'Overseas M&A of Chinese Enterprises Essay\r'

'The purpose of this condition is to summarize the problems related to the oversea M& group Aere;A of Chinese firms and to propose suggestions on its alike(p) improvements. It firstly describes the brief history of china fighte’s abroad M& deoxyadenosine monophosphate;A in ternary phases and its current status including the growth trend, the post preference and the sector distri only when whenion ; iand illust tr amperes one succesussfulrvived teddy of Lenovo and both failed cases of mainland chinalco and SAIC.\r\nThen Seondly it decomposes the doers add to the success: parsimoniousness growth, exchange rate, irrelevant currency reserve and veracious prudence; points out the reasons of distress: political resistance, out verge error, integrating impediment and pagan difference. after that it refers to the manage of Nipponese endeavors on image reservation, scheme selection, oversight acquitical anaestheticization and relation maintaining.\r\nFina lly it impartoffers recommendations to improvebetter the execution of mainland mainland china’s abroad M& multinational deoxyadenosine monophosphateere;A including regarding public relationship, strategical implying, way enhancement and pagan communication and ; draws a conclusion that whether the afield M&A is ‘cake’ or ‘ yap’ depends on what we choose to do. Overseas M&A of Chinese Companies: Cake or immobilise? Introduction On 26th February 2013, China bailiwick Offshore Oil Company (CNOOC) proclaimed in Beijing that it successfully stand ind the 15. 1 gazillion US$ achievement of a Canadian oil color and gas connection Nexen Inc NXY.\r\nTO, which was China’s largest-ever foreign putsch. This was exactly the epitome of the ‘Great Leap forward’ of overseas M&A of Chinese companies. Along with the economical boom in such(prenominal) thanof 30 years, encouraged by the ‘go-out’ syste m of the administration, Chinese companies have madeseen robust strides in world(prenominal) enthronization markets. However, wereas most M&A cases closed in(p) as successfully as the case of CNOOC’s encyclopedism of Nexon? The tack mustiness be electronegative should you pay watchfulness to many chastisements such as Chinalco1’s science of Rio Tinto2.\r\nDid every successful start r apiece a happy ending? Neveror the answer would be affirmative since the bloody costs Chinese companies have paid in overseasabroad m markets. The make of this article is to raise a critical uncertainty to the overheated enthusiasm on internationalistic acquisitions of Chinese enterprises: would it lift a worthy return or preferably a bottomless(prenominal) pit? sh be this purpose, the article will firstly draw a brief portrait of the history and the present station of China’s overseas M&A and summarize its characters, experiences and lessons.\r\nThen it w ill analyze the reasons for the successes and failures and comp are China’s performance with the pattern of its international peers. FinallyIn the end, t, he authorit would like to propose roughly recommendation on the improvement of the M&A operation of Chinese enterprises. Status quo The overseas M&A of Chinese enterprises started in the 1990s and could be roughly divided into three phases. The first phase was from the 1990s to the year 2001, when Chinese enterprises clean entered the international market and move to ‘ crossway the river by feeling the stones’ and to discover acquisition opportunities.\r\nThe annual list figure of achievements at that sequence was below 0. 1 jillion US$. The atomic number 16 stage was afterwards China joined the creation Trade Organization in 2001 when the volume of overseas purchase takeovers reached 1 one thousand million for the first succession and till 2005 when the amount climbed to about 5 billions . The 3rd period was fromafter 2006 till now especially after 2009 afterwardswhen worldwide financial crisis seriously grilled taken with(p) the world’s major economies.\r\nDuring this period, the scale of China’s abroad overseas acquisitions exploded and each year it saw a total like of tens of billions of dollars. In 2010, it was up to the height of 38 billion dollars, occupying 11% of the world’s legal proceeding amount of that year3. There were some trends underlying the wavesis of overseas acquisitions waves. In terms of the quantity of dos, it was climbing climbed constantly with a number of 27 in 2003, 45 in 2005, 61 in 2007, 97 in 2009 and arrived at the record-breaking 147 in 20104.\r\nMeanwhile, the size of one feat increased remarkably and the significant example was the abovementioned takeover of NEXON by CNOOC in 2013, a single deal of 15. 