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Chinese Multinationals become more diverse

March 27, 2016


In the recent wave of Chinese overseas investment, the patterns are becoming more diverse along many dimensions, including the types of firms investing overseas, the sectors of investment and the types of projects they undertake. In two blogs, I identify some of the emergent trends:

  • Private Equity Helps Chinese MNEs Beat a Path to Europe (Forbes, March 25, 2016) identifies private equity funds as a key intermediary facilitating major Chinese acquisitions in Europe. Specifically, I observe a good fit between the demand for acquisition targets from Chinese firms, and the firms offered for sale by private equity investors. Moreover, I illustrate the typical pattern over time for the successful case of Kiekert, the German automotive supplier providing locking systems for cars.

  • Aggressive acquisition: The Next Stage of Globalization for Chinese Companies? (Economist Intelligence Unit, March 24, 2016) identifies five recent trends in terms of target industries, and their variations across Europe. For example, technology seeking investment focuses on machinery, automotive and green technologies, and is geographically concentrated between Southern Germany and Northern Italy.

In addition, I shared my views on these questions with a regional newspaper in Germany, which was interested in Chinese multinationals after two acquisitions - Schimmel and EEW - in the local area. For a change, the Braunschweiger Zeitung actually printed the entire interview (in German) rather than just a single sentence. 



A Wave of Chinese Acquisitions in Europe

February 12, 2016


In early 2016, a wave of Chinese acquisitions is taking place in Europe. I have been following this development and commenting on it in several blogs:

In addition, several journalists asked for my analysis or opinion on Chinese multinationals, some of whom quoted my views, including The Economist (January 15, 2016) and Wall Street Journal (January 15, 2016)  and well as German-language newspapers like Frankfurter Rundschau, Wiener Zeitung, Weserkurier and Badische Zeitung.




FORBES Blogs on Competition in Emerging Economies, and Outward Investment

June 17, 2015


Unfortunately, I have not been able to blog as frequently as I would like to due to various work obligations. I have not yet given up that one day I may revive the good tradition. In the meantime, you may want to check out a few blogs that I have written for the FORBES website:





A Lesson from Essen: How NOT to manage your finances internationally

January 19, 2015

The recent turbulences in currency markets, and the Swiss Franc markets in particular, remind us of some very basic lessons about international finance. Sadly, many smart advisers offer complex products that seem to lower our costs, or increase our interest earning. Yet they don't. Local governments in German and Austria learned this the painful way.

In the early 2000s, interest rates in Swiss francs were almost two percentage points lower than for euros. So, treasures of several German cities had the smart idea of issuing bonds in francs. For a while they smiled while paying lower interest rates than neighbouring towns.

Yet, then the financial crisis hit, and the euro weakened relative to the franc, the exchange rate dropped from 1.60 FR/€ in 2005 until the Swiss National Bank stabilized the rate in 2011 euro to 1.20 FR/€. Analyzing the situation in September 2014, city treasures acknowledged their loss – which so far was only on the books. The big bill would come when the bonds were due –a 1 million franc bond raised about €625,000 (=1/1.60) in 2005, yet on due day the repayment would be €833,000 if the exchange rate remained at 1.20 FR/€. If you add that up to outstanding bonds of 450 million francs as in the case of Essen, that adds to a lot of money. The 1 or 2 percentage points saved every year in interest covered only a small part of those losses.

However, things turned a lot worse. After months of speculation and increasing capital inflows to Switzerland, in January 2015 the Swiss National Bank stopped its currency market interventions. The Swiss franc again became free floating, and jumped to a new price of 1.02 FR/€. The city of Essen alone lost about €70 million that day, together municipalities in North Rhine Westphalia may have lost as much as €900 million. Meanwhile, the Austrian capital city of Vienna saw its debt soar by about €300 million.

Why did the promising financing opportunity turn saw badly wrong? The city treasurers appear to have ignored some basic rules of international finance:

  • Rule 1: If it looks too good to be true, it is probably not true! Specifically, there are likely to be risks hidden that are not immediately obvious to the lay person.

  • Rule 2: Match  the currencies of your revenues and costs! Specifically, if your expected revenues are mostly in euro (as is the case for local councils), you should also raise fund in euros!

