Rethinking Government Relations Strategy for a New Era M&A in China: Gestern Heute Morgen! By Simon Zhang and Mathias Weidner IMAP China Desk Beijing Mannheim Shanghai International Mergers & Acquisitions Partners www.imap.com 2012 IMAP China Desk. All Rights Reserved
Compared with past decades, when Chinese companies and local authorities were desperate to attract foreign investment, these days it is the foreign investors who have to go the extra mile to win favor. Now that China has become the world s second-largest economy, with an excess of capital, some Chinese companies and government officials have begun questioning the role and significance of FDI. Many domestic companies believe they have sufficient managerial experience without foreign partners, and the government has now prioritized domestic R&D over technology transfers from overseas. Foreign companies thus must become more proactive in handling government relations to get any deals done or expand their businesses in China. Each company needs to formulate its own GR strategy depending on its size and type of business and market within China. The change in business environment is most pronounced for large projects in certain strategic sectors such as autos, steel, energy, financial services, telecoms and information technology. Investors are seeing a tightening of regulations and the promulgation of standards that favor or protect Chinese companies. Foreign companies will have to become more proactive and creative to win the warm welcome they used to receive more readily. The GR team has a wide range of responsibilities, such as government monitoring and interpretation, relationship building, and policy influence. The company chose to keep its GR team in-house since the issues it must handle are industry-specific and require a tailormade approach. The company says the GR team has helped facilitate approvals of its joint ventures and wholly owned projects in China and kept operations running smoothly. The second example is an automotive components Fortune 500 company with global annual sales of US$20 billion, about 10 percent coming from China. The company set up a three-person GR team, led by a GR and business development (BD) Director. The director focuses on facilitating the approval process for large projects, (e.g. multi-hundred-million dollar projects under review by the NDRC) with Chinese government officials and departments at the central government level. BD plays an important role in using GR to support the company s growth in China. One GR manager focuses on safety compliance, a key issue for this industry, and maintaining relationships with government officials in the plant locations (including mayors). The examples of two MNC companies which set up their own in-house GR teams, is telling. The first, a Fortune 100 petrochemical company with US$30 billion in global sales annually, has over 30 subsidiaries in China, including both joint ventures and wholly owned units. Its China revenue accounts for 10 percent of global revenues. This company set up a GR team led by a GR vice president with two dedicated GR division heads at its two most important locations in China and 3 GR staff at its China headquarters in Beijing. 2
In-house GR Leading MNCs have found it is almost impossible to find external GR consultants who are well qualified and capable of handling their GR. GR issues tend to be industry-specific, requiring the right level of understanding of industry issues, Foreign companies networking with relevant thus must become government bo- more proactive in dies and the right skills handling government relations to get any deals done or expand and experience to develop appropriate programs for industry-specific their businesses in issues. Moreover, China. lobbying efforts are a long-term endeavor, requiring trust building with the government and continuity in relationships. External consultants can manage specific tasks such as media campaigns, recruitment and branding, but are not as well suited as company employees for the longer-term commitments. Companies need to regard GR teams as important business units and avoid forcing them to operate at the margins. GR work should not be reserved just for crisis management and operational support, but needs to be proactive. A successful strategy usually involves a strong GR team with shared responsibilities across the senior and middle managerial levels of a China team. A team-work approach with a cando attitude that demonstrates the likely benefits of GR to various managers is most likely to succeed. Finally, good communications with corporate headquarters are crucial. GR activities should be coordinated globally and the company headquarters should buy into the China GR strategy drawn up by the local GR team. The China GR organization should in turn seek to build mutual trust by (a) positive thinking (b) proactive sharing of information (c) empathizing with HQ concerns. More importantly, the China GR organization should have a global mindset and seek to leverage HQ resources. For example, there is never a better time to influence Chinese government officials than when they are on a visit to a company s home country. Tailor-Made Approach and Initiative Different central level government bodies have different priorities. In quite a few industries, the NDRC focuses on industry policy, while the Ministry of Environmental Protection may be involved in specific environmental issues, and the Ministry of Finance may influence key decision-making on acquisition. It sometimes can be most important to focus on the regional level and conduct government relations in a way similar to one InterChina has found European company, that strong relations a latecomer to China, with government bodies should be based on mutual trust, with both sides seeking win-win solutions. which established itself quickly and was profitable within two years thanks to its deft handling of relations with the local government. The company is now one of the top two players in its field in the western China market. After mapping the interests of Sichuan government and our company, we decided to offer an R and D angle and local sourcing. We are supported by a high level of engagement across the China organization and coordinated by a joint management committee who reported to the Sichuan provincial governor and our China CEO, a senior executive of the company said. 3
