China Competency Hub

There is a tendency to use superlatives when talking about the development of China over the last decades: Fastest economic growth, fastest railway network expansion, most people relieved from poverty, you name it. Matter-of-factly the rise of China is possibly one of THE most significant Transformation Drivers on geopolitical scale these days.

Without doubt it has massive implications for governments, businesses and individuals likewise. Cross-border mergers and acquisitions (M&A) significantly change the competitive landscape, supply chains are shifted, centralized becomes decentralized, increasing polarization desperately calls for expertise in leveraging diversity. And all of that is reinforced and sped-up by COVID-19.

While some players manage to thrive in this turmoil of geopolitical shifts, many players are struggling to find their new bearing. Why is it that despite quickly advancing collaboration- and communication technologies companies fail to establish a truly effective global setup?

Why is it that despite decade-long globalization efforts companies are still struggling with basics such as building effective intercultural teams that are able to leverage opportunities in Asia and Europe likewise? Certainly culture does play a key role, but frequently also only scratches the surface with many more dimensions hidden below. But let us start from the beginning.

01 Introduction

Having worked at the interface between Germany and China for more than a decade we see stable as well as changing patterns. Stable patterns are the literal China-speed which results from an attitude of pragmatism and experimentation, the focus on digitalization as key enabler as well as the general spirit of development and growth that permeates Chinese society. Those stable patterns without doubt continue to strongly influence companies operating at the interface between Germany and China. At the same time, several patterns are undergoing massive change, mainly driven by government policies in the context of the newest five year plan. To name just a few:

  • Increasing global confidence of China leading to a stronger footprint of Chinese companies abroad and to new levels of competition
  • Transition from fast growth to efficiency and maturity and quality requiring companies to rethink their China strategies as the frequently leading rationale for China engagements of ‘low cost production + big market with increasing wealth’ does no longer hold true
  • Ambivalence between self-reliance and international ambitions requiring companies to strike the balance between global governance for synergies and strong local rooting for customer responsiveness and speed

In this context European companies with engagements in China as well as Chinese companies with engagements in Europe face pressure to transform, bringing their global operations in line with new realities and safeguarding performance regardless of geopolitical uncertainties. Bringing our expertise in Change Management and Organizational Development together with our experience in and with the Chinese market, we provide services targeted at helping leaders and their organizations to bring their German-Chinese setups to the next levels of success. In line with the challenges we experience at our customers, we have clustered those services into Post-Merger Integration, cross-border organizational development and tailor-made intercultural leadership qualification.

02 Cross-Border Post-Merger and Acquisition Management 

Mergers and Acquisitions (M&As) pursue the integration of two organizations to generate synergies, maximize competitive advantages or gain access to new markets or technologies. While M&A activities as such already constitute a specifically important and challenging field of Organizational Change, cross-border M&As obviously add another layer of complexity whereby national- and corporate culture aspects play a central role. Several studies indicate that 50-80% of M&As turn out to be financially unsuccessful with several of them failing completely. When searching for reasons a common pattern to be observed is that investors naturally are very focused on financial-, legal-, market- and technology aspects during the transaction period, leaving a significant blind spot for culture and people as the ‘soft side’ of the transaction. Research indicates that a lack of understanding the importance and difficulty of ‘integrating different cultures’ and ‘differences in management styles and practises’ are THE single most important causes for integration failure. Latest as part of the post-merger integration process leaders of organizations are then confronted with the harsh reality of how (not) compatible different corporate cultures are and how tough the road to establishing a joint winning culture is.

Over the past two decades, also more and more Chinese enterprises have selected M&As as preferred approach to expanding their international business scope. In Europe, including Germany, M&As conducted by Chinese investors have peaked in 2016 and 2017. Also for many of those transactions the previously described common pattern can be observed: Thoroughly conducted financial-, legal- and technical due diligences contrast with negligence on the cultural-, management- and people side. So for many of those transactions successful closure of the M&A deal indeed marks the beginning point of the real challenge – Post Merger Integration. With this phase not being led professionally and thoroughly, many M&As stay far behind their expectations, leaving a significant value-gap – the gap between the value that could be realized if done properly and the value actually realized.

Based on our experience, the focus during the initial phase of Post-Merger Integration (the so-called 100 day phase) must be on following topics:

  • Leadership alignment around a joint Vision and Roadmap incl. joint business strategy and targets to literally bring the executive teams from both sides onto the same page
  • Organizational alignment to safeguard compliance, streamline decision making processes and ensure mutual information transparency
  • Approach for handling external communication and where necessary direct re-alignment with customers, suppliers and related stakeholders
  • Development of a roadmap for operational process integration (especially finance, IT; potentially also HR)
  • Development of an approach realizing desired synergies based on well-targeted Change initiatives

Certainly, along the way, also culture plays a central role and requires attention. Establishment of a winning culture is a process of first acknowledging cultural differences – differences in beliefs, patterns and practises – and then consciously and jointly working on integrating the best that both sides have to offer. While at the interface between China and the rest of the world some elements of cultural differences are very obvious, plenty of them are very subtle and result from corporate- rather than national culture. Patience and continuous efforts are needed to explore and to distil a healthy cultural setup that will help the new venture to thrive by having a team that is deeply engaged and works towards the common targets.

Within the China Competency Hub we leverage our comprehensive Change Management and Organisational Development expertise to assist you in all phases of the challenging but exciting cross-border Post M&A integration process. No matter whether the focus is on planning for and steering the 100-day phase right after closing of the M&A deal, on setting-up and steering a cross-border project for operational process integration, on achieving cultural alignment or, further down the road, on developing a turn-around plan and on performing crisis management if things turn out to be challenging: Our experts provide the expertise you require to make your integrated company operations a success – from a commercial as well as human side.

03 Cross-Border Organizational Development

Popularized by the sociologist Roland Roberts, ‘Glocalization’ – the simultaneous occurrence of both universalizing and particularizing tendencies in contemporary social, political, and economic systems – is more relevant than ever before. While, driven by technological advancements, global markets are nowadays literally one click away, geopolitical affairs and pandemic restrictions force nations and companies to develop strategies for decreasing dependencies.

At the same time we see a massive geopolitical shift towards Asia, particularly China, which is already home to the biggest markets and will soon transition from being mainly a manufacturing base to becoming a globally significant innovation hub. This is not new, some might argue and yet, also driven by COVID-19, premises have changed, rendering previous approaches to evolving global operating models obsolete or ineffective.

Gone are the times when hordes of expats could be sent abroad to act as local ‘governors’, protecting HQ’s interests and ensuring local deployment of global policies. Why is it that after decades of engagement in Asia, particularly in China, western and especially European companies are struggling with ‘China speed’ more than ever before?

After all, their maturity, strong engineering base and well established processes and procedures should provide them with a well-protected competitive advantage. We will explore that topic in a series of updates that will gradually map-out our services in the context of cross-border Organizational Development.