Chinese M&A activity in the Netherlands: a Dutch
governmental perspective
Bachelor Thesis
Wesley Snijders
Amsterdam, June 30th, 2014
Student number: 10013342 Thesis Seminar Business Studies Supervisor: Tsvi Vinig
Semester 2, block 3 Academic year 2013-2014
Table of Content
1. Introduction ...1
2. Literature review ...4
2.1 Outward Foreign Direct Investment from a Chinese governmental perspective ...5
2.1.1 Why China promotes FDI ...5
2.1.2 How emerging economies can promote FDI ...5
2.1.3 How China currently promotes FDI ...5
2.1.4 Institutional dimension ...6
2.2 Foreign Direct Investment ...7
2.2.1 Benefits of FDI ...7
2.2.2 Motivations for FDI from a business perspective ...7
2.2.3 Chinese FDI in advanced economies ... 10
2.2.4 Mode of entry ... 11
2.2.5 Mergers and Acquisitions ... 14
2.3 Chinese FDI and the role of the state ... 15
2.3.1 State influence... 15
2.3.2 State Owned Enterprises ... 17
2.4 The host country ... 17
2.4.1 Host country concerns surrounding Chinese M&A ... 17
2.4.2 Interdependency and national security ... 20
2.4.3 Host country policies on inward Chinese M&A ... 22
3. Methodology ... 23 3.1 Research propositions ... 23 3.2 Research design ... 25 3.2.1 Literature study ... 25 3.2.2 Data collection ... 26 3.2.3 Sampling ... 29 3.2.4 Interview subject ... 30 3.3 Data analysis ... 30
3.3.1 Analysis of the interview ... 30
4. Validity, Generalizability, Reliability ... 31
4.1 Validity ... 31
4.2 Generalizability ... 31
4.3 Reliability ... 32
5. Results ... 33
5.1 The number of Chinese takeovers of Dutch firms has increased since 2008 ... 33
5.2 Foreign direct investment of Chinese firms in the Netherlands is specifically focused on acquiring high-technology firms ... 36
5.3 The Netherlands and China are becoming increasingly interdependent on an economic level. 38 5.3.1 Interdependency ... 37
5.4 Additional findings ... 39
5.4.1 The Dutch strategy on the relationship with China ... 39
5.4.2 The relevance of Chinese investments in the Netherlands ... 39
5.4.3 Concerns regarding SOE activity ... 42
5.4.3.1 National security ... 42
5.4.3.2 Unfair competition ... 42
5.4.3.3 Protectionist policies in the Netherlands ... 43
5.5 Conclusion of findings from data sources ... 45
6. Discussion ... 47
7. Limitations and opportunities for future research ... 53
8. Conclusion ... 54
9. References... 55
Appendix ... 58
A. Transcript of interview with Henk Massink... 58
A. Summary of interview with Henk Massink ... 65
C. Letter by Frans Timmermans and Lilianne Ploumen to House of Representatives, concerning the strategy on the relationship with China ... 67
1. Introduction
Over the past decade Chinese outward foreign direct investment (ODI) activities have intensified. In 2012 China's ODI exceeded 500 million dollars compared to 37 million dollars in 2002 (World
Investment Report, 2013). The Chinese government initiated the foreign investment activities with
the implementation of the ODI promoting 'Go Global' policies in 1999, after which the number of Chinese companies conducting ODI increased exponentially. The rise in Chinese FDI has sparked political, economic and developmental debates in the global community concerning the high involvement of the state (Deng, 2013). This paper will concern Chinese mergers and acquisitions (M&A) as a form of ODI in the Netherlands.
M&A is becoming the main mode of entry in foreign markets for Chinese firms (Zhang, Zhou, & Ebbers, 2011). Moreover, Chinese multinational corporations (MNCs) have been increasingly acquiring Dutch firms (Daling, 2014). Deng (2013) argues that in order to overcome 'latecomer disadvantages' Chinese MNCs aggressively acquire strategic assets of mature foreign MNCs in order to gain competitiveness, an approach which Chinese MNCs favor over Greenfield investments. However, Deng (2013) additionally states that Chinese M&A activities cannot be fully explained by only applying the latecomer perspective. The role of the government in the ODI process is highly significant and in order to incorporate the influence of the state an institutional view is required.
The next chapter features an extensive literature review that contains theoretical insight on several relevant issues. The third chapter will contain the methodology, where the research process will be clarified. Moreover, the research propositions and their theoretical foundations will be highlighted and legitimized. The fourth chapter will show the results from the several data sources. Three main sources of data are utilized: the M&A database Zephyr, government publications and an interview with a Dutch government official. The fifth chapter contains an analysis guided by the
research propositions. The last chapter will contain the conclusion as well as the areas for future research.
2. Literature Review
2.1. Outward Foreign Direct Investment form a Chinese governmental perspective 2.1.1. Why China promotes FDI
Luo (2001) argues that the increasing presence of emerging countries in the world economy causes enterprises from these countries to become increasingly important to their governments. Due to their importance, these firms play a crucial role in realizing their government's social and economic goals, such as economic growth, improving technological infrastructure and strengthening
international competitiveness (Luo et al., 2010). As such, it is evident that the implementation of the Chinese 'Go Global' strategy incorporates a political dimension. This policy is based on appeals to national interest and the need to increase the competitiveness of Chinese firms and the Chinese economy. Additionally, OFDI accelerates the reform of the Chinese economy while being able to control the influences of globalization in the Chinese society (Luo et al., 2010).
2.1.2 How emerging countries can promote FDI
A home country government can be a useful partner to emerging market enterprises (EMEs), by providing institutional support (Luo et al., 2010). Luo et al. (2010) outline the several measures that governments can apply to support emerging market enterprises (EMEs): (1) offering fiscal incentives, (2) providing insurance against political risk, (3) assisting the private sector in international expansion through government agencies, (4) signing double taxation avoidance agreements, (5) enacting bilateral and regional treaties to protect investment abroad, (6) arranging a bilateral or multilateral framework to liberalize investment conditions in host countries, and (7) helping EMEs deal with a host country's governmental or legislative institutions at the collective level.
2.1.3 How China currently promotes FDI
In order to realize large scale OFDI in China, the government created regulatory incentives for OFDI, streamlined administrative procedures, eased capital controls, optimized the provision of
information and guidance on investment opportunities and reduced political and investment risks (Luo et al., 2010). According to Luo et al. (2010) these OFDI stimulating policies implemented by the Chinese government can be divided into two categories: (1) promotional measures and (2)
monitoring policies. The promotional measures are distinguished into four types: Financial and Taxation Policy, Risk-safeguard mechanism, information service network, and direction guidance of OFDI. The monitoring policies consists of simplifying approval processes and interim measures for joint annual inspection of overseas investment (see figure 1 for an overview).
Figure 1: the structure of Chinese governmental FDI stimulation. Adapted from: Luo et al. (2001) 2.1.4. Institutional Dimension
Recent research has shown that in order to explain Chinese OFDI activity, an institutional perspective is needed (Wright et al., 2005). Three types of institutional pressures are discussed in recent
literature: (1) home country's regulatory restrictions, (2) host country regulatory restrictions and (3) normative pressures from host-country industries and stakeholders (Cui & Jiang, 2012). Deng (2009) argues that institutional theory can provide insights on why Chinese firms are increasingly conducting strategic-asset-seeking M&A, in particularly advanced countries. Deng (2009) legitimizes the
institutional approach by stating that this perspective has established a rich basis for understanding MNC strategy by arguing that organizations sharing the same environment tend to choose similar strategies in order to achieve legitimacy. In line with this view, Buckley et al. (2007) state that
institutional forces have had far-reach effects on the internationalization strategies of Chinese MNCs.
