ryszard Ławniczak katarzyna blanke-Ławniczak communication challenges for reverse globalizations...
TRANSCRIPT
Ryszard ŁawniczakRyszard ŁawniczakKatarzyna Blanke-ŁawniczakKatarzyna Blanke-Ławniczak
Communication Challenges Communication Challenges for Reverse Globalization’s for Reverse Globalization’s AcquisitionsAcquisitions
EconPREconPR 2010 2010April 16 - 18, 2010April 16 - 18, 2010
PoznańPoznań 12.04. g.15.0012.04. g.15.00
Contents:Contents:
The concepts of „reverse globalization” The concepts of „reverse globalization” and „revers globalization acquisitions”and „revers globalization acquisitions”
Explaining the new phenomenonExplaining the new phenomenon (what (what underpins the new trend?)underpins the new trend?)
Communication challenges for South-North Communication challenges for South-North FDIFDI
Strategies and instruments applied Strategies and instruments applied to to overcome the obstacles forovercome the obstacles for up-stream up-stream M&A’sM&A’s
I. I. The concept of „reverse The concept of „reverse globalization” and „revers globalization” and „revers globalization acquisitionsglobalization acquisitions””
Economic globalization Economic globalization is generally is generally understood as increasing economic understood as increasing economic integration of national economies as a integration of national economies as a result of rapid increase of cross-border result of rapid increase of cross-border flows of good, service, technology and flows of good, service, technology and capital.capital.
It was so far characterised mainly by It was so far characterised mainly by the the downhill flowdownhill flow of foreign direct of foreign direct investment from developed economies investment from developed economies integrating with less developed. integrating with less developed.
Reverse globalizationReverse globalization
Is a relatively new term, not yet fully Is a relatively new term, not yet fully „confirmed” ,and it is understood as:„confirmed” ,and it is understood as:
1st – „1st – „bringing back activitiesbringing back activities” by ” by companies withdrawing from overseas companies withdrawing from overseas ventures, e.g. as a consequence of ventures, e.g. as a consequence of increased transportation costs from higher increased transportation costs from higher oil prices, which may outweight the other oil prices, which may outweight the other cost advantages from moving cost advantages from moving manufacturing to low-cost emerging manufacturing to low-cost emerging markets (Jeff Rubin) markets (Jeff Rubin)
2nd, reversal of technology flows to 2nd, reversal of technology flows to developed economies – the new developed economies – the new situation when emerging markets situation when emerging markets companies bring technology and companies bring technology and capital and e.g.California, provides capital and e.g.California, provides the labour and consumer market the labour and consumer market
( nearly 50% of California State’s solar ( nearly 50% of California State’s solar energy needs are met by Chineese energy needs are met by Chineese companies) companies)
3rd, likely long-term consequence3rd, likely long-term consequence
of „of „uphill flow of capitaluphill flow of capital” from” from
emerging markets, buying companiesemerging markets, buying companies
not just bonds - in the developednot just bonds - in the developed
world world
Nasser al. Shaali, the CEO of Dubai Nasser al. Shaali, the CEO of Dubai International Financial Center (DIFC)International Financial Center (DIFC)
has in 2007 defined „reverse globalization” has in 2007 defined „reverse globalization” as a new situation as a new situation „…„…when you have emerging market when you have emerging market players going out and acquiring developed players going out and acquiring developed institutions – (which) is a tide that no institutions – (which) is a tide that no matter how to try to swing against it, will matter how to try to swing against it, will be very, very prelevent in the years to be very, very prelevent in the years to come” come”
Reverse globalization’s acquisitionsReverse globalization’s acquisitions (RGA) represent(RGA) representss a new, long-term a new, long-term trend in the global economy, namely trend in the global economy, namely the the South-North FDISouth-North FDI (or (or up-market up-market FDIFDI) originating from emerging ) originating from emerging economies (i.e. developing and economies (i.e. developing and transition economies) and destined to transition economies) and destined to advanced countriesadvanced countries..
The above mentioned phenomenon The above mentioned phenomenon of FDI from emerging into developed of FDI from emerging into developed countries isn’t totally new. Already in countries isn’t totally new. Already in the 1980’s Japaneese corporations the 1980’s Japaneese corporations invested heav into UK, and U.S.invested heav into UK, and U.S.
Today we simply observe the second,Today we simply observe the second,
much larger wave of such FDI’s.much larger wave of such FDI’s.
