Man­ag­ing takeovers

Chi­nese com­pa­nies get bet­ter at han­dling for­eign firms

China Daily (USA) - - FRONT PAGE - By LI XIANG in Seoul lix­i­ang@chi­nadaily.com.cn

Chi­nese com­pa­nies, of­ten rich in cap­i­tal but with lim­ited ex­pe­ri­ence in man­ag­ing cross-bor­der in­vest­ment, have been putting more ef­forts into sharp­en­ing their skills on post-merger in­te­gra­tion as the lat­est wave of out­bound merg­ers and ac­qui­si­tions presents a num­ber of ma­jor chal­lenges.

An­bang In­surance Group Co Ltd, the Bei­jing-based in­surer which gained promi­nence for its high-pro­file global ac­qui­si­tions, is among the Chi­nese com­pa­nies that have started reap­ing re­wards from their over­seas ac­qui­si­tions thanks to the ef­fec­tive ex­e­cu­tion of post-merger strate­gies.

South Korean firm Tongyang Life In­surance Co, which An­bang ac­quired for $1 bil­lion last Septem­ber, saw its net profit hit a record high of 155.5 bil­lion won ($136 mil­lion) in the first half of this year, up by 18.2 per­cent from a year ear­lier. Sales rev­enue also soared by 76.6 per­cent to reach 4.09 tril­lion won.

Se­nior ex­ec­u­tives at An­bang and Tongyang Life at­trib­uted the im­prove­ment in busi­ness to the adop­tion of An­bang’s busi­ness strate­gies and man­age­ment con­cepts.

While main­tain­ing the sta­bil­ity of Tongyang’s South Korean man­age­ment team, An­bang in­tro­duced some bold re­forms in­clud­ing in­tro­duc­ing a flat­tened corporate struc­ture with greater em­pha­sis on ca­pa­bil­ity in­stead of age and se­nior­ity.

Such ar­range­ments have im­proved the firm’s op­er­a­tional ef­fi­ciency and ser­vice qual­ity, which in turn helped re­duce client com­plaints, ac­cord­ing to Zhang Ke, vi­cepres­i­dent and chief fi­nan­cial of­fi­cer ofTongyang Life In­surance.

An­bang also es­tab­lished a spe­cial com­mit­tee for bud­get con­trol to en­sure that costs are un­der tight con­trol while main­tain­ing the qual­ity of its ser­vice and prod­ucts.

“We make our goals clear, which are con­trol­ling costs, while en­hanc­ing pro­duc­tiv­ity and com­pet­i­tive­ness,” said Han S. Koo, pres­i­dent and chief ex­ec­u­tive of Tongyang Life In­surance.

An­bang’s em­pha­sis on mo­bile tech­nol­ogy and the in­ter­net has boosted Tongyang’s pre­mium in­come, and the ra­tio of sales through smart­phones has been lifted from just 10 per­cent in 2013 to 50 per­cent to­day.

By ab­sorb­ing An­bang’s man­age­ment ideas, Tongyang Life In­surance has be­come a lead­ing in­surer in South Korea and gained the op­por­tu­nity to be­come an in­ter­na­tional player thanks to the broader in­vest­ment ac­cess pro­vided by the Chi­nese par­ent com­pany.

An­bang also im­proved the pay struc­ture at Tongyang Life In­surance, en­cour­ag­ing lo­cal em­ploy­ees and mo­ti­vat­ing them to con­trib­ute ideas which are prov­ing ben­e­fi­cial for the com­pany.

The case of An­bang and its South Korean sub­sidiary could show that Chi­nese com­pa­nies, in­stead of just pour­ing cap­i­tal over­seas, are be­gin­ning to ex­port and prac­tice their man­age­ment skills in cross-bor­der in­te­gra­tion.

In­dus­try ex­perts post-merger said that the change in the­wayChi­nese firms work with their in­vest­ments and their will­ing­ness to mo­ti­vate lo­cal man­age­ment would help drive stronger busi­ness per­for­mance in the fu­ture.

