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Mergers and Acquisitions

Chinese M&A activity grows,
but the consumer impact
on brands lacks clarity
 
More communication could raise awareness
 
This much is clear: the volume of merger and acquisition activity by Chinese brands has increased dramatically over the past several years. Driven by a combination of financial and brand building factors, Chinese brands linked with international companies from most regions of the world, and across a broad spectrum of categories.
 
Overseas investment represents a long-established Chinese government policy of “Go Out,” which encouraged investment by State Owned Enterprises (SOEs). Between 2006 and 2016, the amount Chinese brands spend on overseas mergers and acquisitions rose from$16.3 billion to $237.7 billion, according to Bloomberg analysis. A recent spike in activity corresponds with the tenure of President Xi Jinping, and the rebalancing of the economy from a focus on industrial development to consumption.
 
This part is less clear: the impact of a merger or acquisition on the consumer attitude toward the Chinese brand and the combined entity. Our latest BrandZ™ research examines consumer awareness of several major acquisitions in three countries that differ in their acceptance of Chinese products and brands: Japan (relatively resistant), German (relatively accepting), and the US (in the middle but highly competitive).
 
The topline finding is that consumer awareness of overseas merger and acquisition activities by Chinese companies is extremely low overall. Of the consumers we questioned, almost half of the Japanese, two-thirds of the Germans, and three quarters of the Americans said they were not aware of any of the acquisitions.
 
Some acquisitions, such as Lenovo’s acquisition of IBM’s personal computer division, took place several years ago. Others took place recently, including Haier’s purchase of GE’s appliance division and Ctrip’s purchase of UK-based Skyscanner. Awareness was highest, across the three countries, for the Lenovo-IBM connection, perhaps because it received a lot of publicity at the time it happened, in 2005.
 
Respondents told us that an acquisition would most likely have either no effect on their use of the acquired brand or decrease their use of a brand slightly. Conversely, they also said that an acquisition usually would not increase their use of a brand. The results were more pronounced in Japan, where almost a third of consumers said they would decrease use of a brand either slightly or a lot after its acquisition by a Chinese brand.
 
Consumers also expressed a neutral attitude when asked whether an acquisition would make them more likely to consider a Chinese brand when making a purchase. Half of the Japanese respondents, and about two-thirds of the Germans and Americans reported no change in attitude. However, acquisitions seemed to reinforce existing positive or negative attitudes toward Chinese brands. About a third of Japanese respondents said that they were a lot less likely to consider purchasing a brand after its acquisition by a Chinese brand. In contrast, almost a quarter of German respondents said they are slightly or a lot more likely to consider a brand after its acquisition by a Chinese brand. The impact on consideration was less pronounced for Americans.
 
Brand Implications
Merger and acquisition activity is likely to continue at a rapid rate as more Chinese brands seek overseas growth opportunities. But finding the right acquisition partner only starts the process. A critical phase happens after the brands are joined and need to communicate with consumers. For now, most western consumers are unaware of Chinese acquisitions, which is not surprising, as most Chinese brands still fall below the radar of western consumers. Anonymity was not an issue during the earlier phase of mergers and acquisitions when industrial development drove China’s economy. Brand is more important in the rebalancing economy that relies on consumption.
 
Each acquisition is different and the branding aspects correspond to strategic goals. In some instances, overseas acquisitions have been more about gaining market share than building brands. Chinese brands that focus on market share alone may be missing a brand building opportunity, however. And each acquisition also presents an opportunity to build the overseas awareness of Chinese brands, generally, and improve the perception of Brand China to help facilitate the future global growth of Chinese brands. Successful acquisitions also can increase brand stature at home where consumers often view global success as an assurance of quality.


M&A activity spikes and shifts to consumer brands…
 
The volume of merger and acquisition activity by Chinese brands has increased dramatically over the past several years, corresponding to the rebalancing of the economy from a focus on industrial development to consumption. 


M&A activity spikes and shifts to consumer brands…
 
The volume of merger and acquisition activity by Chinese brands has increased dramatically over the past several years, corresponding to the rebalancing of the economy from a focus on industrial development to consumption. 


… Consumer use of acquired brand is unaffected or decreases slightly…
 
An acquisition typically has little effect on consumer use of the acquired brand or results in a slight decrease.


… And consideration does not change significantly
 
Half of the Japanese respondents, and about two-thirds of the Germans and Americans reported no change in whether they would consider using a Chinese brand. However, acquisitions seemed to reinforce existing positive or negative attitudes.