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Study of two
Critical success factors in Chinese Chinese cases
cross-border mergers and in Germany

acquisitions
A study of two Chinese cases in Germany 457
Yu Chen
Guangdong Industry Polytechnic, Guangzhou, China
Herbert Werle
Goetzpartners (Schweiz), Zurich, Switzerland, and
Roger Moser
University of St. Gallen, St. Gallen, Switzerland

Abstract
Purpose – This paper aims to explore the critical success factors (CSFs) in Chinese cross-border Mergers
and Acquisitions (M&As) to improve the odds of Chinese overseas acquisition success.
Design/methodology/approach – For the multidisciplinary analysis purpose, a SCOPE model is
developed to integrate the five key dimensions of Strategic (S), Cultural (C), Organizational (O), Process (P) and
External (E) CSFs. Because of the exploratory nature of the research, a case study approach has been applied.
Findings – Based on the two in-depth case studies of Lenovo’s acquisition of Medion and Sany’s acquisition
of Putzmeister in Germany, eight CSFs along the five key dimensions have been identified. Apart from the
identified CSFs, the two other factors of robust due diligence and M&A project organizational structure fit are
worthy of noting.
Research limitations/implications – The first limitation relates to the weaknesses of case study
research method. The findings derived from the two selected M&A cases cannot be generalized to all the
contexts of Chinese cross-border M&As. The second limitation relates to the subjective nature of judgments
made by the participants in our empirical study. The identified CSFs were based on the perceptions of the
interviewed managers.
Practical implications – The research is of high practical importance for Chinese companies doing or
considering cross-border M&As. The CSFs identified in this research can direct managerial priorities toward
those few areas which should receive careful attention and control to achieve the M&A success.
Originality/value – No much empirical research has addressed Chinese cross-border M&As from a CSF
perspective. This research helps to fill this research gap and provides new insights for the Chinese companies
to increase the success rate in their cross-border M&A projects.
Keywords Case study, Critical success factor, Chinese companies,
Cross-border merger and acquisition
Paper type Research paper

1. Introduction
Chinese outward foreign direct investment (OFDI) is a relatively new phenomenon. The Nankai Business Review
International
encouragement of OFDI was formalized in the 10th five-year plan (2001-2005) with the Vol. 9 No. 4, 2018
pp. 457-471
directive of “Going Out”. In the 11th five-year guideline (2006-2010), the Chinese government © Emerald Publishing Limited
2040-8749
stressed again the importance of “Going Out” for Chinese companies. Wen Jiabao, China’s DOI 10.1108/NBRI-03-2017-0012
NBRI former premier, commented: “Beijing will use its foreign exchange reserves, the largest in
9,4 the world, to support and accelerate overseas expansion and acquisitions by Chinese
companies” (The Economist, 21 July 2009). According to the statistics of the China Ministry
of Commerce (MOFCOM), non-financial direct investment overseas amounted to US
$60.07bn in 2011, US$77.22bn in 2012 and US$90.17bn in 2013.
Facing domestic and international competition particularly after China’s accession to the
458 WTO in 2001, Chinese companies have realized that they cannot compete on low cost and
cheap labor alone. Rather than simply engaging in greenfield investments in foreign
countries, Chinese companies have been increasingly engaged in cross-border Mergers and
Acquisitions (M&As) to improve their international competitiveness and accelerate their
overseas market entries (Salidjanova, 2011). The access to natural resources, advanced
technology, international management expertise, globally reputed brands and overseas
customer markets are major driving forces of Chinese overseas acquisitions (Chen and
Young, 2010; Rui and Yip, 2008; Schueller and Turner, 2005; Wong and Chan, 2003; Yang
and Deng, 2017). Based on the Thomson ONE database, 26 M&A transactions were made
by Chinese companies overseas in 1999. In 2005 the number increased to 66 and jumped to
137 in 2013.
In the early phase of China’s international expansion strategy, Chinese companies started
their internationalization through market entries into neighboring developing economies
and then focused increasingly on directly entering advanced developed economies (Y. Zhang
and Filippov, 2009). According to the statistics of MOFCOM, Chinese outward FDI stock in
Europe increased from US$5,133.96m in 2008 to US$15,710.31m in 2010 (MOFCOM, 16
September, 2011). Compared to other regions like Africa and Latin America with abundant
natural resources, Chinese companies looking to move up the value chain are mainly
targeting companies in Europe with expertise in machinery and specialized components.
According to the Thomson ONE database, from 2005 through 2013 a total of 219 M&A
transactions were made by Chinese companies in Europe. Among these 219 M&A
transactions, 44 transactions were made in Germany (20.1 per cent), followed by France with
24 transactions (10.9 per cent) and the UK with 18 transactions (8.2 per cent) (Figure 1).
Germany has been the most attractive country in Europe for Chinese companies

