Chapter 5 Cultural Clash: The Biggest Obstacle to Chinese-style Cross-border M&A

It is no news that Chinese enterprises are going to the international market. Today, China is gradually becoming a global manufacturing center.For example, Haier built a factory in the United States, Galanz OEM for global microwave oven manufacturers, and ZTE has established organizations in dozens of countries around the world and has thousands of Chinese employees working overseas. Dr. Xu Haoxun, global managing partner of McKinsey & Company, conducted research on the internationalization of enterprises in China and other countries, and divided them into four models. Path 1: Expansion at low cost.A typical case of this model is CIMC.By integrating the domestic market, we can obtain huge cost advantages in procurement, production, and transportation, and then integrate this industry to enter the international market.The problem is that different industries have different cost structures. 60% of the color TV industry is manufacturing costs, as well as brand and channel costs, which is very different from the container industry.Most of the container industry is BtoB. It does not require a lot of brand investment and the channels are very simple. There are only dozens of global customers.Therefore, CIMC's model may not be successful in the color TV industry.

Path Two: Acquisitions and Mergers.In today's international market, acquisitions and mergers have become the most important way of cross-border capital flow.When Chinese companies use acquisitions and mergers to enter the international market, when choosing an industry, they must first look at whether the company has a good industry structure and whether the barriers to entry are relatively high.Not only gain the cost advantage, but also gain the value of entry. Path 3: Create your own brand and build your own channels.In the past few decades, large companies in Japan and South Korea, whether it is Panasonic, Toyota, Sony, or Samsung, Hyundai, and LG, have basically entered the global market through this method.

Path four: OEM.Galanz's market share is about 25%, and it does not have its own brand in the global market, but its profit is higher than that of ordinary OEMs. Zhao Min, chairman of Sinotrust, analyzed that before the acquisition of TCL, the internationalization of Chinese companies was basically self-expanding internationalization.The self-expanding internationalization strategy is a kind of tortoise gradual strategy, and slowly rely on one's own efforts to move forward. The advantage is that you can accumulate experience, but the disadvantage is that the speed is too slow.Judging from the development history, enterprise scale, management level and experience of Chinese enterprises, this type of self-expansion internationalization strategy is basically in line with the internal management capabilities and levels of these enterprises. It can be said that they are prepared and basically not hasty. .The global-scale acquisitions and internationalization of Chinese companies represented by TCL and Lenovo have made business management and other insiders feel deeply worried while admiring their courage and courage.

In fact, the biggest concern of Chinese enterprises in their internationalization is undoubtedly the issue of cultural integration.A multinational company needs to have a set of global standards and rules, but when we formulate and implement them, we will take into account the inclusiveness and symbiosis of culture.Because it often happens that some experiences that succeed in one place may lead to failure in another place.So we must learn to face differences. It is difficult for Chinese-style integration ideas to be adopted globally.Chinese enterprises have become accustomed to surviving in a relatively irregular market environment, and have produced some solidified operating models—the Chinese way, which has brought hidden dangers to the survival of enterprises in the new environment.

In 2001, when Holley Group entered the United States and acquired Philips' CDMA R&D center in the United States, Holley Group directly faced the impact of American culture for the first time. The biggest challenge at that time was actually the possible cultural conflict between the two parties after the acquisition. It was precisely this that brought down some Chinese companies that were ambitious to acquire R&D institutions in the United States in the past few years.Wang Licheng, chairman of Holley Group, admitted that there must have been some resistance at first, but now most employees still accept it.Because I told them that this is an American company controlled by Chinese people, and all operations will follow American procedures. In the future, the CEO and CTO we invite will also be Americans, not sent from China.When I told them about these operating plans, they all thought that it was completely in accordance with the operation method of Americanized high-tech companies, like many high-tech companies in Silicon Valley, but the advantage over American companies is that we have a strong Chinese market do the background.

In the research and development center acquired by Holley Group, an American employee, Dannis, was responsible for the research and development of CDMA core technology. Wang Licheng expressed his importance to his work. According to the Chinese habit, he sent him a letter every two days. Email to inquire about work progress.However, within 10 days, the employee submitted a resignation report to Wang Licheng. Wang Licheng was puzzled by this: I care about you so much, why did you offer to resign?The employee said: You send emails to me every two days, which shows that you don't trust me; if you trust me, I will complete the task on time; if there is any problem, I will naturally report to you.

After this incident, Wang Licheng understood that after acquiring an overseas company, the biggest challenge lies in how to integrate the cultural conflicts between the two parties.The key question is whether our Chinese enterprises have the ability to manage such a team and enterprise with cross-regional, transnational, different cultures and employees of different nationalities. This is a challenge we must face.