In what will be – if it is approved – the largest takeover of a US company by a Chinese firm, the sale of Smithfield Foods to the owner of China’s largest meat processor underlines the growing interest the country’s consumer goods companies have in Western businesses.

The board of US pork giant Smithfield last week revealed it had agreed to a takeover bid from Shuanghui International, the majority shareholder in Henan Shuanghui Investment & Development Co., the number one meat group in China.

The deal, which values Smithfield at US$7.1bn including debt, still has to secure regulatory approval in the US – and there has been some political unease at the prospect of a Chinese firm owning a major US food company.

The transaction came just over a year after another Chinese food group, Bright Food, announced a deal to buy a majority stake in another major Western food group – UK cereal firm Weetabix.

It is too simple to say the likes of Shuanghui and Bright Food are looking West in order to benefit from companies’ market positions in the mature markets of the US and the UK. It is a factor, but Chinese interest (or for that matter interest from any of the world’s major emerging markets) is based on transferring capabilities like production techniques, safety systems, NPD and brands back home to their ever-growing domestic markets.

In the case of China, product safety and the reputation of Western brands are perhaps the overriding concerns. By buying Smithfield, Shuanghui would gain access to US-produced pork that would, as well as meeting growing demand for the basic commodity, provide it with a type of product for which China’s burgeoning middle class is prepared to pay more – those made overseas. Numerous safety scares in China have eroded confidence among China’s middle class in domestic products; by acquiring Western businesses, the largest Chinese food companies can attain brands perceived to be of higher quality – and, for the longer term, take the capabilities in production and safety and apply them to their own businesses.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

The fact Shuanghui has pledged to keep all Smithfield staff in place and have it operate as a stand-alone business indicates that, for the Chinese group, the main reasons for the deal are around gaining access to quality supplies, rather than synergies and the like.

However, Shuanghui’s acquisition of Smithfield is far from a done deal. The US government’s committee that oversees foreign investment into the country will look into the takeover. Food and agriculture is one of 11 sectors in the US deemed as “critical infrastructure” and Washington could decide a takeover by a Chinese company of a major US food producer is not in the national interest.

Of course, investment still pours in the other direction. Forty-eight hours after the Shuangui/Smithfield announcement came news US spice giant McCormick & Co. had completed its acquisition of Wuhan Asia-Pacific Condiments Co., or WAPC, a Chinese bouillon producer.

The deal was first announced last August but on Friday McCormick said it had sealed an acquisition that will double its sales in China. For McCormick, the takeover is all about growth; it says WAPC’s sales have, over the last five years, grown at a compound annual growth rate of 25% and the US group believes its sales will grow at 10% a year.

McCormick first entered China over 20 years ago to supply ingredients to manufacturers and retailers in the country. Not long after, the company launched consumer products under its namesake brand. The company said on Friday (31 May) it has seen its sales in China jump by more than 50% in the last five years and insisted it is operating a profitable business in the country. Not all of its peers can say their forays into emerging markets like China have proven profitable. The company can therefore be said to have been one of the more successful US investors into the Chinese market.

“The transaction is further evidence of McCormick’s focus on emerging markets expansion the right way – that is, patiently and playing to its competitive strengths,” Jonathan Feeney at US analysts Janney Montgomery Scott said.

McCormick’s latest investment is the latest in a series of moves made in the last fortnight by major Western players in China.

Hershey has opened an innovation centre in Shanghai and launched its first-ever overseas brand in China. Long criticised for the slow speed with which it has entered faster-growing markets, Hershey has seen sales jump in China in recent years on the back of its homegrown chocolate brands. However, chocolate is not China’s largest confectionery sector and competition is fierce. Hershey has wisely moved to launch a candy brand targeted at Chinese consumers. Candy is crowded, too, but the move demonstrates the company knows products tailored to local needs could help it gain ground faster.

And Danone is to make another attempt to tap into the booming demand for fresh dairy products in China. The French food group is teaming up with Chinese dairy giant Mengniu, the largest yoghurt producer in the country. However, the two companies’ previous attempt as a venture ended after just a year. Can Danone succeed with its latest foray into China’s yoghurt sector?