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Acquisition of Hummer: M&A Challenges Faced by Chinese Companies Overseas  
 
Product Ref: 10/473C Company: Sichuan Tengzhong Heavy Industrial Machinery Company Limited

Product Type: Case Industry: Automobiles & Components

Related Product(s): Teaching Note
Authors: Dean Xu   Penelope Chan
In June 2009, Sichuan Tengzhong Heavy Industrial Machinery Company Limited ("Tengzhong"), a little-known manufacturer of construction machinery and special-use vehicles in south-western China, took the global auto industry by surprise when it announced its plan to acquire the money-losing Hummer division of General Motors Corp. Hummer's premium sport-utility vehicles and sport-utility trucks had relatively low fuel efficiency of 9-16 miles per gallon. Since 2006, Hummer's sales volume had declined sharply due to escalating oil prices, its negative image as a "gas-guzzler" and a shift in customer preferences towards smaller sedans. Tengzhong had no prior experience in the light vehicle industry or in managing a major auto brand. Because this was Tengzhongˇ¦s first attempt at foreign direct investment, it was imperative for its management to figure out the major obstacles in managing its new Hummer subsidiary in the US. They also had to formulate a sound business plan to get the Chinese government's approval for this acquisition, and to make the investment a big success. (Note: This acquisition was called off in February 2010 because Tengzhong was not able to get the Chinese governmentˇ¦s approval. The details are included in Appendix 1 of the teaching note for reference.)

This case was used in the 3rd HSBC/McKinsey Business Case Competition.
Functional Area : Strategy & General Management

Issues: Strengths and weaknesses of Chinese companies making outbound foreign direct investment. Leveraging a company's core competencies for expansion overseas. Achieving synergies between the mother company and operations abroad. Chinese government's regulatory barriers to outbound foreign direct investment. Strategies for turning around a staggering global brand.
Length: 37 pages Country: China (People's Rep. of)

Pub. Year: 2010 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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