Overseas expansion was a major theme in the closing days of the first week of the National People’s Congress in Beijing, with top officials from 3 very different companies in the home appliance, food products and investing sectors all discussing ambitious global plans for the year ahead. Gree Electronic Appliance (Shenzhen: 000651), China’s largest maker of air conditioners, detailed ongoing plans to expand in the tough but lucrative US market; while Bright Food (Shanghai: 600597) said it is in talks to buy a French winemaker; and lastly Fosun International (HKEx: 656) said it’s eying investments in a number of overseas markets, especially in Europe where valuations are low as the market confronts its ongoing debt crisis. From my perspective, the Fosun and Bright Food plans both look like smart and interesting moves for reasons I’ll discuss shortly, while the Gree plan looks a bit more questionable and is likely to run into problems. Let’s look quickly at the 3, starting with Gree, whose President Dong Mingzhu, one of China’s most successful female business leaders, said the company has started to build a plant in the US after opening a branch office in California last year. There’s not much else in the report, except for Dong’s belief that strong US infrastructure and investing incentives will offset the market’s higher costs. While such a plan certainly conforms with China’s “go-global” policy, I expect Gree will quickly discover the higher costs and stiff competition are a potent combination that will eventually lead to the failure of this ambitious project. Moving on to Bright Food, Vice President Ge Junjie said the company is in talks to buy a French winemaker, following its deal last year to buy Australia’s Manassen Foods for $382 million. (English article) I really like this latest move, as China is fast becoming a nation of wine drinkers, as younger, more affluent urbanites look for lower-alcohol alternatives to traditional Chinese liquors, most notably the baijiu that is a favorite of many from the older generation. Finally there’s Fosun, whose Chairman Guo Guangchang, one of China’s most successful private investors, said his firm is looking at acquisition targets in Germany and Britain this year, attracted by low valuations of many companies as they struggle with a weak regional economy. Last year the company paid $120 million for 9.5 percent of a Greek company, Folli Follie Group, showing it is serious about investing abroad. (English article) I previously said that another regional investor, HNA Group, was a very entrepreneurial company that could become one of China’s first big global investors without ties to the central government (previous post), and I think that Fosun also fits this description, and could be a player to watch closely in the next 2 years.
Bottom line: Global expansion plans by Bright Food and Fosun International look like strong bets in the year ahead, while a US expansion by Gree Electric looking more problematic.
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