“China’s demand for high-end products is currently the second largest in the world, and it will surpass Japan’s in four years”–Xinhua News.
“Consumption of high-end products in China rose 23 percent in 2010. The number of Chinese people shopping for luxury goods overseas increased 30 percent.”–Commerce Minister Chen Deming
It is rare that the Chinese government makes it intentions for overseas business expansion as clear as it did when the head of its Commerce Department said the central government would support the acquisition of major brands by local companies. China has built a large public investor market for its own corporations though IPOs of some of the nation’s huge firms like China Mobile and oil giant CNOOC. One of the reasons China has allowed these public listings is probably to encourage them to use their stocks as currency for M&A activity. Beyond that the People’s Republic has stockpile of capital to fund expansion of its largest companies. China has over $2 trillion in foreign currencies. The nation’s GDP continues to grow at 8%China has had almost no success it expanding it own brands so that they can be used to market products and services overseas. “The Brandz Top 100 Most Valuable Brands 2010” study lists a number with parent companies based in China. China Mobile is ranked as the 8th most valuable brand worldwide at $52.6 billion. The company has 300 million wireless customers, but is unknown by consumers outside China. The People’s Republic is not home to any brands with the global recognition of ones like Coke, Google. Marlboro, Apple, McDonald’s, HP, or Wal-Mart. All of these brands sell their products or services in China, and for some the People’s Republic is the critical market for future growth.
China’s plan is simple. It is easier to buy a brand which has a value based on years or decades of exposure than to build one, which has risk and could take a very long period of time. It is tempting to create a list of corporations with valuable brands which might be bought with Chinese government support by choosing companies like IBM, Disney, Colgate, or Intel. But, these corporations operate with large profits, have strong balance sheets, significant global market shares, and large market capitalizations. There is no reason for the boards of these firms to consider selling them. There is no reason for the US government to entertain their sales.
24/7 Wall St. identified ten companies or brands that might be sold. These are, for the most part, firms with strong brands but long records of poor financial performance. The sales, earnings, and share prices of several are still in steep decline. Other companies on the list are private and their equity and debt holders might be tempted to sell them at large premiums as a way to “exit” their investments with a significant return.
The public companies on the 24/7 Wall St. list of The Huge Global Brands China May Buy come from reviews of sales, the portions of sales which are outside the US, stock performance compared to the S&P 500 over the last five years, and data from Brandz and Interbrand about the value of each company’s brand. If a brand value for one of the companies on the list was not available, we looked at a comparable one. Our assumption is that Chinese firms with the proper financial resources could increase the sales and value of these brands by several means. The most immediate way to do this is to increase their presences in the world’s most populous nation. The final criteria to be selected for list is that the companies cannot be in “strategic” businesses like defence equipment or enterprise software. American regulators and politicians have already shown that they will not approve transactions in these sectors.