Editor's Comment: Chinese acquisitions in Europe

The year started with the news that Liugong, one of the largest and well-respected equipment manufacturers in China, has finally sealed its acquisition of Polish dozer manufacturer HSW. The deal has had a long gestation, with Liugong first announcing it in March 2011, and it says the intervening time was spent agreeing not only commercial terms, but also negotiating with unions.

As painful as the process sounds, the acquisition looks like it will be well worth it for Liugong. It gives it many of the things that Chinese manufacturers with global ambitions lack at the moment - a factory in Europe along with distribution, logistics and parts & services infrastructure, not to mention a new range of products to add to its portfolio. With Liugong already having developed machines that meet the European Stage IIIB engine emissions requirement, it is now well placed to start making machines in serious numbers for sale in Europe.

And Liugong is by no means the only Chinese manufacturer to have bought its way into the market. Most famously, Zoomlion acquired Italian concrete equipment manufacturer Cifa in mid-2008, again acquiring a portfolio of machines built to international standards as well as the infrastructure to back them up.

Image is another important factor. No matter how good any Chinese manufacturer's machines actually are today, almost anyone in the world would expect them to be of inferior quality to the equivalent from an established company in the field. Indeed, Sany has said that one of the reasons it chose to set up a factory in Bedberg, Germany was because so it could say the machines were 'Made in Germany.'

Although there are advantages to organic growth, it can be a slow way to gain market share. I think it will be more common to see Chinese companies acquiring existing manufacturers than taking the organic route.

There is a school of thought that if you buy a company, you also buy its problems, which can be true, and cynics would say that if a company is for sale, you have to ask yourself why. But at the same time acquisitions bring a range of advantages - an existing distribution network, parts & service infrastructure, established factories producing a mature product portfolio and a field population of machines that will continue to consume spare parts.
In places like Europe and the US, it is distribution that many Chinese manufacturers lack, and it is something they will find very hard to build organically, given how crowded the markets are already.

So I think we will see quite a few more acquisitions along the lines of Zoomlion and Cifa, and Liugong and HSW in the coming months and years. There is no shortage of Chinese companies with the ambition to be global players and there also seems to be no shortage of money available to them to achieve this.