2.2 Foreign Direct Investment 2.2.1 Benefits of FDI
Borentsztein et al. (1998) concluded that FDI is an important vehicle for the transfer of technology, and that FDI contributes more to economic growth than domestic investment. However it should be noted that FDI only provides benefits when the host-country contains enough human capital to absorb the incoming technology (Borensztein, Gregorio, & Lee, 1998). Moreover, inward FDI has a positive effect on domestic investment, due to the fact that FDI often brings complementary activities.
Spillover efficiency benefits have also been recognized as a major host country benefit from inward FDI (Globerman & Shapiro, 2008). Spillover efficiency benefits refer to the productivity improvements experienced by host countries due to the presence of foreign MNCs. Globerman and Shapiro (2008) argue, however, that these benefits are dependent on the absorptive capacity of local firms, i.e. the capacity to adopt and exploit the information and technology spillovers caused by the presence of foreign MNCs. In contrast, Carkovic and Levine (2002) conclude that inward FDI does not have an independent influence on economic growth, and that absorptive capacity plays an
insignificant role in the process of FDI.
2.2.2 Chinese outward FDI from a business perspective
In order to understand the motivations of Chinese MNCs for conducting outward FDI, Deng (2004) tests 5 generally accepted rationales for outward investment: (1) Resource-seeking, (2) technology-seeking, (3) market-technology-seeking, (4) diversification-seeking and (5) strategic asset-seeking.
The first motivation is resource-seeking. In the early 2000s Chinese MNCs often establish foreign subsidiaries with which they tried to secure a steady supply of raw materials for their own operations (Deng, 2004). Currently, however, Chinese firms are increasingly showing interest in developed countries, in order to obtain technological assets and so compensate for the latecomer disadvantages. Moreover, in accumulating this foreign technical expertise, Chinese MNCs tend to acquire firms rather than to start new operations (Zhang et al., 2011). Another motivation is market-seeking. In some cases, Chinese firms invest overseas to access new markets due to the fact that the home market has reached its growth limit. In order to sustain growth, Chinese MNCs therefore need to sell their products in other countries. These activities mostly take place in less developed countries (LDCs), as it mainly concerns products like clothing. However, such activities face various trade barriers and in some product categories those barriers are even higher for China than other
countries. Diversifications as motivation for foreign investments is mostly applicable to Chinese SOEs. Deng (2004) states that 'they expand abroad with the encouragement of the government, which is keen to see the development of Chinese conglomerate multinationals modeled on the example of the Japanese and Korean trading houses'. Lastly, strategic asset-seeking investments are addressed. Deng (2004) states that these investment activities are motivated by goals which are set on
corporate level. These activities are conducted in order to maximize overall performance and to display the long-term strategy. This is an effect of the government initiated 'Go Global' strategy, which aims to realize global Chinese business presence and upgrade the competitiveness of Chinese firms. In sum, Deng (2004) concludes that China will continue with gaining access to raw materials
and markets, but that the future emphasis will be on acquiring strategic assets and proprietary knowledge in industrialized countries.
Important to point out is that Chinese MNCs feature unique aspects which makes it complex to fully place the motivations of Chinese firms in one of the above named categories (Deng, 2004). Firstly, the government plays a crucial role in approving Chinese outward investment. Since the 1980s foreign investment took place in order to achieve four goals: (1) advanced technology transfer, (2) raw material access, (3) foreign exchange earnings, and (4) export expansion. The essential role that the Chinese government plays can be attributed to the fact that China still is a state-controlled economy. Secondly, outward FDI acitivities by Chinese MNCs are mainly influenced by 'pull factors', such as acquiring new knowledge. In contrast, Japanese FDI is mainly driven by 'push factors', of which shortage in labor is an example. Thirdly, Chinese outward FDI does not tend to be motivated by efficiency maximization. As an example Deng (2004) refers to the fact that Chinese firms are likely to locate production facilities within the country rather than abroad.
In order to further understand the motives for internationalization by Chinese MNCs, Child and Rodrigues (2005) provide two sets of factors that play an important role in the
internationalization of Chinese firms: drivers, and facilitators. According to Child and Rodrigues (2005) the main drivers for internationalization are: (1) hazard of relying on a highly competitive domestic market with low margins, (2) opportunities to export based on domestic cost advantages, (3) potential to complement domestic cost advantages with differentiation advantages acquired abroad, (4) need to secure and develop advanced technology and internationally recognized brands and (5) desire to gain entrepreneurial and managerial freedom. Furthermore, the by Child and Rodrigues (2005) highlighted facilitators are: (a) strong governmental support for globalization, especially financial backing and tolerance of domestic movies to build corporate strength, (b) ability to reach a favorable accommodation with government, so as to combine support with strategic freedom to act entrepreneurially, (c) access to state-supported scientific and technical research and
(d) willingness of foreign firms to sell or share international-standard technology, know-how, and brands. Of all these facilitators, government support is a distinctive Chinese feature. The
implementation of the 'Go Global' policy initiated a huge number of overseas transactions. Child and Rodrigues (2005) concluded therefore that institutional support has to be considered as an important factor in initiating the internationalization of Chinese firms.
Table 1: an overview of the drivers and facilitators of Chinese OFDI. Adapted from: Child and Rodrigues (2005)
2.2.3 Chinese FDI in advanced economies
Deng (2007) limits the research scope to Chinese FDI in advanced economies and concludes that those transactions are conducted by large Chinese firms which possess certain resources but need additional competencies to be competitive. Deng (2007) continues with stating that the increasing global competition puts Chinese MNCs in a vulnerable position which requires additional resources to compensate for competitive disadvantages. The author therefore concludes that 'the Chinese MNCs are primarily motivated by the quest for strategic resources and capabilities, and that the underlying rationale for such asset-seeking FDI is strategic needs'. To strengthen their competitive
advantage, Chinese firms apply asset-seeking FDI in order to access and obtain strategic resources available in advanced economies, which are lacking in their home country (Deng, 2007).
Wang et al. (2012) apply an alternative approach in order to better understand the outward FDI activities, and do so by testing the explanatory power of three theoretical frame works: the resource-based view, industrial organizational economics and institutional theory. They argue that prior research has focused too much on firms that already possess firm-specific advantages, while multinationals from emerging countries mostly do not yet possess these. The findings show that even though certain firm-specific characteristics play a role in the outward FDI of Chinese MNCs, the larger part of the outward FDI activities is driven by the Chinese institutional and industrial environment (Wang, Hong, Kafouros, & Boateng, 2012).
2.2.4 Mode of Entry
Case studies show that there are three main routes to internationalization for Chinese MNCs: (1) the original equipment manufacturer (OEM)/ Joint Venture (JV) route, (2) the acquisition route and (3) the organic international expansion route (see table 2) (Child & Rodrigues, 2005).
Forming JVs with multinational corporations, or establishing a partnership through original equipment manufacturing is a chosen route by numerous Chinese mainland firms (Child &
Rodrigues, 2005). Child and Rodrigues (2005) conclude that this route is mostly 'inward' focused as it allows Chinese MNCs to transfer relevant competencies and knowledge which supports potential 'outward' activities. It is important to state, however, that there are beneficial differences between the OEM and JVs routes (Child & Rodrigues, 2005). The establishment of a JV with a foreign partner incorporates the Chinese firm into the internal network of the partner. This makes it easier to
transfer tacit knowledge, for example. Even though it might be more efficient in terms of transferring knowledge, a JVs does not allow Chinese firms to strengthen their reputation. Child and Rodrigues (2005) state that a JV is mostly associated with the knowledge and capabilities of the foreign partner, rather than the participating Chinese firm. The OEM route counts different benefits (Child &
Rodrigues, 2005). It combines the cost advantage of a Chinese enterprise with the brand advantage of a foreign firm. This route therefore allows Chinese firms to sustain their own identity, achieve economies of scale and gain reputation for manufacturing excellence. In sum, JVs might provide a more effective path towards obtaining foreign knowledge, whereas the OEM route might be more successful in building an independent international reputation (Child & Rodrigues, 2005).
