'Asian trailblazers' swiftly globalising through M&A

“These companies have adopted well-defined globalisation strategies. They understand the need to evolve quickly and adapt to the challenges of the new global landscape they are shaping,” Gavin Watkins, director of client development in Asia-Pacific for Towers Watson, a global professional services company, said yesterday.
“Their North American and Western European counterparts need to take them seriously as they emerge as significant challengers in the global business world,” Watkins said.
Towers Watson’s 2012 Asian MNC Study found that 70 per cent of respondents intend to engage in multi-country M&A activity in the future.
These “Asian trailblazers” pose a competitive threat to their North American and Western European counterparts, primarily due to the marked shift in their global expansion strategies when entering new international markets.
Many have already established a strong presence in North America and Western Europe, where they gained knowledge and built on competitive strengths. In fact, 56 per cent of the respondents indicated they did not initially enter markets in Asia, but expanded into North America or Europe first.
Asian MNCs have traditionally entered new markets through greenfield investments or joint ventures. However, a marked shift towards combining increased M&A with traditional entry modes is expected.
The primary reason driving expansion overseas is their desire to be closer to their key markets. Other reasons are to remain competitive and to gain knowledge and strategic assets such as access to important raw materials, technological know-how, and organisational and managerial capabilities.
As Asian MNCs expand overseas, there are a multitude of risks brought about by general economic uncertainty and the changing nature of M&A – such as shorter time between deal announcement and completion, as well as the risks of overpaying for acquired entities.
Among the key challenges, financial and regulatory aspects of deals were cited as the top globalisation challenge, followed by developing cultural understanding and the management of a global company.
Pichpajee Saichuae, managing director of Towers Watson Thailand, said many Thai MNCs are expanding through M&A in Asian countries especially China, India and Vietnam.
They see M&A as a critical strategy since it can produce quick returns while minimising the risk.
“However, most of them are not well aware of the culture differences and people sensitivity issue which are the significant critical success factors for M&A success,” Pichpajee said. “They may not see the problems yet at the beginning but later they will become one of the obstacles that pull the company away from the target they want to achieve.
“Getting HR [human resources] involved at the initial stage of M&A is very important. We have to take culture and people as one of the top priority key success factors for M&A.”
The crisis in Europe and economic problems in the US have prompted some Thai firms to look West, including Charoen Pokphand Group.
Its chairman Dhanin Chearavanont said last week that it was studying buying some retailers in Europe and the United States to assist its food business.
Contrary to traditional internationalisation practices of expanding to nearby markets, which are not only physically close but also similar in business and political culture, many Asian MNCs employ “leapfrogging” to enter developed markets directly.
“This is an indication of the Asian trailblazers’ ambition, intensity and speed of globalisation,” Watkins said.
“As a result of improvements in information and communication technologies, as well as lessons learned from the expansion strategies of other organisations, these companies have been able to leverage their external business networks to discover opportunities and mitigate some of the risks associated with entering more distant markets.”
Asian MNCs have now set their sights on Asia as the key focus of future expansion. The regions considered as most important for future growth are China and emerging markets in Asia excluding China and India.
Other regions of importance are North America, Latin America, Africa and India, while Europe, the Middle East and South Korea are viewed as less important.