Yes Virginia, the Ham Is Chinese (Part 4)

The emerging middle class in China represents enormous opportunity not only for Smithfield but also for many American companies.  For companies like General Motors, Procter & Gamble, Yum Brands, and Caterpillar, China is where the growth is. Coca Cola has described China as “the commercial opportunity of the 21st century”.  In 2013, KFC, McDonald’s, and Starbucks will reportedly each open one new restaurant every day in China. But, such market expansion must be a two-way street.  For more American firms to be able to have access to the Chinese marketplace, Chinese firms must be allowed and encouraged to compete in the United States.

Previous investment attempts by Chinese companies have not always gone smoothly. A big obstacle has been that many deals have touched on  national security sensitivity.  The Committee on Foreign Investment in the United States (CFIUS), is a U.S. inter-agency government panel that reviews foreign deals for national security issues.  In 2005, Cnooc tried to buy Unocal but ran into insurmountable U.S. political opposition and retreated from the deal.  In 2011, China’s Huawei had attempted to acquire the U.S. technology company 3Leaf Systems but withdrew after CFIUS stipulated restrictions. In 2012, a CFIUS review of an acquisition of Oregon wind farms by Ralls Corp, owned in turn by executives of the Chinese Sany Group, collapsed, since some wind farm properties were located near a sensitive U.S. naval facility. Even the Cnooc acquisition of Canada’s Nexen had to accommodate concerns raised by CFIUS over U.S. operations.

While Chinese deals for energy, technology, and infrastructure businesses are likely to draw serious scrutiny by CFIUS, consumer goods businesses are a different matter.  These deals will be far less sensitive.

For our and their investment benefit, Chinese companies should focus on companies that are heavily dependent on consumer choice and preference like Smithfield.  Will American customers continue to prefer these brands after a foreign acquisition?  If the brands continue to pursue the marketing discipline of providing great value and pleasure, the answer is likely to be a resounding “yes”.

This article is the final part of a series written by Michael Czinkota and Charles Skuba. Read part 3 here.  Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

Yes Virginia, the Ham Is Chinese (Part 3)

Another concern is more xenophobic.  Many Americans are worried about lessened American competitiveness and the rise of China. There were similar concerns about the wave of Japanese cars and the purchase of iconic real estate by Japanese investors in the 1980’s and 1990’s.  In fact, the success of Japanese brands, like Toyota, Honda, and Nissan, was mostly positive for Americans, particularly for consumers, as it was accompanied by new capital, more sophisticated domestic manufacturing, new product ideas, and, eventually,  improved competitiveness of American car companies. Now individual states in the U.S. have learned to compete to attract manufacturing and services company investment in their communities. No reason not to expand such activities into the agricultural sector as well.

Of even more interest is the reverse flow, where international investments have a spillover effect on home country markets. Why not eat Hunan pork with Smithfield ham during a picnic at the Yangtze river? What pork other than Smithfield’s should be specified when planning the Chinese  government-subsidized opening of  restaurant chains in Africa ? The Smithfield acquisition opens new markets both for the Chinese investors as well as for American ham. Such is the path of true globalization.

The recent meeting between Presidents Obama and Xi Jinping demonstrated, that the United States and China have more to gain from a cooperative, albeit competitive, rather than a conflict based relationship.  Given President Xi’s experience as a student living in Iowa, we can hope that he is instinctively more likely to be drawn to the value of a asymptotic relationship with the United States, rather than one based on abrasive disagreement.

One of the principal motivators for the deal from Smithfield’s point-of-view, was the ability to more successfully sell its products to the huge Chinese market. That such an approach can work is seen in the acquisition of European car-maker Volvo by the Chinese company Zhejiang Geely Holding in 2010.  Not only is Zhejiang looking to profit from the existing global business of Volvo, but it is also expected to help the brand further penetrate the Chinese market, the largest and fastest growing automobile market in the world.

This article is a part of a series written by Michael Czinkota and Charles Skuba. Read part 2 here.  Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

Yes Virginia, the Ham Is Chinese (Part 1)

For many Americans, Virginia ham is a long established part of a festive family dinner. But good old American traditions like that can carry new meaning in a global economy.  The recent news that Smithfield Foods, owner of leading pork brands like Smithfield Ham, Eckrich sausages, Armour meatballs and Farmland bacon, is to be acquired by Chinese company Shuanghui International Holdings Ltd. caused indigestion for some in the United States.

The $4.7 billion deal, announced on May 30, 2013, would be the largest acquisition of a U.S. company by a Chinese firm. It is another of a series of recent significant global acquisitions by Chinese firms. Other examples include the 2012 purchase of the AMC movie chain by Dalian Wanda Group Corp. of Bejing and the 2013 acquisition, of Canada’s Nexen by China National Offshore Oil Corporation (Cnooc). At year’s mid-point, 2013 promises to be a record year for Chinese foreign direct investment in the United States. It is also indicative of a new focus for Chinese investment : branded consumer businesses.

Chinese businesses, some state-owned, have proven remarkably successful in the global economy.  Many American companies in a broad range of industries source their manufacturing activities or components from China.  Within a few decades, China has developed into a manufacturing powerhouse, accounting for over ten percent of global exports.

This article is a part of a series written by Michael Czinkota and Charles Skuba. Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.