Family Business

Family business is significant. In respect of family business in the ME, in 2002, 80% corporations are controlled by one family. Meanwhile, In 2008 family business contribute wealth takes account 31% among GDP in the UK and It offers 9.5 million jobs for people. In addition, in the top 500 firms, family business takes account for 35% and provides 50% jobs. Thus family business influences our society deeply, and we should pay more attention to family business. According to Reginald (1995), the manager who is a member of family will pay more attention to their company than professional managers and they focus on long-term development of company. However, family business faces many problems. One of major problems is how to financing about family business. In unlisted family business, they are closed external environments and keep mystical. Thus it leads that investors cannot get information and do not invest them. Therefore family business often obtains money from relatives and bank. it leads that family business cannot obtain a large number of money to expanse business. In listed family business, the managers who are the member of family pay more attention to their own needs rather than investors. This leads to investors not trusting the family business with their wealth. Thus family firms grow slowly.

Another major problem of family business is inheritance. When the person who create firm become old, which one will inherit the firm? He has more than one child. He chooses the inheritors depending on age? Intelligence? In addition, he may choose one to inherit and manage the firm, but his other children may not obey and fight with their brother or sister. It is a disaster for a firm. However in the real world it often appears. For example, in Samsung Group, the chairman is Lee Kun-hee who is the youngest one among his brothers and sisters. In 2012 he is charged by his brothers and sisters. They assert that Lee Kun-hee hides their father’s wealth and required Lee Kun-hee return the wealth. Finally Lee Kun-hee obtains successful for the charge and keeps his position in Samsung Group. However, this news will influence Samsung Group negatively. Lee Kun-hee had to pay more attention to charge. It leads that he cannot devote himself to manage group. This leads other shareholders’ wealth is damaged. In addition, It is harmful for the group’s image. 

Credit Crunch

Credit Crunch is defined as a serious shortage of money. it shows that lending institution credit money to high risk people and institutions, and at that time real estate market is slump and the price start to decrease. In 2008 credit crunch started French bank Paribas. Then it liked domino effect. Credit crunch spread to the whole world. In US, the biggest companies called Freddie and Fannie Mac were takeover by US government. In addition, Lehman Brothers and Morgan Stanley also faced risk of bankrupt. In European so many countries’ bank suffered same situations.Meanwhile, the companies are difficult to finance and survive in this situation.

The Fed pumped money into the US economy and slashed its main interest rate which the Federal Funds rate decrease from 3.5% in August 2001 to a mere 1% by mid-2003. The Fed held this rate too low for too long. The Credit Crunch was exploded under this policy. The US sub-Prime mortgage market is one of the reason causing Credit Crunch. In US many America consumers having lower salary have to sold their owning property. This was because the banks were lending at a cheap rate. And this led people were willing to accept mortgage. With the increase of leading amount, the banks make the debt turn into the form of a CDO (Collateralised Debt Obligation). This led this situation-if the morgages were pooled together, this was a risky investment; however, if the morgages was the repayment pooled together, this was less risky. These behaviours attract to investors to invest this market.

However, when people could not pay their mortgage, the problems increased. Other banks/lenders did not cooperate with them since they can nor sure if they re-mixed again because of lack of transparency of the market. This made a lowest levels of interbank lending.

Mergers & Acquisitions

Merger means the combining of two business entities under common ownership. And most commentators use merger and acquisition and takeover interchangeable. According to economic or strategic definitions of mergers, it can be divided into three categories: horizontal, vertical and conglomerate. Merger motives include synergy, bargain buying, managerial motives and third party motives.

HONG KONG, Feb 5, SABMiller, which is the world’s second–biggest brewer, purchase Kingway Brewery assets for 5.38 billion yuan. SABMiller will control seven breweries of Kingway with this acquisition. Four are in Guangdong province which is one of fast growing and most affluent regions in China. The other breweries are in Sichuan, Shanxi and Tianjin. Kingway said in 2012 it decided to dell brewing operations since its profit was being hit by competition and rising costs. In 2012, Beijing Yanjing which is the fourth-largest domestic brewer in China want to acquired Kingway, however, in final round of bidding, it failed. In 2013, J.P Morgan acted as financial adviser to SABMiller. As a result of this deal, Kingway share price in HONGKONG stock market increased almost 20% (Hongkong stock market, 2013), meanwhile, SABMiller shares grew up 0.9 %. (These source from Yahoo Finance, 2013)

In the case, I think it is a suitable time for SABMiller to acquire Kingway by a lower price. According to statement above, Kingway faces a decrease of profit and in the first acquisition with Beijing Yanjing, it failed. These negatively influenced the price of acquisition of Kingway. In the respect of result, the target company, Kingway, shares increase 20%. The bidder, SABMiller, shares increased 0.6%. In the long term, personally I am optimistic for the horizontal M&A. Kingway is the most popular brand in Guangdong province and Sichuan, Shanxi and Tianjin. SABMiller also controls CR Snow which owns best sales of beer in China. Thus larger size between Kingway and SABMiller will create economic of scale in term of research and development, as well as purchasing. Meanwhile ‘the acquisition of Kingway asset gives us greater access to high growth and attractive regional markets in China, thereby enhancing CR Snow’s competitive position.’ SAB Asia Pacific managing director Ari Mervis Said. It increases SAB market share and competition in developing Chinese beer industry. In addition, Kingway can learn high level of management skills and marketing skills from multinational company, SAB. In this way it can increase its competition. Furthermore, SAB have experience about acquisition with Chinese company. It will decrease risk of conflict of culture and it is benefit for integration. These factors above will create strong synergy effect.

Foreign Direct Investment

This week’s content is about foreign direct investment. foreign direct investment is the purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control. It includes greenfield investment and international Merger and Acquired Activity. FDI can bring a lot of benefit for host country which includes obtaining overseas resources, drive economic growth, increase local capital markets. However, it also has some costs such as environmental damage, human rights implication. There are some reasons to explain why transnational enterprises such as transportation costs, impediments to exporting.

According to Financial Times (2013), in 2012 FDI in china decrease and it is the sharp decrease after European debt crisis. On one hand, it is influenced by European debt crisis. On other hand, it is because Chinese labour cost keeps increasing during these years. In some province the labour cost increases by 40% each year. Meanwhile because of one-child policy, a number of labour costs will reach peak in 2-3 years. Furthermore, India, Vietnam and Brazil become popular in FDI.

In the news, obviously, multinational companies choose china because Chinese had low labour cost in past years. Meanwhile, I think multinational firms also choose china as host countries because Chinese market is large. According to Financial times (2012), Chinese is second largest economic entity in the world. It means Chinese itself has large demand for products. Thus multinational firms invest directly in china can decrease their transportation cost and seize this market. Thus these are why Chinese can attract to FDI in past years although it became decrease in 2012.

According to the news, India, Vietnam and Brazil become popular for multinational firms to invest. Obviously, it is because these countries have low labour cost. However, these countries’ infrastructure is backward. Thus these will increase the firm’ cost. In addition, in Vietnam the policy of the country is freer than China. The labour in the country may strike to require increasing their salary. (Financial Times, 2012) Therefore multinational firms have to face these problems.

In respect of host country, obviously, FDI made a large contribution for Chinese economic development. FDI brought the skills for manufacturer, capital, management skills and employment effect to china. These drive to Chinese economic development. However, FDI also brought negative influence on China such as environmental problems and human rights. One of famous news is Apple manufacturer in China. It damages the human right on Chinese labour and also blame Apple’s reputation in the world.