Analysis of European Union Foreign Direct Investment (FDI) in China

January, 2012 Analysis of European Union Foreign Direct Investment (FDI) in China

 EU FDI Overview in China General Outlook

 FDI Data  Investment Characteristics and Strategies

 EU’s Main FDI in China

UNITED KINGDOM

 FDI Data  Investment characteristics and strategy  Investment Sectors  Regional distribution  Case study: Standard Chartered

GERMANY  FDI Data  Investment characteristics and strategy  Investment Sectors  Regional distribution  Case study: BMW

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FRANCE  FDI Data  Investment characteristics and strategy

 Investment Sectors  Regional distribution  Case study: Danone

SPAIN  FDI Data  Investment characteristics and strategy  Investment Sectors  Regional distribution  Case study: ZARA

ITALY  FDI Data  Investment characteristics and strategy  Investment Sectors  Regional distribution  Case study: Pirelli

European Union FDI Overview in China

General Outlook

Recovering rapidly from global of struggle both from global economic crisis in 2008, companies companies and from domestic firms. across industries experienced Chinese companies are catching up gradual improvements in with their foreign competitors. In performances in China. According to particular, vast improvements have EUCCC Business Confidence been seen in brand recognition, Survey 2011, 78% of respondents marketing and sales capabilities, and report an increase in revenue and product quality. Consequently, the 71% report an increase in net profit. intensed competition greatly Furthermore, Chinese government increased performance of industry in recently announced 12th Five Year China. Plan, which emphases on upgrading It is crucial to note that there is a industries, growing domestic substantial increase over the consumption, developing the service concern of Chinese regulatory sector, reducing income disparities environment; EUCCC’s Business and increasing health, education and Confidence Survey stated that the social welfare coverage, therefore, need for transparency and well- by creating more demand, the regulated market is more important Chinese government lifts the FDI than ever than before, an inflow expectation even further. overwhelming 83% of respondents On the other hand, the growing scale believe the promotion of fairer of Chinese market also means competition in Chinese market is increase in competition, which many important for China’s future. European companies perceived a bit

FDI Data

Year 2007 2008 2009 2010

FDI (Billion Euro) 7.2 5.2 5.8 4.9

Source: Eurostat news release

FDI inflow to China, where is EU’s second largest investment destination, declined from 7.2 Billion Euros in 2007 gradually to 4.9 Billion Euros in 2010.

Since the establishment of diplomatic relationship between European Union and China, the accumulated Foreign Direct

In 2010, the total EU FDI outflow Investment (FDI) inward to China decreased 62% due to EU debt has exceeded USD 70 billion. crisis, the suffering being continued Recent data showed more than 976 and dragged growth rate of many EU newly opened firms from EU own economies to negative, the overall factories or stores in China from EU GDP growth rate was1.7% in January to July 2011, an increase by 2010. 7.14%, while the FDI increased 1.36% to 4.08 Billion during this Whereas, the debt crisis did not period. impact the FDI outflow to China as serious as to other countries. The

Investment Characteristics and Strategies

Proportion of EU industries investment in China

2004 2005 2006 2007 2008

Agriculture 1.01 0.26 0.31 0.33 0.31 Industry

Manufacturing 69.11 78.05 68.26 66.18 63.11 Industry

Service 29.88 21.69 31.43 33.49 36.58 Industry

Figure from Eurostat

More than 60% of EU’s investment been decreasing since 2005; this is were spend on manufacturing as result of booming investment in industry, however, the trend has service industry, which accounted for 5

approximately 1/3 of total direct of investment, this region is investment. In addition, China considered as relatively more open already has enormous Agriculture and more developed than other resources and most companies from areas. Although Central and EU are specializing in manufacturing Western China only undertake 7% and providing services, so it is and 4% respectively, the unnecessary to precede a further percentages are expected to investment in Agriculture in China, increase because the Chinese 12th which account only 0.3% and it is 5 years plan specifically aimed to very likely to maintain at this level in improve trade and investment in the near future. Central and Western area.

Most of EU FDIs are located in Eastern China, which covered 89%

EU’s Main FDI in China

Total (million USD, 2010)

UK France German Spain Italy Total 5 Total EU FDI Countries to China

710.3 1,238.2 888.4 254.5 396.1 3,487.5 5,921.8

According to OECD statistics, in term of investment destination. China’s total FDI inflow, which hit Each has its own characteristics and USD 185,000 Million in 2010, ranks focuses, UK, France, Germany, the second largest country receiving Spain and Italy are the five main FDI in the world only behind US. European countries that invest in More and more European countries China, the level of FDIs to China are consider China as their first priority mainly influenced by its domestic 6

economy as well as Global Moreover, the Chinese economy is economy, more specifically, the continuously been strong with the vicious circle of Euro debts crisis top growing GDP., however, the leads to lower confidence to invest appreciation of RMB and rising cost globally, causing EU FDI of raw materials and labor costs in disturbances and sharply reducing in China made it seems loss some the amount of investment, for competitiveness, but it still perceived example, Spain total FDI in 2010 is as a long term strategic location by only 1/3 that of in 2008. many large international corporations.

United Kingdom

FDI Data:

Year 2005 2006 2007 2008 2009 2010

USD 964.7 726.1 830.9 914 679 710.3 (Million)

79,995 million USD, reaching the highest of 325,473 million USD in

2007, to only 11,016 million USD during the period of 2005 to 2010, declined more than 80%.

However, the FDI to China only took

0.67% in 2010, it has remained

relatively stable during 2005 to 2010.

