For the past few years, Chinese investors have been on a German shopping spree. Chinese spending on German firms more than quadrupled between 2008 and 2011, cracking the billion-euro mark in 2011, the latest German government figures show. The hottest properties are Mittelstand companies—smallish, private, family-owned and operated. Mittelstand firms typically specialize in low-key, unglamorous markets, and draw on the high skill level of the German workforce. They are at the top of myriad engineering and technology micro-markets, such as manufacturing the metal carriage that holds champagne corks in place or the machine that makes the scooper for Italian gelato.
Consider Putzmeister, a cement-pump maker in southern Germany, that was purchased last year by China’s Sany Group, one of the world’s largest heavy-equipment manufacturers. At the time, the $450-million takeover was the largest ever between the two countries. In the ensuing year, CEO Norbert Scheich says revenue has jumped 20%. For Scheich, being controlled by China’s Sany is like a debutante marrying well in the days of old.
“The world’s market leader [in cement pumps] outside of China—Putzmeister—is together now with the market leader in China,” Scheich says.
Mittelstand firms offer a number of selling points. They allow China to acquire business and technical know-how along with much-sought-after patents. German companies have also become synonymous with top-quality products.
“Quality and ‘Made In Germany’ brands are preferred takeover targets for Chinese companies,” a recent study by the Munich University of Technology reports. “And, in certain industries, increasing China’s level of innovation plays…an important role, too.”
Many of China’s recent German acquisitions have been in the industries of the future, such as electronics and renewable energy. Engineering firms, a traditional German strength, have also topped the shopping lists of Chinese investors.
For now, there is little sign that torrent of takeovers is tapering off. And Germany’s strong performance in a weak European market has made its small and medium-sized enterprises even more attractive to Chinese buyers, analysts say.
“I think [they] are trying to get a strategic stake in the strongest economy in the eurozone,” says Carsten Brzseski, chief economist at Dutch financial giant ING.
With mergers comes co-operation, and with co-operation comes technology transfer. Some worry over an uneven business relationship, one in which Berlin gives and Beijing gains. The German government contends Chinese takeovers typically deliver more advantages for German SMEs than disadvantages. After all, the new acquisitions are uniquely placed to take advantage of China’s rapidly growing market.
But cultural gulfs between German and Chinese companies remain. Surveys have found the Chinese regard German Mittelstand firms’ behaviour as arrogant and unresponsive to customer desires. Meanwhile, bewildered German executives have been snapping up “how-to” books on Chinese networking culture, which they often perceive as nepotistic and impenetrable.
Still, despite all the swooning, Germany and China have been brought together by money—not love. Emerging China needs German know-how. Germany, whose European markets are anemic, is desperate for Chinese cash.
“We view these investments very positively because they create jobs in Germany,” said a senior German official in relation to recent Chinese takeovers. “As long as they play by the rules.”