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Ryszard Ławniczak Katarzyna Blanke-Ławniczak Communication Challenges for Reverse Globalizations Acquisitions EconPR 2010 April 16 - 18, 2010 Poznań 12.04.

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Presentation on theme: "Ryszard Ławniczak Katarzyna Blanke-Ławniczak Communication Challenges for Reverse Globalizations Acquisitions EconPR 2010 April 16 - 18, 2010 Poznań 12.04."— Presentation transcript:

1 Ryszard Ławniczak Katarzyna Blanke-Ławniczak Communication Challenges for Reverse Globalizations Acquisitions EconPR 2010 April , 2010 Poznań g g.15.00

2 Contents: The concepts of reverse globalization and revers globalization acquisitions The concepts of reverse globalization and revers globalization acquisitions Explaining the new phenomenon (what underpins the new trend?) Explaining the new phenomenon (what underpins the new trend?) Communication challenges for South- North FDI Communication challenges for South- North FDI Strategies and instruments applied to overcome the obstacles for up-stream M&As Strategies and instruments applied to overcome the obstacles for up-stream M&As

3 I. The concept of reverse globalization and revers globalization acquisitions I. 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. 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. It was so far characterised mainly by the downhill flow of foreign direct investment from developed economies integrating with less developed.

4 Reverse globalization Is a relatively new term, not yet fully confirmed,and it is understood as: 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)

5 2nd, 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 States solar energy needs are met by Chineese companies) ( nearly 50% of California States solar energy needs are met by Chineese companies)

6 3rd, likely long-term consequence of uphill flow of capital from emerging markets, buying companies not just bonds - in the developed world

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9 Nasser al. Shaali, the CEO of Dubai International Financial Center (DIFC) Nasser al. Shaali, the CEO of Dubai International Financial Center (DIFC) has in 2007 defined reverse globalization as a new situation 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

10 Reverse globalizations 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. Reverse globalizations 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.

11 The above mentioned phenomenon of FDI from emerging into developed countries isnt totally new. Already in the 1980s Japaneese corporations invested heav into UK, and U.S. The above mentioned phenomenon of FDI from emerging into developed countries isnt totally new. Already in the 1980s Japaneese corporations invested heav into UK, and U.S. Today we simply observe the second, Today we simply observe the second, much larger wave of such FDIs.

12 According to the Emerging Markets International acquisition Tracker (EMIAT) from KPMGs Advisory practice 1022 emerging-to developed (E2D) deals have been recorded in the period , among others: According to the Emerging Markets International acquisition Tracker (EMIAT) from KPMGs Advisory practice 1022 emerging-to developed (E2D) deals have been recorded in the period , among others: by Indian corporations393 - by Indian corporations 121 – by Russian121 – by Russian by Chineese108 - by Chineese 97 – by Central & Eastern European 97 – by Central & Eastern European

13 According to Dealogic, in 2009, for the first time, emerging markets outbound mergers and acquisitions flows outpaced inbound M&A flows, According to Dealogic, in 2009, for the first time, emerging markets outbound mergers and acquisitions flows outpaced inbound M&A flows, reaching US 131,8bn

14 The bigest sources of outward foreign investments and outward M&A : The BRIC countries (Brazil, Russia India, China) The BRIC countries (Brazil, Russia India, China) Middle-East Arab (Gulf) countries Middle-East Arab (Gulf) countries Other smaller emerging countries, among them Central & East-European, like Poland Other smaller emerging countries, among them Central & East-European, like Poland Our study covers BRIC countries + Poland !

15 Major players in outward M&A deals: BRIC private multinationals BRIC 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% and in China – for 75 outbound M&A.)

