By Martin Hirt and Gordon Orr
September 15, 2006

While multinational corporations continue to expand in mainland China, mainland companies are going overseas. They are making acquisitions and forming alliances to win access to raw materials, technology and consumer brands - as well as new markets.

Some skeptics question whether mainland businesses can succeed in their forays into western markets. But they do have some advantages - including cheap financing from state-owned banks - in competing with western bidders. They also, often, are in a good position to cut costs at acquired companies, if they can shift the manufacturing to the mainland.

Against these pluses are a number of challenges. Turning around troubled assets is tough - even for experienced acquirers with first-class skills in mergers and acquisitions and deep local knowledge; mainland companies lack both. When we talk to seasoned mainland business leaders, the question often at the top of their minds is how to integrate the management of an acquired company - to bridge the geographical and cultural gaps between it and the Chinese corporate centre. Mastering integration is a prerequisite for success: much of the value in many acquisitions comes from combining the mainland's cost advantage with the brand, technology and other assets of a western business.

In our experience, several steps are essential for ensuring that mainland companies succeed in mergers and acquisitions. They all force the acquirer to prepare for the task long before the deal is done, and to move quickly and decisively to take advantage of the brief window of time when employees of acquired companies expect change. Lenovo started planning systematically to integrate IBM's personal computer business almost a year before completing the deal. But others have made acquisitions without preparing for "the day after".

Keeping the entire, acquired management team in place sends a strong signal that the order of the day is business as usual, and that major changes should not be expected. The answer, in many cases, is to bring in experienced local managers, and sometimes a new chief executive, from outside.

Bridging the gap between a mainland company and an overseas business that it acquires is crucial, but it doesn't happen naturally: ties must be encouraged. One effective approach is to dispatch "connectors": experienced Chinese managers, with good language skills, who join overseas operations to help them communicate with headquarters.

Management tasks are sometimes fragmented between the mainland headquarters and overseas operations. In such cases, failure is preordained. The answer is to make one manager - in China or abroad - directly accountable, with end-to-end responsibility for introducing new products and fulfilling orders. Cultural gaps in management style and practice might never be fully overcome. They must be managed to blend, and make the most of, the skills on both sides.

Finally, the use of top-quality, simultaneous translation services might seem a trivial matter, but it isn't. Today, executive assistants often take on the role of translator in business meetings. Such "sequential" translation often makes people feel disconnected: simultaneous translation (into earphones) is far better.

Mainland business leaders have taken their first steps to creating global enterprises, which for many have proved to be more challenging than anticipated. They must now take in the lessons from these initial struggles and build the managerial and operational skills required for lasting success in international markets.

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Martin Hirt heads McKinsey & Company's high tech and telecoms practice in Greater China; Gordon Orr leads their strategy practice in Asia.

This article was originally published in the South China Morning Post.