For Korea, China is often referred to as ‘the land of opportunity’ due to its high growth potential and geographical advantage. Many Korean firms have already entered Chinese market, yet the fate of each aspiring business is fairly differentiated. CKGSB Associate Dean and Professor Teng Bingsheng is one of the most prominent academics and experts in global strategic alliance. In an interview with Hankyung Business, Professor Teng shared his valuable opinions on business characteristics of Chinese companies, Korean companies’ market entry into China and the key M&A strategies involved.
Professor Teng highlighted several common challenges when executing M&A or business partnerships with Chinese companies. The most common challenge is the cultural difference – Chinese companies are reluctant to take responsibility for business failures and often lack business ethic. One of the well-known cases is Alibaba’s partnership with Yahoo, where Alibaba separated Alipay without an agreement with Yahoo or Softbank. This shows that even the most well-known e-commerce company are capable of such decisions.
Professor Teng argued that both Korean and Chinese companies should attempt to understand each other’s business cultures. Yet, he commented that unlike other western companies that consider the Chinese market to be their first priority, Korean companies don’t seem desperate enough when entering the Chinese market. He believes that they should not only consider China to be their overseas market, but to consider China as their secondary market.
Another common problem is the lack of information transparency and credibility. Chinese firms tend to exaggerate their performance right before engaging in M&A or partnerships. As a result, in many cases, the actual corporate value and performance by these companies turn out to be lower than expected once an agreement is made. Professor Teng claimed that multi-directional investigations can work as a solution to this. For example, firms can send an expert to their investment partners and confirm that the actual corporate performance and value corresponds to the information provided.
Professor Teng suggested that the best combination occurs when two companies have resources that supplement each other. For example, Korea’s R&D capacity and creativity can be combined best with China’s entertainment, online game, financial services, construction, shipbuilding and steel industry.
As an advice for Korean companies who wish to invest in the Chinese industry, Professor Teng suggested to focus on the sectors that are directly related to consumption. The rise of middle-class consumers are the greatest change in the Chinese consumption market, where Korean companies should be able to take advantage of.
Read [Interview] CKGSB Professor Teng Bingsheng: “Korean Companies Need More Desperation When Entering the Chinese Market” on Hankyung Business website