Sany’s overseas acquisition is an example to follow
By Wei Guangju Source:Global Times Published: 2012-2-5 22:15:02
Sany Heavy Industry, China's largest construction equipment group, announced on January 31 that it, together with Chinese private equity firm Citic PE Advisors, would wholly acquire German pump maker Putzmeister Holding GmbH.
This is Sany's first ever such overseas acquisition since it began looking towards overseas expansion in the past few years.
I have a positive outlook for the deal, as the time is ripe for well-funded Chinese firms that lack high technology and overseas sales channels to go global and reduce their reliance on the domestic economy.
Since as early as 2006, Sany has started to eye the global market. So far, this has only gone so far as buying overseas production bases in places including the US, Brazil, India and Germany. It has yet to acquire an overseas company.
Considering many foreign companies, especially in the US and Europe, are struggling for funding amid the debt crisis, Chinese companies have a good opportunity to buy renowned foreign companies for far less than previously, and reap the benefits of building their global image.
Putzmeister's high engineering technologies and established brand name will offer Sany access to resources that are vital to becoming a global player, such as a large sales and service network beyond China.
Although Putzmeister's overall annual sales are only equivalent to 10 percent of Sany's, 80 percent of Putzmeister's sales come from outside Germany, excluding China. It is estimated that this deal will see Sany triple its overseas sales.
Meanwhile, introducing the sophisticated engineering technologies from Putzmeister will not only help Sany change the world's long-term perception of Chinese companies as low-end manufacturers, but also help the company reach the best global manufacturing and engineering talent.
These benefits will in turn make Sany more influential in negotiating prices with global suppliers and buyers.
Shrinking domestic demand for construction equipment in China has also pushed Chinese players in the sector to seek business opportunities overseas.
China has shifted its focus from investment-driven economic growth during the 11th Five-Year Plan period to a consumption-driven one during the next period, from 2011 to 2015. The government shrunk investment in infrastructure construction by 40 percent last year, according to a report by Roland Berger Strategy Consultants.
The government has also taken heavy measures to cool down the overheated property market since early last year. House prices have started to drop as a result, with sales dipping over the last few months. This has inevitably caused a fall in home construction.
As such, manufacturers related to the construction industry might better resort to the overseas market. Sany's move has set a good example for its counterparts in the domestic sector to emulate.