16 Who?Whom?When?Price Mittal Steel (India) Arcelor (France) 2006$26.5bln Lenovo (China) IBM (personal computer division) 2005 $1.75 bln TATA (India) Corus (UK/Netherlands) 2007$13.5bln TATA Motors (india Jaguar LandRover (UK) 2008$2.3bln LUKOIL Nelson Resources Ltd.(UK); Getty Oil (US) $2bln$71m The most spectacular E2D deals:

17 The most spectacular E2D deals (cont.): Who?Whom?When?Price CBRD (Brazil) INCO (Canada) 2007 $16.7 bln Geely (China) VOLVO ( car unit) 2010$1.8bln ORLEN (Poland) 494 ARAL petrol stations (Germany) 2002 E140 mln

18 II. Explaining the new phenomena

19 Motivation for RGAs Investment climate Capital costs Managerial Know-how Growth potential Technological Know-how Raw materials Profit margin Source:DB Research

20 Motivation 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 brand recognition and new technology (e.g.China, Russia, India)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 competitivnesaquisition of foreign brands as one of the ways to develop global competitivnes

21 Motivation cont.: diversification of marketsdiversification of markets preemptive step to secure access against protectionist barrierspreemptive step to secure access against protectionist barriers foreign acquisition as a country branding investmentforeign acquisition as a country branding investment military/strategic aimsmilitary/strategic aims

22 Short term: Short term: Sound assests shifting to avoid decline in their relative value as a result of revaluation (e.g.China)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)Use of opportunities for takeovers of bunkrupt developed market firms (global financial crisis)

23 Geely Cahirman Li Shufu on Volvo acqusition: Geely Cahirman Li Shufu on Volvo acqusition: There are 3 levels of implications: 1. China –made cars access to the world 1. China –made cars access to the world 2. enhance the image of the chineese independent brand and enable China- made cars to have a share in the global arena 2. enhance the image of the chineese independent brand and enable China- made cars to have a share in the global arena 3. benefit Chineese consumers.

24 Forces fuelling the new trend: liberalization of trade and financial markets (OECD, WTO) liberalization of trade and financial markets (OECD, WTO) liberalization of internal regulations in home countries liberalization of internal regulations in home countries relative surplus of capital relative surplus of capital easier access to global capital markets easier access to global capital markets

25 Common sources of comparative advantage High priority for investment proportion in research and developent High priority for investment proportion in research and developent Priority for human capital formation (e.g.education of engineers) Priority for human capital formation (e.g.education of engineers) Accumulation of huge amount of foreign exchange Accumulation of huge amount of foreign exchange National government support (ownership advantage) National government support (ownership advantage) Cost advantage Cost advantage Large domestic markets (huge population) Large domestic markets (huge population)

26 Country specific features: India: India: mostly family owned firms with a dominant equity holdermostly family owned firms with a dominant equity holder Broad range of sectors like steel, pharmaceuticals, infomation technology, services, automobilesBroad range of sectors like steel, pharmaceuticals, infomation technology, services, automobilesChina: Much of the OFDI carried out by large SOEs but also by SWFsMuch of the OFDI carried out by large SOEs but also by SWFs Focused mainly on oil and petroleum, construction, shiping, telecom, automobilesFocused mainly on oil and petroleum, construction, shiping, telecom, automobiles

27 Russia: Russia: mainly state owned multinationals(SOM)mainly state owned multinationals(SOM) majority of Russian OFDI is concentrated in oil, gas and metalurgy sectormajority of Russian OFDI is concentrated in oil, gas and metalurgy sector Brasil Brasil dominated by private sectordominated by private sector in search of markets, natural resources and better investment climatein search of markets, natural resources and better investment climate

28 Poland: Poland: specifics of Polish transformation (early pieriestroika, relative opening to the West, legacy of the socialist education) specifics of Polish transformation (early pieriestroika, relative opening to the West, legacy of the socialist education) the speed of decision making process the speed of decision making process managerial skills managerial skills the positive effects of shock therapy the positive effects of shock therapy

29 III. Communication challenges for South-North FDI HOST COUNTRIES They find the expression in escalation of protectionism, especially on grounds of They find the expression in escalation of protectionism, especially on grounds of the national security, andthe national security, and preservation of working places.preservation of working places.

30 They are also primarily related to the developed countries businesses, governments and peoples:They are also primarily related to the developed countries businesses, governments and peoples: fears, fears, national pride national pride concerns about established order of industrial hegemony. concerns about established order of industrial hegemony. existing stereotypes and different type of prejudicie existing stereotypes and different type of prejudicie perception that EMIs are beneficiaries of unfair state aid. perception that EMIs are beneficiaries of unfair state aid.