Figure 1.
Host countries of
M&A transactions by
Chinese companies in
Europe from 2005
through 2013
undertaking overseas M&A activities, which is consistent with the finding by Zhang and Study of two
Filippov (2009). Zhang and Filippov explain that Chinese companies are seeking advanced Chinese cases
technology and know-how through M&As in Germany as Germany is a technological leader
in Europe.
in Germany
A closer look at the performance of Chinese overseas acquisitions shows that there is still
a long way to go for Chinese companies, as mentioned in the study by Schueller and Turner
(2005). According to Zhang and Ebbers (2010), 1,324 overseas acquisition attempts by
Chinese companies announced between January 1982 and April 2009 resulted in only 679 459
completed projects. Williamson and Raman (2011) note that on one hand Chinese overseas
acquisitions have increased rapidly in recent years, but on the other hand many acquisitions
ended quickly and badly. Despite the daunting challenge of acquiring a company in an
unfamiliar foreign market, more and more Chinese companies are seeking to acquire
advanced technology, brands and market access through M&As. In view of the above
situations, identifying critical success factors (CSFs) becomes an important and timely task
for researchers as well as for practitioners. If there had been more attention paid to these
factors, the chance of success in Chinese M&As would have been much higher.
Little literature has addressed cross-border M&As by Chinese companies from a CSF
perspective. Because of the exploratory nature of our research, we choose a case study
approach which is appropriate in less-explored research areas, as suggested by Yin (2003).
Two Chinese cross-border M&A cases in Germany are selected: Lenovo’s acquisition of
Medion and Sany’s acquisition of Putzmeister. Based on these two cases for study we aim to
gain empirical insights in depth. Applying a multidisciplinary view, we build our research
framework which is called “SCOPE model” containing the success criterion (competence-gap
closing by M&As) and the CSFs classified by the five key dimensions of strategy, culture,
organization, process and externalities. In doing so, this paper contributes to the literature in
two important ways. First, it constitutes one of few empirical studies to shed light on what
are CSFs in Chinese cross-border M&As and why these factors are critical for Chinese
acquiring companies to be successful in their cross-border M&As. Second, it advances
related research in M&As. One related aspect is M&A performance evaluation. Instead of
using conventional purely financial measures, we apply the concept of competence-gap
closing (Metzenthin, 2005) to define successful M&As as those M&As which can close the
competence gaps perceived by the responsible management in the company. In addition, our
research enriches the existing M&A literature in the aspect of M&A performance
determinants related to strategy, culture, organization, process and externalities.
The remainder of the paper is set out as follows. We first undertake a literature review
and develop a multidisciplinary conceptual framework integrating five major perspectives
of CSFs in Section 2. We then present our methodology for the study and provide the
findings from two Chinese cross-border M&A cases in Germany in Section 3. Apart from the
identified CSFs, the two other factors are in particular discussed in Section 4. We conclude
the paper by presenting important implications, limitations and future research directions in
Section 5.

