"Battered by the financial crisis, the value of foreign enterprises has decreased. Those worth over 10 billion yuan in the past might now be just 100 or 200 million yuan. How can we miss that?"

"The success rate of Japanese enterprises acquiring foreign companies is only around 30 percent. Are you sure you have a better understanding of the western market than Japanese enterprises do?”

Entering into the overseas market has been a long-held dream of Chinese enterprises. However, they are hesitant when unprecedented opportunities created by the financial crisis are presented to them. This is because they need to first judge whether it is a ladder to heaven or a trap and how they can succeed avoiding the trap.

Zhejiang-based car giant Geely recently acquired the world's second largest automatic transmission manufacturer. Geely's board member and Vice President An Conghui said, "They originally targeted South Korean and US markets, but its sales dramatically slumped after the financial crisis. The company cannot operate normally. As the timing was good, we did not spend a lot of money. The financial crisis has ushered in good opportunities for mergers and acquisitions (M&As)."

Ningbo Shanshan Group recently took over an Australian mining company. The group's Chairman Zheng Yonggang said, "Resources are now only worth one-third of their peak prices. In addition, the Australian dollar has depreciated significantly, leading us to believe that this is a good opportunity."

But Zheng is not 100 percent sure. "Many big enterprises did not make money, and even posted losses after their overseas acquisition. For example, TCL had a hard time operating its business following its overseas acquisition, and Lenovo also recorded losses this year after taking over IBM. The money we accumulated during the 30 years of reform and opening-up was hard to make. I'm also scared of going global."

"Having purchasing power is not sufficient to create a genuinely large enterprise," said Zhang Wenkui, deputy director of the enterprise research institute under the Development Research Center of the State Council. "Many Japanese enterprises' overseas acquisitions failed, with a success rate of only around 30 percent. Integration is very difficult especially if European and US enterprises are acquired. This deserves our attention."

"Either going global or bringing something in, you should know what you want. Do you want their brand, technology, management or network? This is like a lady rushing to get married, and then ending in divorce," An said. "The automatic transmission is a core part of the car. The profit margin of an automatic transmission might be higher than that of the entire car. Absorbing advanced automatic transmission technology is what we need to produce cars and that is why we acquired this enterprise."

"Which type of Chinese enterprises would have a higher success rate in acquiring overseas enterprises?" asked one entrepreneur.

"Analyses shows that export-oriented acquisition has a higher probability of failure but import-substitution acquisition has a higher chance of success," said Zhang.

Export-oriented acquisition means that after the enterprises acquire target companies abroad, the products manufactured by the target companies are still sold overseas. "M&As are meant to increase one's market share in a certain sector or to adjust the structure of its original low-end products to that of high-end products." The enterprises' absorption and integration capabilities will be put to the test.

Import-substitution acquisition means that target companies' products are sold in China and the Chinese market still exists and will grow following the acquisition. "The acquisition of resource-type companies falls into this category. For instance, China needs iron ore and crude oil, which were sold to China by foreign enterprises. After Chinese enterprises purchase this type of company, the products are still sold in China but the Chinese enterprise is in control. This type of acquisition has a higher success rate," said Zhang.

By People's Daily Online