If all it took was a wad of cash to take over the world, then China would have easily done it. It owned a record amount of $3.8 trillion in Treasuries by the end of last year, and its appetite for acquiring foreign companies shows no signs of weakening. A recent example of China’s expansion abroad is the acquisition of British electric-vehicle startup Emerald Automotive by Chinese carmaker Geely last weekend. A year ago, the Zhejiang-based company also acquired Manganese Bronze Holdings—the manufacturer of London cabs—and Sweden’s Volvo Car Corp. in 2010.
These acquisitions are seen as success stories but in reality, there are far more failed cases of overseas acquisitions than successful ones. Zhao Zhongxiu, Vice President of University of International Business and Economics in Beijing, was quoted in a China Daily article as saying that most failed cases are not disclosed to the public because people love to flaunt successful cases and avoid talking about failures.
Industry experts attribute those failures to cultural gaps, inadequate post-acquisition integration, a lack of strategy and competitive experience. Other deals have also flopped because of national security concerns in the U.S., for example CNOOC’s attempt to buy Unocal in 2005 and Huawei’s attempt to buy 3Com, an American maker of Internet router and networking equipment in 2011.
But in general, many Chinese firms are still relatively new to merger and acquisitions (M&A), even though the so-called “Go Global strategy” has been around more than a decade. It was first initiated in 1999 by the Chinese government to promote Chinese investments abroad. China—15 years later—is now the world’s third largest investor with its overseas investment totaling $61.6 billion in September 2013—a 17.4% year-on-year increase.
In 2014, most of these investments are expected to be realized through M&A as it allows companies to adopt foreign technologies and get into new markets. And if you wonder which Chinese companies to watch this year, you can check out Forbes magazine’s list of 14 Chinese companies going global in 2014. Keep in mind, though, that just because they are big and ambitious, it doesn’t mean that all of their acquisition plans will succeed. Companies inspired to go global need to have a clear strategy and a thorough understanding of the target language and culture.
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Now, assuming China plans to dominate the world, companies need to exert themselves to understand and appreciate cultural diversity. Only then will they be able to increase their chances for success abroad.
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