2. Literature review and conceptual framework

While the literature has extensively investigated the motivations and drivers of Chinese
cross-border M&As and the role of the Chinese government and other institutions (Chen and
Young, 2010; Deng, 2009; Peng, 2012; Rui and Yip, 2008), the aspect of CSF has not been
sufficiently studied.
In light of the growing importance of Chinese overseas acquisitions and the number of
failed acquisitions, Deng (2010) argues that it is imperative to uncover the major firm-level
NBRI factors which might decide the success or failure of Chinese overseas acquisitions. Deng
9,4 specifically focuses on the absorptive capacity perspective and concludes that the
absorptive capacity of Chinese firms can substantially affect their acquisition performance.
Castaner and Geng (2011) examine the entry mode choice and its consequences when a
company expands into an institutionally different country. They propose that a company
having experience in other countries with different informal institutional settings will be
460 more likely to enter a host country via full acquisitions and will achieve better performance
than a company which lacks such experience. Spigarelli et al. (2015) focus on country-
specific and firm-specific factors for Chinese acquiring company to be successful in their
integration in the global market. Zhang and Ebbers (2010) analyze macro-level, industry-
level, firm-level and deal-specific factors to evaluate how they influence the completion of
Chinese companies’ overseas acquisition attempts. They find that the distinctive social and
economic environment, ownership and low competitiveness of Chinese companies, lack of
international experience and sensitiveness of the industry impede the completion of Chinese
overseas acquisition deals. However, their study is limited to the factors which influence the
completion of acquisition attempts, not the overall M&A performance.
Our research aims to contribute to the identification of CSFs in Chinese cross-border
M&As. We adapt the definition of Metzenthin (2005) and define M&A as strategically
planned transaction between two or more companies in which at least one of them transfers
all or the majority of its capital shares or assets and loses its legal independence to jointly
create a new competence base that is needed to develop sustained competitive advantage in
relevant future markets. In the recent past, researchers have widened the evaluation basis of
M&A performance from the purely financial measures to the actual motivations of M&A
transactions (Angwin, 2007; Brouthers et al., 1998; Epstein, 2005; Gaughan, 2002; Vaara,
1995). We build upon this M&A performance evaluation extension and assess success or
failure through the evaluation whether an M&A transaction closes the perceived
competence gap. Competence is defined by Sanchez et al. (1996, p. 8) as “an ability to sustain
the coordinated deployment of assets in a way that helps a firm achieve its goals”. In this
paper, we investigate the perceptions of the responsible top managers and focus on Chinese
acquiring companies’ strategic motivations to close their competence gaps, for example, in
R&D capabilities, patents, customer understanding, market access or international
management expertise. In our research context, top managers play an important role in
evaluating the M&A performance as only they are knowledgeable about the openly stated
as well as the hidden motivations for a cross-border M&A transaction.
Introduced by Rockart (1979), the CSF method is an approach that attempts to identify a
few key areas and provide a way to define managerial information needs. These identified
areas should receive careful and continuous attention as well as control from the
management. Once the CSFs are explicit, managerial priorities can be set more clearly to
direct limited resources toward important areas to achieve the defined strategic objectives.
We propose such an approach to support the top management of Chinese acquiring
companies to concentrate on those critical elements that might improve the odds of their
overseas acquisition success.
According to Calipha et al. (2010), the M&A motivation, if transformed into an M&A
project, leads to an M&A process. If the process is successfully completed with the closing of
the M&A transaction and the integration of the acquired company, it can be the source of
the successful attainment of the envisaged goal. The M&A process takes place in different
phases including a number of variables impacting the final outcome. Weber (2011, p. 5)
argues that “much of the research tends to be conducted at a single level (e.g. macro or
micro), in a single stage (e.g. pre- or post-merger), and in a single discipline (e.g. strategic
management or organizational behaviour)”, although M&A is “a multileveled, multistage, Study of two
and multidisciplinary phenomenon”. Zhu and Zhu (2016) also point out that existing studies Chinese cases
have examined M&A behaviors largely from a single-level analysis and calls for multi-level
research of M&A behaviors. According to Gomes et al. (2013), it is difficult to clearly identify
in Germany
CSFs for the overall M&A outcome. This may be attributable to an overemphasis on either
the pre-acquisition or on the post-acquisition stage at the expense of an integrated view of
the whole M&A process. Given the complexity and dynamics of M&A projects, McCarthy
and Dolfsma (2013) claim that a multidisciplinary approach is needed to understand M&A 461
performance. To build our framework with the CSFs, we conducted a comprehensive
literature review on the factors which might influence M&A performance (information
suppressed because of blind review). Performance-related factors addressed in the general
M&A literature can be mainly grouped along strategy, culture, organization and process
elements (Bertoncelj, 2009; DiGeorgio, 2002; Gadiesh et al., 2001; Jemison and Sitkin, 1986;
Jennings, 1985; Meckl, 2004; Panibratov, 2017; Rockwell, 1968). Besides, for the China-
involved M&A projects external factors were particularly emphasized in prior research
(Deloitte, 2009; Wu et al., 2011). Therefore, a conceptual framework which we call “SCOPE
model” has been developed. The term of SCOPE is an acronym that refers to strategic (S),
cultural (C), organizational (O), process (P) and external (E) CSFs. The resulting SCOPE
model (Figure 2) specifies the success criteria (competence-gap closure through M&A) and
the five key dimensions of CSFs, thus providing a multidisciplinary conceptual framework
to guide our subsequent empirical study.

