Finding the right fit

Strategic planning vital for success of Chinese cross-border deals

Though the recent expansion moves made by Chinese businesses in global markets are indicative of the robust and mature business climate in China, it also drives home the importance of transparency and strategic planning for the success of cross-border deals.

Recently, there have been several instances of major Chinese acquisitions in the United States imploding due to perceived public opposition. Often, the public's understanding of a proposed transaction is little more than a headline in the local newspaper: "Chinese Company Buys X Property".

While the deal may actually save or create 10,000 new jobs for an area, public misperceptions often cause fear. This fear then becomes magnified, as the original, incomplete information is re-circulated through television, radio and the Internet. Eventually, this fear reaches the ears of elected officials who feel their highest responsibility is to their constituents.

If the Chinese company making the acquisition has not clearly and fully communicated with these stakeholders from the beginning of the transaction, they will undoubtedly contribute to the creation of an environment that will cause the deal's downfall.

In China, getting the deal done is all about one's connections. Foreigners in China know it is a fundamental fact that without the proper connections in China, the deal will never get accomplished.

The same can be said about executing a deal abroad. Indeed, using the US as an example, the number of potentially interested parties is vastly greater.

The US federal system includes powerful regulators in 50 states, as well as thousands of regional and local governments and many independent regulatory agencies. There are also hundreds of nonprofit organizations that weigh in on business matters. And of course, there are business competitors who often seek to use these channels to interfere with the execution of a transaction.

Success is often determined by whom you know, how you communicate to them and how you help them accomplish their goals.

Consulting firms that offer to serve as your all-purpose guide through this maze are a dime a dozen. In fact, in recent years, many local Chinese companies and individual advisers have arrived on the scene to claim they have the ability to solve any problem.

A wise client should check the resumes of the team, look at how many deals the firm has successfully advised and generally get a feel if the firm can accomplish what it claims.

A good consulting firm has the proper connections and capacity to assist global companies in solving critical problems that involve the intersection of business, law and public policy. Its personnel should combine hands-on experience at the highest levels of government, strategic perspective and tactical know-how, so that they can best help shape solutions that meet the increasingly complex requirements of cross-border investment.

Wise strategic advisers will help gain important local knowledge of the issues that are important to interested parties and to develop a comprehensive narrative of the transaction for presentation. The proper consultant will also work with local stakeholders and create a win-win environment. With the benefit of these analyses and insights, the company will be able to develop and execute a winning business and public policy strategy.

China's economy depends upon more of its businesses becoming successful in the global marketplace. The Chinese government recognizes this need, and in the latest Five-Year Plan (2011-15) encourages Chinese businesses to invest abroad. However, without a competent guide leading the way, future deals risk being strangled by bureaucratic red tape, overwhelmed by public misperceptions or getting caught in the political crossfire.

Chinese businesses should understand that successfully executing an overseas deal is not achieved simply by charging head-on at the target. Success is achieved only when a wise business has planned strategically to navigate the legal, regulatory, media, political and competitive landscapes. Doing this will avoid public misperceptions and give businesses the opportunity to work alongside the community and other stakeholders to create mutually beneficial business transactions.

The author is a senior consultant with Bingham Consulting in Beijing.

(China Daily 07/13/2012 page7)