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.