3. The case study of two Chinese cross-border Mergers and Acquisition cases
in Germany
To our knowledge, our research is among few empirical studies to address Chinese cross-
border M&As from a CSF perspective. Because of the exploratory nature of our research, we
chose a case study approach. According to Tomczak (1992), in the context of limited existing
research, it is more advisable to introduce “new” aspects into the research process than to
stringently test “existing” ones defined at the start.
Yin (2003, p. 13) defines a case study as “an empirical inquiry that investigates a
contemporary phenomenon within its real-life context, especially when the boundaries
between phenomenon and context are not clearly evident”. In the case study, we adopt semi-
structured interview as the main approach for gathering data to identify the CSFs
and to explore why these factors are success critical in Chinese cross-border M&As.

Figure 2.
The SCOPE model
containing the
success criterion and
the five key
dimensions of critical
success factors in
cross-border M&As
NBRI Tomczak (1992) states that interviewing people who are primarily concerned with the
9,4 phenomenon allows for the reflection and examination of the actual practical relevance of
the identified problem as well as possible solutions. Through in-depth interviews with the
top managers of the acquiring or the acquired companies, practical insights into the CSFs
along the five key dimensions of strategic, cultural, process, organizational and external
perspectives were gained.
462 Walford (2001) states that a fundamental and a long-standing dilemma within case study
is that the method requires a focus on a very small number of cases while there is often a
desire to draw conclusions which have a wide applicability. The first step to deal with this
dilemma, as suggested by Walford, is to recognize that while strict generalizability is not
possible in the statistical sense, case studies can achieve transferability through thick
description and readers can make informed decisions about the applicability of the findings
to their own situations. The purpose of our research is not to draw conclusions of general
applicability, but to gain empirical insights based on two selected cases for study in depth.
In our research, two Chinese cross-border M&A cases in Germany were selected:
Lenovo’s acquisition of Medion and Sany’s acquisition of Putzmeister. An overview of these
two investigated M&A transactions is provided in Table I. In the case of Lenovo’s
acquisition of Medion, Lenovo’s Director Finance EMEA (Europe, Middle East and Africa),
who was also former member of Lenovo’s European Project Management Office (PMO)
handling M&As, granted two telephone interviews on the 1st and 2nd of October 2012. Each
telephone interview lasted one hour. In the case of Sany’s acquisition of Putzmeister, a face-
to-face interview on the 27th of November 2012 at Aichtal, Germany, was conducted with
Putzmeister’s CFO, who headed the M&A team together with Putzmeister’s CEO, and the
interview lasted two hours. Besides telephone and in-person interviews, we also collected
data from secondary sources such as corporate documents, government statistics, and press
articles.

3.1 Lenovo’s acquisition of Medion

Lenovo is the result of the merger of Legend Holding in China and IBM’s Personal
Computing Division in the USA. According to IBM’s News Release, the acquisition created
the third largest PC business with approximately US$12bn annual revenue for 2003, and a
global business with worldwide reach, powerful brand name, balanced product offerings

Lenovo–Medion Sany–Putzmeister

Completion date 1 August 2011 20 April 2012

Transaction value 506.31 500
(EUR m)
Shares owned after acquisition 51.89% 90%
Chinese acquirer Lenovo Group Ltd. Sany Heavy Industry Co., Ltd.
Chinese acquirer business Manufacturer of desktop Manufacturer engaged in R&D,
computers, notebook computers, manufacturing, and distribution of
Table I. mobile handsets, servers, and engineering machinery
peripherals
Overview of two
European target Medion AG Putzmeister Holding GmbH
selected Chinese European target country Germany Germany
overseas M&A European target business Provider of consumer electronics, Manufacturer of heavy equipment,
transactions in including PCs, TV sets, especially concrete pumps, for the
Germany refrigerators and fitness equipment construction industry
and leading R&D capabilities. In addition, Lenovo stepped out from being a local Chinese Study of two
player to becoming a worldwide actor in the global PC market. The company’s vision after Chinese cases
the acquisition is to combine the best of “East and West” and to create a unified global PC
leader with strong market positions in emerging and developed markets around the globe.
in Germany
Lenovo has a multicultural management, which is regarded as a source of strengths, and its
people are free to convene wherever and whenever considered necessary.
Medion is a publicly quoted consumer electronics company based in Germany.
According to its annual report for 2011, Medion achieved sales of EUR 1432 million in 2011, 463
of which EUR 1082 million (75.6 per cent) in Germany. At the end of financial year 2011
Medion had 1012 employees. Medion’s main customers are large retail companies and
consumer. The acquisition of Medion is another important move to realize Lenovo’s long-
term strategy. In Lenovo’s press announcement, Yang Yuanqing, Lenovo’s CEO,
commented at the occasion of the acquisition that Medion has strong consumer sales,
marketing and service capabilities, as well as strong customer relationships. Together with
Lenovo’s strengths in manufacturing and supply chain management, both companies are
complementing each other and should benefit from global scale, cost savings and increased
synergies in the areas of procurement, distribution channels, software development and
business model innovation. Lenovo expects to increase its competitiveness and its market
share through Medion’s market presence in Western Europe and in particularly in Europe’s
biggest market, Germany. Through this acquisition, Lenovo together with Medion will get
14 per cent of the German PC market, which is the largest PC market in Europe.

