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Changing Times, Changing Companies – |
A Seminar co-hosted with the European Chamber in Shanghai As the pace of change increases and the global business environment becomes ever more volatile, uncertain, complex and ambiguous, the world’s leading companies know they have to evolve and become agile or risk becoming irrelevant. A 2014 Study from Constellation Research shows that since 2000, 52 percent of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist. Any corporate transformation—executing a new corporate strategy to achieve breakthrough performance, enabling a new executive leader to take charge, or integrating an acquisition—is fraught with challenges. Transformations represent a reboot of a company, with the goal of achieving a dramatic improvement in performance and altering its future trajectory. Join this session organised by the European Union Chamber of Commerce in China andthe Asia Transformation and Turnaround Association to understand the building blocks that are essential for a successful corporate transformation from operational, legal and employee engagement perspectives. |
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Which is trickier, local culture or HQ?
Agenda
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Case Studies:
How to Motivate Key Employees During Transformation Processes? Mr TT Chen, Operating Partner, Taplow Group Consulting Motivating Stakeholders:
Case A: Foreign JV selling to SOEs; shrinking market, losing market share and losing money; sales commission was based on volume, not margin. Sales managers need to be converted into commission agents to compete more effectively against private competitors, but can’t get permission by lawyers concerned about many relatives and friends in large sales force. Quick-win 1: Rescue decision-making from managers in situations with conflicts of interest so the sales managers could become commission agents. Quick-win 2: Switch strategic goal from sales growth to profitability – profitability achieved within 4 months. Case B: Company newly acquired by PE. Operation Director left. PE firm does not have confidence in local GM. There are also labor issues. Quick-win 1: Remove GM and rehire. But how do you determine whether the GM is competent when you are an interim GM? Quick-win 2: Resolve work stoppage by QC personnel by changing unfair merit increase practice. How to Transform and Integrate a Large Private Company in China? Mr. China Head, Managing Director, French Group Background: Foreign company acquires stake in HK-listed private company; 45% control with original owner. Next Company buys 100%. Overall strategic considerations: cooperate/compete; build/buy; assimilate/integrate; old/new style “Culture eats strategy for breakfast”: Peter Drucker – Foreign expectations do not fit China’s environment: control, speed, intuition, agility, 9 rules of cross-cultural survival: 1 proximity; 2 empathy; 3 explanation; patience; boundaries; double-checking; compromise; selective struggles; shrewdness Preparation for execution: start with safety – sets the mind; enforce quality – prioritises the customer; focus on cost – get lean; build people – skills and trust; manage up – dialogue to set corporate expectation; chose battles. Expect a ‘big bath’ in the acquisition year: return to normal after 2 years. Never stay still but be agile to make strategic changes based on limited information.
| Legal Considerations When Moving or Shutting Down Facilities Ms Ginger Zhou, Legal Director, Pinsent Masons Policy: rezoning, land use and economic contribution Options: relocate; set up a new company; transfer business between entities Planning: question list; regulatory risks; mitigation plan and team Questions: business entity; buy/build/lease new land, plant; employees; commercial contracts; assets, liabilities; restrictions: regulatory complexity of relocation; government preference; business interruption; capital and cashflow; contracts, licences, permits, certifications. Employment: termination strict process, requires legal ground, high burden of proof. Under liquidation, timing is critical and caused of unrest must be mitigated. Non-liquidation mass-layoffs require coordination with labour union and consent of local government. Negotiation tactics for relocation: shuttle bus, accommodation and travel allowance; cash incentives; retraining and job change. A core close-down team is required for any shut-down; these people must be correctly incentivised. Location choice: fit with industrial policy; negotiate incentives and investment agreement; check soil and water pollution status and document this in the investment agreement. New site: land quota; land use purpose; land bidding price; land use period; planning and construction parameters; investment and output for the land; restrictions on use of land and disposal of land and company. Options for Business Transformation Mr. Michael Meagher, Head of China M & A, AIAC / D2A Motives for Transformation: Lower cost base; exit business line or geography; close non-profitable operations; discovery of unacceptable internal or external business practices
Challenges for existing considering restructuring: Resource allocation and opportunity costs; high severance costs; lack of restructuring experience; public relations and business disruption risks; non-availability of bankruptcy process in China as a practical matter; lack of interested buyers Choosing a Special Situations Investor: track record in territory and business sector; buyer and builder or liquidator; experienced restructuring and operational teams; access to capital; capability of resolving non-compliance problems; investment time horizon; track record of dealing with government officials Case 1: large and aged receivables; focused intently on securing cash flow; closed down loss-making activities; eliminated unacceptable business practices; incentivised key people to focus on profitable sales Case 2: Sales staff focused on sales without regard to profitability, need to collect overdue receivables; coordinated operations and employment reductions with key staff and local government; negotiated aggressively with suppliers Criteria: USD 20mn-1bn equivalent annual sales; outright or majority control; wide range of sectors; Asia, Americas, Europe and beyond; non-core divisions and subsidiaries; PE fund closure exits from existing investments; rapid DD and reliable closure with very limited reps and warranties. |
Why do Companies not fix their own quick wins? Complex stakeholder maps where those who can do not want to do; those who need change, lack power. Outsiders or external to the hierarchy and are willing to risk reputation to build the required alliances to get things done. Any restructuring or turnaround should of course be followed by continuous improvement, and that is the new management’s responsibility. Sometimes corporate structures are self-defeating. What do you recommend? Leadership is what is required: focus on what is in the interest of the company. What do you mean by a stand-up meeting? In a fast-moving situation it is hard to make detailed long-term plans with sufficient data to satisfy critics so it is more effective to have a structure where short-term tactical plans are regularly refreshed with a structured but flexible long-term strategy. How do you convince clients to absorb the cost of replacing key staff? In most cases companies book retrenchment as an extraordinary restructuring cost | Cultural negotiation is a buzzword? Be clear with priorities and expectations; demonstrate alternative methods to old habits which deliver success. Do you ever bring external mediation support? I usually mediate myself by presenting reality checks and building common goals. Deal with power-holders and opinion-leaders first and set standards. Even post-closure some incentives remain valid: reputation, references, recommendations, outplacement. How do you motivate people during a closure? Ginger: structured targets. T.T: lead select managers by example into the new business model When and how do you mediate between government and HQ? Stakeholder profiling is critical with both government and HQ; they can also serve to set up connections with other bureaux who can advise on policy and application for permits. |
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More than 30 attendees from all companies, operations, professionals and corporate leaders were at the event held at Euro Chamber Shanghai Office on June 19, 2019. |
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