Another internationalization route for Chinese firms is acquisition. Child and Rodrigues (2005) argue that the main motive for Chinese companies, apart from the large raw material processing corporations, has been to gain competitiveness. These firms have acquired foreign firms to get access to technology, R&D skills and international brands. Child and Rodrigues (2005) refer to the acquisition of IBM's PC division by Lenovo. The deal did not only provide Lenovo the brand IBM, but also production lines, product developers, and distribution networks. Moreover, the popularity of acquisition as a route to internationalization is increasing (Zhang et al., 2011). The risks of this route concern mainly over-paying, the need to ensure that assets are not failing, and overcoming the 'liability of foreignness' (Child & Rodrigues, 2005). The liability of foreignness concerns the challenge to overcome the disadvantage that MNEs experience when doing business abroad (Zaheer, 1995). Costs associated with liability of foreignness can arise due to four factors: (1) the cost of geographical distances, such as transportation and coordination, (2) firm-specific costs related to a firms
unfamiliarity with the foreign roots and environment, (3) costs caused by the host country
environment, such as economic nationalism and lack of local legitimacy and (4) costs from the home country environment, such as restrictions on high-technology sales to certain countries.
Lastly, the organic international expansion route is being addressed. This type of internationalization contains a greenfield establishment within targeted markets. Child and
Rodrigues (2005) show that organic expansion contains elements of both exploitation as asset-seeking. Moreover, organic expansion strengthen the credibility of the own brand and allows firms to introduce their own management style to foreign countries.
Table 2: the different routes of internationalization by Chinese MNCs. Adapted from Child and Rodrigues (2005).
Globerman and Shapiro (2008) compare greenfield investments and acquisitions in the United States to identify which mode is more beneficial to Chinese firms. The authors identify several benefits and disadvantages for both modes of entry. The clearest advantage for acquisition is the relative speed with which the firm could enter the market. This speed of entry can be of great value when there are strong first-mover advantages. Furthermore, an acquisition might be preferable over greenfield investments in relatively slow growing markets due to the fact that greenfield investments do not create new capacity. Thus, acquisitions are preferred in markets that have first-mover advantages and/or are relatively slow growing (Globerman & Shapiro, 2008). Also, Chinese companies have a relative lack of experience when it comes to managing affiliates in industrialized countries. An
acquisition allows Chinese MNCS to transfer technical and managerial capabilities. This makes an acquisition a more favorable mode of entry for Chinese firms when entering industrialized countries (Globerman & Shapiro, 2008).
2.2.5 Mergers and Acquisitions
Recent research is increasingly focusing on M&A as a mode of entry for Chinese MNCs, as the popularity of M&A in industrialized economies is rapidly increasing (Deng, 2009; Luo et al., 2010; Zhang et al., 2011). Deng (2009) builds on institutional theory in order to explain the increasing popularity of investing in developed economies in order to acquire strategic assets. Deng (2009) concluded that the Central Government formulates national development strategies, plans and policies, in order to guide and regulate foreign M&A. The author provides a theoretical framework in order to understand Chinese outward M&A activities more thorough. In order to identify the
institutional forces that play a role in the process of outward M&A by Chinese firms, Deng (2009) proposes an institutional model with four institutional factors: (1) external sources: the role of the government, (2) escape response to institutional constraints, (3) internal sources: corporate values and norms and (4) inward FDI as a stimulus to overseas M&A (see figure 2 for an overview).
The interference of the government plays a crucial role in the institutional context of Chinese
M&A(Deng, 2009). Deng 's (2009) argument is based on the assumption that the role of the government in a transitional economy, due to the fact that the state defines, diffuses or enforces certain requirements for acceptable firm activity (Oliver, 1991). As part of the economic reforms in China, the government has sustained political control and also maintained the ability to reward and discipline firms for their cooperation with the set directives (Hitt et al, 2004). Moreover, the
government has implemented several policies in order to stimulate Chinese firms to take long-term strategies for acquiring technological assets (Tsui et al., 2004). This is in line with the findings of Deng (2004) who claims that a distinctive feature of the governmental Chinese FDI directives is that the state has given a clear direction of the preferred types of outward FDI, and furthermore has
managed to let firms follow these policies. Furthermore, China contains the largest foreign exchanges reserves in the world, with which it has the capability to intensively stimulate overseas investment (Deng, 2009). Cross-border M&A as an escape response to home country institutional
constraints is the second institutional factor that Deng (2009) highlights. In order to compete
successfully domestically and globally, large Chinese firms often need to acquire strategic valuable assets that are not available in the home country. Acquisition of these assets allows firms to move up the value chain and so sharpen their competitive edge. The third institutional factor concerns the
internal forces, like corporate norms and values. Case studies show that Chinese firms encounter
strong internal institutional forces which possess deeply held beliefs about in which way M&A should be conducted; obtaining knowledge and so realize global presence (Deng, 2009). Therefore, the M&A activities taking place in the firms are an effect of the centralized idea of becoming first-class world enterprises. The last institutional factor that Deng (2009) points out is inward FDI as a stimulator to
cross-border M&A. Huge FDI inflows into China stimulate Chinese firms to pursue cross-border M&A
in order to acquire types of strategic assets that inward FDI, and JVs in particular, do not provide. Additionally, Deng (2009) found that firms sometimes use foreign M&A to ensure more commitment to a JV by a foreign partner.
Zhang et al. (2011) looked into the completion of acquisitions done by Chinese MNCs. They show that three factors play a potentially negative role in the acquisition process: (1) the target country has a worse institutional quality, (2) the target industry is sensitive to national security and (3) the acquiring firm is state-owned enterprise. Moreover, acquisitions by Chinese SOEs are less likely to be successful in OECD countries.
Figure 2: an overview of the factors influencing outward FDI by Chinese Firms. Adapted from Deng (2009)
2.3 Chinese FDI and the role of the State. 2.3.1 Role of the State
Deng (2007) found that many Chinese MNCs aspire to ensure presence in the global business environment, which is largely stimulated by the government. Additionally, research has shown that corporate strategic decisions are, to a large extent, influenced by a mix political and economic motives (Tsui et al., 2004). Child and Rodrigues (2005) conclude that it is unlikely that firms like Lenovo and TCL could bear the financial risks without support from governmental authorities.
Furthermore, the authors state that the Chinese government was able to properly implement the 'Go Global' policy due to the huge foreign exchange reserves as a result of inward FDI. In addition, the Chinese government tend to offer sectors and firms exclusive support, like low-interest loans, when the promised growth benefits are relatively large. One can therefore conclude that the influence of the state on outward investment decisions is extensive (Cui & Jiang, 2012; Deng, 2007; Li & Xia, 2008).