3.2 Sany’s acquisition of Putzmeister

With a number one position in its home market of the Chinese construction machinery
industry, Sany, headquartered in Changsha China, ranked among the world’s top 500
companies. Sany, however, was not really successful in obtaining a substantial market share
in developed countries in spite of considerable effort with greenfield operations in Spain and
later in Germany.
Putzmeister, Sany’s competitor in Germany before the acquisition, had an excellent
history of growth until the outbreak of the financial crises in 2008, particularly from 2003
with an annual average revenue growth rate over four years of 34 per cent per annum (Baer,
22 September, 2008). The growth was followed by a steep and unexpected decline. The deep
fall came in 2009, when Putzmeister’s annual revenue declined to only e440m, a drop of 56
per cent from its top level in 2007. At the same time the number of employees was reduced
by about 1300 to a level of 2700 in 2009 (Manager Magazin Online, 17 April, 2012). In
contrast, Sany Heavy Industry had a strong growth from 2007 to 2009, almost twofold
increase in its revenue from 2007 to 2009. Putzmeister was greatly and adversely affected by
the change in construction markets from the developed countries to the emerging countries
and its insufficient presence in China. The creditor banks initiated a change in management,
as the old management of Putzmeister stayed in a “wait and see” position and did not realize
that growth rates could only be achieved with a strong market position in China. Schwing,
the other major German competitor of Putzmeister, was in deep financial difficulties as well
and was talking to potential Chinese buyers. In the concrete pump machinery industry, this
deep segregation between declining markets in the developed countries and the booming
demand in the emerging markets led to a consolidation in the industry. CIFA, the Italian
concrete pump manufacturer was the first concrete pump manufactures from Europe to be
acquired by Zoomlion Heavy Industry Science and Technology Development Co. Ltd., a
Chinese competitor of Sany, already in 2008. Sany finally bought Putzmeister. Schwing was
later acquired by Xuzhou Construction Machinery Group. The acquisition of Putzmeister by
NBRI Sany was a win-win situation for both. Through the acquisition, Sany could acquire high-
9,4 end technology and top customer contacts. Putzmeister on the other hand could obtain
support from Sany in its entry into the growth market of China. Tough competitors became
partners through the acquisition.

