Learn mandarin - Time to start focusing on smooth M&A transitions

BIZCHINA / Opinion/Analysis

Time to start focusing on smooth M&A transitions

By Liu Jie (China Daily)
Updated: 2007-06-26 09:39

The dispute between Wahaha, China's leading beverage firm, and its
partner Danone, the French beverage and food group, over the companies'
joint ventures has been escalating. The two sides have filed lawsuits
against one another and Wahaha chairman Zong Qinghou has resigned.

The hostilities have caused experts to examine how companies can make a
smooth transition to ensure cooperation after a merger and acquisition
(M&A).

"Financial failure is not the only cause of international business
marriages turning sour, ownership conflicts, corporate culture
differences and improper human resources allocation can also lead to the
collapse of commercially successful joint ventures," said Tang Qinglin, a
veteran M&A lawyer.

M&As have been a trend internationally, especially in China, the world's
fastest- growing market. Multinationals (MNCs) are seeking M&As with
local firms to take advantage of a lower manufacturing cost base, rapid
market entry, a huge local market, established brands and as mature sales
and purchasing networks.

During the transition period, the partners should adopt breaking-in
strategies involving corporate culture integration, people development at
all levels and management localization, according to Leigh Baker, senior
advisor of New Leaders International, a human resources consulting firm.

Concerning MNCs involved in M&As, Baker said: "At the management level,
they typically assign a small number of foreign managers to join the
Chinese managers in the new management team, in order to add senior
management skills and skills required to integrate the newly acquired
company with corporate systems and procedures."

Danone has sent Emmanuel Faber, president of Danone Asia-Pacific, to the
board of Wahaha-Danone's joint venture. Lenovo appointed Stephen Ward as
CEO after its acquisition of IBM's personal computer business.

Though these are not successful cases- Faber has been accused of poor
decisions regarding the Robust investment, while Ward was replaced by one
of Dell's senior Asia executives William Amelio - the strategy is still
commonly used by MNCs to internationalize local joint ventures, Tang said.

Baker said that creating a cohesive and capable management team is really
a challenge. "This requires significant investment in and focus on
cultural integration, team development and joint business planning and
needs a great deal of adjustment by both Chinese and foreign managers,"
he said.

The senior advisor urges partners to create cultural integration program
plans and begin leadership development and management integration program
"before" the ownership transfer, in a bid to guarantee the immediate
implementation and business vision of the leadership team on the first
day of the joint venture.

Implementing a corporate culture project as soon as possible and
investing in cultural integration for both foreign and Chinese managers
are fundamental for a successful amalgamation.

"It is also helpful to provide English language training to all senior
Chinese managers and their wives," Baker added.

At the employee level, the MNCs will assess productivity and
profitability and reduce the number of staff accordingly.

"Begin your skills assessment immediately after the transfer of ownership
so that training programs can be implemented as soon as possible for all
high-potential staff and others that you want to retain," Baker said,
adding that typically around 25 to 30 per cent of staff will need to be
removed to meet the MNCs' goals.

Executives should take measures to strengthen communication between staff
of partner enterprises and maintain transparency, in terms of objectives
of M&A, shareholding structure and future business orientation, to all
employees.

A win-win is always an ideal and expected outcome of M&As, which requires
the efforts of the two sides on an equal and fair basis, insiders said.

Wahaha and Danone's conflict is not finished, but it should provide
lessons to other business involved in M&As. "No matter the final result,
it is already a case from which both Chinese and foreign enterprises can
draw numerous lessons on how to cooperate and compete," Tang said.

(China Daily 06/26/2007 page15)

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