According to the news report by MarketWatch, the media powerhouse Viacom Inc. has been involved in negotiations to sell off a large part of its Chinese operations due to challenges with growing its business in the world’s second biggest economy. Viacom, the owner of Paramount Pictures, MTV and Nickelodeon, has had operations in China for more than 20 years.
According to MarketWatch’s sources who have knowledge about these negotiations, Viacom has had conversations with at least one local business. However, the sources also cautioned that this deal may not materialize.
These discussions reportedly involve the sale of the media giant’s majority shares of major brands like MTV and Nickelodeon.
The company had a similar deal in India with Reliance Industries Ltd., wherein it sold its majority stake to the conglomerate in 2018.
By selling its majority stake to a local investor in China, Viacom could avoid possible regulatory risks there, especially at a time when trade tensions between the Asian giant and the US are high. Viacom could then concentrate on revenue generation instead.
These discussions are similar to the ones held by other major US companies such as Hewlett Packard Co. and McDonalds’ Corp. And Viacom is not the only American company that is looking at selling its stake in China. According to banks and advisors, there are several multinationals that have operated in the country for decades that are looking at either selling their stakes or completely leaving China.
Since the turn of the century, China has been viewed as a land of opportunity and companies paid large sums of money to investment banks and their advisors on how to gain entry to that Asian market.
Now, less than two decades later, the same companies are being advised to either restructure their Chinese operations or to leave the country.
AlixPartners’ Brent Carlson says that companies are realizing that they need to restructure operations as the massive growth that China has been experiencing is now starting to slow down.
By global standards, growth in the world’s second biggest economy still is strong. And for many companies, there still too much that can be gained to think about exiting the country at this point in time.
However, the challenges that foreign companies face are also daunting. Cutthroat competition as well as regulations that are in favor of local companies makes it very difficult for them to operate in Asia’s biggest economy. Added to that, the ongoing trade war between the world’s two biggest economies means that American companies could face even higher hurdles to survive in China.
According to the co-head of mergers and acquisitions at JP Morgan’s North Asia division, Lian Lian, the rise of strong local companies, the slowing down of economic growth and the meteoric rise in e-commerce is what is leading multinationals to rethink their business strategies in China.
JP Morgan recently advised Heineken NV to sell its business in China and instead take up a 20% stake in China Resources Beer Holdings Co., the company that bought out the Dutch beer giant. Despite the fact that China has the world’s biggest market for beer in terms of volume, Heineken had struggled to expand its business in the country. And this is after the company had been established there since the 1980s.
While there are many that are struggling to make it in China, there are still other multinational companies that are still going well in the country. According to Wall Street Journal’s data, the top 20 American companies on the S&P 500 Index with the highest sales in China reported sales to the tune of $158.4 billion in 2017.