Chinese Mergers and Acquisitions Trends, Annotated Bibliography Example

Research question A:  Does the scholarly literature learned from past research on emerging market M&A’s apply to future Chinese M&A?

Worldwide mergers and acquisitions (M&A) have shown a decline in 2002, Morcillo’s study shows, (2005. p. 512.) while in China the investment market grew by 100% in 2003. The size of the Chinese M&A investments was $28.9 billion in 2003. Although mergers and acquisitions are still only taking up a small proportion of the total investment in Chinese economy, a trend shows that soon they will become even more common. The laws and regulations changed and became clearer in China during 2002-2003, boosting foreign investment. The liberalization of sectors and liability regulations, as well as the changes required  by the WTO made mergers and acquisitions simpler to carry out.

Morcillo, (2005. p. 512.) however also mentions that around 50 percent of M&A deals fail. The reason for this is the difference in the corporation law, work and accounting practices, as well as work cultures. Political issues and uncertainty in the legal system result in hidden liabilities and restrictions. Some business models are completely new to Chinese officials, and gets rejected.

There are different acquisition models present on the Chinese market; asset acquisitions have certain legal challenges, such as ownership registration and uncertainty in the transfer process. Equity acquisition has even more risks attached, like unpaid social security bills, loans and labor market issues. As financial and cultural integration is hard or impossible, a careful risk assessment should be carried out. Tailor-made approaches have been introduced on the Chinese M&A market, to reduce risks, and these include studying current regulations and legislation changes to reduce the company’s vulnerability. Although the research does provide the readers with a list of risks and uses quantitative statistical data, there is little known of the detailed processes regarding overcoming the challenges of Chinese M&A investments.

Research question B: How this cross-culture organizational change (M&A) affects organizational management culture during business development?

Morgan Stanley’s research regarding M&A trends in China uses a quantitative research regarding the target and acquirer volumes between 2003 and 2005. (2006. p. 16) The statistics prove that the Chinese M&A market is the largest in the Asia-Pacific region. The study focuses on banks’ large investments and merger activities in China, and lists ten of the largest financial industry M&A deals in 2004-2005, including the acquisition of the Bank of China at USD MM 3100.

The study also examines the development drivers of the market, and one of the major findings is that the Chinese government has actively started to support the investments through domestic market consolidation. (2006. p. 13.) The study determined six drivers for the growth of the market, which are supportive regulatory government initiatives, private equity opportunities, globalization and reorganization, access to national resources, fast growing markets and strong capital market. The study outlines some of the challenges regarding the cross-cultural organizational changes. The recommendations include the implementation of a successful internal communication plan, and successful identification of corporate legislation and governance issues. Creating a generalized and country-specific negotiation strategy with the Chinese government would also be crucial to carry out a successful merger or acquisition in China. Although the above research published by Morgan Stanley provides a good outline of handling cross-cultural challenges, it has its limitations, because it focuses on the Asia-Pacific region in general, instead of China. As Chinese regulations and incorporation law change in a fast pace, this creates a significant risk for companies during business development.

References

Morcillo, E. M%A in China. In: Earnshaw, G. (2005) China Economic Review’s China Business Guide

Sipahimalani, R., King, E. (2006) M&A and restructuring trends in Asia-Pacific. Morgan Stanley working paper, (online) http://www.adb.org/Documents/Guidelines/restructuring-insolvency/chap2.pdf