history of overseas M&A, the overseas M&A of China's automotive industry is not successful. There is even no one single completely successful case. This fact shows that there are still a lot of problems and difficulties in overseas M&A activities. To achieve a better result, Chinese automotive enterprises need to make a lot more efforts.Finally, the chapter gives out a brief introduction of Geely and Volvo, and the background of this M&A case, which provides a foundation for the analysis of this case in the next chapter.Chapter 4:analysis of overseas M&A of China's automotive industry——based on Geely's acquisition of Volvo. Seen from the motive of overseas M&A, the main purpose of Geely's acquisition of Volvo are as follows:acquiring advanced technology, improving popularity of its own brand, acquiring overseas sales channel, improving the technological research and business management ability. As a representative of Chinese automotive enterprises, Geely's motives reflect the common problems existing in Chinese automotive enterprises:lack of core technology, low brand popularity, difficulties in exploring overseas market, weak R&D ability, and lack of experience in global running and relating system, etc.Seen from the long term strategy, the reasons that Geely chooses Volvo as its target are as follows:the acquisition of Volvo accords with the "going global" strategic goal of Geely, Volvo's value makes itself well worth of merging, Volvo is still very promising. Seen from above three aspects, Geely's acquisition of Volvo is not blind at all for it accords with the long term strategy of Geely. However, compared with Geely, some companies are not as rational, for example, Sichuan Tengzhong. Without a specific strategy, the overseas M&A will be more risky, and this is also a main reason that leads to the failure of overseas M&A.Seen from the difficulties of overseas M&A, the difficulties facing Geely are embodied in three aspects:technology integration, brand integration, culture integration. This section points out that the difficulty in technology integration is mainly caused by the huge technological gap between Geely and Volvo.The difficulty in brand integration is mainly caused by the different brand association which can influence the selling of products. As the technological gap and brand gap are common between Chinese and foreign automotive, the above two enterprises difficulties can be seen as difficulties of the whole industry. Combined with the case of Ssang Yong, the following parts points out that the difficulty in culture integration is unavoidable for the two parties of M&A are from different countries which have different political and economic background, social system, and economic development level. It is a question the acquiring party has to consider that how to build unified value and corporate culture inside the new company and thus realize the effect of 1+1>2 through integration.Seen from the role the government and intermediary organizations play during the M&A process, during the current overseas M&A activities, although the government provides some support, the role of the government is supposed to be more than that. The government should make more efforts in policy making, law system completing, and overseas M&A informational support and so on. Intermediary organizations like banks, investment organizations, accounting firms should also try their best to complete the system so as to provide more support for overseas M&A.Chapter 5:suggestions for improving overseas M&A performance and the prospect of overseas M&A. Firstly, this chapter puts up suggestions for improving overseas M&A performance. Seen from macrocosmic side, the government should correctly position the policies about overseas M&A and then carry out corresponding measures. These measures should cover the following aspects:establishing national overseas M&A managerial organization, speeding up legislation work about transnational M&A, expanding the financing channel of overseas M&A, providing some privileges in tax for enterprises carrying out overseas M&A, establishing special insurance system for transnational M&A activity, and strengthening the construction of intermediary organizations. Seen from the microcosmic aspect, the acquiring company should make efforts as follows:doing feasibility research before M&A activity and decide rationally, specifying the M&A strategy, emphasizing the integrity after M&A, developing and cultivating talents capable of transnational management. Secondly, this chapter analyses the prospect of overseas M&A of China's automotive industry. Seen from the bright side, the advantages Chinese automotive enterprises possess lay good foundation for the overseas M&A. These advantages are as follows:the of M&A environment of China is getting better and better, the domestic car market is highly potential which can possibly provide support for the automotive enterprises after M&A, Chinese automotive enterprises have advantage in fund, the supplementation of international talents will greatly reduce the risk of overseas M&A. Seen from the dark side, the following factors brings uncertainty to the prospect to the overseas M&A:due to the complexity, the overseas M&A itself is full of challenge. The competition is becoming more and more intense, which brings a lot of risks to the future development of the company after M&A. New round of innovation in energy saving, environmental protection and safety may make the acquired company which has traditional advantages lose their advantages in the future development process. Chapter 6:conclusion.