The growing middle classes in Asian cities such as Shanghai, Bangalore and Bangkok have become a beacon of financial stability for Paris, London or New York-based producers of luxury goods at the time when customers in Europe and North America are tightening their belts following the financial crisis.
Asian businesses are also showing increasing interest in the prestige attached to Western brands. Indian auto manufacturer Tata Motors led the way in 2008 by acquiring Jaguar Land Rover, an English high-end automotive company, followed by Chinese automotive producer Geely's acquisition of Swedish brand Volvo in 2010.
Asian investors are gaining a toehold in the Western high-end M&A game in ever larger numbers, according to Pavle Sabic, a director of market development at financial intelligence provider S&P Capital IQ. "Asian companies are very much picking up their interest in Western luxury brands,” he says.
And it would appear that this trend is not going to end any time soon. “Only a handful of Asian companies today feature prominently among top global providers of luxury goods. This is prompting Asian companies to pursue M&A activity with European and US luxury brands,” says Sandy Gopalan, vice-president, consulting, at IT specialists Cognizant. “Recent news reports have Asian conglomerates and private investors vying to own well-known Italian and French brands. Luxury goods companies want and need to own the entire supply chain to ensure quality. And many supply chain elements are in Asia."
Christina Rosén, a Hong Kong-based analyst at market research company Planet Retail, adds: “Asia will remain the most important market for Western luxury brands, and we can expect more Asian companies wanting a piece of the pie in the near future.”
The focus of acquisitions is shifting from automotives towards hotels and department stores. In February, Beijing-based Sunshine Insurance Group purchased the luxurious Baccarat Hotel in New York from the US's Starwood Insurance Group. The Palace Hotel, another New York high-end hotel, was sold in June to South Korean chain Lotte Hotels & Resorts. In the same month, Thai retail conglomerate Central Group bought a majority stake in KaDeWe, a German luxury department store operator.
This shift is predominantly fuelled by increasing number of middle-class Asian tourists visiting Europe and North America, says Ms Rosén. “There will be greater demand for luxury hotels at popular travel destinations,” she says. "Asian companies also bring their know-how and sufficient funds to revive the department store scene in Europe. They also have a better understanding of Chinese or other Asian tourists’ needs and are able to cater to those."