“We’ve seen changes in the way Chi­nese firms work with their in­vest­ments on the ground. Chi­nese firms are now more will­ing to al­low lo­cal man­age­ment a greater stake in the op­er­a­tion, there­fore in­cen­tiviz­ing man­age­ment to work with the new own­ers,” said Annabella Fu van Bi­j­nen, a part­ner at law firm Lin­klaters LLP.

“This al­lows lo­cal man­age­ment to con­tinue work­ing within the busi­ness, but also em­pow­er­s­them­tomake good de­ci­sions and drive stronger per­for­mance,” she said.

China’s out­bound for­eign direct in­vest­ment reached $99 bil­lion in the first half of this year, more than 50 per­cent up from the same pe­riod last year, ac­cord­ing to a re­port by ac­count­ing firm Ernst & Young LLP.

Grace Tso, M&A Part­ner at law­firm Baker& McKen­zie in HongKong said that there are sim­i­lar­i­ties in M&A deals which end up in a suc­cess­ful in­te­gra­tion.

“Of all el­e­ments, the most cru­cial ones will be plan­ning and com­mu­ni­ca­tion: An or­ga­nized, de­tailed plan­ning and clear, fre­quent and con­sis­tent com­mu­ni­ca­tion, both be­tween func­tion teams and em­ploy­ees in­ter­nally and to the mar­ket ex­ter­nally,” she said.

De­spite the surge in the vol­ume and value of out­bound M&Adeals car­ried out by Chi­nese firms, bridg­ing the cul­tural di­vide and tack­ling com­plex cross-bor­der is­sues in­volv­ing fi­nanc­ing, con­tract­ing, and the en­vi­ron­ment re­main daunt­ing chal­lenges, in­dus­try ex­perts said.

“The de­sire for ex­pan­sion poses a crit­i­cal chal­lenge to the over­seas in­vest­ment and op­er­at­ing abil­i­ties of Chi­nese en­ter­prises. ‘Go­ing out’ is not

theul­ti­mat­e­goal, rather, thekey is how far you can go and how suc­cess­ful you be­come,” said Al­bert Ng, China man­ag­ing part­ner at Ernst& Young LLP.

China’s out­bound FDI could reach a record high in 2016, ex­ceed­ing $170 bil­lion, ac­cord­ing to Ernst & Young.

“The chal­lenges for Chi­nese en­ter­prises are toim­provetheir strate­gic de­ci­sion-mak­ing and op­er­at­ing ca­pa­bil­i­ties, seize the op­por­tu­ni­ties and gen­er­ate new­drivers for growth in or­der to sur­vive— andthrive— inthe in­ter­na­tional mar­kets,” Ng said.

Tracy Wut, M&A Part­ner at Baker & McKen­zie in Hong Kong, said that there is no one­size-fits-all in­te­gra­tion process but some key el­e­ments, in­clud­ing iden­ti­fy­ing the group’s strate­gic ob­jec­tives set by the se­nior man­age­ment, will help make a suc­cess­ful in­te­gra­tion.

“Key­man­age­ment­per­son­nel should con­tinue to be in­volved in both com­pre­hen­sive in­for­ma­tion gath­er­ing phase and in strate­gic and tac­ti­cal de­ci­sion­mak­ing dur­ing the en­su­ing anal­y­sis phase,” Wut said.

Suc­cess­ful cases such as South Korea’s Tongyang Life In­surance may help to defuse sus­pi­cions re­gard­ing mas­sive over­seas buy­outs by Chi­nese firms that have re­cently en­coun­tered grow­ing ob­sta­cles in some Western coun­tries, such as the Ger­man au­thor­i­ties’ with­drawal of the ap­proval of a Chi­nese com­pany’s takeover of Ger­man chip equip­ment maker Aix­tron SE.

Chi­nese in­dus­try ex­perts said that the­movewill ham­per the 670-mil­lion-euro ($742 mil­lion) deal by Fu­jian Grand Chip In­vest­ment Fund LP and have neg­a­tively im­pacted on the cred­i­bil­ity of the Ger­man govern­ment. Jing Shuiyu and ZhouWa con­trib­uted to this story

WANG XIAOYING / CHI­NADAILY

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