Each region has its own priorities. Shanghai authorities, are focused on innovation and developing the city s services industries. Economic transformation and upgrading top Zhejiang province s agenda. Western Chinese provinces are emphasizing economic development and foreign investment. A GR team should identify potential synergies and ensure its company s own interests and goals dovetail with the aims of local authorities. One of the best medium to longer-term strategies is to develop personal government relationships and to participate in well-known local trade associations such as CAEFI (the China Association of Enterprises with Foreign Investment) or academic and research institutions such as the SDRC (State Development Research Center) and major universities. China s leaders place great value on reporting from elite institutions, and leading experts on a given topic often work for such institutions. Good professional relationships with such people can be invaluable. InterChina has found that strong relations with government bodies should be based on mutual trust, with both sides seeking win-win solutions. Companies should keep government needs in mind and provide support for government events, supported by a strong GR presence. Devising a GR Strategy A good starting point for drawing up a solid GR strategy is to map out the company s own ambitions in China and identify key government officials and departments that can be crucial to achieving those goals. China s government structure is complex and evolving, so it is important to try to pinpoint those involved in decision making. For some industries, mid-level government officials can be more influential in decision-making loops than higher-level cadres. The balance between central and local governments is also important. For example, one leading FIE construction materials maker planned to focus its first steps in China on the western regions. After a careful study, it decided to focus on provincial-level GR rather than on relations with the central government. Such a thoughtful, strategic approach can help a company smoothly navigate its way into local markets with a minimum of regulatory headaches. Contributed by Mr. Simon Zhang, Consulting Managing Director, Strategy Practice IMAP China Simon Zhang, a Chinese national, is Managing Director of IMAP China s Strategy Practice and is located in IMAP China s Shanghai office. He has led projects and advised clients for over 15 years in the automotive, chemical, energy, renewable energy, environment, machinery and F&B industries. Mr. Zhang currently assumes the leadership of both IMA China s Chemical Sector Group, and its Clean Tech Sector Group. Edited by Kazuhiko Shimizu, Shanghai-based writer and editor. 4
IMAP China Consulting Specialist in China M&A Advisory IMAP China is one of the leading advisory firms in China, and the number one alternative to the global consultancies and investment banks. Our team of 50 professionals has conducted over 500 strategy projects and closed more than 150 transactions, with an aggregate value of USD 3 billion. We provide full cross border M&A advisory services to multinationals expanding in China, Chinese companies investing overseas, and on strategic divestments. Our practice of 25 advisors is comprised of senior Chinese negotiators with strong corporate development, investment banking, private equity and Big Four backgrounds. Strategy Consulting We work with clients to capitalize on top line growth opportunities while also addressing long-term profit protection. Our practice of 25 consultants is organized around sector specializations with substantial project experience. We conduct ~40 mandates each year, providing clients with transparency and control from start to finish Contact Us We have two operations offices in China (Beijing and Shanghai) supported by two liaison offices in the West (Madrid and Washington D.C.). For further information, please visit our website at www.imap.de/chinadesk 5
M&A in China: Gestern Heute Morgen! Von Mathias Weidner, Partner und Chair China Desk bei IMAP M&A Consultants AG China hat sich in den letzten Jahren von einem Billigproduktionsstandort zu einem der weltweit interessantesten Absatzmärkte entwickelt. Die Kehrseite der Medaille ist ein härter werdender Wettbewerb. Galt China nach seiner Öffnung für ausländische Investitionen Anfang der 80er Jahre dank niedriger Produktionskosten lange Zeit primär als verlängerte Werkbank und billige Beschaffungsquelle, hat sich das Land in den letzten zehn Jahren eindrucksvoll zu einem der weltweit dynamischsten Absatzmärkte entwickelt. ausländischen Unternehmen auch die Chance, aus der beginnenden Konsolidierungsphase gestärkt hervorzugehen. Notwendig ist hierzu neben wettbewerbsfähigen Produkten und Dienstleistungen eine griffige Markteintritts- oder Expansionsstrategie. Von den enormen Kaufkraft- und Absatzpotentialen angezogen, haben sich mittlerweile allein