3.3 Empirical findings on critical success factors

464 In the following, we present the CSFs identified from the two cases of Lenovo’s acquisition
of Medion and Sany’s acquisition of Putzmeister.
3.3.1 Strategic critical success factors
3.3.1.1 Well-defined strategic competence gap is critical for Chinese overseas acquisition
success. The competence gap is the difference between the current competence base of a
company and the desired competence base in the future. The “why” leads the “how”, that is,
the “why” of competence gap will help to identify the right target and impact the “how” of
the valuation, pre-acquisition preparation, negotiation and integration. To achieve the
strategic version to develop the company into a global player, Lenovo and Sany reacted
quickly and decisively when the right acquisition opportunity came up. Lenovo pursues
worldwide a balanced “protect strategy” and “attack strategy”. A “protect strategy” is
followed in the core product areas where Lenovo holds leading positions, whereas an “attack
strategy” is followed in the “idea-branded” product areas where Lenovo wants to attain
leading positions and has not achieved that goal yet. A competence gap was perceived in the
Mobile Internet Digital Home (MIDH) business in West European markets, particularly in
Europe’s biggest market Germany but also in France and the UK where Lenovo was not
adequately present. For this product area, the “attack strategy” was pursued. Medion
possessed a strong market position and brand recognition in MIDH, particularly in
Germany. Through the acquisition of Medion, Lenovo could expand the MIDH business in
Western Europe. For Sany, the competence gap was the inadequate brand image and lack of
market presence in Europe, as well as in the USA, and the absence of high-end products.
Through the acquisition of Putzmeister, Sany could acquire a leading well-known brand
which stands for excellent quality and German high-class engineering as well as the access
to developed markets in Europe and the USA. In terms of competence-gap closing, we
therefore think Lenovo’s acquisition of Medion and Sany’s acquisition of Putzmeister were
successful.
3.3.1.2 Careful evaluation of competence-gap closing actions is critical for Chinese over-
seas acquisition success. An M&A transaction with its great opportunities but also high
potential risks should be carefully weighed against other alternative actions such as
exporting, greenfield, cooperation or joint venture. To close the perceived competence gap,
Sany tried alternative actions and established greenfield operations in Spain and afterwards
in Germany, but without success. The unsuccessful experience with these market entry
attempts in Europe was the key driver for Sany to acquire Putzmeister, as stated in the
interview:
Sany had experience with greenfield operations in Spain and Germany, which were both not
successful. Sany wanted a German company, with high-end technology, excellent quality and a
good market reputation in Europe as well as in the USA.
Time to market also played an important role in choosing the acquisition route. Lenovo is a
well-established and worldwide recognized brand. The option of improving their market
presence in Western Europe through a greenfield operation would have been a viable option.
However, Lenovo wanted to expand their presence in Western Europe quickly, which is
commented in the interview:
 Lenovo’s strategy is organic growth but also strategic acquisitions, which allow Lenovo to largely Study of two
increase market share and to expand its presence in Western Europe quickly.
Chinese cases
3.3.2 Cultural critical success factors in Germany
3.3.2.1 Cultural sensitivity is critical for Chinese overseas acquisition success. The
differences in thinking and acting because of cultural differences between Chinese and
western companies are substantial. The acquiring Chinese company should be sensitive to
cultural differences between its own national and organization culture and those of the 465
target company. In the case of Lenovo, a cultural alignment between Lenovo and Medion
was necessary. The strategy and cooperation areas were as precisely defined and agreed
upon as much as possible prior to the closing. In case of disagreement, Lenovo tried to
convince and never pushed by force. Cultural differences between Sany and Putzmeister are
large: Sany is a very hierarchical company where everything is going to the top and decided
there, whereas Putzmeister has a culture of delegating authority and decision making to
lower levels. Taking cultural differences into account, Sany did not bring Chinese
management into Putzmeister. Putzmeister continues to operate as a separate division
within the Sany group and is completely independent financially.
3.3.2.2 Involvement and commitment of a “Glocalpreneurial” CEO/chairman is critical
for Chinese overseas acquisition success. As termed by Hilb (2009), “Glocalpreneurial”
leaders have a culture of being hard on performance but soft on people or in other words
their management style has the attributes of a cold head, a warm heart and working hands.
These traits are important in undertaking a cross-border M&A transaction: cold head is
important when negotiating with the target company’s counterpart especially in difficult
situations; warm heart is important when winning the employees and the management of
the acquired company; and working hands is important when not delegating the crucial
issues in the M&A negotiations and integration but being present in person. Lenovo’s CEO,
Yang, and Sany’s Chairman, Liang, both have “Glocalpreneurial” personalities. Because of
the decision-making process where all key decisions have to be decided on the top level in
Chinese companies, the involvement and commitment of the Chairman/CEO is of particular
importance. The M&A team of Sany was headed by the Chairman and Lenovo’s M&A team
was headed by Group CFO who had close relations to Lenovo’s CEO.
3.3.3 Organizational critical success factors
3.3.3.1 Selection of right people and assignment of proper responsibilities is critical for
Chinese overseas acquisition success. The M&A organization should be staffed with the
right people assigned with proper responsibilities. Lenovo’s M&A team consisted of its
worldwide CFO, Controller, Tax and Corporate Development responsible, as well as the
business line manager, as stated in the interview:
The M&A team within [Lenovo’s] Project Management Office were responsible for the
transaction, integration and alignment. There was very good pre-work done already, so there was
no fundamental disagreement in the negotiation and integration phases. In the negotiation
