Presentation on theme: "Ryszard Ławniczak Katarzyna Blanke-Ławniczak Communication Challenges for Reverse Globalization’s Acquisitions EconPR 2010 April 16 - 18, 2010 Poznań."— Presentation transcript:
1Ryszard Ławniczak Katarzyna Blanke-Ławniczak Communication Challenges for Reverse Globalization’s AcquisitionsEconPR 2010April , 2010Poznańg.15.00
2Contents:The concepts of „reverse globalization” and „revers globalization acquisitions”Explaining the new phenomenon (what underpins the new trend?)Communication challenges for South-North FDIStrategies and instruments applied to overcome the obstacles for up-stream M&A’s
3I. The concept of „reverse globalization” and „revers globalization acquisitions” Economic globalization is generally understood as increasing economic integration of national economies as a result of rapid increase of cross-border flows of good, service, technology and capital.It was so far characterised mainly by the downhill flow of foreign direct investment from developed economies integrating with less developed.
4Reverse globalization Is a relatively new term, not yet fully „confirmed” ,and it is understood as:1st – „bringing back activities” by companies withdrawing from overseas ventures, e.g. as a consequence of increased transportation costs from higher oil prices, which may outweight the other cost advantages from moving manufacturing to low-cost emerging markets (Jeff Rubin)
52nd, reversal of technology flows to developed economies – the new situation when emerging markets companies bring technology and capital and e.g.California, provides the labour and consumer market( nearly 50% of California State’s solar energy needs are met by Chineese companies)
63rd, likely long-term consequence of „uphill flow of capital” fromemerging markets, buying companiesnot just bonds - in the developedworld
9Nasser al. Shaali, the CEO of Dubai International Financial Center (DIFC) has in 2007 defined „reverse globalization” as a new situation„…when you have emerging market players going out and acquiring developed institutions – (which) is a tide that no matter how to try to swing against it, will be very, very prelevent in the years to come”
10Reverse globalization’s acquisitions (RGA) represents a new, long-term trend in the global economy, namely the South-North FDI (or up-market FDI) originating from emerging economies (i.e. developing and transition economies) and destined to advanced countries.
11The above mentioned phenomenon of FDI from emerging into developed countries isn’t totally new. Already in the 1980’s Japaneese corporations invested heav into UK, and U.S.Today we simply observe the second,much larger wave of such FDI’s.
12According to the Emerging Markets International acquisition Tracker (EMIAT) from KPMG’s Advisory practice emerging-to developed (E2D) deals have been recorded in the period , among others:by Indian corporations121 – by Russianby Chineese97 – by Central & Eastern European
13According to Dealogic, in 2009 , for the first time, emerging markets outbound mergers and acquisitions flows outpaced inbound M&A flows,reaching US 131,8bn
14The bigest sources of outward foreign investments and outward M&A : The BRIC countries (Brazil, Russia India, China)Middle-East Arab (Gulf) countriesOther smaller emerging countries, among them Central & East-European, like PolandOur study covers BRIC countries + Poland !
15Major players in outward M&A deals: BRIC private multinationalsState-owned enterprices (SOEs)Sovereign wealth funds (SWFs)(e.g. in Russia, SOEs account for 26% and in China – for 75 outbound M&A.)
19Technological Managerial Know-how Know-how Raw materials Growth potentialMotivationfor RGA’sCapital costsProfitmarginInvestmentclimateSource:DB Research
20Motivation for RGAs Strategic, long lerm: acqusition of raw materials (e.g.China)acquisition of „invisible assets” such as brand recognition and new technology (e.g.China, Russia, India)aquisition of foreign brands as one of the ways to develop global competitivnes
21Motivation cont.: diversification of markets preemptive step to secure access against protectionist barriersforeign acquisition as a country branding investmentmilitary/strategic aims
22Short term:Sound assests shifting to avoid decline in their relative value as a result of revaluation (e.g.China)Use of opportunities for takeovers of bunkrupt developed market firms (global financial crisis)
23Geely Cahirman Li Shufu on Volvo acqusition: „There are 3 levels of implications:1. China –made cars access to the world2. enhance the image of the chineese independent brand and enable China-made cars to have a share in the global arena3. benefit Chineese consumers.”