According to the Emerging Markets According to the Emerging Markets International acquisition Tracker (EMIAT) International acquisition Tracker (EMIAT) from KPMG’s Advisory practice 1022 from KPMG’s Advisory practice 1022 emerging-to developed (E2D) deals emerging-to developed (E2D) deals have been recorded in the period 2005-have been recorded in the period 2005-2009, among others:2009, among others:• 393 - by Indian corporations393 - by Indian corporations• 121 – by Russian121 – by Russian• 108 - by Chineese108 - by Chineese• 97 – by Central & Eastern European97 – by Central & Eastern European
According to Dealogic, in 2009 , According to Dealogic, in 2009 , for the first time, emerging for the first time, emerging markets outbound mergers and markets outbound mergers and acquisitions flows outpaced acquisitions flows outpaced inbound M&A flows,inbound M&A flows,
reaching US 131,8bnreaching US 131,8bn
The bigest sources of outward foreign The bigest sources of outward foreign investments and outward M&Ainvestments and outward M&A : :
The BRIC countries (Brazil, Russia India, The BRIC countries (Brazil, Russia India, China)China)
Middle-East Arab (Gulf) countriesMiddle-East Arab (Gulf) countries Other smaller emerging countries, among Other smaller emerging countries, among
them Central & East-European, like Polandthem Central & East-European, like Poland
Our study covers BRIC countries + Poland !Our study covers BRIC countries + Poland !
Major players in outward M&A deals:Major players in outward M&A deals:
BRIC private multinationalsBRIC private multinationals State-owned enterprices (SOEs)State-owned enterprices (SOEs) Sovereign wealth funds (SWFs) Sovereign wealth funds (SWFs)
(e.g. in Russia, SOEs account for 26% (e.g. in Russia, SOEs account for 26% and in China – for 75 outbound M&A.)and in China – for 75 outbound M&A.)
Who?Who? Whom? Whom? When?When? PricePrice
Mittal Steel (India)Mittal Steel (India) Arcelor (France)Arcelor (France) 20062006 $26.5bln$26.5bln
Lenovo (China)Lenovo (China) IBM (personal IBM (personal computer division)computer division)
20052005 $1.75 bln$1.75 bln
TATA (India)TATA (India) Corus Corus (UK/Netherlands)(UK/Netherlands)
20072007 $13.5bln$13.5bln
TATA Motors (indiaTATA Motors (india Jaguar LandRover Jaguar LandRover (UK)(UK)
20082008 $2.3bln$2.3bln
LUKOILLUKOIL Nelson Resources Nelson Resources Ltd.(UK);Ltd.(UK);
Getty Oil (US)Getty Oil (US)
20052005
20012001
$2bln$2bln
$71m$71m
The most spectacular E2D deals:The most spectacular E2D deals:
The most spectacular E2D dealsThe most spectacular E2D deals (cont.)(cont.)::
Who?Who? Whom?Whom? When?When? PricePrice
CBRD (Brazil)CBRD (Brazil) INCO INCO (Canada)(Canada)
20072007 $16.7$16.7blnbln
Geely (China)Geely (China) VOLVO ( car VOLVO ( car unit)unit)
20102010 $1.8$1.8
blnbln
ORLEN ORLEN (Poland)(Poland)
494 ARAL 494 ARAL petrol stations petrol stations (Germany) (Germany)
20022002 E140E140mlnmln
II. II. Explaining the new phenomExplaining the new phenomenaena
Motivationfor RGA’s
Investment climate
Capital costs
ManagerialKnow-how
Growth potential
TechnologicalKnow-how
Raw materials
Profitmargin
Source:DB Research
Motivation for RGAsMotivation for RGAs
Strategic, long lerm:Strategic, long lerm:
• acqusition of raw materials (e.g.China)acqusition of raw materials (e.g.China)• acquisition of „invisible assets” such as acquisition of „invisible assets” such as
brand recognition and new technology brand recognition and new technology (e.g.China, Russia, India)(e.g.China, Russia, India)
• aquisition of foreign brands as one of the aquisition of foreign brands as one of the ways to develop global competitivnesways to develop global competitivnes
Motivation cont.:Motivation cont.:
• diversification of marketsdiversification of markets• preemptive step to secure access preemptive step to secure access
against protectionist barriersagainst protectionist barriers• foreign acquisition as a country foreign acquisition as a country
branding investmentbranding investment• military/strategic aimsmilitary/strategic aims
Short term:Short term:
• Sound assests shifting to avoid Sound assests shifting to avoid decline in their relative value as a decline in their relative value as a result of revaluation (e.g.China)result of revaluation (e.g.China)
• Use of opportunities for takeovers Use of opportunities for takeovers of bunkrupt developed market of bunkrupt developed market firms (global financial crisis) firms (global financial crisis)
Geely Cahirman Li Shufu on Volvo Geely Cahirman Li Shufu on Volvo acqusition:acqusition:
„„There are 3 levels of implications:There are 3 levels of implications: 1. China –made cars access to the world1. China –made cars access to the world
2. enhance the image of the chineese 2. enhance the image of the chineese independent brand and enable China-independent brand and enable China-made cars to have a share in the global made cars to have a share in the global arenaarena
3. benefit Chineese consumers.”3. benefit Chineese consumers.”