rund 5000 deutsche Unternehmen mit einer eigenen Produktions- oder Vertriebstochter erfolgreich im chinesischen Markt etabliert. Besonders eindrucksvoll ist dies Volkswagen gelungen: China ist heute der weltweit größte Einzelmarkt für VW. Der stetige Markteintritt neuer Wettbewerber hat aber auch zu einer erheblichen Konzentration geführt. So betrug 2010 der Marktanteil der Top 20-Unternehmen in der Haushaltsgeräteindustrie beeindruckende 47,3 Prozent. In der Automobilindustrie waren es über 34,0 Prozent und in der für deutsche Unternehmen so wichtigen Maschinenbaubranche betrug der Anteil der Top 20-Unternehmen schon über 20,0 Prozent. Noch eindrucksvoller ist die Entwicklung in der Zementindustrie. Dort hat sich der Marktanteil der Top 10-Player seit 2005 von 15 Prozent auf heute über 41 Prozent fast verdreifacht. Save-the-Date Im Rahmen der Best Practice China-Veranstaltungsreihe beleuchten die China- und Transaktions-Experten von IMAP und der Wirtschaftskanzlei Graf von Westphalen die Rahmenbedingungen für Unternehmensakquisitionen in China sowie die markantesten Unterschiede im Ablauf von M&A Prozessen. Danach diskutieren Vertreter von internationalen Großunternehmen mit Ihnen die aktuelle Situation aus Unternehmersicht und erörtern Chancen, Risiken sowie mögliche Strategien. Die Veranstaltung findet am 06. November 2012, 18:00 Uhr, in Hamburg statt. Eine Einladung erhalten Sie in Kürze mit separater Post. Nicht zuletzt aufgrund protektionistischer Bestrebungen der chinesischen Zentralregierung, der rasant wachsenden Bedeutung chinesischer Großunternehmen und sich stetig verteuernder Produktionsressourcen wird sich der Wettbewerb künftig weiter verschärfen. Andererseits bietet die aktuelle Situation 6
Weil Pioniere eigenen Ideen folgen Ihr Unternehmen hat eine eigene Geschichte und einen eigenständigen Charakter. Wir gehen respektvoll damit um. Mit unserer langjährigen Erfahrung begleiten wir Sie auch bei internationalen Transaktionen und sichern Ihnen den Zutritt in wachstumsstarke Schwellenländer. Gegründet im Jahr 1973, gilt IMAP heute als erste und größte Organisation für Merger & Acquisitions mit Niederlassungen in 35 Ländern. Unsere qualifizierten unabhängigen M & A Berater sind spezialisiert auf internationale Akquisitionsaufträge und Verkaufsmandate mittelständischer Unternehmen mit einem Umsatzvolumen von 10 300 Millionen Euro. Zu unseren Kunden zählen vorwiegend Familienunternehmen, aber auch große nationale und internationale Konzerne sowie Finanzinvestoren und institutionelle Anleger. Im Jahr 2011 wurden 225 Transaktionen mit einem Volumen von fast 11,3 Milliarden USD erfolgreich abgeschlossen. Profi tieren auch Sie von unserer globalen Präsenz und unseren Kontakten. IMAP M&A Consultants AG Harrlachweg 1 D-68163 Mannheim T +49 621 3286-0 F +49 621 3286-100 info@imap.de www.imap.de Gerne beraten wir Sie persönlich. Argentina Austria Belgium Brazil Canada Chile China Costa Rica Croatia Czech Republic Denmark Finland Egypt France Germany Hungary India Ireland Italy Japan Mexico The Netherlands Norway Poland Portugal Sweden Spain Switzerland Turkey United Kingdom United States IMAP_AZ_27112011.indd 1 29.11.11 13:26 7
IMAP China Desk Mathias Weidner Office +49 621 32 86 41 Mobile +49 172 674 02 92 Email mathias.weidner@imap.de Lisa Wang Mathias joined IMAP Germany in 1998. As partner he advises medium-sized companies and medium-sized groups with national and international transactions, especially in Asia. As a generalist and Chair of the IMAP China Desk in Germany he is responsible for cross-border transactions between Germany and China. Prior to IMAP, Mathias led international restructuring and financing projects as well as transactions in the middle market. Lisa Wang is Senior Consultant of IMAP China based in its European office (Madrid, Spain). The objective is to be close to clients for project coordination, project followup and commercial activities. Wang has over 7 years of consulting experience, specialized in conducting investment projects to both Western and Chinese companies of various sectors (including Machinery, Renewable Energies, Environment, Industrial Distribution and Automotive sectors). Office +34 914 119 302 Mobile +34 6199 179 79 Email lisa.wang@imap.de Martin G. Schmitt Office +49 621 32 86 42 Mobile +49 172 713 20 85 Email martin.schmitt@imap.de Martin Schmitt has been working for IMAP Germany since 2006. As a project manager he is responsible for national and international projects from acquisition to closing. Prior to joining IMAP Germany, Martin worked in the financial, civil engineering and consulting sector for several large companies. During his activities at a renowned construction machinery manufacturer in Shanghai (China) he gained much experience about the work and culture in China. Martin graduated from the University of Applied Sciences in Ludwigshafen, Germany, holding his Master in Business Administration in controlling, management, information and consultancy. Franc Kaiser Office +86 21 6341 0699 50 Mobile +86 136 61 89 1710 Email franc.kaiser@imap.de Franc Kaiser, a Swiss national, has joined IMAP China in 2006, but looks back on 10 years of work experience with consulting and advisory firms in China. Franc has been a senior consultant and engagement manager on strategy and M&A related projects in various industries, mainly in machinery (machine tools, components, and healthcare (pharmaceuticals, medical devices), and now works closely with clients on reaching growth and expansion targets in China. Franc holds a Bachelor in Business Administration of the University of Applied Sciences Northwestern Switzerland, and speaks German, English, French and Chinese. 8