The Belt & Road Initiative is set to bring Chinese infrastructure companies more merger and acquisition (M&A) opportunities abroad and it is “encouraging” to see China’s outbound deals diversifying, said Honson To, co-chairman of accounting firm KPMG China.
Despite the optimism, To, who has spent years on advisory services providing M&A advice to clients, sees culture clashes as a key challenge to Chinese companies involved in overseas deals.
“They are still relatively inexperienced in operating international and global business,” To said. Chinese companies still find it difficult to manage overseas teams and oversee operations, he added.
“Sometimes it’s language, sometimes it’s the way of living, sometimes it’s down to a lack of confidence because Chinese businessmen were not educated in an international environment. So they don’t know how other people operate.”
But To is confident of change when Chinese companies hire foreign professionals to oversee their operations.
“Infrastructure along the Belt and Road strategy will be a key theme. It could be acquiring companies overseas by the Chinese infrastructure companies. It could be more collaborations with overseas countries in building infrastructure,” he said.
Outbound M&A deals by private and State-owned enterprises have surged in recent years, especially since the government launched its “go global” policy soon after the outbreak of the global financial crisis in 2008.
China’s appetite for cutting-edge technologies and quality assets has pushed its companies to seal 142 big-ticket acquisition deals abroad in the first quarter of the year, the Ministry of Commerce announced in April.
The total value generated from these overseas acquisitions between January and March was $16.56 billion, up 13.4 percent year-on-year. Chinese enterprises acquired foreign companies in 15 industries including infrastructure, construction machinery and service businesses across 36 countries and regions.
Despite the slowing economy, 72 percent of Chinese companies said they planned to make an acquisition over the next three years, according to a recent survey by global law firm Herbert Smith Freehills.
To expects manufacturing technology, which “has been a focus for some time”, will continue to be the focus of future Chinese outbound deals, branding and distribution.
The diversification of outbound deals is encouraging for the future of China’s business landscape.
“It used to be very much about only acquiring natural resources. But nowadays you see many more deals around acquiring technology, brand names, distribution networks overseas, and, in some cases, collaboration with multinational companies in overseas markets,” To said.
“I think that’s very healthy.”