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Time to start focusing on smooth M&A transitions

By Liu Jie (China Daily)
Updated: 2007-06-26 09:58

The dispute between Wahaha, China's leading beverage firm, and its partner Danone, the French beverage and food group, over the companies' joint ventures has been escalating. The two sides have filed lawsuits against one another and Wahaha chairman Zong Qinghou has resigned.

The hostilities have caused experts to examine how companies can make a smooth transition to ensure cooperation after amergerandacquisition(M&A).

"Financial failure is not the only cause of international business marriages turning sour, ownership conflicts, corporate culture differences and improper human resources allocation can also lead to the collapse of commercially successful joint ventures," said Tang Qinglin, a veteran M&A lawyer.

M&As have been a trend internationally, especially in China, the world's fastest- growing market. Multinationals (MNCs) are seeking M&As with local firms to take advantage of a lower manufacturing cost base, rapid market entry, a huge local market, established brands and as mature sales and purchasing networks.

During the transition period, the partners should adopt breaking-in strategies involving corporate culture integration, people development at all levels and managementlocalization, according to Leigh Baker, senior advisor of New Leaders International, a human resources consulting firm.

Concerning MNCs involved in M&As, Baker said: "At the management level, they typically assign a small number of foreign managers to join the Chinese managers in the new management team, in order to add senior management skills and skills required to integrate the newly acquired company with corporate systems and procedures."

Danone has sent Emmanuel Faber, president of Danone Asia-Pacific, to the board of Wahaha-Danone's joint venture.Lenovoappointed Stephen Ward asCEOafter its acquisition of IBM's personal computer business.

Though these are not successful cases- Faber has been accused of poor decisions regarding the Robust investment, while Ward was replaced by one of Dell's senior Asia executives William Amelio - the strategy is still commonly used by MNCs to internationalize local joint ventures, Tang said.

Special coverage: Wahaha vs Danone Related readings:  Wahaha,Danone torn over statements  Danone dispute affects sales Danone's quick expansion in China Wahaha's Zong demands an apology M&As face security scrutiny Economy fuels M&As in China

Baker said that creating a cohesive and capable management team is really a challenge. "This requires significant investment in and focus on cultural integration, team development and joint business planning and needs a great deal of adjustment by both Chinese and foreign managers," he said.

The senior advisor urges partners to create cultural integration program plans and begin leadership development and management integration program "before" the ownership transfer, in a bid to guarantee the immediate implementation and business vision of the leadership team on the first day of the joint venture.

Implementing a corporate culture project as soon as possible and investing in cultural integration for both foreign and Chinese managers are fundamental for a successful amalgamation.