2.3.2 State Owned Enterprises
Although the Chinese economy is increasingly privatizing and diverse, state owned enterprises remain the dominant firm type conducting OFDI (Cui & Jiang, 2012). SOEs are by definition an asset of a home-country government and can be used to serve the political goals of the state (Cui & Jiang, 2012; Zhang et al., 2011). A unique feature of SOEs is that they have relatively easy access to governmental resources (Song, Yang, & Zhang, 2011). Even though SOEs have better access to government-allocated resources such as bank loans, non-SOEs tend to outperform SOEs in terms of labor productivity, cots control and profitability (Li & Xia, 2008). Furthermore SOE formulate strategies that imply long-term investment, in contrast with the short-oriented investments preferred by non-SOEs. In line with institutional theory, Cui and Jiang (2012) found that state ownership of a firm strengthens the home-country influence on firms' strategic choices, due to the fact that SOEs are politically aligned with the home-country government, and are highly dependent on home-country institutions in order to access critical resources. The management of SOEs is therefore often influenced by a mix political and economic motives (Deng, 2013). High ranking officials are often appointed as the top managers of SOEs, while high profile managers are often appointed as government officials (Song et al., 2011). Zhang et al. (2011) researched the completion of acquisitions by Chinese MNCs and concluded that state-owned enterprises, in comparison with non-SOEs, tend to have a lower succession rate when it comes to completing foreign acquisitions.
2.4. The host country
2.4.1 Host country inward FDI concerns
Globerman and Shapiro (2008) identified several strategic concerns surrounding Chinese FDI in the United States. More specifically, Chinese acquisitions by state-owned enterprises. They were able to dived the concerns into five categories: (1) motives of acquirers, (2) resource utilization and access, (3) national security, (4) transparency and (5) unfair competition.
In general, it is assumed that acquiring firms aim to maximize the wealth of the firm's owners. Firms will therefore tend to acquire firms that will increase the long-term profitability of the firm. Competitive capital markets are essential to this process, as they potentially possess a major disciplinary force on managers (Globerman & Shapiro, 2008). Managers who choose to pursue other interests than those of the shareholders face the prospect for being replaced through takeovers of their companies. This is, however, not the case for SOEs. Managers of SOEs, as well as family owned firms, face no pressure from capital markets. SOEs face no takeover threat, as they are
state-controlled. Furthermore, financial losses can be subsidized from alternative sources of government finance (Globerman & Shapiro, 2008). Another concern surrounding SOEs is the fact that SOE generally have a higher body overseeing the firm, like one or more ministries. Cui and Jiang (2012) argue that state ownership strengthens the effects of a host-country institutional pressures, due to the fact that state ownership creates a negative image of the investing firm. These firms therefore face higher difficulty in legitimizing their activities.
A second concern is resource utilization and access. As stated above, SOEs are not pressured to pursue profit maximization as they have significant governmental financial backup (Globerman & Shapiro, 2008). Chinese SOEs tend to target companies related to 'critical' natural resources, in order to secure a long-term supply for the Chinese economy. In the case of an unexpected disruption, Chinese SOEs would potentially be able to refuse to supply non-Chinese buyers, even though they are willing to pay a higher price.
Globerman and Shapiro (2008) address national security as third reason for concern. They argue that host countries often perceive the acquisitions by SOEs as a possible threat to national security. The major factor influencing these concerns is the fact that Chinese SOEs have no political loyalty to the host country (Globerman & Shapiro, 2008). Therefore, Chinese SOEs will be less willing to adjust organizational goals for the national interests of the host country. Globerman and Shapiro
(2008) agree that, in some cases, SOEs may be seen as agents of a 'hostile' government whose objective might be to damage the host country.
Transparency is another concern surrounding Chinese SOE activity in the United States. SOE are often associated with a lack of structure and organizational form (Globerman & Shapiro, 2008). The authors add that, 'acquired firms might encounter financial difficulties under a politically
appointed and motivated management pursuing non-profit motives'. Furthermore, a large number of Chinese SOEs both make losses and do not act according the codes of corporate governance and transparency. Moreover, a lack of transparency may lead to unexpected financial losses. The large number of financial failures by Chinese SOEs might cause economic dislocations that affect a high number of parties (Globerman & Shapiro, 2008).
Lastly, Globerman and Shapiro (2008) highlight unfair competition as a reason for concern. The Chinese government gives financial support to enterprises investing abroad (Child & Rodrigues, 2005; Luo et al., 2010). The activity of Chinese MNCs are often directly or indirectly subsidized by the Chinese government. More specifically, Song et al. (2011) state that SOE have privileged access to financial resources from state-owned banks. Chinese firms therefore tend to have an 'unfair' cost of capital advantage in comparison to their Western counterparts, which potentially allows Chinese firms to unfairly outcompete other enterprises.
Globerman and Shapiro (2008) assessed whether the above stated concerns are legit from a United States perspective. They state that it is highly unrealistic that China uses FDI to monopolize the supplies of raw materials. It is however possible that an individual transactions aims to access critical natural resources. Secondly, they address the issue of national security. Globerman and Shapiro (2008) highlight the fact that national security is extremely hard to define. Therefore, a country could implement a legislative instrument in order to function as a screening mechanism. Thirdly, the transparency concerns are assessed. Globerman and Shapiro (2008) argue that transparency concerns are not limited to Chinese MNCs only. They argue that a country could
implement regulations which forces foreign firms to act according to internationally set standards, by for example the OECD. Another approach is to impose financial reporting and corporate governance measures. In addition they state that these regulations should apply to all foreign firms, not only Chinese. Lastly, they address unfair competition. They argue that it is difficult to state arguments of unfair competition because acquisitions are a single transaction. In addition, foreign subsidization of acquisitions may simple lead to domestic sellers receiving a higher price. Globerman and Shapiro (2008) therefore argue that there is no need for a special policy on this issue.
2.4.2 Interdependency and national security
There has been extensive research on the relationship between increasing economic
interdependence and interstate conflicts (Barbieri, 1996; Copeland, 1996; Gartzke, Li, & Boehmer, 2001). Barbieri (1996) highlights four propositions that occur frequently in the trade-conflict
literature: (1) trade promotes peace, (2) symmetrical ties promote peace, asymmetrical ties may lead to conflict, (3) trade increases conflict and (4) trade is irrelevant to conflict.
Supporters of the proposition that trade promotes peace display several arguments (Barbieri, 1996). The argument receiving the most attention suggests that states are reluctant of participating in a conflict against a trading partner due to the fact that one can lose the welfare gains associated with this partnership. This is, however, dependent on the type of trade that exists between the countries. Barbieri (1996) argues that the more inelastic the country import and export is to a partner country, the less likely it is for nations to get in a conflict. Another proposition is that symmetrical ties promote peace, but asymmetrical ties potentially lead to interstate conflicts. This stream of theory suggests that the negative consequence of dependency are greater in asymmetrical relationships. This argument is based on the assumption that trade often results in the
impoverishment of less powerful trading countries (Barbieri, 1996). According to the supporters of this propositions its therefore the distribution of the of gains of trade, which might be a reason for conflict. Thirdly, Barbieri (1996) highlights the notion that trade might cause conflict, but the author
did not find any supporting, country level evidence. Lastly, the claim that trade is irrelevant to conflict is addressed, which is heavily supported by realist theorist. The main argument is that trade relations represent certain transitional processes, driven by demand. When demand changes, trade partnerships can easily be determined. The realist theorists therefore suggests that trade ties do not have any effect on the a potential conflict. After analyzing past data, Barbieri (1996) concludes that trade often fails to deter conflict, nor does it provide a path to interstate peace. Furthermore, extensive economic interdependence increases the likelihood that states engage in militarized disputes. On the contrary, these ties do not influence the possibility of war. Barbieri (1996) identified that symmetric trade relations are the greatest hope for interstate peace.
