pic: telegraph.co.uk
Domestic brands are closely guarded in China and hence takeovers of
Chinese companies are not that common. Consequently, the acquisition of a
Chinese baijiu manufacturer by FTSE top 100 company Diageo in 2013 is an interesting
example (baijiu is China’s national alcoholic drink). This is an example of horizontal
integration as it was one drinks manufacturer taking over another (removing
potential competition from the market and enabling Diageo to attain increased market
share and economies of scale in its Chinese operations). The move is part of
Diageo’s corporate objective of growth which it aims to deliver by increasing
its presence in emerging markets. By widening its product portfolio in the
Chinese market Diageo would no doubt hope that it could grow revenues for its
other key brands in that key growth market. Having said that, the early months
post-merger have been very difficult ones in that specific market as the
takeover has coincided with a crackdown on corruption and gift-giving for
government officials by the new Chinese President (restrictions on gift-giving
has hit alcoholic drinks companies hard).
Likewise rival baijiu manufacturers have been discounting heavily which
has hit profit margins and revenue for Diageo’s brand.