24Forces fuelling the new trend: liberalization of trade and financial markets (OECD, WTO)liberalization of internal regulations in home countriesrelative surplus of capitaleasier access to global capital markets
25Common sources of comparative advantage High priority for investment proportion in research and developentPriority for human capital formation (e.g.education of engineers)Accumulation of huge amount of foreign exchangeNational government support (ownership advantage)Cost advantageLarge domestic markets (huge population)
26Country specific features: India:mostly family owned firms with a dominant equity holderBroad range of sectors like steel, pharmaceuticals, infomation technology, services, automobilesChina:Much of the OFDI carried out by large SOEs but also by SWFsFocused mainly on oil and petroleum, construction, shiping, telecom, automobiles
27Russia:mainly state owned multinationals(SOM)majority of Russian OFDI is concentrated in oil, gas and metalurgy sectorBrasildominated by private sectorin search of markets, natural resources and better investment climate
28Poland:specifics of Polish transformation (early „pieriestroika”, relative opening to the „West”, legacy of the socialist education)the speed of decision making processmanagerial skillsthe positive effects of „shock therapy”
29III. Communication challenges for South-North FDI HOST COUNTRIES They find the expression in escalation of protectionism, especially on grounds ofthe national security, andpreservation of working places.
30They are also primarily related to the developed countries businesses, governments and peoples: fears ,national prideconcerns about „established order of industrial hegemony”.existing stereotypes and different type of prejudicieperception that EMI’s are beneficiaries of unfair state aid.
31To overcome those fears EMIs have to address their communication efforts togain trustfight stereotypes and prejudicies (e.g. Mittal- „company of Indians”)uphold high quality standards(e.g. Quality of Mittal’s steel;„Now China is going to junk a solid high-quality brand” – (web comment on Geely/Vovo deal)build up a brandnarrow the cross-cultural differences
32HOME COUNTRIES Micro level: managment issues – cultural gap, skills and couragelimited fincial resourcesMeso level:lack of institutions in support of E2D dealsMacro level:administrative barriersforeign currency restictions
33IV. Strategies and tools in support for successful up-stream M&A’s
34HOW to communicate -communication channels GovernmentcommunicationCorporatecommunicationOutsourcing to globalcommunication conglomerates (WPP,OMNICOM etc.)Building up an international lobbying organization
35WHAT to communicate – key messages: it’s merger not takeover message (case: Mittal Steel/Arcelor)„Together we are stronger”employment argumentlocal content argumentCSR
36key messages (cont):management remains – you know it better approach (Case TATA/Jaguar LandRover deal)„JaguarLandRover will retain their distinctive indentities” or „Volvo remains Volvo”double standards arguments - „you should practice what you pray”
37WHAT communicate to host country and international publics: ProblemMessageCaseManagement opositionmanagement remains („you know it better”);„it’s a merger not takeover”(Case TATA/Jaguar LandRover deal);(case:Arcelor/ Mittal)Employment reductionJob creation/preservation;assymetryChina M&A AssociationsCampaignQuality standardsproducts will retain their distinctive indentities”;dont’confuse china OWNED with China BUILT„JaguarLandRover TATA, or „Volvo remains Volvo”
38WHAT communicate to host country and international publics (cont.): ProblemMessageCaseCompetition for „national champions”Local content;dilution of national origin;trustful brandORLEN/Germany;Lenovo /Ogilvy &Mother brand building contractLocal opositioncost reduction; CSR; new huge marketsGeely/VolvoNational pridedilution of national origin of ownershipMittal; Kulczyk;ORLEN
39WHAT communicate to host country and international publics (cont. 2): ProblemMessageCaseNational security concernsfirm owership doesn’t matter; NATO/ OECD/WTO membershipPolandUnfair governmentaidSOE and SWF are focused on shareholders value;double standards;assymetry/reciprocityChinese Foreign Ministry intervention;CNOOC Chairman’s interview
40WHAT communicate to home country publics: ProblemMessageCaseManagement perception shiftingInternal PR -„we can do it”ORLENNational economic interestOpportunity to gain a recognised brandHummer/Sichun Tengzhong dealOposition against global economic supremacyGlobalization is a two-way streetUS No to Chineese acquisition of US banksNational prideGovernment communicatione.g. Media articles in India and China
41Concluding remarksReverse globalization acquisitions (up-stream FDI) is a new, long term trend in the global economyChallenges faced by emerging markets investors in developed countries are based on fears, prejudicies, false stereotypes and neglegance of intercultural differences.Further intensive and sophisticated communication efforts are necessary in support for succesfuls South-North deals.