This is China! BLOG

China Summit for Business Development Leaders 2007

I recently served as co-chairman of the 2007 China Summit for Business Development Leaders. Global Intelligence Communications (GIC) hosted the event. The event took place in Shanghai Thursday and Friday, 12-13 July, 2007.

The first day of the Conference addressed strategy and tactics in developing a China business. The second day of the Conference looked to Mergers & Acquisitions (M&A) as the latest vehicle for growth in the China market. I also delivered a talk on the first day entitled, “The Half-Life of Guanxi: Negotiating with Chinese Government and Business Partners.” The Conference brought together company executives and speakers from China, Europe, the United States, Singapore and Hong Kong. Personally, I found the topics interesting and engaging, and learned quite a lot, especially about the state of the trend toward M&A transactions in China.

Some of the take-aways from the Conference included:

Herve Richert, Executive Vice President of Corporate Development at Michelin, a French tire maker, started off the Conference by detailing the M&A process with a close look at building the team that will handle the transaction. One of the points he underscored was what he called “pre-meeting meetings,” small, targeted sessions in which protocol and general terms of agreement are identified before actual negotiations begin. Herve also made the point that the lawyers should be involved in the M&A transaction from the beginning; otherwise, they could derail the discussions with legal obfuscation if brought in too late into the proceedings.

Adam Salzer, CEO of Salzer Consulting, an HR consultancy, noted through several case studies how important just after a merger or acquisition it is for Western companies to be diligent about any bad habits Chinese companies may have adopted under the previous leadership. In particular, any individuals who have even a whiff of corruption about them need to be summarily sacked to send out the message the new company will not tolerate any such behavior. It becomes progressively more difficult to build new, more transparent business structures as time goes by after an M&A transaction, so beginnings matter.

Violet Ho, Managing Director of the Beijing office of Kroll Associates, ran through a series of survey results of risky behavior and how Chinese people and American people each perceive the events and how they would respond. Consistently, Chinese people chose what Americans – or what any Westerner – would consider the more risky response that would in Western contexts be considered illegal and/or questionable at best. Ultimately, her point was that much of the risk of doing business in China can be traced to cultural proclivities that will not be dissolved any time soon.

Mr. Jin Jian, Partner, Client Management, Deloitte, gave a rousing speech in Chinese language that would stir the blood of any Party apparatchik. Indeed, the customer base he manages are the managers of some of China’s largest State Owned Enterprises (SOEs). Ultimately, the little emperors [my words, not his] that run these fiefdoms need love too. They need to be pandered to, one’s approach, relationships and even language (EVEN if you are a Chinese speaker) need to be localized to finally transact a deal with them.

In my own talk “The Half-life of Guanxi” I discussed through a variety of war stories just what Guanxi is (at it’s best: relationships of mutual obligation; at its worst: favor-swapping with fuzzy ends never fully articulated); and how limited it is as a business tool: it is radioactive, and if not properly and definitively managed will quickly breakdown, get all over you and make you ill. I also presented a unique chart I’d created that identified where in China Guanxi trumps Business Principles; that is, who and what regions in China to be wary when doing business and with whom international business practices are the guiding principle.

Michel Brakelmans, Senior Manager with L.E.K. Consulting, detailed through several case studies how Net Present Value (NPV) tools for projecting into the future the financial performance for a company can provide valuable insights into how a business will perform in the future in China. Of course, the point was brought up by an audience member that China’s industries are so dynamic now that NPV can only be as accurate as the variables are fewer. Michel indicated that the NPV analyses are equally inaccurate as applied to the many circumstances a company may meet, and that the consistency of inaccuracy still provides some insights into how the enterprise will develop in the future.

Steven Ganster, Managing Director of Technomic Asia, spoke on the importance of placing strategy before business structure. He also elucidated how Western companies that are looking at China as a low-cost manufacturing platform really need to closely analyze the true costs of making and shipping their products now and in the future.

Alex Tham, VP of Business Development at Alcan, the minerals company, delivered an Alcan case study of just why and how the integration phase of an M&A transaction is the most important. In his example, he explained that a deal Alcan had made at the end of the 1990’s unraveled shortly after because of fundamental differences of opinion that had not been addressed when the companies began working together.

Edan Lee, Managing Director of Olympus Capital Holdings Asia, shared his experiences in China dealing with private and State-owned enterprises. Due diligence, he emphasized, is the key to confirming ahead of a buy-out whether an investment will prove fruitful or not. Particularly interesting were the due diligence challenges he outlined that require special attention: Financial, Legal and Commercial; all of which he fleshed out with actual stories and case studies.

In general, I found most of the talks enjoyable and educational and look forward to participating as a chairperson and/or speaker in the next GIC China event.

Bill Dodson
SUZHOU, China