China will overtake US as world's No 1 consumer

The S&P report says that M&A activities can strengthen business risk profiles and bring Chinese companies closer to peers in more mature markets.

Chinese firms' expansion takes place beyond the world's (current) largest consumer market. Bright Food (Group) Co Ltd acquired UK-based cereal maker Weetabix Food Co in 2012 and Manassen Food Australia in 2011 to expand its product offerings and widen its access to international markets.

China's retail and consumer product companies have sufficient financial resources to satisfy their growth appetites, according to the report. "Many are sitting on huge piles of cash and have limited borrowings. They also have good access to the capital markets as a funding source. But the risks of overly ambitious takeovers are high," said the report.

While further expansion by Chinese consumer and retailers will grow, the track record for "organic international expansion" in overseas markets is mixed, noted S&P's Schulz.

"Some restaurants and some apparel retailers have been moderately successful with organic growth in China," said Schulz. "There has not been a large amount of cross border M&A in retail that we know of. Knowledge of the local customer is so very critical."

Despite some big deals made by Chinese firms in the overseas markets including in the US, the portfolio of industries is still small or limited mostly because retail is a local business and not all brands travel successfully to other markets, noted Schulz.

"There are probably more successful global fashion brands than restaurants, and even fewer global supermarket operators," said Schulz.

"So whether it is a Chinese retailer or a European retailer electing to expand into a new overseas market, the challenges are not few - supply chain, critical mass, and local consumer preferences are just few to consider."

Chinese brands also face the challenge of competing with well-established foreign brands, which often have gained strong brand appeal and are backed by solid financial resources as well as a global network, said Schulz.

"They will remain strong competitors in the global markets, and will likely become increasingly competitive in the Chinese local market," he said.