It’s not been hard for them to find willing acquisition targets. Established western companies, especially those based in the US, UK, Germany and Australia, are the most appealing – with insurance, property, advanced manufacturing and entertainment some of the more attractive sectors.
Chinese appetite for foreign acquisitions seems insatiable, offering western management teams and directors the chance to salivate over bumper price tags that a wealthy suitor is willing to stump up. Hardly a week goes by without another deal reported in the international media.
While China’s acquisition pipeline may slow now that Beijing is preparing new restrictions to curb capital outflow and so called fake deals, takeovers will still proceed as Chinese companies seek to buy IP and popular brands that offer genuine value enhancement. The go out policy still stands but it’s being finetuned.
At first glance this all sounds like a deal bonanza and win-win for both Chinese and western companies. Not quite. Leaving new restrictions aside, all is not well in M&A town.
Despite high valuations and broad shareholder support for takeovers, a growing number are hitting roadblocks or have been canned altogether. The commercial merits of the transactions should be left to the CEOs and bankers to argue but it is rarely the logic, synergies or price that are creating a problem.
The real obstacle is that western regulators and governments are increasingly uncomfortable about the number of national flagships being picked off and placed under foreign control. A pioneering business going under Chinese control is of particular concern given the delicate politics at play. Skyscanner selling out to CTrip.com is a good example that led to loud demands for greater protection of the UK’s tech champions.
Cross border M&A is of course one of the consequences of the current global capitalist system, which the west has been happy to build, promote and pursue for decades, but the tables turning so quickly in China’s favour seems to have surprised and shocked many. The lack of reciprocity is another bone of contention.
True, in some cases, the justification for reassessing (Hinkley Point in the UK) and rejecting (Ausgrid in New South Wales) is perfectly sound. National security must be a priority for governments and deals that potentially put this at risk should rightly be scrutinised.
But, unfortunately, it’s not just national security issues that are causing many of these China deals to falter. Caution in the west about China’s underlying motives, and by extension its business sector’s, has reached a tipping point. It now seems that virtually any Chinese attempted acquisition of a western firm receives, at best, a lukewarm welcome. Most suffer long delays and a painful, uncertain process of review.
This problem has become so common that insurance products are now being created specifically for Chinese firms to protect against the heightened risk of regulatory intervention, especially in the US, where there has been the largest interest in corporate takeovers.
Rightly or wrongly, being forced to worry about regulatory approval is now part and parcel of the transaction process for a Chinese business targeting the western world – a trend that has not evaded the media’s attention, which report fulsomely on the highs and lows, politics and people trying to complete a takeover.
The sheer pace and volume of deal activity associated with Chinese companies is one reason for the extra caution and concern. In fairness, there probably is a need to pause for breath, to ensure that something critical isn’t being missed or certain core interests, like keeping local jobs, are secured for the long term.
The other reason is more challenging. Clearly, whether in politics or business, and despite effusive language from officials in public, there is a deep distrust running under the surface when it comes to relations between the west and China. Rising protectionism is the unpleasant result.
China cries foul of course, arguing that protectionism is wrong and that considering the west wants a slice of its enormous consumer market, it’s only right that Chinese companies can freely operate and invest overseas. Worryingly, some Chinese investors claim the problem is little more than institutional discrimination or China-phobia.
Whatever the reasons, having ambition, a target and lots of money is no longer enough for China’s go out policy to proceed smoothly. Meanwhile, its appeals to avoid protectionism are falling on deaf ears as the west lurches toward anti-populist movements – Brexit, Trump, Renzi’s demise, Le Pen’s rise, etc.
Of course, from a public relations perspective, the underlying issue facing Chinese firms abroad – whether in acquisition mode or simply expanding their own operations – is obvious: China has an image problem.
China’s shift to the forefront of global commerce has been rapid. Fast enough to make governments, regulators, media, and the general public feel uneasy. At a basic level, they do not feel they really know who they are dealing with, which is a knowledge gap only exacerbated by differing business cultures and a significant language barrier.
Just look at the roadblocks and reputational challenges Huawei – which only started putting its own brand name on its phones around six years ago – has faced trying to operate in the US. Many American officials have accused the company of being a Trojan horse for the Chinese military. Meanwhile, back in Asia, this is considered one of the most innovative, successful and best known businesses around.
The extent of China’s image problem in the west is severe when some of its biggest firms face such hostility. But, the tools to build bridges, improve public and institutional awareness, and foster better relations, ultimately lie in the hands of the country’s business community.
Yes, governments set the overarching sentiment, and the differences between political systems will always draw some scepticism and negativity in the west, but it will be the words and action of expanding Chinese businesses that can enable a sea change in western perception.
It doesn’t matter how genuine a Chinese company’s intentions are, reality and perception are not the same thing. What a company does, says, and what others say about it are the critical components that form corporate reputations. These areas must be carefully tendered to by management teams.
If China wants to smooth the path for its go out policy, both now and in the future, Beijing needs to clearly set out that it expects a commitment to transparency and full disclosure from its businesses, regardless of size, sector or influence. It should also seek to reward quality corporate reputations, benchmarking them against the best on a global scale. To achieve this, a professional and enduring approach to external communication is vital.
Some Chinese companies are already doing this of course – and they are regarded as flagships for China Inc’s respectable corporate image as a result. Alibaba is a good example, with its listing in New York proving to be a reassurance about corporate governance and transparency, at least to a certain level.
Huawei, for all the challenges it faces about its underlying motives, is also a quality communicator. It hires experienced professionals in-house and seeks advice from local market experts to ensure the company addresses media scrutiny and provides avenues for journalists and the public to learn more about the business, whether tours of its Shenzhen headquarters or events with management in London.
Others are not so good, particularly those in non-consumer facing sectors where there is less regular scrutiny of a business. Despite ambitions overseas, many of these companies have still failed to update their websites or make them available in other languages. This is normally evidence of where communications sits within management’s to do list. Sadly, these companies will learn the hard way if a crisis arises, which could lead to a premature end to their operations altogether in unforgiving markets like the US or Australia.
The Chinese government and many of its companies are aware of the need for regular communications and better reputations, especially in the digital era and with cross border engagements commonplace for ambitious businesses. But, for various reasons, putting in place the internal structures and procedures needed to promote and protect their corporate brand (and by default China’s image internationally) has not been culturally engrained.
This is not to say western companies are perfect, far from it, and lessons have been learnt the hard way; but, there is a much greater understanding and respect for the power of consumer sentiment in markets with a free and active media environment. So, given the considerable obstacles now facing Chinese firms as they look to “go out” and thrive, this should be the moment that China and its business community puts an end to its image problem. The political and commercial rationale has never been greater.
Top tips for Chinese corporates:
1. Understand the need to communicate in foreign markets and spend time planning how to do this
2. Understand local market influences on the public and importantly the media landscape
3. Professionally media train your spokespeople – they will be the face of your business
4. Localise your digital real estate – consider your website, social channels, Wikipedia page, etc.
5. Don’t just rely on advertising to tell your story – markets have different drivers of sentiment
6. Invest in quality content
7. Invest in quality, locally informed counsel
8. Take pride in flying the flag for China’s business community – communicating is an opportunity to inform, persuade and adjust opinions
By Sam Turvey, Partner & Managing Director, Bell Pottinger Hong Kong
This article originally appeared in Focus magazine – the official publication of the China-Britain Business Council (CBBC) and British Chamber of Commerce in China (BritCham).