GRAM’s Motive in Investing in Nationstar and Foshan Lighting

Two years ago, Guangdong Rising Assets Management (GRAM) was a relatively unheard name in China’s LED lighting industry, but recently it has become one of the most recognized companies in the local LED industry, according to a Dazhaoming report. The motives behind the state-owned enterprise’s investments in top Chinese LED players Nationstar and Foshan Lighting reflect the involvement of important government strategies.

GRAM’s alliance with Nationstar and Foshan Lighting is not just a simple business acquisition, and has far reaching implications. The investments signify the state owned enterprises return to the market, and the Chinese government’s prioritization of LED industry. It might restructure the LED lighting industry’s ecosystem, and might even effect future developments.

“LED is one of the three strategic emerging industries that the Guangdong province government is investing in and strategically developing”, said He. “It is also an industry that the provincial government strongly supports. Hence, GRAM’s series of actions can be viewed as implementing the provincial government’s strategy for the sector.”

When GRAM decided to enter the LED industry, it was following the local province government demands, for example it strategically deployed its investments in Nationstar and Foshan Lighting, according to Nationstar Chairman and Guangdong Electronics Information Industry Group (GEIIG) Chairman Yong He. GEIIG, a subsidiary of GRAM was just following operation instructions from the parent company, when it announced plans of acquiring Osram’s 13.7% stake in Foshan Lighting in September 2015.

GRAM’s investment in these two leading Chinese LED lighting manufacturers have left an unforgettable impression in the local LED industry. So why were these two companies chosen among all the manufacturers out there?

Nationstar was chosen because of its healthy assets, R&D capacity, and profitability, said He. The Chinese LED company has established a strong brand image in the industry, and as a state-owned company that turned into private management, it shared a similar company culture with GRAM, explained He. Nationstar also has clear advantages in upstream LED chip and package industries, while Foshan Lighting’s competitive edge is in downstream applications. Investments poured into two companies would be beneficial in establishing a comprehensive supply chain, he added.

Investing in Nationstar in late 2014 was just the first step GRAM took to construct a comprehensive LED supply chain, the second step was choosing a LED manufacturer to complete the missing part of the chain, explained He. When GRAM learned about Osram’s intention of selling its stake in Foshan Lighting, it decided to acquire the shares for RMB 2.62 billion (US $410 million), and submitted all the related applications required for state-owned companies. The company hopes to complete the acquisition process within the next three months, he added.

Foshan Lighting is ranked by Chinese media Dazhaoming as one of the top seven LED manufacturers in China. The company’s consolidated revenue in 2014 reached an estimated RMB 3.07 billion. Nationstar was also ranked in 16th with a revenue RMB 1.54 billion.

As for industry insiders’ interpretation that the current investment model comprises “GRAM’s finances, Nationstar R&D, and Foshan Lighting’s distribution channels,” He said it was “basically accurate.”

“As a state-owned enterprise, GRAM’s competitiveness is clearly evident,” said He. “The company (GRAM) is one of the biggest state financed companies investing in the LED lighting industry, and we are pursuing a large strategic model where we can develop products at a level of economics of scale, speedily, and with good quality. Our investments in Nationstar and Foshan Lighting is constructing a comprehensive supply chain to achieve the goals listed above.”

It will be crucial for the three companies to integrate their operations and resources. Put simply collaboration will be essential. Nationstar and Foshan Lighting will have to adjust their products to realize a double branding strategy, and prioritize the development of products that have a greater market advantage. The companies will also have to differentiate their products in specialized market applications. Secondly, from upstream to downstream companies will need to effectively control costs and complement each other. Lastly, the company plans to become a market leader through R&D, cost control, branding and advantages in distribution channels. The company also plans to take advantage of the LED industry’s current restructure phase to expand its market shares.

Market competition has been very intense in China’s LED market. During first half of 2015, 579 LED lighting manufacturers reported financial losses, average losses reached about 22.18%, losses increased 2.57% compared to the same period last year, according to statistics compiled by a National Business Daily report. The figure is about 8.6% higher than the average percentage of losses reported by China’s less labor intensive light industry.

So what is the next step for GRAM after acquiring two leading LED lighting manufacturers? This is a question many in the industry have wondered about.

“Fierce market competition in the LED industry in recent years has made it a finance, talent and technology concentrated industry,” said He. “Fewer state owned enterprises are investing in these markets, and private companies have relatively fewer resources. State-owned enterprises should venture into these markets, especially to meet national development strategies. Secondly, a lot of resources are required for a company to enter the international market, and without integrating resources it will be difficult for companies to proceed. GRAM possesses all these requirements, and it has full backing from the Guangdong government. At the same time it has been very successful in finance operations, and managing internationally listed companies. GRAM currently possesses five domestically listed companies and four oversea companies. Additionally, Nationstar and Foshan Lighting have laid down solid foundations in the LED industry, whether in its size, technology, R&D, or branding…It is just a matter of time before GRAM enters the global market.”

He went onto reveal that in the future, GRAM might consider acquiring international brands to diversify its products and brands in the high, mid, and low end market sectors. This will assist the company’s entry in the international market, and on a much larger market scale. 

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