The total amount of UK FDI outflow Since then, the FDI has slightly has decreased significantly from decreased from 964.7 million USD to

710.3 million USD during this period. population lives in the cities, but by The main reasons are that, UK is the year of 2020, the percentage is one of the world financial centre, expected to increase to 55%-60%, although the financial sector in China this bring new opportunity for British was booming in the past few years, products and services to target at the financial market is still China. The Chinese government just underdeveloped compared with most released a fund of 850 Billion RMB of the western countries, and that in medical reform; many English the economy in UK has worsened medical firms can gain a huge since 2005, GDP growth rate down market in providing medical to - 4.9% in 2009, which had serious equipment, medical research impact on FDI. services, hygiene information technology, and other relevant fields. Investment Characteristic and In addition, by the year 2030 the Strategy workforce of the population will The rapid growing of urbanization reduced from 60% to 55%, the and workforce mobilization in China shortage of supply will boost create an immense potential average salary, this will increase opportunity for many foreign average level of consumer goods countries, especially for UK, and spending. One of the largest therefore the long term british supermarket chains Tesco already business strategies must follow with has established 93 branches in fast changing pace. One outstanding China and it is expected to open strategy is that, UK companies are more in second and third tier cities. not only binding with the major first Moreover, Chinese government tier cities such as Beijing, Shanghai spend large amount of money in and Guangzhou; they also have transportation and infrastructures, started to focus on second and third including high speed railway, airports tier cities. Currently, 45% of the total and highway as well as building

constructions. This also attracts more investment will be put in many English firms to invest in China. commercial services, IT, public E.g. ARUP helped 2008 Beijing services, construction and advanced Olympic Games to design and manufacturing, however, traditional construct the Bird’s Nest and many manufacturing tend to be less projects. favorable.

In the near future, the FDI from UK tends to recover, and specifically,

Major companies in China:

Company Region Industry Products

Sony ericsson Beijing, Shanghai Telecommunicati Mobile phones ons

Vodafone group Beijing Telecommunicati 3g, internet services, it ons and network services

Anglo american Beijing, Shanghai, Utilities, energy， Gold, silver and other Inner Mongolia, resources rare material Zhejiang, Gansu, exploitation, paper, Xinjiang and Shanxi packaging, logging

Bp amoco Beijing, Shanghai, Utilities, energy Oil prospecting, oil Ningbo, Zhuhai, refinery, nature gas, Fujian electricity power, mineral, computer, transportation, insurance

Royal dutch shell Beijing, Shanghai, Utilities, energy Oil refinery, petro Guangzhou, chemistry, aviation oil supply, investment,

Shenzhen nature gas

Standard Beijing, Shanghai, Finance Commercial, retail and chartered private banking, Guangzhou, Shenzhen, Tianjin, Xi'an, Hangzhou, Nanjing, Qingdao, Suzhou, Zhuhai, Chongqing, Ningbo, Inner Mongolia

Hsbc Beijing, Chengdu, Finance Investment, Chongqing, Dalian, commercial, retail and Guangzhou, private banking, asset Hangzhou, management Qingdao, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen and Xi'an

Prudential group Beijing, Shanghai, Finance Insurance Guangzhou

The royal bank of Beijing, Shanghai Finance Commercial bank, risk scotland group management, consulting

Standard life Beijing, Shanghai Finance Insurance, investment, assurance fund management.

Aviva Beijing Finance Insurance, fund management

Lloyd's Shanghai Finance Insurance, consulting services

Rsa group Beijing，Shanghai Finance Insurance,

Unilever Shanghai Consumer goods Food, daily necessities

Cadbury Beijing Consumer goods Candy, chocolate

British american Guangzhou, South Consumer goods Cigarette tobacco China Sea, Wuhu

Burberry Beijing, Shanghai, Luxury Fashion accessories, Hangzhou, Suzhou, clothing, luxury goods Goods, Shenzhen, Kunming, Qingdao, Consumer goods Wuhan,

Guangzhou, Dalian

British airways Beijing, Shanghai Transportation Delivery, transportation

Virgin atlantic Beijing, Shanghai, Transportation Delivery, transportation airways Guangzhou

Compass group Shanghai, Wuxi, Restaurant chain Restaurant chain Ningbo, Suzhou, Tianjin, Beijing, Wuhan, Qingdao, Fuzhou, Changsha

Tesco Beijing, Shanghai, Retail Supermarket chain Guangzhou, Tianjin

Marks & spencer Shanghai Retail Supermarket

Kingfisher group Beijing, Shanghai, Retail Furniture wholesale Hangzhou, Suzhou, and retail Shenzhen, Kunming, Qingdao, Wuhan, Guangzhou

Glaxosmithkline Beijing, Tianjin Medicine Medicine

Astrazeneca Shanghai, Wuxi Medicine Medicine

Reuters Beijing, Shanghai Media Broadcasting publishing media services

Industry:

Investment sectors in first tier cities and second tier

English finance companies, E.g. cities. Out of top 25 English banks and insurance firms, are companies in China, 21 companies taking the largest proportion in types have branches or offices in Beijing, of companies invested in China and 19 choose Shanghai, these two covering 28%, however this number cities and Guangzhou nearly taking may shirk in the next decade 54% of the locations in China. In because UK’s economy is not yet 2010, the top five utilized investment fully recovered from the recession locations are: Jiang Su province, and existed of financial bubbles, and Liao Ning province, Shanghai, because generally increasing Zhejiang and Shandong, each competiveness of domestic financial absorbs 38.4%, 16.4%, 12.7%, 9.5% intermeditories. The second largest and 5.9% respectively. is the consumer goods industry, Case Study: Standard Chartered covering 16%, and it is expected to Business: Finance grow as the increasing in demand of consumer products and spending History in First branch since China: 1858 power in China. Size in 49 branches covered Accumulated investment in China: over 17 cities manufacturing has exceeded 2100 items during 2001 to 2010, in term of Product or Commercial, retail and investment amount; 5.8 Billion USD services: private banking has been taking 70.1% within these Introduction years

