Source: CCTV.com

06-10-2008 14:42

People often fondly remember and share success stories. But it's tales of failure that helps them learn and grow.

Lenovo declared its acquisition of IBM's PC section on Dec. 8, 2004.

China National Offshore Oil Company started bidding for Unacol in 2004. But it soon found itself in hot waters. The deal was eventually called off over the U.S's national security concerns. The failure highlights how a successful overseas M & A is more than just about the money.

Eliot Cutler, Partner of Akin Gump Strauss Hauer's Feld said "Not understanding the political and culture issues involved in an acquisition. It's just as important as the financial issue. They need to examine the outside and many potential acquirers they do not pay enough attention to the non financial aspects."

Andrew Brown, Partner of Beijing Brunswick Consultancy Ltd. said "When a Chinese company moves offshore, particularly when it's state owned, or substantially controlled by the state, there's a suspicion that the company represents something larger than itself, represents the national interest, rather than a commercial interest, so the first step for the company will need to take is to increase understanding of itself. That means opening up the company to scrutiny, being more transparent, to the investors, to the media. Only through understanding can you expel the kind of suspicion and fear."

The most recent success story stars the Aluminum Corporation of China. In January, it partnered with US aluminum producer Alcoa to buy a 12 percent stake in UK-listed iron ore giant Rio Tinto. The price tag? 14 billion US dollars. It's by far the largest overseas investment to date, by a Chinese company.

Experts explain why partnering with Alcoa, was one smart move for Chinalco.

Li Daokui, Professor of School of Economics & Management of Tsinghua University said "If you do it all by yourself, naturally, you provoke suspicion. Doing it indirectly with a third party seems to me is very intelligent and a wise approach to this issue."

Andrew Brown said "Just take a minority stake. We don't want to sit on the management; we don't want to seat on the board. This is purely a financial investment."

Shaping the media message, is also key in helping complete the initial M & A.

Wang Huiyao, Vice Chairman of China Int'l Economic Cooperation Society said "Should hire more intermediate firms like pr firms, investment companies, to help Chinese firms smoothen the process."

But when the ink on the contract dries, challenges loom. When asked what represents the biggest hurdle for Chinese overseas M & As, scholars and business experts, are unanimous.