1 billion US$, overpassing exceeding the annual total of many precedent years. With regard to the areas where China’s enterprises invested, American, regular army Europe and Asia were their top 3 priorities, making up 27%, 21% and 15%5 respectively of the abroad acquisition volumes in 2010. most the sectors where they were interested in, the energy and mining fields were doubtlessly their first choice since 65%6 of the transactions occurred in this industry in 2010.\r\nNonetheless, compared with the general traits, the several(prenominal) cases are worth researching to a greater extent than carefully. A consummate example is the caseTake the story of China’s large PC producer Lenovo7 as example, i. In declination 2004 Lenovo acquired the PC department sector of IBM at the charge of 1. 75 billion US dollars. After close to 10 years’ victimisation, it was impressive that IBM became a ace disfigurement of business enterprise laptops and PCs and Lenovo had successfully enhanced its brand value and market share during the desegregation of two firms. It w as this deal that made Lenovo a world PC giant.\r\nConversely, the majority of Chinese buyers tasted the bitter flavor of defeats. correspond to the statistics of Mckinsey8 published in 2010, in the past 20 years, the success rate of international M&A was less than 50% while the failure rate of China’s overseas acquisitions was more that 67%9. In 2008, the total loss of China’s multi-national deals was nearly 35 billion US$10. For instance, in June 2009, Rio Tinto Group unexpectedly announced to obligate out the acquisition agreement with Chinalco and although Rio Tinto paid 0.\r\n195 billion US$ break-up fee to Chinalco, the latter had to must pay multifold btimes of breaching earnings to China’s body politic- suffered commercial banks and assume wonderful losses ensueed from the dropping share price of Rio Tinto. some other(a) perfect example is the case SAIC Motor11 took over SsangYong Motor12 which illustrated a helplessness desegregation afte r a haughty acquisition. SAIC invested 0. 5 billion US$ to buy 48. 92% shares of SsangYong Motor in 2004 and increased its to 51. 33% in 2005.\r\nHowever, a smooth deal did non look forward to a disaster of cultural integration. Neither SAIC achieved the carriage of technology importation nor the virgin heed aggroup solved the annoying strikes and salary disputes so that the modernistic enterprise staggered till 2009 when the topical anaesthetic court approved the bankruptcy protection of SSangYong Motor, indicating the death of this acquisition. Analysis embed on the facts and cases revealed in forward chapter, we could can non help wondering that what was inside the box?\r\nIn other words, what experiencepoints we can summarizecould summarize from the successful cases and what lessons we should discipline from the failed ones? On one hand, the significant instruction of China’s overseas M&A might be generated by the following contri exclusivelying factors . Firstly, the rapid economy growth drove full-blooded requests forof the raw materials such as oil, gas or mining but subject to the limited inside resources, Chinese enterprises turned their attention to world-wide markets by active merging and acquiring.\r\nSecondly, since the exchange rate cleanse starting from 2005, the Chinese Currency RMB was appreciating gradually, for example the rate of US$ to RMB was 1: 8. 2 in 2005 but is 1: 6. 1 in 2014. In addition, the global financial crisis resulted from the subordinated debts storm in the USA remarkably dropped the share prices of listed companies in global capital markets. both factorsThis change considerably lowered the costs of international acquisitions in recent years and created realistic opportunities for Chinese companies.\r\nThirdly, holding the massive foreign currency reserve, for instance, 3820 billion US$ in the end of 201313, the central government of China broadened the control of foreign exchange and launched a ‘go-out’ policy to stimulate the internationalization of domestic enterprises, creating a relatively loose macro environs for Chinese companies. Fourthly, some Chinese companies were playing games in global markets more and more expertly.\r\nThey adopted correct outline to obtain global assets and products, executed it in compliance with international conventions, gained the advanced technology and sales net forges, expand the market share, naturalised competitive edge and travel forward to the aim of multi-nationalization. On the other hand, it is and then infallible to figure find out what ca utilise the noniceable failure of Chinese acquirers. From my point of view, the reasons could be explained in four aspects. Political resistance:Political factors maintain the brunt of the failure of China’s overseas acquisitions.\r\n to the highest degree Chinese enterprises engaging in international M&A were state-owned enterprises, which in the westerners eyes were regarded as the representatives of Chinese government. Although they emphasized the independence status and commercial orientation when doing business in other countries, the emcee governments were as prone to link them to the Communist society of ChinaChinese government. Even if they were non state-owned, the public media frequently mislabeled them as Chinese SOEs because it was hard for the foreigners to distinguish the reputation of one Chinese firm from the other.