process, all decisions with a certain magnitude had to be submitted and approved by the decision
body of Lenovo Executive Committee [LEC]. The LEC is a team of 12 people with CEO, CFO, CIO,
CMO, HR and regional heads.
Sany’s M&A team consisted of its Chairman, another top manager and a business person
who knew the market and was sensitive to German culture and now is the interface between
Sany and Putzmeister, and was supported by international lawyers. Because of the
competitive offer from another Chinese state-owned company, Sany wanted to close the deal
fast. The high commitment of decision makers in all steps and high trust on both sides
enabled the deal to be signed very quickly in less than a month from Sany’s offer to the
NBRI signing of the contracts, an unbelievable short time for a transaction of such complexity and
9,4 magnitude.
3.3.4 Process critical success factors
3.3.4.1 Effective integration management is critical for Chinese overseas acquisition
success. An effective integration management is critical to wealth creation and thus critical
to the overall success of the acquisition. As to how Chinese acquiring companies effectively
466 integrate the acquired companies, the interviewed top managers emphasized that the
Chinese acquiring company should respect the acquired company’s uniqueness in the
integration process, that is, changes are initiated only if they are beneficial for both
companies, and only if they are agreed with the acquired company’s management. Much
interference from the Chinese acquiring company could lead to irritations among the
acquired company’s management and employees and could destroy the value. Because of
different decision process and organizational structure between the Chinese company and
the foreign company, it is a big challenge for the Chinese acquiring company to successfully
integrate the acquired company after the closing of the deal. It is important to maintain the
know-how and motivation within the acquired company by leaving the freedom for
development, as the further success of the acquired company is the prerequisite for the
Chinese acquiring company to gain a positive image and eventually be successful in the
foreign markets. In order not to impair the motivation of the employees and middle
managers of the acquired company, the Chinese acquiring company should keep the local
management in place, as emphasized in the Sany case:
Do not bring in Chinese managers in key positions. The exchange of the management in a
German company with Chinese will not work. It will not work with the employees, and also not
with the customers. The key employees would leave and the customers would orient themselves
toward the competitors. German employees and middle managers are used to taking decisions,
whereas Chinese managers want that everything is brought to their attention and decided by
them. Within Putzmeister, the simple decision process and the motivation of the employees are
the key for the success.
Lenovo followed a “hands off” integration strategy. The integration priorities were to
minimize the disruption to Medion’s business operations, to leverage Medion’s strengths
and achieve cost and growth synergies between Lenovo and Medion:
In the integration phase there was no much disagreement between Lenovo and Medion. The
strategy and the cooperation areas were as precisely defined and agreed upon as possible, prior to
closing the deal. Nothing is forced as Medion has its own ‘DNA’. This ‘DNA’ which is Medion
specific, was part of Medion’s success in the past and should be maintained and not destroyed in
the future. Alignments were made on the level of financial reporting, human resource and in the
business, wherever it made sense, but only in a cooperative way in agreement with Medion. In
case of disagreement Lenovo tried to convince, and never pushed [decisions] by force.
3.3.4.2 Clear communication and low ambiguity is critical for Chinese overseas acquisition
success. The Chinese acquiring company should clearly communicate its strategy,
integration plan, and the future role of the acquired company within the Chinese group. This
will ensure a harmonious integration of the acquired company and long-term wealth
creation for both acquiring and acquired companies. In Lenovo’s acquisition of Medion,
there was clear communication by active emails and two large kick-offs were organized after
the announcement in which senior management informed the managers and employees of
both companies. In Sany’s acquisition of Putzmeister, the communication between both
companies was conducted in a friendly atmosphere. After the acquisition, Putzmeister’s
CEO became member of the board in Sany and a Chinese manager was appointed to
function as “liaison officer” for the communication between Putzmeister’s headquarters in Study of two
Germany and Sany’s headquarters in China. Chinese cases
3.3.5 External critical success factors
3.3.5.1 Consideration of local interests and opinions is critical for Chinese overseas acquisi-
in Germany
tion success. The interviewees emphasized the importance of considering local interests and
opinions from the public, media, unions, and politicians. For Lenovo and Sany, as Chinese
overseas acquisition in Germany is a quite new phenomenon, the public is concerned about
how a Chinese company will integrate and manage a German company and is especially
467
interested in whether the Chinese acquiring company will downsize the acquired company’s
workforce or not. Chinese acquiring companies should take into full consideration the
reactions from the target’s home country. It is necessary to make the assuring statements
about job retention, maintenance of the acquired companies’ existing location and positive
prospects for the future. After the acquisition of Putzmeister, Sany made an announcement
to customers, employees, suppliers and the public that Putzmeister will remain as
Putzmeister and that nothing will be changed in its strategy regarding production, support,
engineering, as well as customer and supplier relationships. There was extensive press
coverage about Lenovo’s acquisition of Medion in Germany and Lenovo monitored all the
coverage related to the acquisition in the press and on the internet. There was positive
sentiment in the German press that the acquisition of Medion is good for Germany and for
the future development of Medion. While the reaction from the Medion employees was first
skeptical, it became neutral later and positive finally. For Medion’s major customers,
communication was made well ahead of the deal announcement and it was no surprise for
them.

