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

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

3. 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.
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:
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 State’s 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

9. Nasser 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”

10. Reverse 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.

11. The 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.

12. According 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 corporations
121 – by Russian
by Chineese
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,
reaching US 131,8bn

14. The bigest sources of outward foreign investments and outward M&A :
The BRIC countries (Brazil, Russia India, China)
Middle-East Arab (Gulf) countries
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
State-owned enterprices (SOEs)
Sovereign wealth funds (SWFs)
(e.g. in Russia, SOEs account for 26% and in China – for 75 outbound M&A.)

16. The most spectacular E2D deals:
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)
2001
$2bln
$71m

17. The most spectacular E2D deals (cont.):
Who?
Whom?
When?
Price
CBRD (Brazil)
INCO (Canada)
2007
$16.7bln
Geely (China)
VOLVO ( car unit)
2010
$1.8
bln
ORLEN (Poland)
494 ARAL petrol stations (Germany)
2002
E140mln

18. II. Explaining the new phenomena

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

20. Motivation 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

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

22. Short 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)

23. Geely Cahirman Li Shufu on Volvo acqusition:
„There are 3 levels of implications:
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
3. benefit Chineese consumers.”

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

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

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

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

28. Poland:
specifics of Polish transformation (early „pieriestroika”, relative opening to the „West”, legacy of the socialist education)
the speed of decision making process
managerial skills
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
the national security, and
preservation of working places.

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

31. To overcome those fears EMIs have to address
their communication efforts to
gain trust
fight 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 brand
narrow the cross-cultural differences

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

33. IV. Strategies and tools in support for successful up-stream M&A’s

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

35. WHAT to communicate – key messages:
it’s merger not takeover message (case: Mittal Steel/Arcelor)
„Together we are stronger”
employment argument
local content argument
CSR

36. key 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”

37. WHAT communicate to host country and international publics:
Problem
Message
Case
Management oposition
management remains („you know it better”);
„it’s 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”;
dont’confuse china OWNED with China BUILT
„JaguarLandRover TATA, or „Volvo remains Volvo”

38. WHAT communicate to host country and international publics (cont.):
Problem
Message
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):
Problem
Message
Case
National security concerns
firm owership doesn’t 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 Chairman’s interview

40. WHAT communicate to home country publics:
Problem
Message
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
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.

42. Thank you for your attention