I’m currently managing director of Content and Business Planning at The Korea Times. Before I took the current position in early 2024, I served as managing editor in charge of both paper and online for over three and a half years. In 2015-2018, I worked as Singapore correspondent covering ASEAN nations.
M&A deal in China
By Kim Jae-kyoung
How to tackle unique integration challenges and achieve success
By Marco Kaster
Despite the unevenness of the economic recovery, corporate earnings are up substantially and many companies are posting significant profits. With large cash positions, the strongest players are looking for investment opportunities to build their businesses, keeping overall merger-and-acquisition (M&A) transaction activity healthy.
In fact, after an M&A surge in 2010, all signs point to continued positive momentum for the remainder of 2011 and into 2012. Both our own research and data from external sources show increased activity across borders and regions of the world, with more companies buying into emerging economies, specifically Russia, India, Brazil and China.
No M&A deal is seamless, of course. The magnitude of change inherent in any transaction has a significant impact on the workforce, and that can affect the success of the deal itself. This can range from losing key employees or skill sets (often a reason for deals in the first place) to disruptions in customer service to frustrating delays in integrating duplicate processes or operations.
Cross-border transactions intensify these challenges, given the cultural differences that come into play across geographic and corporate lines. The anxiety and uncertainty employees feel normally is typically amplified, leading to declines in engagement and, ultimately, in productivity. This in turn can have a material impact on the success of the deal, whether financially or in terms of the speed and efficiency of operational integration.
Overcoming challenges
Our work and experience in the China market points to some key actions companies should consider when venturing into cross-border deals in China, whether those deals are inbound (a non-Chinese company buying into a Chinese company) or outbound (Chinese companies buying elsewhere). In either case, the social and cultural issues rise in importance and need to be addressed early, carefully and thoroughly to support overall deal success.
Show respect for the local culture
It seems obvious, but it’s surprising how often mutual understanding and respect don’t enter into the transaction in a visible and forthright way. Foreign companies considering or concluding deals in China need to appreciate and respect the significant cultural disparities that exist, and understand how those differences may affect aspects of the deal process, from negotiation through due diligence and integration. Failing to pay sufficient attention to this factor can create serious obstacles.
For example, when it comes to business decisions, Chinese managers tend to make decisions that suit the interests of senior management. Additionally, when selecting employees for the new organization, Chinese companies often focus on seniority, and employees’ age and years of service.
To support deal success, both parties in the deal need to work together to create a strategy that maximizes the advantages of both cultures. Well-designed team-building activities can also enhance understanding and familiarity among employees and ease the cultural integration.
Understand employees’ mindset
For many workers in China, choosing a job comes down to practical factors like pay, benefits, training and career development. The nature of the work often comes second. Employees are eager to be promoted without necessarily being ready, and an “up or leave” mentality is prevalent.
Chinese workers also put strong emphasis on compensation. Salary increases in the past few years have ranged from 8 percent to 10 percent among various industries, driven by social and cultural factors that include a booming property market; insufficient retirement and medical benefits; the country’s one-child policy, which puts pressure on young employees caring for their parents; and the cultural importance of “saving face” defined in part by an impressive salary.
In this kind of environment, designing a reward program that meets employees’ needs is particularly important for both attraction and retention.
Results from Towers Watson’s 2010 Global Workforce Study show the rewards that matter to Asian employees who have been through an M&A include more job security and stability, as well as opportunities to develop skills and work on interesting projects. Career advancement and flexible work arrangements also are important in the desired rewards mix.
When considering how to redesign and integrate rewards after a merger or acquisition, companies should consider the following factors:
1) Ensure the reward program is competitive, supports the new company’s business strategy and addresses employee needs from a cost and risk perspective.
2) Develop employee materials that effectively communicate the value of the program to employees.
3) Reduce employees’ entitlement mentality regarding benefit programs, recognizing this is a long-term effort that must be phased in over time.
4) Differentiate rewards based on performance to increase motivation and improve employees’ understanding and appreciation of the program.
5) Offer mid- to long-term incentives to improve retention, as well as retention bonuses if feasible.
6) Avoid immediate and direct reward cutbacks (if possible) during the early phases of integration.
7) Give equity grants in the new company, when appropriate.
8) Offer relevant training programs so employees can apply their knowledge to current or future jobs within the organization.
9) Ensure training programs are linked to performance.
10) Offer promotions to more senior levels.
11) Identify development needs of individual employees and offer tailor-made programs.
Strengthen retention and engagement
Another recent Towers Watson survey “Deal Making is on the Rise ― Are Managers Prepared?” on the role of managers in corporate M&A transactions found that companies in China place a premium on employee engagement and more actively measure engagement throughout the integration process than their global counterparts. This partly explains why engagement scores in China tend to rise post-integration.
Maintaining and strengthening employee retention and engagement during any period of change and uncertainty is a long-term effort and involves numerous elements. Building a strong employer brand and image is one key step to improving the attractiveness of a company and encourage employees to remain through the transition. Ways to enhance the brand include:
― Assessing a company’s “Employee Value Proposition” to ensure it is relevant in the China market.
― Investing in client service relationships or other image-building activities.
― Clearly defining key branding messages and preparing a comprehensive communication plan around these messages.
― Selling the company’s products and services internally to employees, which helps improve employee appreciation of the brand.
A strong leadership team that focuses on providing information, support and stability can also give employees a sense of belonging and help foster improved retention and engagement.
Build the right implementation processes
Towers Watson’s survey on the role of managers in corporate M&A transactions also found that Chinese companies spend more time equipping managers to help support a deal than their global counterparts. These companies understand the importance of the manager’s role in easing anxiety for employees and ensuring managers have the skills and support to do this. Key activities include:
― Giving employees a trusted source of support and information early in the process.
― Offering effective change-management workshops for managers and employees.
― Conducting senior leadership discussions/calls on a regular basis.
― Appointing managers as members of the integration team: Ensuring managers participate in the implementation process by 1) helping to implement new HR program and processes; 2) identifying employees for reduction in force and/or reassignments; and 3) providing input to the integration team.
The bottom line
Despite the challenges, deals in China are taking place at an unprecedented pace, driven by expansion into new geographic regions and the development of new lines of business. Achieving the promise of these deals depends to a great extent on how efficiently and effectively the organizations can come together and how well they manage culture and human capital issues.
Taking the time to develop a comprehensive integration plan that reflects unique cultural differences and specific employee needs goes a long way toward stabilizing the new organization and sustaining high levels of workforce engagement and performance in the future.