As Chinese companies thrive under the robust and expanding domestic demand for luxury goods, they are now increasingly expanding abroad, buying overseas luxury brands and vineyards.

 

Wine is becoming a highly popular investment for many high net worth Chinese. In 2011, wealthy Chinese people bought more than ten wineries in South Africa at a total cost of more than US$1 billion. Health Perfect China, a personal care and health food distributor, established a joint venture with South African winery Leopard’s Leap and around the same time, an investment group from Wuhan announced plans to buy a winery in Cape Town.

 

Due to south China’s unpredictable floods and the cold of the northeast, many Chinese investors have decided that buying wineries overseas is much more efficient and inexpensive than building a vineyard at home. Purchasing vineyards abroad can also be less problematic, since the policies and laws necessary to establish one domestically can be troublesome.

 

One major reason Chinese domestic luxury companies are looking abroad is to acquire the experience of overseas luxury companies. Ben Cavender said in a China Market Research Group report that Chinese companies are buying controlling shares in European luxury brands because they need the brands prestige for marketing, and their management and technical skills. For instance a few months ago, Shandong Heavy Industry Group bought Italian yacht maker Ferretti for $234 million.

 

While the acquisition of foreign luxury brands and vineyards has been a smart move for many Chinese investors, investors who lack experience in investing in and managing luxury companies can also find it difficult to maintain the brand recognition and profitability of their new acquisitions. 

 

Mr. Lianxi Zhou, a professor of marketing at Brock University told us, “The global economic slowdown has created takeover opportunities for Chinese companies to invest overseas,” he said. “This presents opportunities and challenges. Although there are more than 500 winery production companies in China, the existing and upcoming middle Chinese class seem to have stronger appetite for imported wines.”

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