Chinese M&A deals facing perception barriers: Study

The whitepaper outlines key factors that can lead to deal failure and communication remedies

July 15, 2013 8:03 IST | India Infoline News Service

Around 57% westerners would be concerned if someone from China headed the company where they work, a survey carried about by MSLGROUP states. The whitepaper outlines key factors that can lead to deal failure and communication remedies.

Chinese literature such as Sun Tzu’s Art of War and Confucius’ Analects have been associated with the success of Warren Buffet, Oprah Winfrey, and Bill Gates, yet Chinese management teams remain unwelcome: 57 percent of westerners would be concerned if someone from China headed the company where they work, according to a survey carried about by MSLGROUP, Publicis Groupe’s strategic communications- and engagement consultancy. Titled“ Leveling the M&A Playing Field: Reducing the bidding premium for Chinese companies in outbound M&A”, the company’s latest whitepaper outlines key factors that can lead to deal failure and the communications remedies.

“With Chinese outbound direct investment expected to reach USD 150bn by 2015, many developed countries are already proactively engaging China for inward investment,” says Johan Björkstén, Chairman of MSLGROUP in China. “With the need for capital injections into western economies and China’s drive to ‘go global’, it’s in everyone’s interests that these deals are successful. However, the reality is these transactions continue to face serious barriers, often due to perception-related issues rather than hard facts.  Until Chinese companies and their deal counterparts start considering the context in which the deal is being done and addressing the, often unfounded, perception issues, these transactions will continue to face significant resistance.”  

In the whitepaper, experts from the MSLGROUP network share perspectives on the M&A environment in their market and the challenges facing Chinese investment funds.  Selected insights include:

· US-China: Dancing but not yet in step

· Germany: China seen as a valued partner but prejudices remain

· Japan: A strained relationship but with a complementary future

· Brazil: The public demands respect for its own culture

The report presents findings from a survey of more than 1,600 adults in France, the United Kingdom and the United States and interviews with M&A advisors from investment banks, law firms, and consultants conducted in April and May. Key findings:

· 58 percent consider the prospect of being acquired by a Chinese company a threat; only 15 percent view it as an opportunity.

· When considering a Chinese buyer, the most pressing concerns are fundamental issues: working conditions, management style and ethical issues. In comparison, when considering domestic buyers, job losses are the primary concern.

· 69 percent of respondents agree that a company’s culture is important, more so in the US (84 percent) than in UK (56 percent) or France (66 percent). Two-thirds of respondents believe the culture of a company influences their performance and 68 percent agree that it would affect their decision to work for a company.

Björkstén notes, “The cost of recruitment is widely recognized as being significantly higher than retention. Chinese management style will enter the picture at one stage or another. Companies appealing for Chinese funds cannot underestimate the impact corporate culture has on the transaction.”

The paper presents actionable steps to make overseas acquisitions more equitable such as understanding the communications landscape, developing a clear multi-stakeholder strategy with unified messaging, listening and engaging affected parties early to address social resistance and to be ready to respond to crises. It also discusses strategies to initiate dialogue with political stakeholders early to help allay concern and potential opposition and how to address image and branding issues.  Furthermore, the report emphasizes nurturing the merged corporate culture and increasing credibility among investors through consistent and transparent dialogue.

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