Sources: (1) M. Kohlstadt, 2014, Revier-Städte verzocken Millionen mit Schweizer Krediten, Westdeutsche Allgemeine Zeitung, September 15; (2) M. Schymiczek, 2015, Kursbeben in der Schweiz verschärft Finanzkrise in Essen, Westdeutsche Allgemeine Zeitung, January 16; (3) T. Döring, 2015, Deutsche Kommunen in der Franken-Falle, Handelsblatt, January 16; (4) Wirtschaftsblatt, 2015, Franken-Kredite in Österreich, January 16.



Chinese Crowds, Stampede in Shanghai

January 1, 2015.


Three years ago, on New Years eve, I was on the Bund and experienced the atmosphere of Shanghai getting read for the New Year light display. In view of the sad news that we woke up to this morning, I want to share a few impressions to put this in to context.


I was near the place where the stampede happened last night, but I left the area around 10 pm because I did not feel comfortable with the density of people in the central part of the Bund (i.e. the historical riverfront of Shanghai). The crowds seemed to be well managed in the sense that there was a strong police presence; they blocked off many roads and even the nearest metro station (Nanjing East Road) was closed. In this way, they allowed people walk only in certain directions - and only those willing to walk long distances would even make it to the Bund. People were generally also well behaved in the sense that there wasn't much shuffling and pushing, and not much alcohol, compared to similar events in London or Berlin. Yet still, in some areas, one could only move where the crowds pushed.


Generally speaking, the Chinese authorities are good at managing large crowds. Individualistic Europeans or Americans are often irritated by constraints on where they may or may not go. Or, as journalists, they attribute the presence of policemen to some political motives. The truth is that China has a lot of people. There are 24 million people living in Shanghai, and they are joined by tourists from all over China during the holidays. And, the place to be, the place with the best views, is the Bund. If so many people rush into one place, crowd management becomes a real challenge - a freak incident or a panic can cause people to rush in some direction, one person trips and then a disaster happens. For all their experience in crowd management, yesterday the Shanghai authorities failed. Expect a few resignations in the next days, replaced by the new leadership's loyal supporters. 


Everyone knows that China is a big country, but unless you see it with your own eyes, it is hard to appreciate what that really implies.




Chinese Multinationals: Rapid Learning Curves

February 14, 2014


A public lecture that I gave in Vancouver is now online at Simon Fraser University. In this lecture, I make three arguments on Chinese multinational enterprises:

  • Chinese MNEs typically are at an early stage of their learning processes on international business, but they design strategies to learn, and some are on steep learning curves.
  • Chinese MNEs unusually often use “strategic asset seeking acquisitions” to strengthen their global competence base, but many still have to work out how to make use of the acquired assets.
  • State-owned Chinese MNEs benefit from conditional preferential resource access, which however creates institutional constraints both at home and abroad.

You can download the entire video from the website of Simon Fraser University, but note that the file is quite large and it hence it may take some time.



Chinese Stumble in Africa

February 3, 2014


Based on my experiences and communications when teaching an EMBA class in Africa I have written a column for the Financial Times, which is available here.


These essence of my commentary is that Chinese investment in Africa holds great potential for both China and Africa. However, not only do both parties still have to design contracts in ways that are mutually beneficial, but they have to learn more about each other’s culture to enhance interpersonal understanding in order to turn the recent wave of investment into a success.


While Europeans and Africans certainly also have to deal with a lot of historical legacies and prejudices, it has been my general impression from people I met that they found the relationships with the Chinese even more difficult to handle. Let me illustrate this by examples that have been cut out of the FT piece due to space constraints. I was told of an India telecom operator outsourcing some activities to a Chinese supplier, only to have staff resigning en mass because they did not want to work for a Chinese company. In another example, customers of a Chinese-owned hotel report that relationships between Ghanaian staff and Chinese managers were so bad that is seriously affected service for their event, and hence the (corporate) customer decided not to use that hotel again. Notwithstanding liabilities of Colonial history and associated resentments, Africans seem to prefer the work environment of a European or American company.


