Companies try to avoid corporate culture shock
Updated: 2012-09-18 07:56
By Hu Yuanyuan in Hamburg, Germany (China Daily)
The construction-equipment maker Sany Group purchased the German concrete pump maker Putzmeister in January in one of the biggest Sino-German transactions. More than a quarter of all Chinese investment in Germany since 2003 has been in the automotive, industrial machinery and equipment sectors. Nan Shan / for China Daily
What is the trickiest issue for Chinese companies when they take over a local company in a developed economy? The answer, most experts would say, is dealing with the staff of the acquired company.
The Chinese company Weichai Power Co Ltd emphasized that it will honor all existing agreements related to collective labor deals, bargaining and workers' participation in management in its deal with the German forklift truck maker Kion Group GmbH.
The deal, which was made on Aug 31, marked the largest Chinese direct investment in Germany to date.
Weichai Power, which belongs to Shandong Heavy Industry Group, said it will invest 738 million euros ($967 million) in Kion Group. Besides paying 467 million euros to take a 25 percent stake in Kion Group, it also agreed to take a 70 percent stake in Kion hydraulics, a unit of the Wiesbaden, Germany-based Kion Group.
The deal is expected to close in the fourth quarter of this year. Kion's current owners are the private-equity arm of Goldman Sachs and the buyout firm KKR.
Kion Group is the world's second-largest forklift truck maker after Toyota Industries Corp, with annual sales of 4.4 billion euros and brands including Linde Hydraulics, OM Still, Fenwick, Baoli and Voltas.
According to Jens Assmann, deputy director of the international department of the Hamburg Chamber of Commerce, the key for a successful M&A by a foreign company in Germany is to maintain the qualified staff, R&D center and sales channels.
"Though the cost of maintaining those experienced craftsmen and middle management may be a bit high, you will find it's worth it," Assmann said.
Weichai's commitment will ensure the long-term job security of all employees of Linde Hydraulics worldwide. And all issues regarding the future partnership in the hydraulics business will be discussed with Kion employee representatives, according to their agreement.
"The Chinese company should be very careful about German management, including the executive management, normal staff and the works council," said Axel Neelmeier, a lawyer with the Hamburg-based law firm Schulz Noagk Barwinkel.
The law firm advised a Shanghai-based company on its takeover of a listed German company, the first case in Germany.
According to Cui Zhicheng, general manager of Beijing No 1 Machine Tool Plant, building up mutual trust between local employees and the top management, and localization are critical for the success of a cross-border acquisition.
The company took over Germany-based Waldrich-Coburg in 2005. Three years after the acquisition, the German company's staff, including both management and workers, is 100 percent German and its payroll has increased 40 percent. There are only three coordinators from China.
The company's profit, Cui said, is more than four times higher than before the acquisition.
But the first step for a successful M&A, said Neelmeier, is to find the right target.
"Chinese enterprises usually look for enterprises close to insolvency or already insolvent. However, such companies in the EU are not good choices for a potential M&A, as Chinese companies are not familiar with the local situation," said Neelmeier.
"I would suggest Chinese companies seek (financially solid) companies. Though the purchase price will not be cheap, it is more likely to be a successful investment," he added.
According to Germany Trade and Invest, Germany has been the top destination for Chinese enterprises' investment in Europe since the outbreak of the global financial crisis in 2008.
In 2011, a total of 827 enterprises from 33 countries made investments in Germany, among which 158 were from China - the biggest single investor.
The automotive, industrial machinery and equipment sector have accounted for more than a quarter of all investments since 2003.
"Moreover, what is particularly important for a Chinese company is to establish a good relationship with a German bank to finance the target company after the M&A. And an effective way to achieve that is to submit a convincing business plan to the German bank after the acquisition," said Neelmeier.