There are other complications. “Acquiring a state -enterprise (SOE) leads to a strikingly painful change process throughout the organization,” Kosonen offers. “….Major organizational changes are required in order to integrate the acquired company successfully.” Additionally, private Chinese companies routinely manage three sets of books: one for the owner, one for business partners and one for the tax authority. “Transparency is weak by Western standards Economics,” Kosonen adds, “so extra caution is required.”
M&A activity is soaring in China. A record 4,251 announced transactions Economics, the combination of which were valued at more than $200 billion, were completed in the 2010 calendar year. Compared to 2009, this activity represents a 16 percent increase in the number of deals and a 27 percent increase in the combined value of deals.
“Foreign companies are buying out their old [China] joint venture partners or acquiring Chinese companies,” Kosonen explains. “These processes include significant risks and oftentimes the due diligence in only done for finance, legal and operations, but not for HR. Many times these target companies have been run in a totally different management style than in the West. Therefore, the management should be carefully assessed already during the due diligence process.”
What’s more, Kosonen describes talent management – and talent acquisition in particular – as the largest challenge of doing business in China. “It is especially difficult to find qualified controllers who can act as true business partners to top management,” Kosonen notes. U.S. companies involved with acquisitions of Chinese companies should also be aware of the fact that the finance and human resources (HR) functions are often combined.
In my previous entry I mentioned a new study on M&A success factors. Since the pace of M&A activity is intensifying in China, I checked in with Tero Kosonen, the managing director of MPS China (BPI Group’s China-based firm), who this week conducted a presentation, “Managing in China,” in Chicago.
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