6. Clarify decision rights up front. It’s common practice in the West to negotiate the important parts of a deal up front and work out the details later, but this can be problematic in China. A key example involves decision rights. It’s crucial that companies define decision-making processes, roles, and responsibilities at the outset, to avoid unpleasant surprises. One MNC learned this the hard way when the management team of its Chinese partner was suddenly exchanged with that of its direct competitor.
7. Go easy on the integration. Because even the best Chinese companies remain somewhat unsophisticated compared with their Western counterparts, it is often tempting for MNCs to immediately impose their own way of working on their Chinese partner. The danger, however, is that the very qualities that made the Chinese partner attractive in the first place will be destroyed as costs rise and business operations become overly complex and bureaucratic. Although most Chinese firms could certainly benefit from some support, MNCs have to be deliberate about what to change and what to leave alone, and not make too many changes too soon.
8. Find ways to earn trust. Chinese businesspeople and regulators can be highly suspicious of Western motives, an attitude stemming from repeated humiliations at the hands of the West in the 19th and early 20th centuries—the memory of which is still very much alive in China today. Their concerns are only exacerbated by most MNCs’ market-based, short-term profit orientation, which can easily be misinterpreted as exploitation. As a result, it is important for MNCs to stress their long-term commitment to their Chinese partner. They also need to empower the deal team—having to check with headquarters for every important decision doesn’t exactly promote trust, especially because Chinese managers tend to make decisions quickly—and make sure their most senior executives are actively involved in discussions.
M&A remains essential to virtually all MNCs’ China strategies. This includes the hapless latecomers searching for a suitable partner among the few remaining high-potential candidates; companies that didn’t get it right the first time and that are now saddled with underperforming partnerships; and those that have been successful but are discovering that China’s rapidly changing business and regulatory climate demands entirely new arrangements. These eight best practices won’t solve every problem, but they’ll go a long way toward ensuring that deals run smoothly—and end in successful partnerships.
Author Profile:John Jullens is a partner with Booz & Company based in Shanghai. He co-leads the firm’s engineered products and services practice in Greater China. He blogs at www.johnjullens.com.