\r\nThis was truly an particular riskiness of Chinese firms and constituted one cardinal obstacle toof China’s overseas acquisitions. Unfortunately, in most cases, Chinese firms had no say and did not know how to communicate with the topical anaesthetic government or the public, only to intromit the destiny of defeat. For example, the government of USA denied the 18. 5-billion-dollars acquisition of UNOCAL14 by CNOOC for the reason of state security. The failure of Chinalco’ acquisitio n of Rio Tinto was as intimately as attributed to the concern of economic base hit of Australia.\r\nStrategic error:The core value of enterprise M&A probably is increase the critical competitive advantage and sustainable development capacity thorough obtaining the inwrought resources of acquired firms, which requires thorough and fascinate strategies. Nevertheless, most Chinese enterprises, when operating international M&A, did not have a comp allowe and snuff it strategiesy or did have a strategiesy but lost control of the operation and could not break down the ever-changing global markets.\r\nSome of them failed to properly pronounce their overall strengths and to completely understand the rules of international acquisitions consequently executed rush transactions screenly just catering for the individual preference of the boss or following the ‘going-out’ fashion of ‘going-out’. TheA lack of strategiesy must not realize an anticipated r esults. After a series of losses in international acquisitions, TCL15 admitted that the insufficient strategic preparedness was the major reason contributed to its failure16.\r\nAnother relevant case is the machinateding for Hummer17 by Tengzhong18. Although had published an prescribed industrial planning aiming at developing stark naked energy vehicles in 2009, Tengzhong announced a bid for Hummer, the producer of large displacement vehicles, which completely contradicted its strategy of energy saving and emission reduction. Integration difficulty:After applause, flowers, champagnes and wines in the signature ceremony, the real quarrel just starts because of the integration or management difficulties of Chinese firms.\r\nThough more and more Chinese enterprises increase tremendously in recent years, for example, 100 Chinese firms were listed on the Fortune Global 500 Rankings 201419, winning up one fifth of the world’s biggest companies. But compared with internatio nal giants such as Exxon Mobile, BP or Shell, Chinese firms are weak on management issues such as corporate governance, business operations, management communication skills, international reputation and marketing channel and internal integration etc.\r\nMulti-national acquisition and integration is so complicated that Chinese companies are niggling of not only managers who could communicate professionally with their counter- part and standardise the operation with global horizon but also experts who are familiar with international market operations from legal, financial or managerial background20. Take TCL’s acquisition of Thomson21 for instance, after the deal was done, in less than three years, all the former executives of Thomson left the ‘ raw’ company22 and it fell into a crisis of management resulting in massive simoleons losses in the following pecuniary years.\r\nIt was truly a failure of team integration due to managerial incompetence. Even worse, Chinese firms were used to manage the integration after acquisitions with domestic management styles and most of them were caught in serious internal frictions, cause which caused productivity declining and profit dropping. Moreover, Chinese firms were merely given over to employ Chinese workers no matter where they were doing business, which exerted all-encompassing concerns in the host country.\r\nFor example, when Chinese firms acquired a local mining, a railway or harbor structure project in Africa, thousands of Chinese workers were hired to work there. It maybe impressive for many when we watched TV that more than 30,000 Chinese workers retreated from Libya after the civil war following the collapse of the Gaddafi regime in 2010. In the countries with tight policies on foreign labors, the employment patterns of Chinese acquisitions were polemic.\r\nCulture difference:Cultural is an indispensible influential factor in international M&A yet ignoring its significance is a common failing of Chinese acquirers. Many host countries complained that Chinese firms were mining robots or money machines, developing business simply on their own without incorporating themselves into the local communities and respecting the unique cultural backgrounds. The failure of SAIC’s acquisition of SsangYong, discussed mentioned in previous episode, could cast light on how the destination passage of arms ruined a takeover.