Breaking Through The Great Communication Wall

Mergers and acquisitions are a popular vehicle for growth, and while in theory 1 + 1 = 3 sounds great, in practice it isn't that easy. Experts estimate that roughly two thirds of mergers disappoint, rarely delivering highly anticipated synergies.

If recent activities are any indicator, it looks as though Asian, and particularly Chinese, M&As will continue to be a favoured strategic option for Western companies. Given China's comparatively low cost structure, large potential market, and the gradual market freedom coming from its entry into the World Trade Organization, it's understandable that Western companies are targeting Asian companies for mergers and acquisitions.

Many studies have revealed that the most commonly cited cause of cross-border M&A failure is not strategic misalignment, financial difficulties, market confusion, or even power struggles. It is cultural incompatibility and differences in management style. In short, corporate culture is key to integration success. Talking about culture integration, former IBM CEO Lou Gerstner wrote that "culture isn't just one aspect of the game - it is the game".

As basic as it may seem, for companies venturing into China, the first challenge is to actually acknowledge that there is more to Chinese culture than Peking duck, martial-arts movies and the Great Wall.

One example of a major difference in culture and management style between East and West is the way that China runs its state-owned enterprises, or SOEs. It is not uncommon for them to maintain housing, hospitals and schools for employees and to carry these benefits on their books. This can raise complex issues for foreign acquirers unaccustomed to seeing these costs on the balance sheet of a company.

Shanghai-based Kerry Skellern, business improvement manager for Australian conglomerate CSR Ltd., has observed another difference in M&As between foreign companies and SOEs. "Most Western parties are aiming for a profitable acquisition within a defined time frame," says Skellern. "In contrast, managers of SOEs are not highly motivated to conclude the deal, either because they have no clear accountability for profitability or because they don’t want to take the risk that the deal will be unsuccessful." Given such differences, Western managers have to work at achieving cultural integration. The following five steps should help toward that end:

1. Choose your words carefully

What we in the West call "due diligence" is a given in any M&A activity and consists mainly of gathering financial and other information about the merger or acquisition target. But the phrase "due diligence" when translated into Mandarin, is closer to the word "investigation", which has a different connotation, one that is negative and even frightening.

Scott Yeh, vice president of Taiwan-based Pacific Millennium Corp., notes that "people resist or are frightened by due diligence because they fear giving out 'secrets' or revealing potential black holes or the difficult-to-explain practices". He advises Western partners to make sure that Asian employees understand that the due-diligence process is not an attempt to blame people or catch them in illicit activities.

There's another linguistic peculiarity that is likely to cause communication difficulties: Chinese has only one word - wen ti - for the two English words 'problem' and 'question'. So while an English speaker may simply be expressing a need for information, the Chinese listener may feel as though he is being judged or asked to justify his actions. When using these words, Westerners and their translators need to ensure that the correct meaning is being conveyed.

2. Listen for the message

Asian culture is often less direct than Western culture, and an out-and-out refusal is considered impolite. Therefore, you may rarely hear your Chinese counterparts say "no" even though they do not mean "yes". Don't confuse politeness with agreement. Instead, listen for the commitment and feelings behind the words. Look for other subliminal signs of reticence, such as difficulty coming to the point, obvious discomfort during the discussion, and body language or posture that indicates a less-than-positive attitude.

Joe Allen, former general manager of Corning Shanghai Co. and currently plant manager of Corning's complex in Erwin, N.Y., shared this personal observation: "It helped me to know that when mainland Chinese need to say 'no' but don't want to, they look at their shoes."

Singaporean Chu Chee Seng, a Shanghai-based executive for an international hospitality management group, warns that when he hears Chinese employees use the phrase "Ji ben shang meiwen ti", which in English means "no problem", he gets nervous, because they often use it to convey the idea that there may, in fact, be potential problems.

"You really need to ask for clarification when dealing with Asian cultures," says Kerry Skellern. "Even if you think you have received a definitive 'yes' or 'no', you should follow this with an open question in order to confirm what you think you have heard. And, going forward, you need to monitor the actions of the other parties over the next weeks and months. Often, their actions can give you a real insight into what they actually agreed to."

3. Be sensitive to the customer decision-making process

While this is changing, a large number of Asian companies are still fairly rigid hierarchies. Western managers used to working in horizontal organisations may find this disconcerting. Your new colleagues may be accustomed to decisions being made at a higher level, flowing down, and being executed by those below. Don't interpret this as a lack of knowledge, experience or interest. It’s just that the hierarchical structure that they were part of did not require or permit them to be involved in decision-making.

4. Learn the language

To a large extent, the Chinese are influenced by Confucian philosophy, and this is reflected in their language. Confucianism and the Chinese language typically bring a more holistic approach to matters than that expressed in English, which tends to be more communicative and argumentative and to encourage inductive thinking. Also, since thoughts are ultimately expressed in language, when we speak to others in their own language, we develop a better understanding of their thought process and even begin to think as they do. Learn a few basic words as quickly as possible: hello, please, thank you, good evening. You'll make fast friends just by demonstrating your willingness to take the first few steps.

5. Understand what works and what doesn't

Western and Chinese companies interpret the notion of agreement very differently. The former consider an agreement or a contract to be legally binding; the latter may not. Chinese managers sometimes pay closer attention to the status of the person entering the agreement than to the agreement itself. For this reason, Western companies attempting to forge agreements in China would be wise to put negotiations in the hands of senior-level personnel from the outset. Doing so highlights the importance of the transaction in the eyes of the Chinese partner.

During post-merger integration, senior management needs to understand which elements of company culture are likely to support the partnership and which may harm it. Joe Allen has an interesting insight: "The assumptions that I have seen to be most damaging relate to ethics and values. For example, I heard about one acquisition in which the former GM was allowed to remain in his position, even though the company's 'China insiders' warned that the man was 'dirtier than a chimney sweep'. In the end, he was caught taking money from the company coffers to set up a competitive firm."

It is also essential for the acquirer to be mindful of not subconsciously exhibiting a "We are the winners" attitude. Scott Yeh concludes: "Western managers sometimes make it obvious that they believe that their management philosophy and methods are superior to those of Asians."