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*Karl P. Sauvant, PhD* *Resident Senior Fellow* *Columbia Center on Sustainable Investment* Columbia Law School - The Earth Institute, Columbia University 435 West 116th St., Rm. JGH 825, New York, NY 10027 | p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | w: www.ccsi.columbia.edu | t: @CCSI_Columbia <https://twitter.com/CCSI_Columbia> "Can host countries have legitimate expectations?", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", "How International Investment Agreements can Protect Free Media", "China, the G20 and the International Investment Regime", "The Evolving International Investment Law and Policy Regime: Ways Forward", "China's Outward FDI and International Investment Law", and "Policy Options for Promoting FDI in the LDCs" *are* available at http://papers.ssrn.com/sol3/results.cfm and http://www.works.bepress.com/karl_sauvant/. View this email in your browser <http://us6.campaign-archive1.com/?u=ab15cc1d53&id=6e0ec87369&e=dd153d6a25> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看：http://ccsi.columbia.edu/ publications/columbia-fdi-perspectives. <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=a0d1fea9d9&e=dd153d6a25> *Columbia FDI Perspectives* Perspectives on topical foreign direct investment issues No. 187 November 21, 2016 Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Daniel Allman ([log in to unmask]) *Why some advanced economy firms prefer to be taken over by Chinese acquirers* <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=e41dc90902&e=dd153d6a25> by Jan Knoerich* * <#m_-6789948976346563569__edn1>* Bids by Chinese multinational enterprises for leading companies in advanced economies have reached record heights in terms of number and deal size. During the first half of 2016, the investment amount offered for international acquisitions already exceeded Chinese outbound investment for the entire year of 2015. The recent offer of US$ 43 billion by China National Chemical Corporation for the Swiss pesticide and seed maker Syngenta is a case in point. Perspectives on such FDI from China are diverse. Widespread criticisms of Chinese acquisitions focus on the state ownership of many acquiring firms, state backing and resulting unfair competition in global takeovers, the high levels of debt held by Chinese acquiring firms, their inexperience as latecomers in global markets, and their strong interest in acquiring technologies and strategic assets. Moreover, there are several accounts of failed acquisitions. Yet, despite these concerns, the number and size of Chinese acquisitions in advanced economies have been rising year by year. These deals are regularly approved by the target side, and the owners or managers of many target companies have consciously chosen a Chinese acquirer over a competitor from an advanced economy, despite the many critical observations. Why is that the case? For many of the target companies, Chinese acquirers are uniquely appealing in several respects. In particular, many target firms have identified a number of complementarities between the motives driving Chinese acquisitions and their own strategic objectives, and expressed their intentions to capitalize on these complementarities.[1] <#m_-6789948976346563569__edn2> For example, many target firms solicit the assistance of their Chinese acquirers to gain better access to the lucrative Chinese market. In most sectors, a presence in the Chinese market is nowadays indispensable for success and survival, but managing this market without local support can be difficult. In exchange, target firms offer their own international experience to support the internationalization of their Chinese acquirers’ businesses. Similarly, some target firms solicit the support of their acquirers in cost-reduction efforts, aiming to broaden the market segments in which they are cost competitive. For example, a Chinese firm can help the target firm to establish its own production in China, or can support efforts at reducing costs in procurement and other areas. In turn, target firms are often willing to pass on considered, yet limited, know-how and technology to acquiring firms, and offer to engage with them in joint efforts at research and development. This may be a step toward fulfilling the objective of the Chinese acquiring firms to obtain strategic assets and upgrade their products, allowing them to enter higher-end segments than they have previously occupied in both international and Chinese markets. In addition, target firms often value the injection of capital by Chinese acquirers, either because they are in dire need of funds to avoid bankruptcy or further to expand their businesses. Chinese companies are attractive bidders because they are often rich in cash—from profits made in the lucrative Chinese market, or as a result of state support. The attractiveness of these deals to target firms is often further enhanced by the maintenance of a strong separation between them and the acquiring firms, following a “light-touch” post-acquisition integration strategy.[2] <#m_-6789948976346563569__edn3> Under this approach, target firms are able to keep their identity and organizational structure and to continue business at their original locations, with most decisions still made by their own management. This strategy helps to mitigate concerns about the potential undesired loss of know-how and reduces other apprehensions about Chinese investors. Many Chinese companies have pursued this approach to acquisitions in advanced economies in a variety of industries. Although success is not guaranteed, this approach fits with their particular circumstances as latecomers and aims at mitigating the aforementioned concerns regarding Chinese acquisitions. Governments in advanced economies are challenged by the need to weigh these gains to target firms against potential threats to the national interest. Policy-makers should explore which regulatory and policy tools are at their disposal to minimize any long-term negative effects while harnessing the benefits for