\r\nIt seems that the primary reason was SAIC’s insufficient acknowledgement of culture difference. Korea is an island country and its passel have tremendous national pride thusly when SsangYong was acquired by SCIA which is from an undeveloped country of China, its employees were reluctant to accept the reality of control change and to co-operate well with the new boss. That was why they behaved negatively in the integration and on the face of it SAIC failed to figure out a proper strategy to deal with this issue.\r\nMoreover, SAIC u nderestimated the power of Labor Union and the complexness of labor disputes while paid more attention to enhance the relationship with the political authorities, which is anan exact reproof of Chinese culture, not suitable in Korea. The result of ignoring it was remarkable. Comparison After the analysis of what caused Chinese firms’ poor performance, before giving ad frailness on how to improve it, it seems indispensable to occlusion a glance at how the international peers did their M&A deals. Japan, one live of China, is a perfect model we could refer to.\r\n similar as today’s China, Japan is a country short of natural resources, from the 1960s when Nipponese economy began to soar, Japanese enterprises invested massively in overseas markets to pursue a steady resource supplies. In the 1970s and 1980s, they also encountered various barriers and obstacles but Japanese firms gradually diminished the hostility and cautiousness and successfully took initiative s in global investment sectors23. Image-making:Japanese firms determined emphasis on image-polishing via the ‘think tank’ and the countersign media.\r\nIn the 1980s, in response to the increasing hostility, Japanese firms implemented diverse strategies to turn them acceptable to the American society. Since most official critics were from the Congress, major Japanese companies established or enlarged the representative offices in Washington, DC. They tried to create the mainstream opinion via the cooperation with the think tanks, journalists orand former governmental officials and in return the think tanks held periodically forums on Japanese investments and published reports arguing that Japanese investments were sound to the USA economy.\r\nIn most cases, Japanese firms sponsored or funded the researches or cooperated with the scholars in this field. Sustainable strategy: Japanese firms focused on a long-term effect of investments, pursued a resource- favorite(a) ac quisition strategy and did not deviate from the aim easily even if confronting episodic losses or missing profitable opportunities. As a result, the investment terms of Japanese firms were semipermanent than those of Chinese firms. In addition, Japanese companies coordinated well with each other and avoided internal malicious competitions (which often happened among their Chinese peers) to maximize their coalition strength.\r\nDiffering from Chinese acquirers in Australian market, Japanese companies were used to form an acquisition group of 3-4 firms to optimize the bargaining potential and profit margin. Local management: Unlike Chinese companies which preferred to appoint Chinese executives in overseas subordinates, Japanese investors trusted localAmerican managers and appointed them as executives. Besides, they tried to sharpen material supplies as much as possible. harmonise to the report published in 2002 by the delegacy of Economics Analysis24, USA, from 1982 to 2002, the number of American suppliers of Honda25had climbed from 40 to 55026.\r\nLikewise, when negotiating with partners for acquisition deals, Japanese companies seldom requested to participated in the business operation so that they could avoid the employment, salary or land disputes, which considerably reduced the management risk and integration failure. Community relation: When investing in overseas countries, Japanese firms endeavored to integrate themselves to local culture and contribute to the construction of local communities.\r\nFor example, sponsoring a baseball game team or funding a cancer research center, Japanese firm had donated millions of dollars for local charity. whole of these merits of goodness conveyed the information that Japanese firms respected local culture and put high value on local development. This is a sharp contrast to Chinese firms’ behavior in that they were only keen on making money but were indifferent to the lives of local residents. Recommen dation Corresponding to the problems figured out discussed and the comparisons canvass above, I would like to share my view on how to improve the overseas M&A operations of Chinese enterprises.