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Friday, August 25, 2017

Inside the Fosun-Club Med Deal

~ Cultural Recognition + Shared Strategy = Win-win

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Fosun International, China’s largest private conglomerate, took control of Club Méditerranée SA, commonly known as Club Med, a French resort operator in January 2015. How’s the marriage doing? Global Partner & Senior Vice President of Fosun Group Jim Qian, and President of Club Med, Henri Giscard d’Estaing shared their insights on what unique elements of both companies made them choose to partner with each other. They also offered advice on how to turn an international M&A deal into a win-win long-term strategic project for both sides.

Read on for the English translation of excerpts from their discussion at CEIBS 3rd Europe Forum in Paris.

Opening remarks

Henri Giscard d’Estaing:
“Prime Minister [Jean-Pierre] Raffarin was so kind in saying that the partnership between Fosun and Club Med was an exemplary case of collaboration between French companies and large Chinese groups.

Probably the exemplarity of this deal can be explained by the long duration of its timeline; our contact with Jim [Qian] and the Fosun leaders including Mr. Guo Guangchang began over seven years ago, when Club Med had already initiated its development in China. At that time, we were already impressed by the great potential the Chinese market held for Club Med. It seemed to Club Med’s directors and me that we needed a powerful partner to accompany us in this country which would become our second market.

That’s how we met, because Fosun – Jim explains this better than I can – has a clear vision of economic development in the China market. And Fosun’s vision for China’s domestic market and its touristic sector is in line with the Belt and Road Initiative (BRI). Even back then, Fosun saw the importance of getting involved in tourism. Now I leave it to Jim to tell us how Fosun conceptualizes its tourism strategy.”

Jim Qian:
“We will talk about Fosun’s tourism strategy within the context of the BRI.

When we decided to invest in Club Med, one thing we always kept in mind is that the living conditions and the income of Chinese people have greatly improved since China’s economic take-off. The middle class keeps growing. The need for foreign and exotic products continues to grow. China grows fast; very, very fast. Companies could no longer provide services or products that were able to satisfy all that Chinese consumers are looking for.

So in 2010 we went abroad. Our investment focuses on companies that are able to help us move up the value chain in the tourism market. When I met Henri Giscard d’Estaing in March 2010, he came to Fosun with a high-level delegation. The discussions began almost immediately. Three months later, we signed an investment agreement and time has shown that this initiative was the right move.

Since our investment in Club Med, Fosun has consistently followed a clear strategy: to develop our business by hitching a ride on China’s strong economic environment while leveraging international resources. This strategy is also implemented in many other Chinese companies which have a plan for their huge domestic market: bringing some established, well-regarded European brands back to the China market. It’s a win-win situation for both Europe and China: European companies can enter into a larger emerging market, and [Chinese] consumers looking for better products and experiences have access to more high-end products. Thus we chose this strategy.  

Since our acquisition, Fosun’s tourism business has developed a lot especially in terms of vacation products. We have invested in companies all over the world, such as Atlantis, Cirque du Soleil, etc. We also invested in Thomas Cook. Now we are trying to establish resorts in China. Our investment in Club Med accelerates that part of our business… Club Med itself is making a profit; it also gives Fosun a platform to be profitable in tourism.

Actually we are excited that we got the opportunity to take the leading position in the world’s largest tourist market. Fosun also helps us explore other markets all over the world, as Chinese tourists will soon become one of the biggest target markets.”

Q&A:

Q: What was your main concern when you started negotiating with your Chinese partners and how did you overcome it? At the beginning, did you ask yourself questions like “Are we risking being absorbed, are we losing control over our company?” What was your concern and what was your expectation?

Henri Giscard d’Estaing:
As the chairman of Fosun, Mr. Guo [Guangchang], always says, if we have chosen to invest in Club Med, it is because Club Med is a unique partner that offers unique French know-how which made the company a success in the tourist industry. Therefore, I actually never had any concerns in this regard. If I had any, I would not have supported or pushed ahead [with the deal].

But I had one concern, and we had debate this once before. They thought Club Med was expanding too fast. What a good problem to have... For us, our goal was to have an extraordinary product to offer to our customers. As for growth management, it’s a complex issue because it requires great expertise in human resources.

It also needs extremely high-quality resorts, and this is why for the last 67 years Club Med’s vacation business has been offered in the world’s most beautiful locations. They should continue to be so. That’s the only debate we’ve had. And we agreed on keeping our pace that fast – which is certainly a splendid opportunity for the company and for all the men and women working here, who make it possible for Club Med to always provide the best service to our customers.

Jim Qian:
At the time when we started off the negotiations, we never discussed control issues. I don’t think it necessary [to worry about] who controls, and who is controlled. For us, our investment in Club Med [was based on the fact that] we like this vacation and resort business. And we want it to remain as it was.

Therefore, Club Med remains a French company. If you look at the outcome of our investment, you’ll see it’s very positive. Club Med remains healthy in terms of development; it has seen stable and rapid growth since the acquisition.

Employees now have more career opportunities and they are quite happy and satisfied. We also created more jobs – whether it’s in France, China, or any other countries where Club Med operates. For example in China, we have five resorts, where many French expats work.

We have signed 20 management agreements since the acquisition. When the 20 villages are all ready, you can imagine how many jobs we will be able to create. An investment like this, which benefits companies, employees and enhances tourism and cultural exchanges between China and France, is a totally win-win game.

Do you have any advice to share with entrepreneurs here? Henri, how do you approach your Chinese partners as a French executive, and Jim, how do you recommend that Chinese investors and companies reach out to France? As we all know that there are often some obstacles and reluctance, so sometimes it doesn’t work well. So, what’s your advice?

Henri Giscard d’Estaing:
In the first place, I think we need a Chinese partner if we really have a strong China ambition and vice versa – so that we can understand and support each other and tackle the differences between partners.

Second, I think we should try to carefully select our partners. We were lucky to meet Fosun, an exceptional Chinese company. And more precisely, since their purpose is to become an international company with Chinese roots, they are not only trying to develop in China but at a larger scale internationally. And that’s why the Fosun leaders assigned me Global Partner and Jim, Co-director of Tourism, because [Club Med] is a joint project.

Jim Qian:
A lot of Chinese companies are willing to work with French or European companies in entering the China market. The need does exist, so the real question is how to work together.

From our cooperation with Club Med, I think that mutual respect is very important between two partners from two different cultures with different ways of thinking. No matter whether it’s during the negotiations or working together after the deal is signed, we always respected French traditions and the French employees.

Henri knows China very well. He went to China when he was very young, and he knows how the Chinese people think. Mutual respect proved to be very important. I often say: cultural differences persist, and cannot be ignored. The most important thing is to try to understand and respect each other, and to find common ground.

Second: a shared strategy between partners. When we closed the deal, we, together with Henri, articulated a general strategy. So before we really started working together, we had already arrived at the same consensus, which is a shared strategy to implement within five years – this is a scale-up strategy proposed by Henri, which is respected by us as well.

We developed the Joy View, a brand by Club Med. Traditional Club Med resorts are basically either ski-oriented or focused on the beach. So [if we want to develop such resorts in China] they can only be in the north or south of the country. The natural characteristics of central China inspired us, and two villages will be created this year with this new name, which is neither a ski station nor a beach village. Therefore, it is vital for us to have a common strategy.

So two factors: cultural recognition and a shared strategy are the infrastructure of a successful international M&A project.”