firms. For example, they may need to establish more effective methods for screening proposed acquisitions and to regulate the outward transfer of know-how resulting from these deals. They may also encourage target companies to introduce long-term safeguards into their acquisition contracts. Moreover, the Chinese government could do its own part to provide reassurances about the intentions of Chinese acquirers and to reduce the level of state involvement in China’s outward FDI. Finally, future Chinese policies should ensure that Beijing offers foreign acquirers the same degree of access to its market as many advanced economies currently offer to Chinese firms. ------------------------------ * <#m_-6789948976346563569__ednref1> Jan Knoerich ([log in to unmask]) is Lecturer in the Economy of China at the School of Global Affairs, King’s College London. The author is grateful to Louis Brennan, Klaus Meyer and Ravi Ramamurti for their helpful peer reviews. *The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.* [1] <#m_-6789948976346563569__ednref2> Jan Knoerich, “Gaining from the global ambitions of emerging economy enterprises: an analysis of the decision to sell a German firm to a Chinese acquirer,”* Journal of International Management*, vol. 16 (2010), pp. 177-91. [2] <#m_-6789948976346563569__ednref3> Yipeng Liu and Michael Woywode, “Light-touch integration of Chinese cross-border M&A: the influences of culture and absorptive capacity,” *Thunderbird International Business Review*, vol. 55 (2013), pp. 469-483. *The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Jan Knoerich, ‘**Why some advanced economy firms prefer to be taken over by Chinese acquirers**,’ **Columbia FDI Perspectives, No. 187, November 21, 2016. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=f79ccddf45&e=dd153d6a25>).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask] <[log in to unmask]>. * For further information, including information regarding submission to the *Perspectives*, please contact: Columbia Center on Sustainable Investment, Daniel Allman, [log in to unmask] - No. 186, Jose Guimon, “From export processing to knowledge processing: upgrading the FDI promotion toolkit,” November 7, 2016. - No. 185, Frank J. Garcia, “Investment treaties are about justice,” October 24, 2016. - No. 184, Lukas Linsi, “Less compelling than it seems: rethinking the relationship between aggregate FDI inflows and national competitiveness,” October 10, 2016. *All previous FDI Perspectives are available at * *http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/* <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=67d973883a&e=dd153d6a25> *. * *Other relevant CCSI news and announcements* - *On November 2-3, 2016*, CCSI welcomed nearly 400 participants and several leaders from government, the private sector, civil society and academia at the eleventh annual Columbia International Investment Conference, entitled “Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=995fd2a5f1&e=dd153d6a25>.” The Conference offered a high-level opportunity to discuss how countries can reduce their greenhouse gas emissions in accordance with the Paris Agreement, while also advancing the Sustainable Development Goals, and in particular the important implications for the world’s approach to natural resource investments. In the lead-up to the Conference, CCSI published a Blog Series <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=25d587076e&e=dd153d6a25> on the Earth Institute’s State of the Planet Blog. The series framed some of the key questions and issues that were raised during the Conference. An outcome document from the Conference, which was disseminated at COP22, is available here <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=1593870207&e=dd153d6a25> . - CCSI is pleased to share its 2015-2016 Annual Report <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=cd40cf92e5&e=dd153d6a25>. The past year was a defining year for the field of sustainable development. The world’s governments adopted the Sustainable Development Goals (SDGs), agreed in Addis Ababa on a framework for financing them, and signed the historic Paris Agreement on global action to curb climate change. All three agreements recognize the central role that foreign direct investment (FDI) will play in helping to achieve the post-2015 development agenda. At the same time, these global commitments will require new rules, indicators, regulations and mechanisms for global governance to ensure that investment and corresponding economic growth benefit all citizens and respect human rights. CCSI has played and will continue to play a unique and vital role in helping stakeholders to navigate the ambitious road ahead. The Annual Report <http://columbia.us6.list-manage2.com/track/click?u=ab15cc1d53&id=879c7e758b&e=dd153d6a25> illustrates the range of research, events, advisory projects and trainings that CCSI hosted over the past year. - CCSI is pleased to announce a call for papers for Part Two of the *Yearbook on International Investment Law and Policy <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=9ddac2303e&e=dd153d6a25>* published by Oxford University Press (OUP). The *Yearbook* monitors current developments in international investment law and policy. Part One focuses on trends in foreign direct investment, international investment agreements, and investment disputes. Part Two looks at central issues in the contemporary discussions on international investment law and policy. The chapters in Part Two may be detailed analyses or short think-pieces. All papers must be original texts and are subject to double-blind peer review. Original contributions to be considered for publication in the *Yearbook* are accepted on a rolling basis until January 15, 2017; please send submissions to [log in to unmask] Please include an abstract; a table of contents is also recommended. Footnotes should conform to guidelines available here <http://columbia.us6.list-manage2.com/track/click?u=ab15cc1d53&id=e288738616&e=dd153d6a25> . 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