by Katherine Lewis
Looking at the news about
Chinese companies buying Canadian energy firm Nexgen and U.S. pork producer
Smithfield Foods, you might get the impression that the Central Kingdom is on a
quest for worldwide domination. Monica Yang, Ph.D.,
an associate professor at the Robert B. Willumstad School of Business, is
delving behind the headlines to figure out what motivates businesses in China
and other developing countries to buy companies in other countries.
“This is something people are
interested to know: why are they coming, what do they want, are they
successful?” Dr. Yang says. “Their motivation differs from what we know about
companies in the developed markets.”
By analyzing a database of
cross-border merger and acquisition activity from 2000 through 2012, Dr. Yang
found that Chinese companies are looking to expand their market and also
acquire strategic assets, including established brand names, human capital and
research and development capability.
Monica Yang, Ph.D., has found some
distinct trends in international merger and acquisition activity by Chinese
companies. Source: SDC database.
“They want the technology, the
skills, the R&D knowledge,” not cost efficiencies, she says, noting
that her work was funded by a provost’s grant. By contrast, “U.S. companies are
looking for cheaper labor.”
Dr. Yang has found mixed
profitability when analyzing results of cross-border M&A, possibly due to
the government role in Chinese business. She also studied the pattern of
Chinese firms copying each others’ merger activity, measuring how similar their
strategies are and which companies are most successful.
One counter-intuitive finding:
Chinese firms are more attracted to countries that have low government
effectiveness, which companies in developed countries typically see as a risk
factor. It could be that being from a developing country—many of which have low
government effectiveness— Chinese companies are more comfortable in an
environment similar to their home climate, or perhaps they’re hoping to avoid
the national security concerns that have blocked acquisitions in countries with
stronger, richer governments.
This piece appeared in the Erudition 2014
edition.