Standard Chartered Bank is a Regional Distribution multinational financial services English firms have established many company headquartered in London, branches and agencies all over the United Kingdom, with operations in China, but most of them are located more than seventy countries. It 13

operates a network of over 1,700  Warming up stage： branches and outlets (including The Chinese headquarter of subsidiaries, associates and joint Standard Chartered Bank is located ventures) and employs around in Shanghai, where is considered as 80,000 employees worldwide. It is a financial centre in China, since universal bank and has operations in joining the World Trade Organization consumer, corporate and institutional (WTO) on 1 January 2002, China banking as well as treasury services. had its so called “5-year transition” Despite of being a British bank, period, none of the foreign banks are around 90% of its profits come from entitled to enter into the Chinese Africa, Asia and the Middle East. market during this period. Obviously Experience in China Standard Chartered Bank could not wait long to let domestic banks and Standard Chartered bank was one of other foreign banks to share this big the first foreign banks developed in golden cake once the transition China, and it has been continuously period is ended. What Standard expanding since 1858. After the Chartered Bank did was to set more forming of PR China in 1949, branches in Hong Kong and Taiwan, Shanghai branch has permitted to because those two regions reveal stay and assist the new government many characteristics in common with to provide financial services. During Chinese market. Then, after this 1950s, the bank focused on “warming up” strategy, Standard providing loans on chemical plant Chartered Bank simply moved some and steel industry at beginning. With of its employees and operations to the Chinese openness policy, the the mainland, the already enriched bank has rebuilt its network and now experiences from Hong Kong and became one of the largest foreign Taiwan, made the bank started banks in China. ahead of other foreign major Strategies in China competitors

 SME focus -Conditions

Standard Chartered Bank has  Specialization in China shifted its target toward Small to Standard Chartered Bank has Medium Enterprises (SME), designed a unique rating system that according to the statistics, currently can qualitatively evaluate clients’ the bank provided financial services cash flow and balance sheet based to SMEs is overweighed 50% of its on its experiences on 56 countries total services, Standard Chartered around global, hence to target Bank managed SME loans by the Chinese market more effectively, principles of the “five Cs” of credit, also, the bank has established which are: market research team, product -Character development team and trade transaction consulting team to -Capacity undertake one to one mode in order -Capital to specialize to meet different client’s requirement and to follow the rapid -Collateral changing Chinese financial industry.

GERMANY

FDI Data

Year 2005 2006 2007 2008 2009 2010

USD (Million) 1,530 1,978.7 733.9 900.4 1,216.5 888.4

Germany is the second largest FDI outflow country in the world; FDI to China has been recovered to 15

approximately 2006’s level in 2010, or services industry is generally roughly USD 104,863 Million. increasing. Since the world however, it remained low and steady economic recovery in 2008, the in last four years, in 2010 FDI German companies modified its long amount stayed at 888.4 Million USD, term investment strategy and amounting to only 0.84% of total expanded investment scope in China. German FDI. The reason behind the Currently, around 5,000 German paradox is that most of German companies arranged operation in investment goes to Europe and US China, the main types of the as those countries have higher companies include environmental, quality of production techniques and machinery, transportation and more qualified labor resources, automotive. Most of the German which are required by most of companies now consider China as German companies. Unlike the the most important production, many large companies from manufacturing and supply base. developed countries, Chinese According the survey from German companies most of the times only Chamber of Commerce in China, out produce low tech products and daily of top 9,000 German companies, products, but experts believe China more than 50% plans to invest in will transfer to a more advanced China and explore the new market or manufacturing centre, which is also increase the investment level if they specifically targeted by the Chinese already have operation in China. 12th five year plan. Most of the German investments are Investment Characteristic and associated with high tech or with Strategy sufficient funds. For example, Volkswagen plan to spend a further Most of the FDI from Germany are in 10.6 billion Euro in China to upgrade second industry or manufacturing its plant, the company now has industry, but the FDI in third industry taken roughly 50% of the sedan

market share in China and has products range include telephone, produced a total number of more bulbs, refrigerator as well as than 2.6 million cars in China only. engineering, automation technology, electricity, transportation and so on. In addition, German electronic The German made product often products have reached everywhere considered as high quality and in Chinese people’s life. Siemens prestige; the prices, however, are has established many branches in all usually much higher than most of the major cities around China, provided products made in China. 21,000 job opportunities, its varied

Major companies in China:

Company Region Industry Products

Volkswagen Group Shanghai Beijing Automotive Motor vehicles

Daimler Motor Beijing Fuzhou Automotive Motor vehicles Company Limited

Bayerische Beijing, Liaoning Automotive Automobiles, Motoren Werke Ag motorcycles, bicycles (BMW)

Robert Bosch Shanghai Automotive, Automotive parts, Gmbh automation, major power tools, security appliances, systems packaging, security

Continental Ag Tianjin, Automotive, Tires, brake systems, Shanghai, manufacturing automotive safety and Jiangsu and communications Zhejiang systems

E. On Ag Beijing, Shanghai Energy Electrical power natural gas

Total Beijing, Shanghai Utilities, energy Electrical power natural gas,oil

Rwe Ag Shanghai Utilities, energy Electricity generation Shenzhen and distribution, renewable energy, natural gas exploration, production, transportation and distribution

