The Foreign Companies [Ahem,Cough,Cough, Thats' China Boy] That Are Buying Up America[And Canada]

The Foreign Companies [Ahem,Cough,Cough, Thats' China's Boys] That Are Buying Up America[And Canada]

Over the last several years, foreign companies have quietly been acquiring a piece of Americana.  Most Americans don’t realize that when they go to see Monsters University this weekend, if they do it at an AMC theater chain, they are doing so in a theater owned by the Chinese.

This summer, any Forbes reader lucky enough to be powering out of Newport on their new Sunseeker would have bought it from a Chinese yacht maker, not a British one.  The Dalian Wanda Group acquired Sunseeker this month.

 

Foreign firms are moving in and buying up household names from sea to shining sea, and then some.

The landmark Pierre Hotel in New York City? It’s owned by Indian conglomerate The Tata Group.

Esse Bud e’ para voce.

Unlike the 1980s, when the Japanese were buying U.S. real estate and selling Hondas for the first time to Main Streeters abandoning their Detroit made cars, the strategy for firms from China to Brazil has largely been to acquire existing brands.  But in the not so distant future, Americans will be eating, driving, flying and wearing brands that are designed and uniquely linked to countries other than those in the advanced economies.

Relatively few firms have been able to claim that status here, outside of the usual Japanese, European and Canadian names. In Brazil, Americans have been flying onEmbraer jets made in Brazil for decades now.

There’s going to be more Embraers. Only they’ll own brands Americans know and love.

Ten years ago, no one would have believed that Samsung could rivalSony in the television space, but it does.  Now Samsung is going after Apple AAPL +0.59% to make its Galaxy branded smartphones and tablets the devices of choice for wired Americans.

The same is going to happen with companies from China, says Nirmalya Kumar, a professor of marketing at the London BusinessSchool and Director of the school’s Aditya Birla India Center.

“The Chinese are using American money from its trade deficit with you and putting it to use to acquire American brands,” he said. “Every sector in China has a company Beijing wants to developing into a market leader. They have an acquisition agenda. It is hard to predict which one will break out.”

It’s easier to just buy a brand. The hardest thing for these countries will be building the next Honda and Samsung, which started out the same way many Chinese firms have started — as a contract manufacturer.

“The story of poor quality in China is coming to an end now and out of all the big emerging nations out there with cash to spend, they are the ones I see coming up with the new global brand first,” he said.  Out of the Fortune 500 companies, China has 73 of them. Only the U.S. has more.

Kumar said retailer Shanghai Tang was one of the Chinese brands he expects will be able to tap the middle class Chinese consumer at home and abroad.

This is not 1980s America. Today’s emerging markets are taking a different approach than Japan, which brought home-grown technology to the United States market to sell.  They came with Nintendos and Nissans, products that already had a name for themselves back home.  Companies are now testing the waters by buying good U.S. brands first.

They’re buying them cheap.

There are two factors at work, says Kamar in his new book “Brand Breakout: How Emerging Market Brands Will Go Global”.  He calls it the push-pull factor.

“These countries are generating a lot of money in their home markets and they have a lot of cash on hand.  That’s the push factor.  The pull factor is that they are seeing cheap valuations in the U.S., and in Europe, and they have the cash to buy them at a reasonable price,” he said in an interview with Forbes this week. “They know they are buying a franchise that will generate cash for them for generations.  It would take decades for them to build that brand on their own and there is no guarantee that they’d be as successful as Japan.  I don’t think the slowdown in emerging economies is a factor. This trend isn’t going to stop now.”

The Brand Acquisition Route

A little piece of Americana is being acquired each year.  It’s not a bad thing.  People from Brazil have been accustomed to being surrounded by McDonald’s and Coca-Cola since the 1950s. Americans are unlikely to see new, foreign brands on grocery store shelves anytime soon.  Instead, they will be buying Entenmann’s mini-chocolate chip cookies owned by Mexican firm Grupo Bimbo instead.

According to consulting firm A.T. Kearney, between 2006 and 2011, 6,500 acquisitions were made and 78% of them initiated from the advanced economies.  However, of the 194 deals that were over a $1 billion, 41% of them were from the emerging markets.

To determine who was acquiring whom, The Economist magazine looked at World Bank data from 2000 to 2010 and found that China led the charge in mergers and acquisitions cross-border, and they were mostly buying up American firms.  The Chinese government actively supports the rush to acquire assets overseas, especially natural resources.  Over the past decade, China’s capital outflow has grown ten-fold to around $62 billion. 

Given China’s $3.5 trillion in reserves, many economists figure China will be investing as much as $500 billion overseas in seven years. (That would require China to quadruple outward investment though, so the number is more than a bit bullish.)

If Made in China characterized the past 20 years, says Kumar, then Owned by China may characterize the next.  Buying up brands is an important part of that story.

Emerging market companies “buy…to gain complementary competencies — assets such as technologies, products, brands or distribution networks and capabilities like new business models and marketing and innovation skills — the value of which outweighs the high operating costs and stagnant domestic market,” Kumar and his colleague Jan Benedict Steenkamp wrote in “Brand Breakout”.

Once they get the distribution network in place, companies can introduce their own brands to market. And when that happens, Americans might be buying more Chery sedans  instead of Chevrolets, or drinking Guarana – owned by Ambev — instead of Coke.