Tongyang suc­cess teaches how to save a busi­ness

China Daily (Hong Kong) - - BUSINESS - By LI XIANG lix­i­ang@chi­nadaily.com.cn

About a month ago, I got a chance to visit Tongyang Life In­sur­ance, the South Korean in­surer ac­quired last Septem­ber by China’s An­bang In­sur­ance Group.

The visit, al­though very brief, of­fered me a peek into one of the big­gest and yet most mys­te­ri­ous fi­nan­cial con­glom­er­ates in China and the way it man­ages its over­seas sub­sidiaries.

Dur­ing the visit, I was briefed about how the South Korean in­surer has man­aged to achieve a dra­matic im­prove­ment in its busi­ness since An­bang took over.

The South Korean in­surer saw its sales rev­enue soar 77 per­cent in the first half of this year while its net profit reached a record high of $136 mil­lion. The grat­i­fy­ing re­sult was achieved while the South Korean in­sur­ance in­dus­try was strug­gling with a low-in­ter­est rate en­vi­ron­ment.

Though An­bang main­tained that it in­tended to en­sure the sta­bil­ity of

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Tongyang Life’s man­age­ment af­ter the ac­qui­si­tion, any­one who has some idea about M&A deals would know that no dra­matic busi­ness im­prove­ment can come with­out bold re­forms. And I won­dered what “magic” An­bang did to the South Korean in­surer.

I asked a se­nior South Korean ex­ec­u­tive of Tongyang dur­ing a meet­ing what he thought was the big­gest change at his com­pany af­ter it was sold to An­bang.

“It is cost con­trol. It is tough, as if we are in an army,” he said. “An­other thing is that age no longer mat­ters, it is one’s abil­ity that counts.”

Re­duc­ing cost and be­ing prof­itable have been high on An­bang’s agenda af­ter it took over Tongyang Life. It es­tab­lished a spe­cial com­mit­tee for bud­get con­trol to en­sure that costs are tightly mon­i­tored while main­tain­ing the qual­ity of its ser­vices and prod­ucts.

The Chi­nese in­surer also broke the highly hi­er­ar­chi­cal cor­po­rate struc­ture of Tongyang and in­tro­duced a flat­tened struc­ture with greater em­pha­sis on ca­pa­bil­ity rather than age and se­nior­ity.

When asked about An­bang’s man­age­ment con­cept, a Chi­nese ex­ec­u­tive bor­rowed the term “demo­cratic cen­tral­ism” from China’s po­lit­i­cal sys­tem to de­scribe how de­ci­sions are ex­e­cuted at Tongyang Life.

Younger em­ploy­ees are given a greater voice and role in the process of ex­e­cut­ing a de­ci­sion or strat­egy and all lev­els of em­ploy­ees and man­age­ment will be in­volved if a prob­lem arises with a cer­tain prod­uct.

I wish I could have had more time for con­ver­sa­tion with the Chi­nese and South Korean ex­ec­u­tives at Tongyang Life as it is good case study of the on­go­ing in­ter­na­tion­al­iza­tion of Chi­nese com­pa­nies, one of the most strik­ing eco­nomic de­vel­op­ments in the global econ­omy.

An­bang and other as­pir­ing Chi­nese com­pa­nies are rel­a­tive new­com­ers on the global stage and there are still many ques­tions sur­round­ing them­selves and the way they ap­proach their over­seas in­vest­ment.

The case of Tongyang Life pro­vided a win­dow for out­siders to get some in­sight into the mind­set of am­bi­tious Chi­nese com­pa­nies that are lead­ing the lat­est trend of glob­al­iza­tion and are start­ing to show their mus­cle through a string of high-pro­file in­ter­na­tional deals.

Chi­nese com­pa­nies like An­bang may not be the fol­low­ers of those con­ven­tional prin­ci­ples in the text­book when it comes to choos­ing their M&A tar­gets, man­ag­ing the lo­cal work­force and ex­e­cut­ing post­merger in­te­gra­tion strate­gies.

The con­ver­sa­tion I had with Chi­nese ex­ec­u­tives at Tongyang Life gave me an im­pres­sion that they are sharp and prag­matic with an acute busi­ness sense and a strong will­ing­ness to em­brace new tech­nol­ogy and eco­nomic trends.

It is still too early to con­clude that Tongyang Life is a suc­cess­ful M&A deal. But it is fair to say the case served as a pos­i­tive ex­am­ple of Chi­nese com­pa­nies like An­bang be­gin­ning to ac­quire more or­ga­ni­za­tional and post-merger in­te­gra­tion skills.

In their quest to ex­pand their global pres­ence, Chi­nese com­pa­nies are not just pour­ing out cap­i­tal but also their cor­po­rate cul­ture and man­age­ment philoso­phies, some of which could some­times ap­pear un­con­ven­tional to the Western world.

The good thing is that along this process the world will get to know more about these Chi­nese buy­ers, and mys­tery and mis­con­cep­tion about them may also be­gin to dis­si­pate.

Bet­ter un­der­stand­ing and more in­sight about the mo­ti­va­tion of their deal mak­ing and their post­merger prac­tice would help clear un­nec­es­sary hur­dles for the Chi­nese com­pa­nies along the way. Hope­fully this will in turn help them go global in a smarter and more ef­fec­tive way.

LEI KESI / FOR CHINA DAILY

The stand of An­bang In­sur­ance Group at an in­dus­try expo in Bei­jing.

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