31 To overcome those fears EMIs have to address their communication efforts to gain trust gain trust fight stereotypes and prejudicies (e.g. Mittal-company of Indians) fight stereotypes and prejudicies (e.g. Mittal-company of Indians) uphold high quality standards uphold high quality standards (e.g. Quality of Mittals steel;Now China is going to junk a solid high-quality brand – (web comment on Geely/Vovo deal) (e.g. Quality of Mittals steel;Now China is going to junk a solid high-quality brand – (web comment on Geely/Vovo deal) build up a brand build up a brand narrow the cross-cultural differences narrow the cross-cultural differences

32 HOME COUNTRIES Micro level:Micro level: managment issues – cultural gap, skills and courage managment issues – cultural gap, skills and courage limited fincial resources limited fincial resources Meso level:Meso level: lack of institutions in support of E2D deals lack of institutions in support of E2D deals Macro level:Macro level: administrative barriers administrative barriers foreign currency restictions foreign currency restictions

33 IV. Strategies and tools in support for successful up-stream M&As

34 HOW to communicate - communication channels HOW? Corporate Government communication Outsourcing to global communication conglomerates (WPP,OMNICOM etc.) Building up an international lobbying organization

35 WHAT to communicate – key messages: its merger not takeover message (case: Mittal Steel/Arcelor) its merger not takeover message (case: Mittal Steel/Arcelor) Together we are strongerTogether we are stronger employment argument employment argument local content argument local content argument CSR CSR

36 key messages (cont): management remains – you know it better approach (Case TATA/Jaguar LandRover deal) management remains – you know it better approach (Case TATA/Jaguar LandRover deal) JaguarLandRover will retain their distinctive indentities or Volvo remains VolvoJaguarLandRover will retain their distinctive indentities or Volvo remains Volvo double standards arguments - you should practice what you pray double standards arguments - you should practice what you pray

37 Problem Problem Message Message Case Case Management oposition management remains (you know it better); its a merger not takeover (Case TATA/Jaguar LandRover deal); (case:Arcelor/ Mittal ) Employment reduction Job creation/ preservation;assymetry China M&A Associations Campaign Quality standards products will retain their distinctive indentities ; dontconfuse china OWNED with China BUILT JaguarLandRover TATA, or Volvo remains Volvo JaguarLandRover TATA, or Volvo remains Volvo WHAT communicate to host country and international publics:

38 WHAT communicate to host country and international publics (cont.): ProblemMessage Case Case Competition for national champions Local content; dilution of national origin; trustful brand ORLEN/Germany; Lenovo /Ogilvy &Mother brand building contract Local oposition cost reduction; CSR; new huge markets Geely/Volvo National pride dilution of national origin of ownership Mittal; Kulczyk; ORLEN

39 WHAT communicate to host country and international publics (cont. 2): ProblemMessage Case Case National security concerns firm owership doesnt matter; NATO/ OECD/ WTO membership Poland Unfair government aid SOE and SWF are focused on shareholders value; double standards; assymetry/reciprocity Chinese Foreign Ministry intervention; CNOOC Chairmans interview

40 WHAT communicate to home country publics: Problem Problem Message Message Case Case Management perception shifting Internal PR -we can do it ORLEN National economic interest Opportunity to gain a recognised brand Hummer/Sichun Tengzhong deal Oposition against global economic supremacy Globalization is a two-way street US No to Chineese acquisition of US banks National pride Government communication e.g. Media articles in India and China

41 Concluding remarks Reverse globalization acquisitions (up- stream FDI) is a new, long term trend in the global economy Reverse globalization acquisitions (up- stream FDI) is a new, long term trend in the global economy Challenges faced by emerging markets investors in developed countries are based on fears, prejudicies, false stereotypes and neglegance of intercultural differences. Challenges 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. Further intensive and sophisticated communication efforts are necessary in support for succesfuls South-North deals.

42 Thank you for your attention


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