Why Chinese Enterprises’ Overseas Investment Fails Sometimes?

According to McKinsey’s re- port， 67% of the domestic enterprises’ overseas investments have failed. Compared with other countries’ overseas investment failure proportion， is China’s 67% high? Why does China have such a high failure ratio? What kind of barriers do the Chinese enterprises often encounter in transnational MA and how do they overcome these barriers? And how do Chinese enterprises deal with those barriers? Mr. Tay Woon Teck， Director from Stone Forest Corporate Advisory gave a detailed analysis on Chinese enterprises’ efforts to go global.

When the reporter asked whether this ratio is higher than that of other developed countries? Mr. Tay told the reporter that 67% was quite high， compared to countries such as US， UK and Singapore. Mr. Tay said that the whole MA process was generally divided into three phases—preliminary phase， full investigation and negotiation phase and post integration phase. Each and every detail in every phase cannot be ignored. Mr. Tay said， “the enterprises in Europe and the US have detailed evaluation guidance and plans for every phase whereas the Chinese enterprises generally are not adequately prepared to undertake a comprehensive risk assessment and investment evaluation of the target companies. They generally do not conduct detailed analysis on the operating synergies of acquisition and the risk related to the acquisition. They also do not spend sufficient time planning and organizing the appropriate level of resources to implement the postacquisition integration.

Mr. Tay also pointed out that China and the West differ greatly in negotiation style. “In negotiation among the British and Americans， they are more structured and they focus on identifying the risks and operating synergies of the target companies. Chinese companies generally look into how to achieve a quick negotiation and didn’t spend enough time examining the risks and operating synergies of the acquisition. Mr. Tay advised that the Chinese companies be better prepared and should spend more time examining the operations and management qualities of the target companies.

During the post-acquisition and integration phase， Mr. Tay advised that the Chinese enterprises should spend more time to understand and comply with the local rules， laws and regulations and spend more time to build a localized management team that can understand and deliver the vision of the Chinese enterprises. He explained that the failure of some MA cases lies in non-compliance by the Chinese enterprises with the local laws and regulations.

At last， he stressed that it is important for the Chinese entrepreneurs to look into how to decentralize power to an appropriate degree to allow for innovation. He said， “It’s easier said than done， but it’s a challenge for many domestic enterprises to go global.”