Copeland (1996) adds a new factor to the statement that trade fosters peace. The author includes the future trade potential in his research, and finds that when nations have positions expectations of future trade with a partner country, they are less likely to engage in a conflict. Copeland (1996) therefore concludes that when future trade expectations are positive, trade can indeed foster peace. However, when a country perceives future trade gains as negative, war might be a more rational choice for leaders. Countries fear to be cut off from vital goods and if they do not see any positive scenarios in the near future, an interstate conflict is often initiated.
Gartzke et al. (2001) found that trade and direct investment increase cross-border economic contact and raises the urgency for nations to maintain these linkages. They added 'financial and monetary integration' as a new variable, and found that this increases interdependency. Gartzke et al. (2001) furthermore found that interdependence might deter very modest conflicts, but that their main impact is an alternative way of resolving conflict. They argue that threats from highly
interdependent states are more influential than threats from states who are not closely linked.
2.4.3 Host country policies on inward Chinese M&A.
Chinese firms that invest in advanced foreign countries, aim to obtain the knowledge available in the host country (Deng, 2007). This may lead to an outflow of a nations accumulated knowledge. Even though these potential disadvantages, Deng (2007) argues that policy makers in advanced countries should aim to realize a win-win situation out of the increasing outward FDI activities of Chinese firms. The author states that policy makers should welcome such investments, given the potential
economic, developmental and competitive benefits. Shapiro and Globerman (2008) add that there is no strong empirical evidence to apply discrimination against investment by Chinese MNCs.
3. Methodology
The research presented in this paper is mainly exploratory, due to the fact that there has been no research on this specific topic yet. The main goal of this paper is to identify the past M&A activity of Chinese firms in the Netherlands, and the attitude of the Dutch government towards those activities. In order to reach that goal, three propositions will be presented in this chapter that will structure the research process.
Saunders et al. (2009) describe exploratory research as a way of establishing causal relationships between variables. The emphasis of a exploratory research is to study a situation or problem in order to understand and explain the relationships between variables. This paper will aim to provide answers on the research question through a political-economic perspective with a
multiple methods approach. Multi-method refers to a research technique where more than one way of data collection is used in order to answer the research question (Saunders et al., 2009). The research findings of this paper will be triangulated, as they will be retrieved from a database, an interview and government publications.
3.1 Research Propositions
After analyzing the several reviewed articles in the previous chapter and several government publications, three research propositions have been formulated which are being presented in this section. Testing these propositions will support the main research goal of this paper. All three propositions will be answered through multi-method approach.
Over the past decade, Chinese outward foreign investment has heavily increased (Deng, 2013). . In 2012, China's ODI exceeded 500 million dollars compared to 37 million dollars in 2002 (World Investment Report, 2013). This increase in foreign investment by Chinese firms is a direct effect of the implementation of the Go Global policies in 1999, which allows the Chinese government to influence foreign investment decisions by Chinese firms (Wang et al., 2012). The set of OFDI
orientated regulations has been crucial to the transition of the Chinese economy (Song et al., 2011). The importance of FDI can also be seen from a Chinese business perspective. As China is increasingly opening up its economy, Chinese MNCs need to reach a higher level of competitiveness in order survive (Deng, 2004). These firms increasingly tend to do so by investing abroad, rather than
domestic. In order to gain competitiveness, Chinese firms are interested in obtaining highly technical skills from Western firms, and M&A is increasingly becoming the way to do so (Cui & Jiang, 2009; Zhang et al., 2011). The increase of the M&A popularity as a form for FDI for Chinese firms is also being recognized by the Chinese government, as the Ministry of Commerce published a report which stated that especially in the period 2008-2011 the number of Chinese M&A increased, as M&A transactions grew by 44% annually (“Chinese companies’ cross-border M&A rising -,” 2012). From a Chinese perspective, the Dutch economy is interesting due to the fact that the Netherlands contains highly developed technologies (Daling, 2014). The recent state visit of China is an example of the increasing Chinese interest in the Dutch economy. Deng (2007) found that Chinese firms tend to acquire rather than to develop technologies due to the fact that they aim to quickly possess technological knowledge which is lacking in the home country. This hypothetically means that, in a highly technically developed country like the Netherlands, Chinese firms prefer to acquire Dutch technology rather than to develop such technological capabilities. Combing the theory stated above with the several government publications, and applying this combination to the Dutch economy provides two propositions:
Proposition 1: The number of Chinese takeovers of Dutch firms has increased since 2008. Proposition 2: Foreign direct investment of Chinese firms in the Netherlands is specifically focused on acquiring high-technology firms.
Borensztein, Gregorio, & Lee (1998) found that inward FDI contributes more to economic growth than domestic investment. Moreover, FDI potentially provides efficiency and labor benefits to host countries. A publication by the Netherlands Foreign Investment Agency displayed the Dutch
willingness to attract foreign investors from upcoming economies, and showed that over 2013 a record number of new jobs was created in the Netherlands due to incoming foreign investment (Resultaten NFIA 2013, 2014). Also, several publications by the Chinese government show that over the past years, China and the Netherlands have been increasingly collaborating on a political and economic level. (“China and the Netherlands Should Strengthen Trade and Investment Cooperation and Jointly Oppose Protectionism,” 2013, “Noordwijk, Netherlands Successfully Holds
China-Netherlands Economic and Trade Cooperation Forum -,” 2014). According to Gartzke, Li, & Boehmer (2001) such interstate and cross-border economic contact increases the level of economic
interdependence. The next proposition of this paper therefore states that the Netherlands and China are becoming increasingly interdependent on an economic level.
Proposition 3: The Netherlands and China are becoming increasingly interdependent on an economic level
3.2 Research Design
In order to answer the research question and test the propositions, a triangular approach will be used. Yin (2003) argues that an isolated use of multiple data sources is not recommended when conducting a case study. Moreover, the strength of a case study lies in the fact that it can combine collected data from different sources. Yin (2003) states that the use of multiple sources of evidence in case studies allows an investigator to address a wide range of historical, attitudinal, and behavior issues. The most important advantage, however, is the fact that this method develops a converging
line of inquiry, which refers to the principle that independent sources of data can converge in strong
conclusions (Yin, 2003). This in turn causes a higher accurateness among the findings of the case study.
3.2.1 Literature review
An extensive literature study has been conducted in several research fields, of which the results have been presented in the previous chapter. The findings give a proper understanding of the research issue and are crucial for answering the research question. Moreover, the analyses of the literature provide three propositions, which are presented later on in this chapter and will be tested through the utilization of database and the analyses of an interview and government publications. The papers were extracted from journals like the Journal of International Business, International Business Review and China & World Economy. Through an assessment of the journals in which the papers were published, and an analysis of the number of citations on Google Scholar, the academic relevance of the included research articles has been reviewed.
3.2.2 Data collection
Secondary data: Zephyr, government publications and company websites
First, the Zephyr database has been used to strengthen the claims stated in the reviewed articles. Moreover, specific data on Chinese M&A activities in the Netherlands has been generated. Zephyr is the main database that has been accessed , as it tracks worldwide M&A activity. The data generated from these sources contained a clear outline of the activity of Chinese M&A in the Netherlands. The search query that has been used in order to find a list of Chinese M&A deals in the Netherlands is:
Step result Search result
1. Country: China (CN) ( Acquiror ) 40,489 40,489
2. Country: Netherlands (NL) ( Target ) 25,367 41
3. Time period: on and after 01/01/1999 and up to and including 31/12/2013 (completed-confirmed, completed-assumed, announced)
963,319 33
Boolean search : 1 And 2 And 3
TOTAL 33
This query generated 33 deals, of which 4 were deleted due to the fact that 3 bids were withdrawn at one point and one deal was generated with a Dutch acquirer. All the other listed deals were either takeovers by Chinese firms, or JVs where Chinese firms were involved. Timetable 1999-2013 has been used because the Go Global policies were implemented in 1999. However, Zephyr was only able to retrieve data from 2003 on. Through desk-research the ownership structure of firms is assessed, in order to identify the number of SOE takeovers in the Netherlands. Moreover, the industries of the companies acquired are being identified in order to display the sectors of Chinese interest, Lastly, Bloomberg, Businessweek and company websites were addressed in order to identify the ownership structure.
