Preempting & Solving Future M&A/JV Issues in China Now

It is becoming particularly difficult to design partnership models in China, a market that’s rapidly changing and will be dramatically different in two to three years. However, given the size and scale of China, it’s likely that M&A will continue to become a recurring critical issue for MNCs, so it’s worth it to get it right. I recently participated in a teleconference with FSG clients, comprised of general managers and heads of strategy for Asia-Pacific and China. I have included several key takeaways from the conference below.

  1.  Partnerships in China are a “marriage of convenience” and never a “match made in heaven.” In order to succeed with a partner in China you need to have an open mind, a willingness to engage like you have never been engaged before, flexibilities to deal with whatever is thrown at you, and determination to stay the course.
  2. Strategic alignment with local partners is utopian in China. At the simplest level, Chinese companies want know-how while foreign companies want market access. If MNCs are not careful about the potential know-how loss, this marriage will be dissolved in a flash or alternately maintained but milked to your detriment.
  3. Always give yourself options when selecting partners: try to approach partner selection by giving yourself options. At the very least, this helps your negotiation position and also ensures your ultimate selection is more considered.
  4. The transaction process is often unpredictable in China and rarely is completed on-time. That’s why it is sensible to try to run discussion in parallel rather than end to end. Don’t let impatience or frustration lead to unnecessary compromise or poor deals. 
  5. It is critical to manage headquarter expectation: Managing expectation of key stakeholders is critical and this requires clear, consistent, and frequent communication. Despite the limitation of written agreements, one of the best strategies is to commit intentions to writing and get all parties to sign. This tactic can be applied not just externally but also internally with headquarters. MNCs can conduct post-venture reviews of the partnership and evaluate best practices for future acquisitions.

I’ll be participating in more conversations around this topic in the next 2-3 months and look forward to sharing additional highlights.

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