Chinese investors are as much on the lookout for profitable projects in Europe as European investors are in China. However, this can often involve risks. Six tips for Chinese and European companies to make sure everything goes smoothly.
By joining the WTO in 2001, China opened its doors to trade with the rest of the world. With its population of 1.4 billion people, it is a welcome and important partner – something that can also be seen in the field of mergers and acquisitions. Chinese investors are as much on the lookout for profitable projects in Europe as European investors are in China. However, working together can involve risks, and not every venture is successful by any means.
Dr. Herbert Werle, Managing Director at goetzpartners in Zurich, reveals what steps Chinese and European companies need to take for everything to run smoothly. Together with scholars Dr. Yu Chen and Professor Dr. Roger Moser, he carried out a study to determine which factors were key to the success of company mergers and acquisitions. Here are their recommendations:
Don’t start negotiating straight away
For the Chinese, personal relationships are key. They find the things discussed in person just as important as the written contract. That’s why it is fundamentally important for European top management to build up a relationship with their Chinese partner before the actual negotiations begin. Therefore, don’t start any serious talks in the very first meeting. For example, Nestlé invested a lot of time in the run-up to their takeover of Chinese confectionery manufacturer Hsu Fu Chi. Executive management gradually established a foundation of trust and encouraged a strategic partnership; it wasn’t until later on that a takeover was agreed.
Top management must be committed
Top management has to believe in the acquisition. That may sound banal, but it isn’t. It is vital for these people to be present at the table and to really want the takeover or merger to go ahead. Otherwise, it isn’t possible for integration to be a success. A lack of conviction will result in delays and uncertainty over a very long period of time. Sany set a positive example when it acquired Putzmeister. Sany’s executives were resolute when they said: We’re going to do this now! Actions followed words in a short space of time.
Seek professional advice
Is Nestlé allowed to take over confectionery manufacturer Hsu Fu Chi, or would that result in the company having a leading market position in China? When it comes to antitrust issues like these, the Chinese Ministry of Commerce calls the shots. However, the decisions made by the Ministry aren’t always as easy to understand as those made by equivalent European institutions. Approval procedures in China are very complex, which is why professional advice is indispensable. It’s not just specialist knowledge that makes a difference here, but also your network.
Be prepared for new markets
Many European companies have been operating in China for decades, and are therefore well acquainted with the local culture and market. Most Chinese companies, on the other hand, have far less experience in Europe in this regard. A further issue is that Europe is far more culturally diverse than China. It is only in recent years that Chinese businesspeople have developed their ability to engage with local markets. Companies ignore this advice at their peril, as the example of a Chinese manufacturer of construction machinery demonstrates: Several years ago, the company had tried to break into the German and Spanish markets. It quickly sent Chinese executives to Europe, but they didn’t know enough about the markets. What’s more, they didn’t give enough priority to European quality standards. Their efforts ended in failure – they hardly sold any machinery.
Tell new employees about their future prospects
When acquiring a company, its management should, as far as possible, be left in place. After all, these employees offer valuable experience and a great deal of know-how. You should therefore quickly make the management and other employees aware of their additional benefits, motivate them, and tell them about their prospects for the future. For this reason, it is important for the companies to try and complete the integration process as quickly as possible. Chinese companies in particular are advised to draw up and follow clear and consistent guidelines.
Respond to people’s fears
Trade unions, the media, and public opinion play a major role in Europe. Company acquisitions or mergers can sometimes be the subject of heated debate – discussions that can even affect the outcome. For many Chinese, this is inconceivable, but it’s something they must learn to deal with if they want to be successful in Europe. Many people were skeptical for example when the Wolong Holding Group was planning to buy the Austrian engine manufacturer ATB in 2011. China was a long way away, and people didn’t really know what the acquisition would bring. But Wolong responded with a clear message: The site would remain, the company would continue operating, and there would even be plans for growth. An exemplary approach.
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