Summit urges cautious approach to overseas M&A

Chinese enterprises should be more cautious and set up longer-term strategies when initiating overseas mergers and acquisitions (M&A), an increasingly popular activity among Chinese firms, entrepreneurs said at a summit in Kunming Sunday.

"M&A is the most difficult way for an enterprise to enter foreign markets," Zhu Hai, president of China Schneider Electric, said in a discussion session at the Annual Summit of Green Companies 2013.

The current economic slowdown of developed countries, shrinking profit margins in some Chinese industries, and a fast accumulation of capital by Chinese firms have presented an opportunity for them to expand overseas, but "they need to fully prepare to avoid potential risks," Zhu said.

Zhu recently gave up a chance at an M&A deal just because there was no suitable manager to handle leadership overseas after the acquisition.

Forty-seven percent of Chinese firms with M&A plans were considering expanding overseas, consulting firm Grant Thornton said in a survey on April 16, compared with 26 percent in a similar survey in 2012.

Although enthusiasm for outbound investment is growing fast, enterprises must be committed to "fighting a long-term war," Li Dongsheng, chairman and CEO of TCL Group, said at the session.

TCL, one of the world's leading electronics makers, acquired TV producer Thomson SA of France in 2003 and set up a joint company with mobile phone maker Alcatel in 2004, then suffered a net profit loss of HK$378.4 million ($48.7 million) in the fourth quarter of 2004 and was criticized by media for expanding overseas too quickly.

Li said he used to feel discouraged because he had planned to make a profit overseas within only two years.

But he finally realized that the chief obstacles to his dream were his over-confidence in TCL's capital strength and the limited experience of Chinese managers. He says a longer-term strategy, including a multi-national management concept and cultural integration, are the key factors for success.

TCL said on April 9 its net profits for the first quarter are projected to rocket roughly sevenfold year-on-year, reaching up to 310 million yuan.

Guo Guangchang, chairman of Fosun High Techonology, said he has no overseas M&A plans as yet, because he needs first to develop a good reputation via other types of outbound investment such as private equity investment.