6. Chinese Investment to Germany
6.4 Case Studies of Chinese M&A in Germany
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amendment to the articles of association. Only in the case of a General Partnership (OHG), the inclusion of a new business partner into the association may take the form of an informal agreement (which –if done informally- entails considerable legal insecurities for all partners), for other legal forms this is not permitted. (Schroeder et al 2010, 404)
6.4 Case Studies of Chinese M&A in Germany
Given the fact that M&A is the fastest growing segment of FDI flows from China to Germany, case studies will further explain takeover procedures by Chinese investors.
Takeovers are highly relevant as they entail aforementioned risks to the German market- loss of critical technology, competitive threats, state control exercised through SOEs and outsourcing. The case studies presented in this research are used to
exemplify, rather than to highlight a typical Chinese investment in Germany. Each M&A procedure differs according to size, location, economic framework conditions and the management of both Chinese and German partners. The case study research nevertheless allows for a rough categorization of Chinese M&As: The first case shows the classical scenario of a bankrupt company taken over by the Chinese investor. As integration fails, conflict arises. The second case highlights the potential for business integration across borders, with the Chinese investor pre-processing goods, then refined by the German partner. The third is the newest kind of takeover, in which a healthy company agrees to the takeover without experiencing financial troubles. They instead do so for long-term strategic considerations with regard to market access.
The discussion found below also serves to highlight how difficult a takeover can become for a Chinese investor, a cultural proximity is not a given constant in Germany. Oftentimes Chinese investors are not familiar with the German business environment, its legal regulations and emphasis on employee participation. What may appear to be misbehavior to the European side, may not necessarily be born from deviance, but may rather be caused by a lack of through preparation, little cultural knowledge and no knowledge of the local language. (Economist Intelligence Unit 2010, 42) Thus, the following cases are not aimed at establishing any bias towards Chinese investors, but serve to highlight the intercultural contexts and conflicts they necessarily entail.
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6.4.1 Case Study I: Kelch & Links
Location Schorndorf, Baden-Wuerttemberg
Industry Machinery (especially tools)
Acquired by Harbin Measuring & Cutting Tool Group
Number of Employees in Target 170
Total Investment Acquisition price unknown, further 2 million € investment by acquirer
Kelch & Links is a machinery and tool manufacturing company located in the
industrial hub around Stuttgart (home to automotive industry giants in particular). The company is a small to medium sized enterprise with around 170 employees, based only in its main facility in Schorndorf.
Kelch & Links started to face financial troubles since 2004, when the prices for raw materials were rising, while simultaneously price margins for their products dropped.
The company offered a restructuring plan shortly afterwards, which entailed a 30 per cent cut on wages and more working hours. As the restructuring plan was rejected by the workers union, Kelch & Links went bankrupt in 2005. (Stern 2006)
The company was then acquired by the Chinese State-Owned Harbin Measuring &
Cuttling Tool Group (HMCT). The acquirer has 3600 employees and is located in Harbin. It primarily produces measuring tools and instruments, cutting tools and machine tools.16 With its investment, HMCT aimed to establish a gateway into the European market and access to critical Know-How. As mentioned by Chinese manager of Kelch & Links, Li Tiehuan, in an interview with the German magazine
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“Der Stern”, the measuring tools produced by HMCT should be shipped to
Schorndorf and be refined there. Through this cooperation, HMCT wanted to gain market access and use distribution channels of the Germans. (Stern 2006)
As is often the case, the union settled an agreement with the investor prior to the takeover, which defined the predicaments of agreements on wages and working hours.
As Kelch & Links experienced further financial trouble after the acquisition, the Chinese management supposedly tried to evade its agreement and circumvent especially its wage commitment with the union by setting up a new company and using the old machinery for this purpose.17 The management later issued a statement that only machinery bought recently was to be transported off for sale to relieve the company from unnecessary financial pressures. (WKZ 2010) The union and workers organized a blockade of the factory gates, in order to prevent the removal of machines from the factory by the Chinese investor and management. (RMR 2010) Later the union even organized a day and night blockade of the company headquarters that would eventually hinder the Chinese investor to relocate production facilities, making extensive use of public relations and strikes to pressurize the Chinese investor.
Meanwhile, the German management (under Chinese supervision) split the company into the former Kelch & Links and a shelf company called Kelch & Links Production GmbH (later called Kelch GmbH), which took over 117 employees.18 Within the shelf company, the wage agreement was not continued although still legally compulsory and all union representatives were discharged from the company. The union subsequently used a multi-channel media campaign to raise attention for the issue, calling such demeanor “Shanghai Methods”- alluding to the notoriously bad image of Chinese employment protection.19 The shelf company still operates in Germany and relocated its production to a facility only a few miles away from the former
headquarters of Kelch & Links.
17 Refer to: IG Metall Stuttgart (2010). Kelch & Links als Beispiel für die chinesische Art der Übernahme. IGM 03.16.2010
18 Refer to: Maschinen Markt (2010). Muttergesellschaft der insolventen Kelch & Links gründet Kelch GmbH. Maschinen Markt 03.19.2010
19 Refer to: IG Metall Stuttgart (2010). Shanghai Methoden bei Kelch und Links. Leaflet by the IGM Union
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6.4.2 Case Study II: Schiess
Location Aschersleben, Saxony-Anhalt
Industry Machinery
Acquired by Shenyang Machine Tool Group
Number of Employees in Target 370
Total Investment Acquisition price unknown, further 30 million € investment by acquirer
Schiess is a market leader in machine tools, with a particular focus on assembly of large metal cutting machinery and customized machinery systems for the industrial sector. Schiess is based in Aschersleben, in the federal state of Saxony-Anhalt. The company employs 370 people, which are both located in Aschersleben and at a sales subsidiary in Beijing. (Invest in Saxony Anhalt 2011) In 2004, the financially troubled company was taken over by Shenyang Machine Tool Group (SYMG), a direct
competitor of Schiess from China.