Basf Se Shanghai Chemicals, Chemicals, plastics, Jiangsu manufacturing, performance Chongqing energy chemicals, catalysts, coatings, crop

technology, crude oil and natural gas exploration and production

Bayer Beijing, Chemicals, Medicine, chemicals Shanghai, medicine, Guangzhou, Chengdu, Nanjing

Haniel Group Beijing, Shanghai Chemicals, Chemicals, medicine, medicine, building, building, construction, construction, clothing clothing

Siemens Ag Beijing, Xi'an, Conglomerate Communication Chengdu, systems, power Shenyang, generation technology, Shenzhen, industrial and buildings Wuhan, Jinan automation, lighting, Shanghai medical technology, Zhejiang railway vehicles, water treatment systems, home appliances, fire alarms, plm software

Metro Ag Beijing, Tianjin, Retail Supermarkets, Shandong, hypermarkets, Shanghai and consumer electronics Jiangsu, and appliance retail, Zhejiang, Fujian, department stores Anhui Jiangsu Guangdong, Henan and Hunan Hubei, Liaoning and Heilongjiang, Chongqing, Chengdu Shaanxi and Yunnan

Deutsche Telekom Beijing Shanghai Telecommunication Fixed-line and mobile s telephony, broadband and fixed-line internet services, it and network services

Deutsche Bank Ag Beijing Shanghai Finance Investment,

commercial, retail and private banking, asset management

Allianz Group Beijing, Shanghai Finance Insurance, asset management, risk management

Munich Re Group Beijing, Shanghai Finance Reinsurance, primary insurance, asset management

Dz Bank Beijing, Shanghai Finance Investment, commercial, retail and private banking, asset management

Commerzbank Ag Beijing, Shanghai Finance Retail, commercial and commercial real estate banking

Deutsche Post Ag Beijing, Logistics, Post delivery, express Shanghai, distribution mail, freight forwarding, Guangzhou, third-party logistics Shenzhen

Thyssenkrupp Ag Beijing Shanghai Heavy industry, Steel, stainless Guangdong products, automotive Steel, engineering, technologies, plant capital goods technologies, elevator systems, marine systems, shipbuilding, services

Deutsche Bahn Ag Beijing Shanghai Transportation Rail transport, cargo transport, services

Deutsche Beijing, Transportation Air service Lufthansa Ag Shanghai,

Bertelsmann Ag Beijing Shanghai Media Broadcasting publishing music media services

Henkel Ag & Co. Shanghai Chemicals, Personal care, laundry Kgaa Shandong, consumer goods and cleaning products, Guangdong and adhesives and sealants Jilin Beijing, Jiangsu and Shaanxi

Industry

Investment sectors types of companies that Germany

Obviously Automotive is the key invest in China, German made cars industry and has taken 20% over often associated with durability and

luxury, as a result the demand is Most amount of investment are expected to growth. Although located in Yangtze River Delta financial sector also taking 20%, the region and Bohai region. Shanghai, total investment, the total investment Jiang Su Province and Beijing are amount is considerably less than the the three top investment locations, investment amount of automotive absorbing 41.2%, 30.2% and 11.7% industry. In addition, Chemical and of total FDI from Germany logistics and transportation each respectively in the period of 2001 to contributes to 12%, which is much 2010. higher compared with other Case Study: BMW countries. Business: Automotive The amount of cumulative History in First branch since manufacturing investment, thus the China: 1994 most competitive investment, during 2001 to 2010 is 7.7 billion USD, and Size in 192 4S branches with 2,701 investment items, China: contributing to 59.7% of total FDI in Product or Motor vehicle, this period. The amount spend on services: repairing services, manufacturing industry mainly focus on chemical plant, machine and utility, and heavy industry. Introduction

Regional Distribution: BMW (Bayerische Motoren Worke) was found in 1916, Munich, the Interestingly, most of the German company was mainly manufacturing companies set up their headquarters airplane engine, now it became the in Shanghai, which occupied 36%, one of the most famous car 3% higher than Beijing. Most of its producers in the world, it sells operations are located in Beijing and vehicle to more than 120 countries. Shanghai. The cars of BMW symbolize 22

exclusivity and success, the Olympic Committees for the next two company continuously pursuit to Olympic Games including London fascinate design, performance and Olympic Games. Out of 50 gold technology. medal champions in China, more than a third of athletes have chosen Experience in China BMW as their primary drive since There is a old saying in China, “drive Beijing Olympic Games. This is all BMW and seat in Benz”, meaning because of the splendid driving that Chinese people perceive the scene and word of mouth passed by two companies as the best car the athlete cycle. The sponsor to the producers, and BMW provides top Olympic Committees enshrines the Maneuverability and driving company’s image by implying that experinence. The company came to “gold medal people with gold medal China in 1994, quickly it saw the car”, hence to improve its brand and huge potential in Chinese market, to increase its sales. but exporting was rarely to meet  “Yue” program dramatic increasing in demand, then it decided to have strategic BMW also initiated the “Yue” management alliance with Hua Chen program to improve its branding. As Car Holding ltd, and formed a new the Chinese character “Yue” joint venture company called Hua indicates “excitement”, “Yue” Chen BMW. program emphasizes on passion, dream and dynamic, and it is the Strategies in China extension of the brand. The program  Sponsorship linked “excitement” with high performance of the vehicle, therefore, Unlike most of the companies that to target young people very effective. only sponsor the people who have direct link with the company, BMW  Domestication announced to sponsor Chinese

Currently, more than 40% of Chinese limited edition new 7 Class components of Hua Chen BMW are vehicle to celebret the 60th Chinese made in China; the production in national anniversary , even most the China will not restrict on engine and board meeting is spoken in Chinese other key components in the near although most of board members are future. BMW is so sticky with the foreigners. By promoting the Chinese culture that it integrated Chinese culture, the company will Chinese element into the company, gain better insight about Chinese for example, the introduction of market