Forces fuelling the new trend:Forces fuelling the new trend:
liberalization of trade and financial liberalization of trade and financial markets (OECD, WTO)markets (OECD, WTO)
liberalization of internal regulations in liberalization of internal regulations in home countrieshome countries
relative surplus of capitalrelative surplus of capital easier access to global capital marketseasier access to global capital markets
Common sources Common sources of comparative advantageof comparative advantage
High priority for investment proportion in High priority for investment proportion in research and developentresearch and developent
Priority for human capital formation Priority for human capital formation (e.g.education of engineers)(e.g.education of engineers)
Accumulation of huge amount of foreign Accumulation of huge amount of foreign exchangeexchange
National government support (ownership National government support (ownership advantage)advantage)
Cost advantage Cost advantage Large domestic markets (huge population)Large domestic markets (huge population)
Country specific features:Country specific features: India:India:
• mostly family owned firms with a dominant mostly family owned firms with a dominant equity holderequity holder
• Broad range of sectors like steel, Broad range of sectors like steel, pharmaceuticals, infomation technology, pharmaceuticals, infomation technology, services, automobilesservices, automobiles
China:China:• Much of the OFDI carried out by large SOEs Much of the OFDI carried out by large SOEs
but also by SWFsbut also by SWFs• Focused mainly on oil and petroleum, Focused mainly on oil and petroleum,
construction, shiping, telecom, automobilesconstruction, shiping, telecom, automobiles
Russia:Russia:• mainly state owned multinationals(SOM)mainly state owned multinationals(SOM)• majority of Russian OFDI is concentrated majority of Russian OFDI is concentrated
in oil, gas and metalurgy sectorin oil, gas and metalurgy sector BrasilBrasil
• dominated by private sectordominated by private sector• in search of markets, natural resources in search of markets, natural resources
and better investment climateand better investment climate
Poland:Poland:• specifics of Polish transformation specifics of Polish transformation
(early „pieriestroika”, relative (early „pieriestroika”, relative opening to the „West”, legacy of the opening to the „West”, legacy of the socialist education)socialist education)
• the speed of decision making processthe speed of decision making process• managerial skillsmanagerial skills• the positive effects of „shock the positive effects of „shock
therapy”therapy”
III. III. Communication challenges Communication challenges for South-North FDIfor South-North FDI
HOST COUNTRIESHOST COUNTRIES
They find the expression in escalation They find the expression in escalation of protectionism, especially on of protectionism, especially on grounds ofgrounds of• the national security, and the national security, and • preservation of working places. preservation of working places.
• They are also primarily related to They are also primarily related to the developed countries businesses, the developed countries businesses, governments and peoples:governments and peoples: fears , fears , national pride national pride concerns aboutconcerns about „established order of „established order of
industrial hegemony”.industrial hegemony”. existing existing stereotypes and different stereotypes and different
type of prejudicietype of prejudicie perception that EMI’s are beneficiaries perception that EMI’s are beneficiaries
of unfair state aid.of unfair state aid.
To overcome those fears EMIs have to addressTo overcome those fears EMIs have to address
their communication efforts totheir communication efforts to gain trust gain trust fight stereotypes and prejudicies (e.g. Mittal- fight stereotypes and prejudicies (e.g. Mittal-
„„company of Indianscompany of Indians”)”) uphold high quality standardsuphold high quality standards
• (e.g. Quality of Mittal’s steel;„(e.g. Quality of Mittal’s steel;„Now China is Now China is going to junk a solid high-quality brandgoing to junk a solid high-quality brand” – ” – (web comment on Geely/Vovo deal)(web comment on Geely/Vovo deal)
build up a brandbuild up a brand narrow the cross-cultural differencesnarrow the cross-cultural differences
HOME COUNTRIESHOME COUNTRIES
• Micro levelMicro level:: managment issues – cultural gap, skills managment issues – cultural gap, skills
and courageand courage limited fincial resourceslimited fincial resources
• Meso level: Meso level: lack oflack of institutions in support of E2D institutions in support of E2D
dealsdeals• Macro levelMacro level::
administrative barriersadministrative barriers foreign currency restictionsforeign currency restictions
IV. IV. Strategies and Strategies and toolstools in support in support for successful up-stream M&A’sfor successful up-stream M&A’s
HOW to communicate -HOW to communicate -communication channelscommunication channels
HOW?
CorporateGovernment
communicationcommunication
Outsourcing to global communication conglomerates (WPP,OMNICOM etc.)
