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Chinese enterprises should better prepare for integration
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16:32, June 04, 2009

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Chinese enterprises active in global restructuring

Conflict managment an important lesson for China's overseas buyout

The current financial crisis is presenting Chinese enterprises with a rare opportunity to "go global." The acquisition of General Motors Corporation (GM) "Hummer" brand name by the Chinese private enterprise Sichuan Tengzhong Heavy Industrial Machinery is an example that should be encouraged. Post-acquisition integration is more important and more challenging however.

Quickly following on from the news that GM has filed for bankruptcy protection, it is learned that GM will sell its famous SUV "Hummer" brand to a Chinese enterprise.

Under the financial crisis, the Chinese enterprises that dare "go global" should be encouraged. At present, the Chinese macroeconomic situation is in good shape with adequate foreign exchange reserves, and Chinese enterprises have improved their international competitiveness and transnational management capacity, and there is a relatively sound development base for overseas investment and cooperation.

Moreover following the outbreak of the financial crisis, foreign countries have a more welcoming attitude towards foreign investment to revive their economies. With some fields in which foreign investment was previously forbidden now open to foreign investment and a significant adjustment to the global economic order caused by the crisis, opportunities for overseas investment and acquisition of high-quality enterprises and assets have increased. Investment costs have lowered and transaction conditions have improved.

It could be said that Chinese enterprises are faced with a rare opportunity for transnational investment, and the acquisition of Hummer brand by Sichuan Tengzhong Heavy Industrial Machinery is only one part of Chinese enterprises' participation in the restructuring of the global industry.

However, we should be aware that the financial crisis will bring considerable uncertainty to the world economy, as well as more market risks for the Chinese enterprises investing overseas. There is a big gap between Chinese enterprises and foreign multinational companies when it comes to financial strength, marketing channels and management experience because the overseas investment history of Chinese enterprises is very short and their internationalized operation started very late. The merger success rate is thus not particularly high. There is already the "lesson" of the Shanghai Automotive Industry Corporation Group, which got itself into a mess when it acquired ROK's SsangYong Motor.

The attitude of "money doesn't matter" cannot solve all the problems when it comes to company mergers, because the real challenge of integration will appear after the merger. Integration involves not only finance and business, by merely adding them together, but also other problems such as transnational cultural conflicts and management conflicts.

Chinese enterprises need to prepare well and have sufficient knowledge of the political, economic, cultural and legal situation of the countries where the acquired enterprises are located, as well as international accounting norms. Only by doing this can Chinese enterprises realize sustained development.

By People's Daily Online

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