Second, a letter written by ministers Frans Timmermans and Lilianne Ploumen is analyzed, which was recommended by Henk Massink during the interview. On the 4th of November in 2013, Dutch Minister of Foreign Affairs Frans Timmermans and Minister for Foreign Trade and
Development Cooperation Lilianne Ploumen sent a letter to the House of Representatives,
concerning the strategy on the Dutch relationship with China. This letter has been the fundament of a China debate on the 9th of April. The document has been included into the research design due to the fact that it contains the Dutch long-term strategy on China. The letter concerns two main topics: (1) a changing China, and (2) the Dutch approach: investing in 'values' and 'business'. This document will be analyzed in order to further identify the Dutch perception and strategy on Chinese M&A in the Netherlands.
In order to identify the target preferences of Chinese firms, the types of companies are being classified according to their websites. Additionally, data will be generated from the websites of Bloomberg and Business Week to assess whether the acquirers are SOEs.
3.2.2.1 Qualitative Interview
An interview is the most beneficial approach when one tries to obtain data in the following circumstances: (1) where there are a large number of questions to be answered, (2) where the
questions are either complex or open-ended and (3) where the order and logic of questioning may need to be varied (Saunders et al., 2009). Saunders et al. (2009) continue with stating that an
exploratory study needs to include such interviews in order to be able to identify causal relationships between variables. One should note, however, that the manner in which one interact with
interviewees impacts the collected data (Saunders et al., 2009). Due to the fact that this research area is highly unexplored, an open unstructured interview will allow the author to identify the boundaries. There will be a general idea of what the topic is, but there will be no standard set of questions.
Saunders et al. (2009) warn for several biases, of which the interviewer bias is one of them. An interview bias occurs when the comments, tone or non-verbal behavior of the interviewer creates a certain bias in the responds of the interviewee. This might happen when the interviewee
unconsciously tries to transfer his own beliefs through the asked question. Moreover, it is possible that you display a bias in the way you interpret a given answer. Lastly, Saunders et al. (2009) stress the possibility that the interviewer was unable to gain the trust of the interviewee, which in turn might damage the validity and reliability of the collected data. Another bias that Saunders et al. (2009) highlight is the interviewee bias. This might occur when the interviewee has certain perceptions about the interviewer. Another possibility is that the interviewee is sensitive to the unstructured way of interviewing. This may cause an interviewee to not reveal or discuss an aspect that the interviewer aims to explore. This can result in a 'partial' picture of the area the interviewer want to explore.
In order to successfully conduct an unstructured interview, the interviewer should plan carefully. Saunders et al. (2009) display the five Ps: prior planning prevents poor performance. According to the authors this will support the interviewer in gaining the trust of interviewees. In order to successfully gather data and strengthen the credibility, the interviewee should be able to demonstrate a high level of knowledge on the subject, provide the interviewee with sufficient
information before the interview, choose a comfortable location and dress appropriate (Saunders et al. 2009). In the case the interviewer did not meet the interviewee before, the first few minutes of the conversation will have a large impact on the outcomes. From the perspective of the interviews conducted in this research, it might be useful to state that this research is not trying to obtain confidential information. Healey and Rawlinson (1994) argue that by stating this the interview will be more relaxed and open. An important aspect of the interview is the opening question. It should provide a direction that the interviewee can follow when providing information. The opening question of the interviews will therefore be: How would you describe the Dutch political-economic relationship with China? This question introduces the fundament of the topic, namely the political-economic relationship with China, and allows the researcher to steer the interview according to the provided answer.
3.2.3 Sampling
The study sample contains one high-ranked government official whom is working for the Ministry of Foreign Affairs. This government officials works as a Senior Policy Advisor at the Department of Economic Foreign Relations, and is a senior advisor of Dutch ministers Ploumen and Timmermans. He is specifically focusing on investments from firms out of emerging economies. The study sample contains only one person due to the fact that Henk Massink was the only government official who can provide insight on this specific issue and was available. Saunders et al. (2009) describes this way of sampling as purposive sampling, and argues that this enables a research to select cases that will be best able to answer the research questions.
3.2.4 Interview subject
Henk Massink is a Senior Policy Advisor at the Ministry of Foreign Affairs. Massink works for the board of Economic Diplomacy and Transition, which is part of the department Foreign Economic Relations. His activities at the Ministry of Foreign Affairs focus on 'Economic Security'. More
precisely, Massink focuses on the rising number of investments by emerging economies in the Netherlands. An interview with Massink can therefore provide new insights on the research issue.
3.3 Data analysis
Due to the exploratory nature of this research, an inductive way of data analysis will be applied. Saunders et al. (2009) argue that an inductive approach allows a researcher to see which themes or issues emerges as relevant and are interesting to follow up. Moreover, the inductive approach lets a researcher develop a theoretical framework through the process of data collection. Saunders et al. (2009) gives an overview of three critical points when applying a inductive approach: (1) a researcher does not commence such a study with a clearly defined theoretical framework, (2) instead you identify relationships between your data and develop questions and hypotheses or propositions to test these, (3) theory emerges from the process of data collection and analysis. It is, however, highly important to define a clear research purpose before collecting and analyzing data. The research purpose of this paper will be: to explore the effects of and the Dutch governmental perception on
Chinese M&A activity in the Netherlands. 3.3.1 Analyses of the interview
In order to support the conclusions that can be drawn from the interview with Henk Massink, two ways of data analyses will be applied: summarizing, and categorizing (Saunders et al, 2009). A summary will provide a brief statement of the main themes and findings of the interview.
Categorizing data includes two activities: developing categories and matching these categories with the collected data (Saunders et al. 2009). Based upon the literature, the categories will be: (1) the Dutch political-economic relationship with China, (2) Chinese SOE activity in the Netherlands, (3) Dutch governmental strategy on M&A in the Netherlands (4) the role of the Dutch government in the process of inward FDI.
4. Validity, Generalizability and Reliability
4.1 Validity
In order to justify this study its validity has to be assessed. Validity is concerned with whether the findings presented in this research are actually displaying what they should display (Saunders et al., 2009). In order to ensure that this study is valid, the qualitative interview has to been held en prepared very carefully. Even though there are three data sources, the interview has the highest chance of being biased. To ensure that the important topics were covered during the semi-structured interview, a list with topics was set up which was send to the interview subject on forehand. In the case that the respondent gives answer to a question, the researcher asks follow-up question in order to validate the provided answer.
4.2 Generalizability
Generalizability refers to whether the findings of this study are applicable to other research settings (Saunders et al., 2009). It is important to point out that the findings of this research are based on a database, one governmental letter and one interview. Due to the fact that the number of data resources is relatively low and specified on the Netherlands, findings from this research are hardly transferable to other countries or environments. Even though other EU countries might share the same characteristics as the Netherlands, the findings of this study remain only applicable to the Netherlands. The findings could function as an indicator, as other countries might have a similar political-economic relationship with China. Another important fact to highlight is that Henk Massink has been the only interview subject, due to the fact that he was the only government official available that would be able to provide valuable information. As such, the findings of this interview only provide us with information gained from the perspective of Henk Massink, and are not
transferable to other government officials or institutions. The findings could, however, function as an indicator given the importance of Henk Massink position within the Ministry of Foreign Affairs.
