The Chinese are coming to an industry near you. Flush with cash, confidence and heft Chinese firms are aggressively pursing takeover opportunities across the globe. In 2010, Chinese firms accounted for about 10% of all global deals by value. Given a strong growth trajectory and need for raw materials & technology, the Chinese are expected to increase their pace of foreign acquisitions in the coming years. If your company is considering, a strategic transaction with a Chinese firm, you would be wise to consider the learnings of your Western peers.
A terrific article in The Economist magazine outlines the trials and tribulations of executives from 11 Western companies who have been acquired by or are in the process of selling to Chinese buyers. Some of their key insights include:
- Overall, the executives were impressed with the ambition and technical skill of their Chinese peers. At the same time, there are doubts as to their ability to improve the acquisition’s performance and to operate an international business.
- Emotion and trust matter a lot to the Chinese and they will go to extremes to gage their counterpart’s integrity and intentions. To break down barriers and attempt to secure a negotiating advantage, the Chinese will often embark on marathon negotiating sessions and ply their Western counterparts with copious amounts of liquor.
- As most Chinese firms are state-controlled, there is a lingering suspicion that the Chinese engage in dirty-tricks tactics including bugging hotel rooms for information and supplying interpreters who are in fact corporate spies.
- The Chinese favor large negotiating teams with opaque and fluid roles & structures. It is often unclear who has authority and how decisions are arrived at. Those interviewed felt that the ultimate arbiter was the government and not necessarily the people who were part of the negotiating team.
- Given China’s size and complexity, there will probably be more than one government voice in the transaction. When competitive Chinese companies are interested in the same target, it is likely that the firm with the most political support will end up as the preferred bidder. These dynamics are often hidden from the Western company until the last moment before an offer is submitted.
- Once the “preferred bidder” has been anointed, it is not surprising for them to shower wads of cash on the deal, reflecting their very strong balance sheets and the amount of political capital committed to the transaction. Again, it is common for a high-ranking government (or People’s Liberation Army) minister to directly change the terms of the transaction.
Integrating the acquisition is where most Chinese deals (and Western ones I may add) drop the ball.
- The interviewees reported that the Chinese usually did their integration homework and did not barge arrogantly into the acquisition – although they did gain control quickly. Senior management was usually retained if only in well-paid honorific roles. Firm names and legal status did not change – at the outset.
- Not surprisingly, one area where the Chinese fall short in integration is their low supply of English-speaking managers who are experienced in international business. This tends to slow integration activities, push decision making back to China, and alienate existing management. In the companies canvassed, most senior managers have or are considering leaving.
- Over time, the business plans did change albeit slowly and indirectly as is the case of a natural resource company that switched its selling from the open market to a single Chinese firm. In another example, an acquired firm abruptly shifted its strategy from profit maximization to production maximization once the Chinese took over.
- From a cultural and management perspective, Chinese and Western firms could not be more different. Core Chinese values include deference, opacity and consensus, which are often at odds with more individual-focused Western companies who prize frank discussion, rapid action and employee empowerment. This tends to create misunderstanding, inertia and frustration on both sides.
- Finally, most of the interviewees felt that the next generation of Chinese business leaders – those in their 30s and 40s with more business and language skills – would be more effective than the current cadre [sic].
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