The Chinese are buying!

Some four years ago India’sGlobal Power Houses, co-authored by the columnist along with Professor Nirmalya Kumar of London Business School was released by Harvard Business School Publishing worldwide. No sooner did the book hit the stands, a Chinese publisher approached HBS Publishing with a request to translate the book into modern Chinese language and publish it. The authors were surprised but curious. Two years thereafter, the Chinese edition was to surprise them all the more. It outsold the English edition sold in India!

The Chinese were curious to know how Indian companies were buying up global assets and more particularly, global brands. It would appear that the Chinese now have built up a voracious appetite to buy established global brands.

It is probable that in their estimate the inflated prices paid for global brands may well nigh be cheaper compared to the cost of creating one. But more importantly, it crunches the time typically needed to establish a global brand. Some pundits believe that you need $200 million to $1 billion and 20 years to create a niche global brand. (How you create a Google or a Facebook in less than ten years may be exceptions rather than the rule.)

A couple of years ago a Chinese Government-funded research project was checking out recall levels of Chinese brands in America. The outcome was not surprising. Ninety-four per cent of the Americans had never heard of the name of a Chinese brand. Soon that may be history.

Pens, cars and more

There has been evidence of small and niche brands purchased by Chinese companies over the last 15 years. One of the earliest was a Chinese group buying Dupont – Paris, the high-profile writing instrument and men’s accessories brand. The big buy occurred in 2005, when Chinese company Lenovo bought over IBM’s entire personal computer business for a staggering $1.75 billion. The new owners continued to keep the brand ThinkPad till today.

A still bigger brand buy has been in the automobile space. China has emerged as one of the largest automobile markets in the world. In 2012, China became the world’s largest consumer of passenger cars and light trucks with sales of 19.27 million units. What is, however, very challenging to the Chinese is that only 1.2 million cars were Chinese brands. Volkswagen and GM brands, while being produced in China, carried their worldwide brand names. It is not as if the Chinese are not exporting their cars! The largest importer of Chinese branded cars was Algeria, followed by Iraq, Russia and Iran. Not very good for the Chinese ego, I guess! Not to be left behind, the Chinese decided to acquire the distinguished global brand Volvo. They didn’t talk too much about it till the acquirers, namely, Zhejiang Geely Holding Group, aka Geely, arrived in Sweden to negotiate moving some of Volvo’s manufacturing facilities to China! So the next time you buy a Volvo car in Mumbai (and not in Algiers), find out where the car came from.

And now the Chinese have set their eyes on the last bastion of horology – Switzerland. Founded in 1955, Swiss watch brand Corum has been very much in the minds of the rich and the famous. Corum made its fortune in high-price low-volume concept watches. During the Fifties Corum became famous by putting a $20 gold coin as a watch dial. This was an instant bestseller replicated by many famous brands.

By 1957 Corum introduced Admiral’s Cup, a watch with exquisite case and dial design. Admiral’s Cup pushed Corum into the big boys’ league and was a big hit in the American market. Corum then moved to the technology platform and created Bridge, where a 360-degree transparent case displays a thin narrow vertical movement imagined to be a bridge.

Corum’s success in America attracted American industrialist and philanthropist Severin Wunderman who bought over the watch brand in 2000 and finally, two weeks ago, a lesser-known Chinese watch distributor, Haidian Holdings Ltd, bought Corum from the Wunderman Group. It is estimated that Haidian paid $90.6 million for Corum which had almost similar revenue numbers in 2012.

Haidian, a distributor of Casio, Citizen and some of the Swatch Group brands such as Longines and Tissot, had revenue of Hong Kong$2.22 billion ($286 million). A cursory glance at Haidian’s balance sheet would tell us that this could well have been a leveraged buyout considering that company does not make enough money to support such a payout.

What is surprising is that this is not the first Swiss watch brand bought by Haidian. It had bought another classic Swiss brand in 2011. Hundred per cent ownership of iconic brand Eterna founded in 1866 and owned till 2011 by German company Porsche Design was bought by Haidian.

What is the end game, you might ask? China numerically is the largest watchmaker in the world. Switzerland manufactures some 10 per cent of the watches made in the world but holds some 80 per cent market share of the worldwide industry in revenue. It is now the Chinese’s turn to give low-cost manufacturing serious revenue value add through some serious brand power.

Not just the Chinese

If it’s any consolation, it is to say that the Chinese are not the only ones buying worldwide brands. Say, for example, H. J. Heinz company. The famous American ketchup brand is no longer American. Warren Buffet helped a Brazilian private equity firm 3G to acquire Heinz for $23 billion!

If you haven’t heard of the Brazilian firm 3G you will be pleased to note that in 2010 it had paid $3.3 billion to acquire Berger King Corp. So, during your next visit to America when you order at Burger King and open a Heinz ketchup sachet, you know you are passing on the money across the sea to Brazil.

There is more. Mexican company Grupo Bimbo now owns famous American bakery brand Sara Lee. And Godiva, the world-famous Belgian chocolate brand founded in 1926 is now owned by a Turkish confectionery company. The famous American Caribou Coffee is owned by a Bahrain-based private equity firm. And if you are still hungry and want to pay by the world’s second largest credit card company – no it is not American credit card – it is China Union Pay Credit Card!

Wonder if India is losing out a trick or two! Browsing for information one finds that strong Indian brands created during the Nehruvian era are now being slowly but surely sold out to European and American companies at humungous valuations. So, Chinese are acquiring old silver and Indians are busier than ever selling the family silver. Looks like in more ways than one India is the only odd man out in the BRICS pack! Will India really emerge?

The writer is co-author, India’s Global Power Houses.

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