4.3 Reliability
Reliability refers to what extent the data collection techniques or analyses process will result in consistent and reliable findings (Saunders et al., 2009). The reliability of the findings of this research are supported by the triangulated research design. Yin (2003) argues that triangulation creates
converging lines of data inquiry which in turn enhances the reliability of a study. This paper will
converge the findings of the database Zephyr, government publications and an interview, in order to answer the research propositions presented in the previous chapter. This will eventually lead to certain findings, presented in the following chapters.
5. Results
This chapter will provide the results of the conducted triangular research. The results are presented according to the research propositions. Three sources of data are used: the Zephyr database, an interview with Henk Massink and a letter written by the Dutch government.
5.1 The number of Chinese takeovers of Dutch firms has increased since 2008. 5.1.1 Number of deals over time
Zephyr was able to provide a comprehensive list of Chinese M&A deals in the Netherlands, from 2003 on (see table 3). There can be concluded that, in line with the publications of the Chinese government, the Chinese M&A activity in the Netherlands has increased in the period 2008-2012. The highest number of M&A deals in one year is 8, and was recorded in 2012.
Graph 1: Number of Chinese takeovers in the Netherlands. Source: Zephyr
The Dutch government did not notice a rise in the number of Chinese takeovers yet. They rely on statistics provided by the Dutch Bank (DNB), and the provided data does not show a significant rise. Moreover, according to the government, the percentage of Chinese takeovers compared to the total number of takeovers in the Netherlands is close to zero. The Dutch government does, however,
0 2 4 6 8 10
Number of Chinese takeovers in the
Netherlands
Number of Chinese takeovers in the Netherlands
expect a rise in the future. Massink therefore states that it is important to keep track of this activity, but that one should regard it in the right perspective.
"Het wordt wel gezegd. Wientjes heeft kortgeleden ook gezegd, in het kader van dat staatsbezoek, dat die belangstelling sterk zou zijn toegenomen. Volgens mij de cijfers van de DNB, en dus de cijfers die wij
hebben, daar nog niet op. Procentueel gezien, dus als aandeel in het totaal aantal buitenlandse investeringen, stelt het eigenlijk heel weinig voor. Het zou dan ook goed zijn om in jouw onderzoek dat precies en goed vast te stellen in welke mate dat nu eigenlijk gebeurt en wat nu daadwerkelijk de groei daar in is. Want in de
Internationaliseringsmonitor van volgens mij 2012 die DBS heeft gemaakt was het afgerond op 0%, dus dat is nog niet zo indrukwekkend. De verwachting is wel dat het toeneemt en de Chinezen geven dat ook aan." -- Henk Massink
Table 3: overview of all the Chinese M&A activities in the Netherlands, over the period 2003-2013.
Acquiror name SOE Acquiror country code Target name Target country code Deal type
1. SHANDONG NEW BEIYANG INFORMATION TECHNOLOGY CO., LTD Yes CN ORIENT TECHNOLOGIES BV NL Acquisition 51%
2. SINOWAVE (ASIA) INTERNATIONAL LTD Unknown CN PACIFIC LIQUEFIED PETROLEUM GAS (LPG)
INVESTMENTS NV NL Acquisition 100%
3. SICHUAN CENTURY SHUANGHONG DISPLAY DEVICES CO., LTD Unknown CN STEROPE INVESTMENTS BV NL Acquisition 75%
4. MR LAP SHUN HUI No CN PACKARD BELL BV NL Acquisition 100%
5. SICHUAN CHANGHONG ELECTRIC CO., LTD Yes CN STEROPE INVESTMENTS BV NL Acquisition 75%
6. XIANGTAN ELECTRIC MANUFACTURING CO., LTD Yes CN DARWIND HOLDING BV NL Acquisition 100%
7. SINO EV TECH Unknown CN DURACAR HOLDING BV NL Acquisition 100%
8. BEIJING HAINACHUAN AUTOMOTIVE PARTS CO., LTD Yes CN INALFA ROOF SYSTEMS GROUP BV NL Acquisition 100%
9. SINOCHEM CORPORATION Yes CN TEPMA BV NL Acquisition 100%
10. NANTONG SUNWAY TECHNOLOGY CO.LTD Unknown CN SCHEUTEN SOLAR HOLDING BV'S COMMERCIAL
ACTIVITIES NL Acquisition 100%
11. SHANDONG KAITAI METAL ABRASIVE CO., LTD Yes CN AIRBLAST BV NL Acquisition 100%
12. NAVINFO CO., LTD No CN MAPSCAPE BV NL Acquisition 100%
13. HARA XEMC WINDPOWER CO., LTD Yes CN XIANGDIAN DAERWEN CO., LTD NL Acquisition increased from 100% to 100%
14. JIANGSU YOKE TECHNOLOGY CO., LTD Unknown CN XIANKE CHEMICAL EUROPE CO., LTD NL Acquisition increased from 100% to 100%
15. CHINA HUANENG GROUP Yes CN INTERGEN NV NL Acquisition 50%
16. SHANDONG APS Unknown CN TURBOCORP BV NL Institutional buy-out unknown remaining
stake %
17. DUPONT ENGINEERING POLYMERS No US DUPONT FILAMENTS EUROPE BV NL Joint venture 100%
18. SHANGHAI CONSTRUCTION (GROUP) GENERAL CORPORATION Yes CN STATEN TUNNEL JOINT VENTURE NL Joint venture 100%
19. QAZMUNAIGAZ ULTTYQ KOMPANIASY AQ Unknown KZ MANGISTAU INVESTMENTS BV NL Joint venture 100%
20. YOUNGMAN AUTOMOBILE GROUP CO., LTD Unknown CN SPYKER P2P BV NL Joint venture 100%
21. YOUNGMAN AUTOMOBILE GROUP CO., LTD Unknown CN SPYKER PHOENIX BV NL Joint venture 100%
22. YOUNGMAN AUTOMOBILE GROUP CO., LTD Unknown CN SPYKER TRADEMARK COMPANY BV NL Joint venture 100%
23. CHINA NATIONAL OFFSHORE OIL CORPORATION LTD Yes CN AGIP KAZAKHSTAN NORTH CASPIAN OPERATING
COMPANY NV NL Minority stake 8.33%
24. SINOPEC INTERNATIONAL PETROLEUM EXPLORATION AND
PRODUCTION CORPORATION Yes CN AGIP KAZAKHSTAN NORTH CASPIAN OPERATING COMPANY NV NL Minority stake 8.33%
25. CHINA DEVELOPMENT BANK Yes CN AERCAP HOLDINGS NV NL Minority stake unknown %
26. CHINA NATIONAL PETROLEUM CORPORATION Unknown CN SYRIA SHELL PETROLEUM DEVELOPMENT BV SY Minority stake 35%
27. YOUNGMAN AUTOMOBILE GROUP CO., LTD Unknown CN SWEDISH AUTOMOBILE NV NL Minority stake 29.9%
28. YOUNGMAN AUTOMOBILE GROUP CO., LTD Unknown CN SPYKER NV NL Minority stake 29.9%
29. CHINA NATIONAL PETROLEUM CORPORATION Yes CN NORTH CASPIAN OPERATING COMPANY BV NL Minority stake 8.33%
5.2 Foreign direct investment of Chinese firms in the Netherlands is specifically focused on acquiring high-technology firms.