FRANCE

FDI Data:

2005 2006 2007 2008 2009 2010

USD (Million) 615 382.7 456 587.7 653.6 1,238.2

financial crisis, however, it has

droped to half of its previous level to almost $ 84,117 in 2010. One of the

most important reasons is domestic

economy in France- its GDP growth

rate was -2.6% in 2009 and slightly recovers to 1.4% in 2010. On the

other hand, gradually increasing investment amount to China and The French FDI to the world reaching more than 1.2 Billion USD, remained relatively constant during France has already set up many of it 2005 to 2007, since the recent Asia Pacific operation in Wuhan, a 24

city in south China, the city is now specifically, Purchasing Power Parity may regard as a French investment (PPP) per capita in China is growing base. In 2010, France was the top around 10% annually during 2005- FDI contributor to China among EU 2010 form $4,102 to $7,518, the 27 countries. number strongly indicates that the unbeatable grow of demand. Many Investment Characteristic and Strategy retail giants came a long way to China to feed their appetite, during, Besides manfacturing industy as a key in FDI, many French companies past 15 years; Carrefour has paid unprecedented attention to expanded to 130 stores in China central part of China, and they with annual sales of 42 billion RMB believe that this area contains the most valuable resources and most in 2010. The strategy is simple but potential growing market. In effective, quickly dominate the particular, the city of Wuhan already market share and surpass other been classified by many major French enterprises as their competitors before they came to headquarters in Asia pacific region. China.

Many French retail companies have noticed that the significant increases on spending of consumer goods,

Major Companies in China:

Company Region Industry Products

Peugeot Wuhan, Beijing, Automotive Motor vehicles Chengdu, Chongqing, Dalian, Guangzhou, Hangzhou, Qingdao, Shanghai,

Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen and Xi'an

Renault Beijing, Chengdu, Automotive Motor vehicles Chongqing, Dalian, Guangzhou, Hangzhou, Qingdao, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen and Xi'an

Areva Hainan Energy Nuclear energy.

Framatome Hainan, Guangdong Utilities, energy Electrical power, nuclear, solar power, offshore wind power, biomass power, hydrogen power storage and distribution

Gdf Suez Beijing, Shanghai Utilities, energy Natural gas, transportation, storing, distribution, consulting.

Edf Hainan Utilities, energy Electrical power, nuclear power, heat

energy, renewable energy, investment

Paribas Beijing, Shanghai, Finance Investment, Guangzhou, Tianjin, commercial, retail and Chengdu private banking, asset

management

Societe Generale Beijing, Shanghai, Finance Investment, Tianjin, Wuhan, commercial, retail and

Guangzhou private banking, asset management

Credit Agricole Shenzhen, Finance Commercial bank, Shanghai, asset management Guangzhou

Bnp Paribas Shanghai, Beijing, Finance Commercial, retail and Guangzhou private banking,

Cnp Assurances Beijing Finance Insurance

Axa Beijing, Shanghai, Finance Insurance, asset Guangzhou, management, Wuhan, Chengdu, investment Dalian

Legrand Shanghai, Wuxi Manufacturing Electricity switch, air switch

Nexans Guangzhou Manufacturing Cable manufacturing, undersea cable, public infrastructure.

Saint-Gobain Beijing, Shanghai, Manufacturing, Housing glass, car Guangzhou window shield glass, building materials

Schneider Beijing Manufacturing, Automation control, Electric eco-friendly power distribution,

products and consulting on life services space, efficient building design, renewable

energy, training, customers services, critical power & cooling

Alstom Beijing, Tianjin, Heavy industry Energy supply, Shanghai, Wuhan, transportation, industry Dalian, Guangzhou, equipment Xi'an, Chengdu manufacturing, ship building, nuclear

Thales Beijing, Shanghai Heavy industry Military equipment, aviation, it,

France Telecom Beijing, Shanghai, Telecommunicatio 3g, broadband internet Guangzhou ns services, it and network services

Alcatel-Lucent Beijing, Tianjin, Telecommunicatio Communication Shandong, ns systems

Shanghai and Jiangsu, Zhejiang, Fujian, Anhui Jiangxi Guangdong, Henan and Hunan Hubei, Liaoning and Heilongjiang, Chongqing, Chengdu Shaanxi and Yunnan

Sodexho Beijing Shanghai Consulting Consulting Tianjin Shenyang Dalian, Nanjing, Yangzhou, Hangzhou

Wuhan Guangzhou Shenzhen, Zhuhai

Air France Beijing, Shanghai, Transportation Transportation Guangzhou

Bax Global Beijing Shanghai Logistics ， Delivery freight Tianjin Shenyang transportation forwarding, third-party Dalian, Nanjing, logistics Yangzhou, Hangzhou Wuhan Guangzhou Shenzhen, Zhuhai

Auchan Shanghai, Beijing, Retail Retail chain Jiangsu, Zhejiang, Anhui, Sichuan

Carrefour Beijing, Chengdu, Retail, e-business, Supermarket Chongqing, Dalian, .hypermarket Guangzhou, Hangzhou, Qingdao, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen and Xi'an

Kingfisher Group Beijing, Shanghai, Retail Retail chain Shenzhen, (B&Q) Guangzhou

Decathlon Beijing, Shanghai Retail Retail

Danone Beijing, Shanghai, Consumer goods Food, drinks, dairy

Shenzhen, Guangzhou, Chengdu

Suez Group Zhuhai, Hong Kong, Water supply Water supply, water Macau purify

Industry:

Investment sectors Same way as other European countries invested in China, French Finance companies accounted for investment mainly spend on the largest proportions in types of manufacturing industry, especially French businesses in China, but the on textile, automotive, telephone or percentage is likely to decrease as communication device. The amount result of financial crisis, especially of investment in manufacturing Societe Generale, the recent debt industry exceeded 4.2 Billion USD crisis of this bank has made its credit during 2001 to 2010, 66.6% of total rating down from AA2 to AA3. The FDI. Furthermore, retail service is utilities and energy as well as retail the fastest growing sector among the section are both taken 14%. 30

services industry, taking 13.6% of largest amount of French investment, total FDI. approximately a third of total direct investment in China. Regional Distribution: Case Study:Danone French companies are mainly Business: Consumer Goods located in Beijing, Shanghai and Guangzhou, taking 51% of all History in First branch established locations of French companies in China: in 1988

China. Schneider Electric currently Size in 70 Factories employs more than 22,000 China: employees and it provided many Product Dairy, Drinks, Food major energy solutions that comply or with 12th 5 years plan to improve services: efficiency and low carbon emission in eastern China, and the company is planning to expand to central and Introduction western China. Danone was founded 1966 in Paris.

In term of investment amount, from With nearly 90,000 employees 2001 to 2010, Yangtze River Delta worldwide, the company is one of absorbed most of the investment the largest food and drink producers, capital, in particular, Shanghai ranking 338 among world top 500 19.6% and Jiangsu Province 19.3% businesses. The company of total FDI. Also in recent years, the distributes products to 120 countries. rate of Guang Dong provience Major product range includes dairy utilised french capital rapidly, products, biscuits, spring water and increased from 7 million USD in beer. However, the fortune did not 2001 to 536 million USD in 2010. last long in China, because the some Moreover, it is important to notice of the Danone’s strategies had been that the city of Wuhan absorbed investigated as unmoral and

unethical, soon the company lost its producers in South China during that reputation to the ground. time, as well as one of the largest driking water company - Robust ltd. Experience in China By acquiring and restructuring First came to China in 1980s, those firms, Danone not only gained Danone perceived that getting into substantial quick profit, but also Chinese Market is it’s the most successfully move on its first step to important global strategic occupy the whole Chinese food and management target, it has build drinks industry. nearly 70 factories in China. In 2006,  Strategic alliance the company moved its Asia Pacific Headquarter in Shanghai so that it The most important movement for can follow up with greatly increases Danone in China is to form strategic of Chinese demand on consumer alliance with Wahaha Group – goods. currently the largest drink producer in Asia, and with Guang Ming ltm Strategies in China and Meng Niu group, - the two top  Acquisition dairy producers in China. Strategic alliance allows Danone to expand its In 1996, many companies in China business empire and share all of the fall into to the edge of bankruptcy as goodwill from the existed brand result of tightening financial policy instead spend money to create a during that time. However, this could new one. The strategy worked really be the best time for Danone to well until 2006, unfortunately, explore the Chinese market with the Danone offered 5.6 Billion RMB to lowest possible acquiring price, acquire Wahaha because Danone Danone had acquired Xi Hu Beer- believe it was the right time to do so, one of the famous brewage but it failed and quickly ended companies, and Shen Zhen Yi Li strategic alliance with Wahaha, the food group-one of the largest food

failure of buyout made Danone was first and only vitamin drink in suffered from lost its entire public China at that time. Mizone contains image, due to the acquisition was vitamin nutrition in the water, which considered as unmoral and unethical. exactly meets the need of many Soon or latter, Guang Ming Ltd and young people who want to Meng Niu group also terminated reenergized themselves after sports. their cooperation with Danone. Also Mizone drinks have variety of tastes including cherry, orange, and  Product innovation lichee tastes that many children and Quickly embraced young people’s adults prefer. Danone launched this demand, one of Danone’s subsidury product as the best move to target company Robust designed a new new market and soon dominate the product Mizone vitamin drink, which vitamin drinks market.

SPAIN

FDI Data:

2005 2006 2007 2008 2009 2010

USD (Million) 196.9 235.1 213.2 208.9 302.8 254.5

The amount of Spain FDI outflow largely decreased from 104 Billion USD in 2006 to about 9 Billion USD in 2009, then slightly recovered to 22 Billion USD in 2010, the down flow results of worsening economic condition in Spain. However, the

FDI to China showed opposite trend, 5% from its peak in 2008 to 2009. it maintained at approximately 2.1 However, while the Euro-zone has Billion USD each year until 2008, embarked on a solid recovery path then hit more than 3 Billion USD in since the middle of 2009, the 2009, lower to 2.5 Billion USD. This Spanish economy has only managed fact is caused by the deteriorated stabilization. Leading to a question debt crisis in EU and especially in of whether the Spanish government Spain, many Spanish companies can repay its debt. Spain with a good may shifted their investment starting position for the public sector, originally from domestic as well as but large debt for the private sector Europe to China. and a challenged banking system, make the country to suffer a public Investment Characteristic and debt nearly 90% of GDP. Strategy Consequently, without support of The internal economic condition has domestic economy in Spain, it is a significant impact on FDI. Like all hardly to see any Improvement in Euro-zone economies, Spain FDI outflow to China. underwent a brutal recession following the collapse of Lehman Brothers: GDP declined by almost

Major companies in China:

Company Region Industry Products

Santander Central Beijing Finance Commercial bank Hispano

Bbva Beijing Finance Commercial bank,

Bancsabadell Beijing Finance Commercial bank

Santander Group Beijing Finance Commercial bank

Boxinves Tianjin Finance Investment, consulting

Bancaja Shanghai Finance Commercial bank

Excem Group Beijing Finance Investment, trading, and consulting

Gamesa Tianjin Energy, electricity Wind power, electricity utility

Actividades De Beijing Architecture, Architecture, building Construcciones investment design, stock holding Servicios

Spanair S.A Beijing,Shangh Transportation Aviation ai

Atera Beijing Heavy industry Machine utility, industry plant

Ayecue Shandong Consumer goods Can food

Colacao Tianjin Consumer goods Powder for drinking

Panrico Beijing Consumer goods Food

Fesca Beijing Consumer goods Daily clothing, working clothing, protective

clothing,

Inditex-ZARA Beijing, Consumer goods Clothing, Fashion Shanghai, Accessories Guangzhou, Shenzhen, Tianjin, Xi'an, Hangzhou, Nanjing, Qingdao, Suzhou, Zhuhai, Chongqing, Ningbo

Azud Hebei Agriculture Irrigation system

Eurosemillas Beijing Agricultural Seed, plant, genetically modified foods

Telstar Group Beijing Utility Machine, industry equipment, lathe

Ceramica Saloni, Shanghai Manufacturing Ceramics S.A

Danobat Group Beijing Manufacturing, Machine manufacture, utility industry equipment, lathe

Emex S.A Beijing Manufacturing, Machine manufacture, utility industry equipment, lathe

Internacional Tianjin Automotive ， Motor vehicles, car air Hispacold manufacturing conditioning

Mcc Shanghai Conglomerate International trade, finance, manufacturing product, consumer product, industry plant

Telefonica Beijing Telecommunication 3g, net work s

Industry:

Investment sectors Manufacturing, Utility, which are covering 21% and 17% respectively. Most of the FDI to China from Spain Spanish green energy and utility is in relatively small amount giant Gamesa recently announced compared with many euro zone that the company will spend 130 countries. Finance is taking the Million Euro in China for next three largest proportion of 30%, in fact, the years to generate electricity from investment scale is quite small as wind power and the company many financial intermediaries only believes China has the largest provided very limited services. potential green energy market. Followed by Consumer Goods and 37

Regional Distribution: currently gains 35% of medium to high end market share and ranks top Many Spanish companies only set 100 famous brands. one branches in China, thus in the capital, roughly taking 43% of the Experience in China total locations in China, whereas ZARA first came to China in 2006 Shanghai and Tianjin both take up and it quickly stand on the market as 13% and 11%, it is very unlikely to a top lead foreign clothing retailer. see any Spanish companies in third Within in only a few years, ZARA tire cities. opened 75 stores in Chinese major Case Study: ZARA cities; most of its stores are located

Business: Consumer Goods in CBD or downtown area next to LV, Gucci and other famous brands, the History in First Store opened in prices, however, are quite low. China: 2006 ZARA targets very effective at young Size in 75 stores people who love fashion but not China: willing to pay more. Product or Clothing and Fashion services: Accessories Strategies in China

 OEM

Introduction Although ZARA has some its own factories, most of its cloths are ZARA is subsidiary company of manufactured through OEM, Inditex Group, which is world additionally, ZARA holds share of number three clothing retailer, the OEM suppliers in order to distributing fashion products to 52 improve the design and quality of countries. ZARA, located in cloth and to foster the efficiency of Deportivo, Spain and it has 2,000 the production line, ZARA often shits stores with average annually sale of OEM business really fast to follow up 90 million cloths wordwide. ZARA 38

with the changing fashion trend and system. As a result, ZARA become to reduce cost. Most of OEM even more aggressive to expand. factories in China are in Fujian,  Unbeatable design team Zhejiang and Jiangsu province. 400 designers flying all over the  Unique supply chain model world to attend each fashion show, Usually, clothing companies need at ZARA hire them not because they least 6 months to produce to the final are very experienced and spend products. Surprisingly, all of the decades in this industry, in fact, the ZARA products can be done, from average age of the design team is absolutely nothing, then pick the 25 years old, and many of them are materials, and then design and fresh graduates, because ZARA produce to the final products, often believes the new and fast is the goal. around 12 days, (7 days to The work is very tough for the design maximum of two weeks); Most of its team as they need to design products can ship to anywhere in 120,000 different styles of cloths Europe within 2 days, and 4 days to every year. Of course, the lawsuit rest of world. This strategy is so cost millions of Euro every year sued amazing that no any other by its competitors, which saying that businesses can compete with, even the product of ZARA similar to their if other competitors know how ZARA products and poentially breached the works but they still cannot simply by property right. However, the lawsuit copy it because they don’t have cost of pocket changes is nothing for sufficient amount of capital to ZARA, and the company still restructure their production line and encourage the design team to make to develop the similar distribution the most of they can.

ITALY

FDI Data:

2005 2006 2007 2008 2009 2010

USD (Million) 322 344.9 347.9 493.2 351.6 396.1

Outward FDI in Italy performance is

quite modest compared with that of most other EU countries. Several

structural characteristics of the

Italian companies that invested in China, includes the low number of large firms, specialization in

“traditional”, low- and medium- Italian total FDI to the world also technology manufacturing industries experienced a huge declined, down and the almost negligible activity in from 90 Billion USD in 2007 to only advanced service sectors. In 21 Billion in 2010, which caused by subsequent years, the decline in EU debt crisis . However, investment cross-border M&As of large Italian to China did change much, generally companies was counterbalanced by increasing from 322 Million USD to increasing outward investment by 396 Million USD during 2005 to 2010. small and medium-sized enterprises (SMEs). Most of its FDI is invested Investment Characteristic and within Europe, only 0.2% of total FDI Strategy allocated to China.

