Great continental shift

European investor sets up joint ventures between portfolio companies and Chinese firms

Faced with the realization that the European economy is undergoing transition, an investment company is forging diverse collaboration agreements with partners in China.

"China is going to be absolutely essential for the development of our portfolio companies in East Asia, and also essential for us, as long-term investors," says Virginie Morgon, deputy CEO of Eurazeo, a French investment company.

With nearly 5 billion euros in its assets portfolio, the 130-year-old company is a majority or key shareholder in a number of major companies, such as European car rental group Europcar, one of the world's leading hotel operators Accor, and the Spanish fashion brand Desigual.

In 2013, after a history of Eurocentric investments, Eurazeo decided on Shanghai for its first office in China. It then immediately began working on making its presence felt in the second-largest economy in the world.

"We felt that in order to fast-track the development of our companies we needed to be present locally, have access to people, companies and politicians in China," Morgon says.

After establishing the Shanghai office, Morgon began meeting Chinese CEOs and authorities with the aim of creating common ground for setting up partnerships and joint ventures between Chinese firms and Eurazeo's portfolio companies.

"We are seeing evidence of how our portfolio companies can pursue their transformation by forging in-depth collaboration agreements with local Chinese partners," said Eurazeo CEO Patrick Sayer in October.

One of Eurazeo's success stories because of its heavy engagement with China has been the Italian luxury brand Moncler.

While China's luxury goods market, sales of watches and men's clothing dropped significantly last year mostly because of Beijing's anti-corruption drive, last year was a good one for Moncler. The Italian maker of high-end outerwear recorded double-digit growth in all of its international markets in the first nine months of the year, including China. It has nearly 30 directly operated stores in the country.

"We started in Beijing and Shanghai, but we are now also in Chengdu, Shenzhen and Harbin, which is where you want to be when you are selling down jackets."

Morgon says Eurazeo and Moncler have experienced success in the country through an outlook that understands "China will go through its ups and downs in investments in luxury products. But if you have a long-term vision, you have to be in this country, build a very strong presence, and go direct, not just through a distributor."

Eurazeo also invested heavily to establishing a partnership in December 2014 between the Accor hotels group and the Huazhu Hotels Group.

"We're joining forces in order to become one of the biggest hotel operators, putting together a worldwide network of over 40 million customers," Morgon says.

The agreement, pending government approval, integrates Accor's budget and mid-priced hotels in China that include Novotel, Mercure and the Ibis brands with Huazhu's hotels.

Huazhu will also become the exclusive franchisee to develop and operate Accor's brands on the Chinese mainland, Taiwan and Mongolia.

Under the alliance, Huazhu plans to open up to 400 new hotels under Accor brand names over the next five years. Accor now has 144 hotels in China.

Huazhu, which operates 1,849 hotels with almost 200,000 rooms, has its own portfolio of brands ranging from economy to upscale, including Joya Hotel, Manxin Hotels & Resorts, Ji Hotel, Starway Hotel, HanTing Hotel, Elan Hotel and Hi Inn.

Morgon says that another story is that of IES Synergy, a small, highly dynamic company developing electrical car battery chargers. It joined forces with Wanma, a leader in the distribution of charging systems in China, in October 2014 and thereby strengthens its presence in the Asian market.

Fostering competitiveness and performance, IES Synergy and Wanma join together to provide a multi-line product family of fast charging, versatile and efficient solutions, in order to respond to market and Chinese consumer needs.

As China's annual GDP growth slows and as its economy enters what many are calling a "new normal" era of development, Morgon stresses that companies interested in partnering with Chinese firms need to have long-term outlooks.

The country offers endless possibilities to firms operating in various industrial and commercial sectors, she says.

Markus Solibieda, managing partner at Mandarin Capital Frankfurt, shares Morgon's sentiment.

"Successful companies will continue to invest in China, and we're not expecting a significant slowdown of investments to occur."

Solibieda says significant changes can be already seen in recent shifts that have been taking place at the country's political, decision-making and corporate levels. The reliability of Chinese business partners has significantly improved in the past 10 years, he adds.

Morgon says she sees more sectors that could be jointly developed with China, such as nursing homes.

Eurazeo recently invested in Colisee Patrimoine, one of the largest nursing home operators in France, though it has also "been entertaining serious discussions with a number of Chinese players, real estate investors, operators of clinics and hospitality structures".

"Collectively, through a partnership approach, we plan to develop a substantial network of nursing homes in China. After all, China is facing the same issue that we are facing in France: a significant elderly and aging population."

Health care is also another sector that China and France have common interests, Morgon says.

Over the last four or five years, as more and more Chinese companies expand overseas, Morgon says, Eurazeo has developed a wide network of contacts by meeting Chinese financial investors - either funded by public or private money.

"We have built ties with companies like the Fosun Group. It has been looking at investments opportunities in Europe together with us, so that we can introduce them to France."

"We are really trying to construct a network of confidence and intuitive relationships, and decision making of going seriously together to invest together in a number of European situations."

Carlotta Clivio contributed to this story.

zhangchunyan@chinadaily.com.cn

(China Daily European Weekly 02/06/2015 page20)