Chinese Inward Mergers & Acquisitions by European Companies and Chinese Outward Mergers & Acquisitions in Europe: A Comparative Study of Critical Success Factors JOINT DISSERTATION of the University of St. Gallen, School of Management, Economics, Law, Social Sciences and International Affairs to obtain the title of Doctor of Philosophy in Management submitted by Yu Chen from China and Herbert Werle from Zurich and the Principality of Liechtenstein Approved on the application of Prof. Dr. Hans-Jürgen Wolter and Prof. Dr. Martin Hilb Dissertation no. 4212 ZSUZ Zurich 2014 The University of St. Gallen, School of Management, Economics, Law, Social Sciences and International Affairs hereby consents to the printing of the present dissertation, without hereby expressing any opinion on the views herein expressed. St. Gallen, October 21, 2013 The President: Prof. Dr. Thomas Bieger Declaration by the President Under certain conditions, doctoral students at the University of St.Gallen have the possibility of writing a joint thesis. This is intended to provide suitable candidates with an opportunity to work as a team in order to pursue larger-scale research projects which would exceed the capacities of an individual researcher. Each candidate’s contribution must be identifiable to the widest extent possible and must satisfy the criteria for an individual doctoral thesis. At its meeting of 21 October 2013, the Programme Committee of the University of St.Gallen accepted the present work by Ms Yu Chen from China and Mr Herbert Werle from Zurich as a joint thesis in accordance with Art. 12 of the Implementation Provisions for the Production and Publication of a thesis at the University of St.Gallen of 10 December 2007. I hereby declare that the above-mentioned doctoral students have fully satisfied the requirements imposed by the University of St.Gallen with regard to the production of a doctoral thesis and are placed on an equal footing with doctoral students submitting an individual thesis in accordance with the Awarding Regulations for Doctor’s Degrees of 11 December 2006. After graduation, they will both have the right to use the title of a Doctor of Philosophy in Management of the University of St.Gallen. St. Gallen, 21 October 2013 University of St.Gallen The President Prof. Dr. Thomas Bieger Preface In addition to the continued merger and acquisition (M&A) activities by European companies in China we have recently seen a significant increase in Chinese companies’ M&A activities in Europe. The authors conducted a comparative study of critical success factors in M&As by European companies in China and in M&As by Chinese companies in Europe. The authors come from China and Europe respectively, and have collaborated to combine their different cultural background, know-how and experience. The composition of a joint dissertation was chosen to address Chinese inward as well as outward M&As from both European and Chinese perspectives, which has important implications for both Chinese companies and European companies. Prof. Dr. Hans-Jürgen Wolter Prof. Dr. Martin Hilb Acknowledgments Our thankfulness first goes to our doctoral advisors, Prof. Dr. Hans-Juergen Wolter and Prof. Dr. Martin Hilb, who accepted us as doctoral students and encouraged us in our joint dissertation project. Their advice and guidance were very helpful and much appreciated. Without the support of three European acquiring companies which did acquisitions in China and two Chinese acquiring companies which did acquisitions in Europe as well as two acquired European companies in Chinese outward M&A cases, this dissertation project would not have been realizable. We would like to thank Stora Enso, Nestle, Bayer, Wolong, ATB, Lenovo and Putzmeister for their assistance in granting interviews and providing the empirical data for our case study. Special thanks to our interview partners, who dedicated their valuable time to grant us detailed insights into the complex cross-border acquisition process and the critical success factors when doing an acquisition in China or Europe as a European or Chinese company. Therefore we would like to express our great gratitude to Mr. Karl-Hendrik Sundstroem, CFO of Stora Enso, Mr. Roland Decorvet, Chairman and CEO of Nestle (China) Ltd., Mr. Markus Ritzauer, CFO of Bayer Korea Ltd., Mr. Chen Jiancheng, Chairman of Wolong, Mr. Wang Xiquan, Vice President and CFO of Wolong, Mrs. Xuan Lifang, Wolong’s Vice Director of Overseas Enterprise Supervision Department of Wolong, Mr. Andreas Schindler, CEO of ATB, Mr. Hendrik G. Baechle, Director Finance EMEA of Lenovo Europe, Middle East & Africa, and Mrs. Dr. Renate Neumann- Schaefer, CFO of Putzmeister. Besides, we also express our great thanks to the managers of European and Chinese companies, who participated in our questionnaire survey. In addition we are grateful to Prof. Hellmut Schuette, Vice President and Dean of CEIBS, who welcomed us at the CEIBS, Shanghai as guest students from October to November 2012 and introduced us to academics and corporate decision makers in Shanghai who provided helpful inputs for the empirical part of our dissertation. We also like to thank Thomas F. Freear who consulted us in matters relating to the American English language and provided us valuable feedback as our first reader. We further like to thank Dr. Klaus Edel, Lecturer for Empirical Research Methods at the University of St. Gallen, who kindly advised us when we had statistical questions. Munich and Vaduz, May 2013 Yu Chen and Herbert Werle Personal Acknowledgments I would also like to thank Prof. Dr. Thomas Gutzwiller. It was his support, especially his recommendation for my final admission to the Ph.D program, that I could pursue my doctoral study at the University of St. Gallen. I am very thankful that I have this opportunity to work with Herbert on this dissertation. One plus one makes three, which is one of the rationales behind M&As. That is also the rationale behind this joint dissertation. To successfully achieve this objective, it is critical that Herbert and I have worked as a really good team. Most of all, I would like to express my deepest gratitude to my family especially to my husband Kai and to my daughter Weiyi. Without their love and support, it would not be possible that I could be able to finish my doctoral study quickly and smoothly. Munich, May 2013 Yu Chen Yu’s professionalism and 100%-reliability, her academic excellence and her perseverance in pursuing our goals, also in difficult times, was a “critical success factor” in order to successfully finalize this research project. I am deeply grateful to her. Last but not least, I would like to thank my wife, Carina who stood “by her man” and supported me also in this endeavor, with the same commitment, as in many other endeavors before. Vaduz, May 2013 Herbert Werle European-Chinese M&As and Chinese-European M&As: A Comparative Study of Critical Success Factors List of tables ................................................................................... xv  List of figures ................................................................................ xix  List of abbreviations ................................................................... xxiii  Summary .................................................................................... xxvii  Zusammenfassung (Summary in German) .............................. xxix  1  Introduction ................................................................................ 1  1.1 Research background ........................................................................... 5     1.1.1  Chinese inward M&As worldwide ..................................................................... 6  1.1.2  M&As by European companies in China ........................................................... 8  1.1.3  Chinese outward M&As worldwide ................................................................. 12  1.1.4  M&As by Chinese companies in Europe .......................................................... 18  1.2 Motivation and research objective .................................................... 22     1.3 Research questions and key definitions ............................................ 25     1.4 Theoretical relevance and practical relevance ................................. 26     1.4.1  Theoretical relevance ........................................................................................ 26  1.4.2  Practical relevance ............................................................................................ 27  1.5 Dissertation structure ......................................................................... 28     2  Theoretical background ........................................................... 33  2.1 Internationalization and M&As ........................................................ 33     2.2 Entry strategies for companies into a foreign market ..................... 36     2.3 Definition and types of general M&As .............................................. 42     2.4 Research on Chinese inward and outward M&As .......................... 45     2.4.1  Research on Chinese inward M&As ................................................................. 46  2.4.2  Research on Chinese outward M&As ............................................................... 50  ix European-Chinese M&As and Chinese-European M&As: A Comparative Study of Critical Success Factors 2.5 Theoretical framework: SCOPE model ............................................ 54     2.5.1  Critical success factors (CSFs) in M&As ......................................................... 56  2.5.1.1  Definition of critical success factors ............................................................. 57  2.5.1.2  M&A performance evaluation ....................................................................... 60  2.5.1.3  Success factors in M&As .............................................................................. 64  2.5.1.4  Risks, obstacles, and success factors in Chinese inward M&As................... 73  2.5.1.5  Risks, obstacles, and success factors in Chinese outward M&As ................. 78 2.5.2  Competence-gap closing by M&As .................................................................. 87 2.5.3  Strategic dimension in M&As .......................................................................... 89 2.5.3.1  Strategy – definition and elements ................................................................ 90  2.5.3.2  M&A strategy and competitiveness .............................................................. 96  2.5.3.3  Strategy and M&A motives ......................................................................... 100  2.5.3.4  Real options in M&As ................................................................................. 103  2.5.3.5  Summary ...................................................................................................... 105 2.5.4  Cultural dimension in M&As ......................................................................... 106  2.5.4.1  Culture – definition ...................................................................................... 107  2.5.4.2  Cultures in Europe ....................................................................................... 110  2.5.4.3  Chinese culture ............................................................................................ 113  2.5.4.4  Impact of culture on M&As ........................................................................ 118  2.5.4.5  Summary ...................................................................................................... 121 2.5.5  Organizational dimension in M&As ............................................................... 122  2.5.5.1  Definition and features of projects .............................................................. 123  2.5.5.2  Project organization and M&As .................................................................. 125  2.5.5.3  Structure requirements of the M&A project organization ........................... 126  2.5.5.4  Resource requirements of the M&A project organization .......................... 128  2.5.5.5  Responsibility requirements of the M&A project organization .................. 129  2.5.5.6  Summary ...................................................................................................... 130 2.5.6  Process dimension in M&As .......................................................................... 132  2.5.6.1  Process – definition ..................................................................................... 132  2.5.6.2  M&A process ............................................................................................... 134  2.5.6.3  Summary ...................................................................................................... 138 2.5.7  External dimension in M&As ......................................................................... 138 2.5.7.1  Political, legal and statutory externalities in M&As ................................... 141  2.5.7.2  Macroeconomic externalities in M&As ...................................................... 143  2.5.7.3  Social externalities in M&As ...................................................................... 144  2.5.7.4  Summary ...................................................................................................... 144 x