Desk research has shown that at least 13 acquisitions of the 29 are conducted by Chinese SOEs (see table 3) and that Chinese firms in the Netherlands were particularly interested in two sectors: (1) energy and (2) car production. In general, it can be concluded that Chinese firms tend to acquire firms with a high degree of technical knowledge. Table 4 provides a clear overview of the different types of companies being acquired.
Target name Type of company
AERCAP HOLDINGS NV Aircraft leasing and finance DURACAR HOLDING BV Car manufacturer
SPYKER P2P BV Car manufacturer SPYKER PHOENIX BV Car manufacturer SPYKER TRADEMARK COMPANY BV Car manufacturer SWEDISH AUTOMOBILE NV Car manufacturer SPYKER NV Car manufacturer
INALFA ROOF SYSTEMS GROUP BV Car roof systems manufacturer
MAPSCAPE BV Developer of digital maps and navigation software
INTERGEN NV Energy production DUPONT FILAMENTS EUROPE BV Energy production PACIFIC LIQUEFIED PETROLEUM GAS (LPG)
INVESTMENTS NV
Fossil fuels
TEPMA BV Fossil fuels AGIP KAZAKHSTAN NORTH CASPIAN
OPERATING COMPANY NV
Fossil fuels
AGIP KAZAKHSTAN NORTH CASPIAN OPERATING COMPANY NV
Fossil fuels
SYRIA SHELL PETROLEUM DEVELOPMENT BV
Fossil fuels
NORTH CASPIAN OPERATING COMPANY BV Fossil fuels
TURBOCORP BV Oil-free centrifugal compression PACKARD BELL BV Personal Computers
ORIENT TECHNOLOGIES BV Printer manufacturer and support SCHEUTEN SOLAR HOLDING BV'S
COMMERCIAL ACTIVITIES
Producer and seller of solarpannels.
XIANKE CHEMICAL EUROPE CO., LTD Production of chemicals STEROPE INVESTMENTS BV Real-estate
STEROPE INVESTMENTS BV Real-estate
AIRBLAST BV Surface treatment and finishing of boats XIANGDIAN DAERWEN CO., LTD Unknown
STATEN TUNNEL JOINT VENTURE Unknown MANGISTAU INVESTMENTS BV Unknown DARWIND HOLDING BV Windturbines
Table 4: types of companies acquired Source: Zephyr and company websites
The interview revealed that China is eager to acquire Dutch knowledge and technology. According to Massink, China is especially interested in agricultural knowledge, as well as logistic expertise.
"Er is veel belangstelling vanuit China, met name voor Nederlandse kennis en technologie. Ik kom zelf eigenlijk uit de agrarische hoek, en het laatste staatsbezoek van China aan Nederland heeft ook laten zien hoe groot die belangstelling is van China voor Nederland, speciaal als het gaat om agrarische kennis. Maar die belangstelling is ook breder. Uit andere onderzoeken weet ik dat de Chinezen ook erg geïnteresseerd zijn in de kennis op het gebied van logistiek en distributie." - Henk Massink
Mergers or acquisitions by China companies could raise concerns due to the fact that it can result in technical knowledge and expertise leaving the country (Globerman & Shapiro, 2008). In the case that a large Dutch MNC, like Philips, is potentially being acquired by a Chinese SOE, the Dutch
government would however not intervene. Massink states that the Dutch government believes in the balancing effect of the market.
" Wij vinden uiteindelijk gewoon dat de markt zijn werk doet, en dat kan betekenen dat een bepaald bedrijf waar veel mensen werken, en met kennis, gewoon weggaat. Maar daar kunnen ook weer andere bedrijven
weer hier komen. Dus dat proces moet eigenlijk gewoon onbelemmerd kunnen plaatsvinden." - Henk Massink
5.3: The Netherlands and China are becoming increasingly interdependent on an economic level
The political-economic relationship with China is being defined as 'good'. The government notices a rise in the Chinese interest for Dutch knowledge and technology, especially in the agricultural sector. Moreover, China is increasingly interested in Dutch logistic knowledge. As a proof of the rise in interest, Henk Massink refers to the recent governmental visit of China to the Netherlands.
"Ik denk dat wij een goede relatie hebben met China. Er is veel belangstelling vanuit China, met name voor Nederlandse kennis en technologie... Het laatste staatsbezoek van China aan Nederland heeft ook laten zien hoe groot die belangstelling is van China voor Nederland, speciaal als het gaat om agrarische kennis. Maar die belangstelling is ook breder. Uit andere onderzoeken weet ik dat de Chinezen ook erg geïnteresseerd zijn in de kennis op het gebied van logistiek en distributie." -- Henk Massink
5.3.1 Interdependency
China and the Netherlands are becoming increasingly interdependent. This can be interpreted both positive and negative. Henk Massink refers to the interdependency theory as a positive interpretation of the shown increase. He argues that by becoming increasingly interdependent economically, a higher level of national security can be more easily guaranteed. Moreover, he claims that interdependence can mitigate political tensions worldwide.
"Elke investering en elke manier van economische samenwerking veronderstelt dus een grotere afhankelijkheid. Die kun je dus positief en ook wel negatief interpreteren. De positieve uitleg is natuurlijk de interdependentie theorie, dat naarmate je in economische zin afhankelijker wordt van elkaar de veiligheid daarmee ook meer gegarandeerd zou zijn.... En zo zou je ook spanning wereldwijd kunnen mitigeren door in economische zin samen te werken. " -- Henk Massink
On the question whether the Netherlands is deliberately trying to establish a certain 'balanced interdependence' with several countries, Massink replies with saying that this is not the case. In general, the Netherlands does not want to act according to a form economic protectionism. Massink
argues that by doing so, a country will realize a certain political-economic distance which interferes a possible close form of collaboration.
"Nee, volgens mij wordt daar niet zo ontzettend diepgaand over nagedacht, in welke mate dat dan wel niet moet zijn. Maar het is denk ik wel een beetje... we kunnen het als algemene strategie hanteren. Als je zegt 'ik ben protectionistischer', ik wil niet teveel relaties hebben met een land, nou goed dan houd je ook een bepaalde kloof in stand, economisch maar vaak ook wel politiek. Want als je zegt van 'we gaan echt samenwerken op economisch gebied' dan heb je vaak ook kans dat je op andere gebieden gaat
samenwerken. "-- Henk Massink 5.4 Additional findings
5.4.1 The strategy on the Sino-Dutch political economic relationship
The Dutch government has two focus points included in its political-economic strategy on the relationship with China: "business" and "values". It recognizes that the current political-economic relationship is steadily growing, due to the fact that both the Netherlands and China have certain knowledge and experience which can be beneficial to the other. In addition, the government acknowledges that unlike in the Netherlands, Chinese the political, bureaucratic and business environments are strongly converged. Even though, the Netherlands is seeking to maintain a high value flow of Chinese investments in the Netherlands.
" Het Nederlandse beleid speelt in op de economische kansen die China biedt, waarbij rekening wordt gehouden met het feit dat in China politiek, bureaucratie en bedrijfsleven nauw met elkaar verweven zijn. Nederland richt zich vooral op sectoren en regio’s waar het een verschil kan maken. Daarnaast blijft Nederland zich inzetten voor hoogwaardige, duurzame Chinese investeringen in Nederland."
5.4.2 The relevance of Chinese investments in the Netherlands
The Netherlands is actively attracting Chinese investors through the NFIA network. There are certain 'Innovation Councils' which are linked to Dutch embassies, and are specifically assigned to attract foreign enterprises for the Dutch market.