Such differences arise from inexperience: for many Chinese expats, their job in Africa is the first experience immersed in a foreign culture. European companies often have expats with at least some cultural sensitivity earned on earlier assignments. The shortage of internationally experienced managers is a pivotal weakness for Chinese companies as they start expanding abroad. As Chinese companies globalize, they can be expected to gradually build experience in managing international operations, and develop leaders that can engage effectively across cultural boundaries. However, at this stage, Africa-China relations are still at an early stage and both sides still have a lot to learn about each other to be able to negotiate contracts that are mutually beneficial, and to work together harmoniously.


There are however positive stories suggesting that such learning is taking place. At the University of Ghana 300 students enrolling to learn Chinese. And in Tanzania, a source told of Chinese expats being more popular than Europeans because they spend more time with their staff, whereas Europeans often send fly-in fly-out managers that spend little time with local communities. Hence, the picture isn't just black and white, and people from all parts of the world are taking initiatives better understand others' cultures. 



Chinese Unity meets European Fragmentation

January 13, 2014


Do you know the anthem of the European Union? Most European can sing - or at least to hum along - their national anthem, but few know the what the European anthem is. I actually hear it rather often, at our place all major ceremonies - such as graduations - start with "we now listen to the Chinese National Anthem and the Anthem of the European Union". That's because we are a joint-venture business school owned by Chinese and European institutions.


Hearing these anthems together always reminds me how different these two grand old civilizations of the world are acting on today's global stage. While for most parts China is speaking with one voice on the international stage, Europe offers a cacophony of voices as every prime minister thinks they should play global politics - and as leaders of the EU, these esteemed politicians have chosen individuals whose main qualification appears to be their promise to let the national leaders do as they like. It is not be chance that national leaders want the EU to be weak as it makes the national leaders feel powerful, and allows to use the EU as a scapegoat for all that goes wrong.


Looking at Europe from my vantage point in Shanghai, it is a sad comedy. While the national identities are important, they become a liability when communicating with other civilizations. For China, the appropriate partner to negotiate big issues such as trade and investment treaties with should solely be at the European level. Each time a prime minister - or for that matter a diplomat - representing one of Europe nation comes to negotiate with the Chinese leaders, it is the Chinese side that has the better cards. They can play one country against the other against the other, and so get the most favorable deal for their investments (trade is formally responsibility of the EU, but national leaders like David Cameron making promises on visit to China is weakening the European position in such agreements). Sad as it is for many in Europe, unless Europe learns to speak with one voice, it risks becoming marginalized



Chinese MNEs learn to manage acquisitions overseas.

January 5, 2014


The Wall Street Journal's Hong Kong office asked my opinion on how Chinese companies are enhancing their operations abroad. Their video is available here.



Why is it so tough to study Strategy?

January 4, 2014


Strategy teachers often face a big frustration if after all the efforts and work, students are still unhappy citing the lack of clear tools and vague decision criteria as evidence that the course was no good. The obvious answer that keeps falling on deaf ears, usually delivered in session 1, is that the real world is complex and uncertain, and designing strategy requires making decisions under uncertainty with respect to key variables (for example competitors reaction).


I was pleased to learn that this is not just the problem me and my friends, but it even befalls the most esteemed strategy professors-and-consultants. Dick Rumelt spells out the challenge in the words of a senior executive course participant: “This strategy staff is nonsense. Give me a break! There is no clear theory. Look, what we need is a way of knowing what will happen if we do A, versus what will happen when we do B. Then we can work out what will be the best strategy. We are actually very good at planning here. You can’t build a major aerospace system without meticulous planning. But this strategy staff seem vacuous.” [Rumelt, 2011, Good Strategy - Bad Strategy, page 242].


Rumelt suggests responding to this challenge, which often comes from engineers, by comparing strategy in business to a hypothesis in science. Essentially, scientists design hypotheses based on their incomplete knowledge of a field, which they then test empirically through experiments. In a similar, a business strategists has to spell out his ideas in form of a strategy - the difference though is that you will only know if your strategy works after you tried it out in practice. And if your competitors were smarter than you anticipated, even a good strategy may not deliver eternal profits. The problem in the class room is that you can't experiment; you have to convince with the power of your ideas, and your arguments.






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Note: C-numbers link to chapters in: M.W. Peng & K.E. Meyer, 2011 International Business, London: Cengage.



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