SYMG is the largest producer of metal cutting machine tools in China and third largest producer of machine tools worldwide. The company realized a turnover of 1.8 billion US dollars last year and employs 18,000 people. It supplies globally and into a variety of sectors, including automotive, defense and military, aerospace and railway.
Schiess was acquired by SYMG in 2004, in order to jointly produce high value machinery with German quality standards. Thus the aim of the takeover was an upgrade of production quality on the Chinese side and also an image upgrade through production in Germany. (Bloomberg 2005) Parent and subsidiary put out their first
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line of mid-range machines produced in cooperation in 2011.20 For Schiess, takeover and joint production with the Chinese parent company translates into a drop in production costs and makes it possible to compete in the highly contested mid-range machinery market. Schiess was thus also able to increase its sales turnover by factor three, to 50 million Euros. SYMG plans to invest substantially to double the turnover within the years to come. (NZZ 2011) As stated by Schiess CEO Torsten Brume in an interview the Investment Promotion Agency of Saxony-Anhalt:
„This type of international partnership is a logical result of globalization.
Each product that our collaboration creates is a result of the
complementary strengths of our two locations (...) we'll be able to offer our customers machinery that not only meets German quality standards, but also has a reasonable price tag.“ (Invest in Saxony-Anhalt 2011)
Since 2004, SYMG and Schiess have developed a joint production line in the form of a manufacturing plant established in Shenyang. There, machinery is pre-fabricated at low cost and later shipped to Germany where it is tailored to fit the specific demands of the customers. For this purpose, SYMG has already invested 30 million Euros and financed a new production hall in Aschersleben in 2010. (MZ 2010) In Germany, testing and quality control remain in local hands. Through pre-processing in China however, production and innovation cycles can be greatly abbreviated. According to Schiess, it now takes only six months to deliver after serial production begins, substantially reducing waiting time for customers.
20 Refer to: Maschinen Markt (2012). Schiess und Shenyang bringen vier Baureihen unter der Marke Aschersleben auf den Markt. Maschinen Markt online 03.01.2012
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6.4.3 Case Study III: Putzmeister
Location Aichtal, Baden-Wuerttemberg
Industry Concrete-/ Mortar Pumps
Acquired by Sany Corp.
Number of Employees in Target 2800
Total Investment 360 million € acquisition price
Putzmeister is among the most recent and the most costly acquisitions realized by a Chinese investor in Germany to date. The company insofar represents a special case, as it was neither in severe financial trouble nor a small niche producer at the time of takeover. Putzmeister was (and still is) the market leader in the manufacturing of concrete pumps used at construction sites, particularly for high-rise buildings. It also realized a stable sales turnover of 751 million US$ each year (Bloomberg 2008), with contracts on a global scale. (FAZ 2012) Although being a global market leader, Putzmeister is still a family enterprise, held through a family holding (a common way of evading taxes in Germany). Like many companies in the region, the family
enterprise was deemed inaccessible to takeover advances, let alone by a foreign investor. Thus the case of Putzmeister serves to highlight the paradigm shift for Chinese FDI to Germany: from price based decisions to truly strategic investments.
(Bryant 2012)
Putzmeister was taken over by Sany Corp. from Changsha, a producer of heavy equipment in construction, heavy machinery, cranes and concrete pumps. The
company’s main shareholder is Liang Wengen, the richest man in China according to
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Forbes 2011. Sany employs 70,000 people and is present in more than 150 countries.21 The company has realized growth rates of up to 60 per cent in the past years and profited tremendously from the construction boom in China. The company invests heavily into its Research and Development and recently opened a 100 million Euro R&D facility in Bedburg, Germany. With the acquisition of Putzmeister, Sany not only expects access to technology and markets, but also hopes to increase
profitability.
Putzmeister is not only a target of investment, but has itself agreed to the takeover for strategic reasons. Given the fact that China has become the largest market for
cementation pumps, the cooperation with a large Chinese partner ensures future survival and profitability. Therefore, Putzmeister is among the first companies to use their own takeover for a long-term perspective and with a strategic aim.22
The same is true for Chinese companies like Sany though. Sany is well aware, that German products evoke a sense of reliability and quality in the eyes of consumers-thus marketing under an established German brand name may well provide long-term access to the fast growing developing markets and catch further market share. As Sany CEO Liang Wengen said: “With this merger, Putzmeister and Sany will create a new and global market leader for concrete pumps.“ (Bryant 2010)
According to the Financial Times, Putzmeister’s headquarters will become Sany’s global non-Chinese center for concrete equipment. Sany will continue to keep its focus on the Chinese market and provide autonomy for day-to-day business of Putzmeister. It remains questionable however, how far this autonomy will expand.
Sany CEO Liang has already stated a 2 billion Euro turnover goal for Putzmeister until 2016- essentially this is more than the value of the global market for cementation pumps to date. It remains to be seen, how far lax attitudes will extend if these goals are not achieved.
21 Refer to: Sany Company Homepage 2012
22 Refer to: Frankfurter Allgemeine Zeitung (2012). China kauft ein. FAZ 05.06.2012
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