“You can’t underestimate the importance of the visit of President Xi. Suddenly the West, and especially the UK, has become ‘trendy’…its open season”, according to Quam CEO Richard Winter. He is far from the only commenter to predict that the visit heralds that start of a golden age for Anglo-Asian partnerships, and that can only be good news for British business.
Winter was speaking at the Cavendish Corporate Finance forum on partnering with Asian businesses and investors.
He was one of a number of top names from the UK, China and Japan discussing the direction of the respective markets, Chino-Japanese appetites for acquisition and the key things to bear in mind to form successful, long-term partnerships.
The event was hosted by Cavendish founder Lord Leigh of Hurley. And at the top of the event he presented some figures that highlighted the importance of taking Asian M&A seriously in 2015.
“China outbound M&A was up 50% over the first nine months of this year to about $70bn and buying UK companies typically accounts for over 40% of that, while Japanese firms spending on buying UK/European companies is up over 200% on last year,” he said.
Winter himself has a wealth of experience in the field, accumulated by living and working in Hong Kong for three decades. In the past few years he has seen a mushrooming of outbound investment among Asian businesses. And he believes the recent trade mission undertaken by the Chinese government is about to take that activity to entirely unprecedented levels.
>See also: Outbound M&A in Asia
“In a country like China, which is all cultural, if the state says it’s right then it must be right,” Winter said. “One of my friends who runs a British jewellery business said that after a famous UK brand was spotted on the video of the state banquet he got four orders from China the next day.”
After the Chinese government ushered in the open door policy to overseas trading 10 years ago the UK has taken “the lion’s share” of the £121bn that has flowed to Europe.
And in the past 18 months the traditional state owned enterprises (SOEs) that have driven investment have been joined by a new generation of privately owned enterprises (POEs) and the ante has risen even further.
This new development, with smaller deals but higher volumes, means the net is now cast wider than the traditional investment targets of oil & gas and infrastructure.
Financial services, technology and media and now firmly in the crosshairs and more British business than ever can expect to reap the rewards. So now the relationship is firmly in place both with the new Chinese enterprises and the more established Japanese backers, how can British businesses hope build the best relationships?
Japan – The real negotiations take place after the meeting
One of the most active investment banks in the traditional financial powerhouse of Japan is GCA Savvian. It has interests in the US, China, India and Europe. Investment director Shin Murai sees a pattern of outbound investment in which ‘the value of Japanese buys is going up”.
He is a man who understands both European and Japanese ways of conducting business inherently. And he has some very useful advice for UK businesses.
“Japanese businesses have a long-term focus and different styles in their approach to business and M&A to Western companies,” he explained. “Culture is a huge and important concept to understand when doing a deal with a Japanese company.”
And with the UK ranked fourth both for value and volume of outbound deals from Japan, there are plenty of opportunities to put this advice into practice.
One of the first things anyone doing business with potential Japanese partners needs to appreciate is the difference in negotiating focus and a business trip’s itinerary, according to Murai.
For example, if one of the first subjects discussed about a deal is the initial compensation, you may be instantly branded “greedy” by your Japanese guests for placing financial concerns ahead of the long-term partnership. But if the Japanese aren’t as forthcoming as you’d expect in the initial meetings don’t despair; it’s not always a sign they’re not interested.
“The Japanese might not speak up at the meeting,” continued Murai. “But if you invite them out after the meeting to dinner, with alcohol, the Japanese can speak. This is very important.”
And it’s not just your social responsibilities you have to take care of. You should also be aware of the Japanese businesses’ unfamiliar “bottom-up” style of decision-making.
“When we have an M&A opportunity we reach out to our corporate planning division,” explained Murai. “And if they think the potential deal is interesting they will report back to the directors and senior management. This kind of bottom-up reporting model is a typical way of conducting business in Japan.
“And there is also a very hierarchical structure. To go ahead with a deal I need to get three approvals from the division, the management structure committee and the board of directors. It looks very time consuming but it’s something you need to accept.”
China – Make sure you’re singing off the same hymn sheet
When conducting business with Chinese dealmakers, many of the same considerations are in play. But there are subtle differences and extra considerations. And it’s not just the UK companies that are sizing up the other side and looking to adapt their behaviour accordingly.
Tim Bednall is a lawyer who has extensive experience in Asian M&A through his law firm King Wood and Malleson. At a recent conference he noticed an exercise that highlighted how seriously they take the cultural considerations when dealing with Western businesses.
“At the conference there was a mock pitch and the first pitch was by a Chinese firm looking to acquire a Western firm,” he explained. “And the Chinese basically sent in their hardest and toughest negotiators to deliver the pitch. And that went in a way that the Westerners completely expected.
“The second exercise was a pitch by one Chinese firm to acquire another Chinese firm. And the structure of the team was completely different. They set up their team to match man for man the negotiators of the target company. And the whole thing was conducted in a, dare I say, much more civilised way to get to the same result. So it was a real lesson for me that Chinese companies have a completely different approach when dealing with Western companies.”
But beyond the unique approach to dealing with those from outside of China, Bednall has noticed many of the same patterns that Murai attributed to the Japanese negotiation teams when it comes to the post-negotiation phase.
“When working with a Chinese company you realise that the official meeting is very ordered. However, after the meeting is very important,” he continued. “Dinner, drinks and singing are probably more important than the meeting themselves; they appreciate face time and they like to work with people they trust.”
Part of the family
Two people who have first-hand experience of making deals with Chinese partners are Alan Halsall from Silver Cross Nurseries and Resolution Property’s Robert Laurence. Both speak very highly of the conduct of their Chinese partners throughout the process.
As is the common theme throughout this topic, they were both struck by the long-term focus of the Chinese when putting together the deal. And Laurence was particularly taken by the strong bond that has developed since.
“When they say you’re part of the family they really mean it; they make you feel totally comfortable, invite you to dinners and are very warm towards you,” he said.
But both Laurence and Halsall were both forthright on the need for patience – the other common theme emerging through the narrative.
“Patience is required to navigate the time, cultural & management differences but it is well worth it. I’m always impressed with the integrity of the Chinese and was absolutely delighted to do a deal with them,” said Halsall.
Further reading: UK SMEs should work the Chinese was for investment