Building up an international lobbying organization
WHAT to communicate –WHAT to communicate –key messages:key messages:
it’s merger not takeover message (case: it’s merger not takeover message (case: Mittal Steel/Arcelor)Mittal Steel/Arcelor)
„„Together we are strongerTogether we are stronger””
employment argumentemployment argument
local content argumentlocal content argument
CSRCSR
key messages (cont):key messages (cont):
management remains – you know it better management remains – you know it better approach (Case TATA/Jaguar LandRover approach (Case TATA/Jaguar LandRover deal)deal)
„„JaguarLandRover will retain their JaguarLandRover will retain their distinctive indentities” or „distinctive indentities” or „Volvo Volvo remains remains Volvo”Volvo”
double standards arguments - „double standards arguments - „you should you should practice what you pray”practice what you pray”
ProblemProblem MessageMessage CaseCase
Management Management opositionoposition
management management remainsremains („you („you know it better”);know it better”);
„„it’s a merger it’s a merger not takeover” not takeover”
(Case TATA/Jaguar (Case TATA/Jaguar LandRover deal);LandRover deal);
(case:Arcelor/ (case:Arcelor/ MittalMittal))
Employment Employment reductionreduction
Job creation/Job creation/
preservation;preservation;
assymetryassymetry
China M&A China M&A AssociationsAssociations
CampaignCampaign
Quality standardsQuality standards products will retain their products will retain their distinctive indentitiesdistinctive indentities”;”;
dont’confuse china OWNED dont’confuse china OWNED with China BUILTwith China BUILT
„„JaguarLandRover JaguarLandRover TATA, or „TATA, or „Volvo Volvo
remains Volvoremains Volvo””
WHAT communicate toWHAT communicate tohosthost country and international publics: country and international publics:
WHAT communicate to WHAT communicate to hosthost country country and and international international publics (cont.):publics (cont.):
Problem Problem Message Message CaseCase
Competition for Competition for „national „national champions”champions”
Local content;Local content;
dilution of dilution of national origin;national origin;
trustful brandtrustful brand
ORLEN/Germany;ORLEN/Germany;
Lenovo /Ogilvy Lenovo /Ogilvy &Mother brand &Mother brand building contractbuilding contract
Local opositionLocal oposition cost reduction; cost reduction; CSR; new huge CSR; new huge markets markets
Geely/VolvoGeely/Volvo
National prideNational pride dilution of dilution of national origin national origin of ownershipof ownership
Mittal; Kulczyk;Mittal; Kulczyk;
ORLENORLEN
WHAT communicate to host country WHAT communicate to host country and international publics (cont. 2):and international publics (cont. 2):
ProblemProblem MessageMessage CaseCase
National National security security concernsconcerns
firm owership doesn’t firm owership doesn’t matter; NATO/ OECD/matter; NATO/ OECD/
WTO membershipWTO membership
PolandPoland
Unfair Unfair government government
aidaid
SOE and SWF are SOE and SWF are focused on focused on shareholders value;shareholders value;
double standards;double standards;
assymetry/reciprocityassymetry/reciprocity
Chinese Foreign Chinese Foreign Ministry Ministry intervention;intervention;
CNOOC Chairman’s CNOOC Chairman’s interviewinterview
WHAT communicate to WHAT communicate to home home country publics:country publics:
ProblemProblem Message Message CaseCase
Management Management perception perception shiftingshifting
Internal PR -„we Internal PR -„we can do it”can do it”
ORLENORLEN
National economic National economic interestinterest
Opportunity to Opportunity to gain a gain a recognised brandrecognised brand
Hummer/Sichun Hummer/Sichun Tengzhong dealTengzhong deal
Oposition against Oposition against global economic global economic supremacysupremacy
Globalization is a Globalization is a two-way streettwo-way street
US No to Chineese US No to Chineese acquisition of US acquisition of US banks banks
National prideNational pride Government Government communicationcommunication
e.g. Media articles e.g. Media articles in India and Chinain India and China
Concluding remarksConcluding remarks
Reverse globalization acquisitions (up-Reverse globalization acquisitions (up-stream FDI) is a new, long term trend in stream FDI) is a new, long term trend in the global economythe global economy
Challenges faced by emerging markets Challenges faced by emerging markets investors in developed countries are based investors in developed countries are based on fears, prejudicies, false stereotypes and on fears, prejudicies, false stereotypes and neglegance of intercultural differences.neglegance of intercultural differences.
Further intensive and sophisticated Further intensive and sophisticated communication efforts are necessary in communication efforts are necessary in support for succesfuls South-North deals. support for succesfuls South-North deals.
Thank you for your attentionThank you for your attention
[email protected]@prelite.pl