Major companies in China:

Company Region Industry Products

Eni Beijing, Energy Oil Shanghai, Shenzhen

Enel Beijing, Hubei Energy, utility Electricity power, eco company,utility

Banca Di Roma Beijing, Finance Commercial bank Shanghai,

Banca Intesa Beijing, Finance Commercial bank, Shanghai, investment

Banca Monte Dei Beijing, Finance Commercial bank Paschi Di Siena Shanghai, S.P.A Guangzhou

Assicurazioni Beijing, Finance Insurance, asset Generali Guangzhou management

Banca Nazionale Beijing, Finance Commercial bank Del Lavoro S.P.A. Shanghai,

Sanpaolo Imi Beijing, Finance Commercial bank

Unicredito Italiano Beijing, Finance Asset management, investment, commercial bank

Telecom Italia Beijing, Telecommunications, Internet services, IT manufacturing and network services, computer appliance, mobile phone

Italtel S.P.A Beijing, Telecommunications, Communication, software, IT, consulting

Alitalia - Linee Beijing, Transportation Aviation Aeree Italiane Shanghai, Guangzhou

Fiat Nanjing, Automotive Motor vehicles Guangzhou, Hunan

Pirelli & C. Spa Beijing, Tianjin, Automotive Tyre Shandong

I.De.A. Institute Shanghai, Automotive， Automotive design,

Architecture Architecture, robot technology

Cobra Automotive Beijing, Automotive Car electronic systems Technologies

Logosystem Beijing, Automotive Large truck, gps system

Donelli Vini S.P.A. Beijing, Consumer goods Wine， drinks Shanghai,

Parmalat Beijing, Tianjin Consumer goods Milk, yoghourt, food

Itema Group Beijing, Consumer goods Fashion, clothing, texitile

Giorgio Armani Beijing, Luxury goods, Luxury goods, Shanghai, Consumer goods Hangzhou, Suzhou, Shenzhen,

Kunming, Qingdao, Wuhan, Guangzhou, Dalian

IMMERGAS Beijing, Utility equipment Boilers, solar system,

storage tanks, radiators

Danieli Beijing, Heavy industry Steel Metallurgical Equipment

Gold Bond Beijing, Consulting Fashion products Enterprises consulting

Iguzzini Beijing, Manufacturing Litght bulb, lithting Illuminazione system, led

Industry:

Investment sectors Case Study: Pirelli

28% of Italian companies are in Business: tyre financial industry, but services History in First came into China provided in China are limited China: in 2005 compared with UK and France, Size in 2 operation base generally no retail financial services China: for individual customers, the sector Product or Tyre then follow by Automotive services: companies of 20%, Italy is the most famous country to produce luxury and sportive cars, but the amount of Introduction: spending is not significant as Pirelli & C. SpA is a diverse German companies do. Noticeable multinational company based in that, although Heavy industry and Milan, Italy. The company, the Utility only take 4% each on number world’s fifth largest tyre of Italy companies in China, it is manufacturer, is present in over 160 more than 70% of the spending countries, has 20 manufacturing amount. sites around the world and a network Regional Distribution: of around 10,000 distributors and

Most of headquarters of the Italian retailers. companies are located in the first tier Founded 1872in Milan , Pirelli is cities, Beijing is the first priority, today the fifth operator in the world dominating 48%, follow by Shanghai, in the producing tyres in terms of taking 19%, few of them invest in sales, and it is a leader in the other cities. But many manufacture “Premium” quality with a high level of plants are located in Jing Su technological content province where more efficient labor and raw material are of abundance.

Experience in China joined together and would point to a

In 2005, Pirelli established its first new star. Not only assisting Pirelli to factory in Shandong province, China, develop in China, but also a strategic indicating that Pirelli officially open goal to develop the whole market in the “door” of China. Now it has two Asia. production lines in the country  Sports perspectives located in Yanzhou and Shandong to Operating 24 factories globally, produce tyre for truck and car. The supplying products to more than 160 brand of Pirelli in China is very countries and managing more than popular as the company has been 10,000 retail stores, is not a surprise, undertaking many effective market Pirelli needs a reason to sustain its promotions. operation. In China, although it built Strategies in China: its factory in Shandong, the brand

 Joint venture with Chinese was still not being recognized at the company beginning. However, it has became

Coming a long way from Italy to popular since the company China was not easy, the best way to sponsored the International Milano in minimum the uncertainty is to form a Europe Cup football championship, Joint venture with the company that because so many Chinese football is an expert in the Chinese market fans watched the game regularly. In and rich in experience, thus, Pirelli order to further expand the market in chose Lu Tong tyre manufacturing China, the Company not only printed company - subsidiary of Yin He its Chinese name in Milano team’s Group - because Lu Tong was newly uniform, but also became the title founded so that it needed to rely on sponsor for CHINA FOOTBALL Pirelli’s technology and management ASSOCIATION SUPER LEAGUE. experience, and also because Lu This tactic is so explosive that the tong has good potential and great branding effect went up as skyrocket ambitions. The two companies and became one of the most 45

prestige tyre companies in China. the production base in Asia-Pacific Besides football games, today, Pirelli region. Currently, the factory can sponsored Motor race, Formula 1, produce 5 million car tyres and 1.2 World Rally Championship and million truck tyres. Once the upgrade others . finalize by the year 2012, the capacity is expected to double and  Upgrading production line also to produce 1 million more Pirelli is upgrading its factory in motorcycle tyres. 60% of the tyre will Shandong to make a largest factory be delivered to Asia pacific region in the world. The new factory will be and 40% ship to America.

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