Asia will be the most popular region for China outbound investment over the next three years, according to a recent KPMG survey of 156 Chinese executives. The survey found that 67 percent of respondents planned to target acquisitions in Asia, compared to 37 percent for Europe and 35 percent for North America.
Key findings from a recent KPMG report: World class aspirations: The perception and the reality of China outbound investment, indicate that of the companies that have done or plan to do outbound investment, only 15 percent of respondents indicated they had no plans to do M&A. Size matters, as the survey notes that large companies with annual revenues of more than RMB 1 billion are more inclined to target Europe (50 percent) compared with those that have less than RMB 1 billion in revenues (24 percent).
Jeremy Fearnley, Head of M&A, KPMG in Hong Kong, said: "Some Chinese exporters are targeting "secondary" consumer markets such as Southeast Asia for their products and they see M&A as a viable entry strategy. Some are also increasingly adopting a 2+1 approach whereby they will move some of their production to lower-cost markets in the region."
The global economic downturn has done little to halt the momentum of overseas investments by China. Chinese organisations completed 60 deals in developed markets during 2009, with a further 39 deals in the first half of 2010, according to KPMG analysis.
Many Chinese companies see outbound M&A as part of an overall strategy to transform themselves into global organisations. "Building global profile and reputation" was one of the most popular reasons for outbound investment, cited by 41 percent of the survey respondents.
The importance of having a clear strategy is highlighted, with "failure to clearly define investment strategy and objectives" ranking as the most important mistake that a company can make, according to 60 percent of respondents.
The survey also highlights the pitfalls that Chinese companies should be aware of when embarking on outbound investments.
"Outbound investment needs to be tied closely to strategy and the fundamentals of the business at home. This is a basis for target identification. An internal ability to fully understand and assess a potential target is a hallmark of world class deal making and something that many Chinese companies are still developing. They realise they are still in a position of relative weakness when they look to invest overseas, for example, in terms of their ability to identify targets or negotiate the right deals," said Honson To, Partner in charge, Transactions & Restructuring, KPMG China.
When asked to cite the specific objectives of their outbound investment strategy, the respondents pointed to achieving geographic growth (59 percent) followed by a drive to build their global profile and reputation (41 percent).
Jeremy Fearnley, Head of M&A, KPMG in Hong Kong, said: "As China is extremely capital rich, overseas targets are keen to be either acquired or enter into joint ventures with Chinese companies. They see this as a good strategy to gain access to the Chinese market. This is happening across sectors, for industrials, consumer markets and technology."
Nearly half of respondents of the recent survey (48 percent) said they are likely to embark on an outbound M&A deal, where they take majority ownership. In addition, 43 percent of respondents indicated they would invest abroad in a joint venture where they have a majority stake.
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About the research
KPMG China commissioned CFO Innovation Asia in September and October 2010 to conduct an online survey of executives in mainland Chinese companies, involved in M&A and investment strategy. The survey was focused on Chinese companies' outbound investment activities and received 156 responses.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 146 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Xiamen, Hong Kong and Macau, with more than 9,000 professionals.