Photographer: Krisztian Bocsi/Bloomberg

Salami Strategy: Why China Will Want More After Robot-Maker Deal

  • Policymakers fret over technology transfer in Kuka purchase
  • Taking “a slice and if there’s no response they take another”

As China’s Midea Group Co. courts German robot maker Kuka AG, the suitor has guaranteed German jobs and factories for more than seven years and says it can help Kuka boost sales in China. Kuka’s management deems the offer fair, and top shareholders are backing the deal.

So what’s the problem? This being Germany, it’s about sausage.

“It’s the salami strategy,” said Serden Ozcan, a professor at WHU - Otto Beisheim School of Management in Vallendar, Germany. The government, he says, is concerned about the transfer of technology to China -- especially in strategic industries.

Foreign interests “take a slice and if there’s no response they take another and another,” Ozcan said. “If you don’t establish the rules of the game now, what are you going to do when the Chinese come after really big companies?”

In June, Midea announced an offer of 115 euros a share for Kuka, which values the company at 4.6 billion euros ($5.1 billion). Midea initially said it aims to acquire at least 30 percent of Kuka and now has commitments from holders of 76 percent of the shares. Midea’s stock closed up 6 percent in Shenzhen trading. Kuka was up 0.1 percent in Frankfurt at 1 p.m. Friday. The company set a deadline of midnight Friday for owners to tender their stock.

China’s biggest maker of home appliances is a Kuka customer and says it can upgrade its factories with more robots from the German company. Midea has promised independence for Kuka, whose robots build cars and airplanes, assist doctors in hospitals, and sort goods in warehouses.

The offer has been met with skepticism and hand-wringing among the German political elite. Guenther Oettinger, the EU’s commissioner for digital economy and a former prime minister of the state of Baden-Wuerttemberg -- has said it’s important to keep strategic knowledge in Europe.

And Economy Minister Sigmar Gabriel says the region needs regulations to fend off “unfair competition” from countries with state-directed economies. “I’m not prepared to sacrifice jobs and companies on the altar of open markets,” he told reporters in June.

And in an open letter on his ministry’s website, he calls for an expansion of EU rules to allow reviews of foreign investment in sectors that could have “existential meaning for the strategic sustainability of the European economy.”

After Midea announced its proposal, Gabriel sought a European buyer to counter the bid. Siemens AG demurred saying that Kuka, one of nine German companies chosen to showcase its capabilities to Chancellor Angela Merkel and U.S. President Barack Obama at a trade fair in April, doesn’t fit with its strategy. Switzerland’s ABB Ltd. played down any interest, and its CEO called reports that it might make an offer “pure speculation.”

Still, Merkel herself hasn’t voiced any real opposition to the deal, at least publicly, because she has no legal means to scuttle it and she understands that the German and Chinese economies are growing increasingly interdependent. Merkel has traveled to China almost every year in the decade she’s been in power, and she’s planning to join leaders of the Group of 20 industrialized countries at a summit in the Chinese city of Hangzhou in September.

For a quick take explainer on Chinese investment abroad, please click here

German and European companies encounter a plethora of restrictions on doing business in China. Many strategic activities are reserved for Chinese companies and dozens of categories including telecommunications, life insurance and ship-building are only allowed as joint ventures with local partners. The German Chamber of Commerce in China lists protectionism as one of the top 10 business challenges for German companies.

China Calling

That doesn’t mean Germany should do the same when Chinese companies come calling, says Cora Jungbluth, a project manager at research institute Bertelsmann Stiftung. The nationality of the investor is less important than whether an investment is good for the company being purchased, she says.

“We accuse China of intervening heavily in the economy,” Jungbluth said. “When we do it ourselves, even on a smaller scale, then the question is whether we can still make the argument for free markets.”

Chinese investment in Germany has grown roughly 20-fold since 2006 and is rapidly closing the gap with German investment in the mainland, China’s Ministry of Commerce reports. In 2014 Chinese companies invested $1.44 billion in Germany, while the flow in the other direction fell to $1.6 billion in 2015 from $2.1 billion the year before.

China has ambitious industrial policy goals and ultimately wants to develop -- or buy -- the technology needed to reduce its reliance on foreign investment, says Jost Wuebbeke, head of the economy and technology program at the Mercator Institute for China Studies in Berlin. That, however, would threaten the ability of European companies to fend off Chinese competitors.

“Germany could lose its technological advantage vis-à-vis China, the cutting-edge technology,” Wuebbeke said. “For Germany that’s the main basis of our national competitiveness.”

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