Asian corporations making a move into Europe and North America often fail to look beyond the commercial aspects of the transaction and pay a price for doing so, writes Richard Barton
State-owned Chinese companies have never had more encouragement from their government stakeholders to “Go Global”. Similarly, cashed-up companies from Singapore, India and the rest of Asia are taking advantage of faltering western markets to grow and diversify their asset and investment base.
But around the world Asian corporations complain that they are not understood by the West, and the West, in turn, complains that Asian companies do not take the time to understand how it works “over there”.
The reality is that while the financial markets currently favour westward movement of Asian corporations, other issues, including communication, transparency and perception, continue to pose challenges to their success. Recent history shows that these issues are as critical to the success of a deal as legal compliance and capital.
Asian corporations should look beyond the strict commercial aspects of any deal during the due diligence phase in order to minimize subsequent communication and regulatory risk. And in the regulatory field savvy cross-border investors will assess at least three additional factors.
First, they consider regulations – existing, or in the pipeline – that might affect the future development and growth trajectory of the business.
Second, they review local laws and policies that could affect the viability of the investment; and, thirdly and finally, they assess the perspectives held by local stakeholders regarding foreign investors and employers, which might have the potential to impact the investment’s future health.
The need for this type of regulatory awareness has never been more important. Regardless of whether a company is entering the United States, the EU, Australia or any other jurisdiction, foreign business investment continues to attract growing scrutiny from regulatory and political bodies.
Whether engaging with local politicians, union bodies, the Committee on Foreign Investment in the United States (CFIUS), or the Foreign Investment Review Board (FIRB) in Australia, companies need to understand that these bodies, like their counterparts across the world, will review deals considered to be sensitive or not in the interest of national security and will subject these issues to close scrutiny.
So what does this mean?
Prospective acquirers of overseas businesses should be prepared to argue the “hard” as well as the “soft” values of their deal. New entrants to a market will be evaluated not only on the merits of their products or services, but also as corporate citizens and employers.
Poorly prepared foreign investors risk failure to win the necessary support of stakeholders. This risk will be further aggravated if there is a lack of knowledge about the foreign bidder, its operations, track record, corporate values and employment practices.
As Asian companies follow the path blazed some decades ago by both their Japanese and Korean neighbours, they are discovering reoccurring communication, cultural and social issues that impact deal success.
Employees everywhere want certainty, especially in their prospects, their reporting lines, roles, salaries and benefits. Asian companies are increasingly seeking to attract senior western management with experience. But international talent has been sceptical of how an Asian company, sometimes state-owned, might engage with senior management, and has therefore been slow to accept offers of employment.
In tough times, and especially near election-time, politicians may seek refuge behind economic patriotism, preferring investment to remain local.
NGOs bring expectations of business conduct, ranging from human rights to environmental preservation, and the media fulfils its function by keeping up constant scrutiny.
Investments will continue to be disrupted by country level stakeholders, challenging transactions as a vehicle to fight for their own local agendas and interests. So foreign investors need to be well versed on all the possible issues that could derail or weaken their investment.
Positioning the Foreign Investor
IDEALLY, a positioning campaign with all stakeholders will take place before launching an investment. Research is critical in establishing how the company is perceived and to ascertain all possible stakeholder concerns.
Having understood the issues, the company needs to agree messaging to close the gaps between its desired positioning and the perceived positioning. Smart companies will use research to benchmark the success of the campaign during its implementation. This allows for adjustment to the plan if necessary.
Mapping Corporate Cultural Differences
ACQUIRERS are increasingly mapping the corporate cultural differences between themselves, as bidders, and the target. Using the results, strategic decisions regarding the future culture and structure of the new entity, and communication strategies can be developed to create a mutual understanding between the two organisations.
Communicating the Benefits of the Deal
PRIOR TO announcing a deal, companies need to train senior spokespeople to communicate consistently with stakeholders, selling the benefits of the deal including the value proposition, management quality, future strategy, growth potential, and how value is to be created and shared.
There are three important communication challenges to manage.
First, creating momentum behind the campaign, securing, in the audiences’ mind, the certainty that the deal will succeed.
Second, acquisition timetables can stretch out for months, so the campaign must be paced. Positive news stories, reinforcing messages to key stakeholders, must be carefully managed throughout the timetable, and not all the good points should be announced on the first day.
Finally, companies must accept that media practices are not consistent globally. The media team should comprise internal communications people and external communications advisors, who understand disclosure rules and customs in different jurisdictions, as well as the media they will have to brief.
COMPANIES usually spend little time thinking about how to create real employee engagement, but it is a vital component to achieving success. Especially across cultures, they should use research as a tool to find out what employees really think. The management of a merged entity must sell the objectives of the new company, explain the responsibilities and roles of those who have to deliver the merger benefits, and demonstrate why supporting the new merger is in the company’s and employees’ long term interest.
Create Certainty, Not Doubt
BEING UNKNOWN, or seen as an uncertain quantity, will always be viewed negatively. Adopting a strategic approach to engagement with stakeholders, rather than one which is opportunistic and which throws unprepared audiences on to the defensive, will give Asian companies a significantly stronger base from which to ensure they are fully appreciated on a local, regional and global basis.
Richard Barton is managing partner (excluding Japan) at Kreab Gavin Anderson