Differences in cultural norms, management style and regulations top mainland companies' lists of hurdles when executing mergers and acquisitions abroad, according to a partner at global audit firm PricewaterhouseCoopers (PwC).
Danny Po, PwC's partner and China mergers and acquisition tax leader at accountancy and consultancy, said overseas firms, particularly those in western countries, tend to be results-oriented and take a more hands-off approach when it comes to management, whereas mainland managers are also concerned about how tasks are achieved.
'It's a difference between management-by-results and management-by-process,' he said in an interview, adding that regulatory regime differences were considered the top hurdle in acquisitions in the natural resources sector.
According to the 10th annual global chief executive survey done by PwC, half of 47 chief executives - 33 from the mainland and 14 from Hong Kong - said they had encountered or expected to face cultural conflicts in mergers and acquisitions, compared with 65 per cent for regulatory variances and 25 per cent for political opposition and differences in management style.
Mainland state companies, especially those in the resources sector, also carry 'extra baggage' in that foreigners tend to see them as representing the state in their acquisitions, thus making commercial deals political issues. Dominant offshore oil and gas producer CNOOC's withdrawal in 2005 from its bid for US-based Unocal and the nation's largest metals trader Minmetals' decision to give up on buying Canadian mining firm Noranda in 2004 were two such cases.
Minmetals president Zhou Zhongshu had cited political, legal, cultural, communications and operational challenges for the aborted acquisition attempt.
Mr Po said Beijing has implemented policies to facilitate overseas acquisitions. 'Nowadays, most acquisitions only need approval from provincial-level units of the Ministry of Commerce, and local banks can grant credit facility for overseas acquisitions,' he said.
In addition, companies listing abroad are no longer required to repatriate the proceeds back to the mainland within six months of the flotation, if they have specific plans to acquire overseas assets.
After turning their acquisition efforts away from the United States in the past two years due to increasingly strict disclosure and reporting requirements for listed firms, Mr Po expected mainland firms to increasingly look at opportunities in the Asia-Pacific, as European nations are 'catching up fast' with the standards required in the US.
'Compliance requirements of an average western company will come as a shock to most private companies in China,' said Deloitte Touche Tohmatsu merger integration advisory service partner George Budden.