CHINESE UPDATE – China Inc.’s Revamped Cross-Border Takeover Strategy Shows Signs of Success, Correcting the Mistakes of the First Wave of Chinese Foreign Acquisitions

Executive Summary/Highlights:

  • The first wave of cross-border takeovers by Chinese companies, between 2000 and 2007, was unsuccessful because of a number of strategic and tactical mistakes, including pursuit of inexpensive deals and troubled companies that were difficult to turn around; evaluation of potential deals based mostly on the financials of the target and paying little attention to systems, people, brand value and other intangibles; not following the rules of the road in M&A processes; and insufficient attention to post-acquisition integration and the value of the target’s products and services in the domestic Chinese markets.
  • China Inc. quickly bounced back from its initial failure, with a revamped strategy and approach, which have been on display in the last few years.  The hallmarks of the new approach are:
    • Buying hard assets and natural resources, or state of the art technologies and R&D facilities.
    • Using the target company’s technology, brand or other strengths to build the acquiror’s position in the fast-growing Chinese market, rather than focusing too heavily on foreign markets
  • The jury is still out on how successful China’s new strategy will be, but the initial results are promising.

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