Changing Dynamics of Chinese Acquisitions.

Over the past 20 years I’ve been in and out of China as a student, a teacher, a business employee and soon the spouse of a business owner.

I’ve had some interesting experiences along the way. Today I want to discuss the importance of building mutual respect when merging two companies.

I found myself uniquely positioned a few years ago as the employee of a Chinese company that had purchased an American company. I attended high level meetings and watched as the company we bought struggled to respectfully listen to its new Chinese boss. The Chinese side of the table didn’t do much better. They felt they weren’t being respected enough (true) but also treated the purchased company as an asset whose management advice they could ignore because said management failed and had to sell. Had that management been respectful enough, I am confident this still would have happened.

Issues like this will continue to arise, as Chinese companies have made many acquisitions since the global recession in 2008:

China M&A Chart 20140117

Source: WSJ

There were many times in these meetings when the Chinese boss said “let’s be straightforward”. This was usually followed by a lot of very direct criticisms of the foreign company’s decisions. This only managed to ruffle foreign management’s feathers. Their responses were often reactionary. Not at first, mind you, but as time went on. Both sides spoke less and less as time passed. This is the opposite of what should have been happening.

Additionally, “straightforward” and “open” were two different things. I understand sometimes it’s best to keep some information private. But there were plans being executed in China that directly affected the foreign company that the foreign management wasn’t aware of. These plans were going to hinder the foreign company’s operations and bottom line if top management didn’t have an opportunity to form a game plan and give their input.

I know this also happens when companies from the same country merge, but the layers of cultural complexity make it even more challenging. Add to this a young Chinese company that has been very successful in its own market (in one protected industry with no foreign competition, in a booming economy) trying to go international in a different industry without the right experience or consultants, and you end up with one over-confident company handing down swagger-filled orders and ignoring feedback trying to manage a company that has a lot of experience but is no longer in control. It took very little time before both sides were spending time arguing over problems rather than trying to come up with solutions.

As a western-educated American working for a Chinese company, a lot of these problems quickly became clear to me. But my attempts to explain them to all but a few people on both sides of the table failed because by the time I figured out what was going on, things were beyond repair unless someone at a much higher level than me took action. One other man at my company, who was nearer to the top, attempted on multiple occasions to influence this issue and regularly recruited my assistance, but neither of us were ultimately successful.

When acquiring or being acquired by Chinese company, think carefully about this. Every other synergy on earth could exist, but if neither side understands how the other sees them, it won’t matter.

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2 Responses to “Changing Dynamics of Chinese Acquisitions.”

  1. Nice article Ben. Great example of the ongoing conundrum of cross-cultural business between China and the West. Whether it’s B2B or in-house, effective communication and politicking requires such grace, experience, and foresight, I agree that there are so few leaders from anywhere that can call upon this faculty in an effective, timely way.

    • Absolutely. It’s amazing how quickly things can deteriorate. And really it’s all about understanding the other side. Listening effectively. Realizing when the train is going off the rails helps to prevent things from getting worse.

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