\r\nFirstly, we should reduce the role the state plays in international acquisitions and create effective communications with stakeholders. To be honest, many overseas M&A cases illustrated the economic behinds of Chinese government, which is the most controversial issue and the biggest concern in foreign markets. As the government, it must be aware of its duty and the enclosure of public power, decrease the interference to micro economic operation and liberate the creativities of Chinese enterprises in overseas markets.\r\nOn the other hand, Chinese government should return necessary supervision and guidance of overseas acquisitions, cleanse improper and complicated formalities of abroad transaction and facilitate the currency flow by loosing set exchange control. However, to el iminate political obstacles, the majority of the tasks are at the shoulder of Chinese enterprises themselves. It shouldmay be necessary for them to put public relationship management top of their agenda.\r\nFor example, learn to communicate with the public media and the local communities in the language and style they could understand, find spokesmen in think tanks and sponsor local research academies or educational institutions are all constructive measures to enhance the wacky powerimage of Chinese enterprises. In principle, we must try to let the host country, the local public, the local staff and other stakeholders believe that Chinese acquisitions are not only a business but also a kindness, not a threatens but an opportunitiesy, to all of them.\r\nSecondly, it is essential to break the spell of speculation and to adopt strategic thinking. Acquisition is not gambling but earlier implementation of strategy, hence before initiating offers Chinese buyers must set up definite tar gets and strategies. In short, what do we exactly want? Every overseas acquisition case must have a clear strategic demand: to enhance the buyer’s weight in the value chain; to give-up the ghost the brand reputation; to expand the production line or to extend the market share? We should not launch an acquisition merely because the target company is cheap or the acquisition is an eye-catching advertisement.\r\n zip fastener would be more surprising than the news that a Chinese Millionaire Chen Guangbiao, whose business is recycle resourcing, announced a plan to buy New York Times. After the aim is set up, Chinese enterprise should establish and hold a firm strategy, draw an practicable plan in details to implement the strategy step by step and unless the market surroundings changes fundamentally, do not give up the placed strategy easily. Thirdly, it could be urgent for Chinese firms to considerably enhance their management strength to survive the integration difficulties a fter takeovers.\r\nIt is desirable for the acquirer to keep the previous management team of the acquired firm as much as possible and to pursue a ‘win-win’ target by satisfying both the requirements of the buyer and the demands of the vendor as well asand its employees. Plus, they also should build a thorough management systems in accordance with international convention, enhance overall managerial strengthability, perfect internal corporate governance and establish rational fillip mechanism, to achieve a smooth integration and a sustainable development.\r\nFourthly, it is not exaggerating to say that the failure of an overseas acquisition is actually the failure of cultural communication, which reminds Chinese buyers to take care of the cultural difference. Currently, most of the targeted firms are matured western enterprises which have built their own tradition and culture and hope to maintain rather than change it. In the contrary, Chinese firms have not developed a systematic and matured cultures.\r\nThat is, China buyers have to absorb the advanced elements of the existing cultures and potpourri them in the formation of a new culture. chthonic some unique circumstances it is necessary to give up or reform the unreasonable parts in our own cultures that iare s unacceptable to the host country. Conclusion To summarize, overseas M&A is an effective way for Chinese enterprises to realize the hyper-normal development in global markets. But every opportunity could also be seen as a crisis and vice versa. It is a cake or a pin down merely depends on what areis our choices.\r\nFriendly market, clear strategy, cost-efficient management and proper communication may bring you a bright perspectives while hostile surrounding, blind expansion, poor administration and cultural conflict could catch usyou in a deep traps. For the better preparation to survive international M&A competitions, it is high time for Chinese enterprises to sum up the successful experiences and to learn from the costly lessons. If this article could provide some advisable suggestions on this topic, it would be my sterling(prenominal) pleasure.\r\n'