4. Discussion
Apart from the above-mentioned CSFs, two other factors of robust due diligence and M&A
project organizational structure fit are worthy of further discussion.

4.1 Robust due diligence

A robust due diligence of the acquisition target is usually considered as an indispensable
exercise to become familiar with the acquisition target. However, a time-consuming due
diligence audit might not be performed by the acquiring company if the two companies have
established a relationship of trust and have known each other very well, and if there is an
urgency to close the transaction quickly. In Sany’s acquisition of Putzmeister, there was
time pressure on both sides of Sany and Putzmeister. The deal was signed in less than a
month from the date of the receipt of Sany’s offer, which was fueled by the fact that the other
Chinese company wanted to buy Putzmeister too. The whole process was entirely built on
mutual trust. No due diligence audit was performed by Sany. There was only a one-day
presentation at which Putzmeister’s management reported to Sany’s top management about
the major critical issues. The factor of robust due diligence was therefore not perceived as a
CSF in the Sany case.

4.2 Merger and Acquisition project organizational structure fit

The M&A organizational structure should be adapted to the requirements of the M&A
process, i.e. the formulation, location, investigation, negotiation and integration phases. In
the formulation and location phases, the M&A project organization should be kept highly
flexible, and an informal structure with direct communication channels is more efficient
than a formal hierarchal project management structure. In the investigation and negotiation
NBRI phases, the informal structure of the initial project phases should be converted into a formal
9,4 project structure and a project head should be appointed with a core formal project team
consisting of internal or external specialists. In the integration phase, it is suggested that the
project organizational structure should be a formal matrix organization with an integration
project head leading the team of vertical (R&D, procurement, production, sales, services,
etc.) and horizontal (IT, human resources, cultural change, reporting etc.) task forces,
468 forming the backbone for the integration measures. In the case of Lenovo’s acquisition of
Medion, Lenovo’s two-layer M&A organization with its M&A team as a first layer and
Lenovo Executive Committee as a second layer handled the M&A process very
professionally. However, the type of M&A project organization structure, whether formal or
informal, seems less important than the direct participation of the top management for the
Chinese acquiring companies like Sany. In Sany’s acquisition of Putzmeister, the M&A
teams were headed directly by the Chairmen, who made the necessary decisions very fast.
The factor of M&A project organizational structure fit was therefore not perceived as a CSF
in the Sany case.

5. Conclusion
Our research is of high practical importance for Chinese companies doing or considering
cross-border M&As. The CSFs identified in our research can direct managerial priorities
toward those few areas which should receive careful attention and control to achieve the
M&A success.
In addition, this paper has enriched the research on Chinese cross-border M&As. Prior
research on Chinese overseas acquisition activities has mainly investigated the motivations
of Chinese companies in undertaking overseas acquisitions and the role of Chinese
government and institutions. No much empirical research has been found to address the
aspect of CSFs. Our research has helped to fill this research gap. This paper has also
advanced the existing body of knowledge on M&A performance-related factors by
integrating different perspectives in a multidisciplinary conceptual framework. The SCOPE
model developed in our research can be applied as a useful tool for researchers to explore
and analyze the CSFs in the M&A settings.
As an explorative study, certain limitations should be kept in mind in interpreting the
preliminary findings from our research. The first limitation relates to the weaknesses of case
study research method. The findings derived from the two selected M&A cases cannot be
generalized to all the contexts of Chinese cross-border M&As. The second limitation relates
to the subjective nature of judgments made by the participants in our empirical study. The
identified CSFs were based on the perceptions of the interviewed managers. Additionally,
during the interview, the responses of the interviewed managers might be affected by our
involvement as the interviewers. Future research could take advantage of our findings to
test the “how” questions in a quantitative way, that is, how the identified factors influence
the M&A performance.

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About the authors Study of two
Yu Chen is Assistant Professor at International Education School, Guangdong Industry Polytechnic. Chinese cases
She was Research Associate at the Department of Informatics, Technische Universitaet Muenchen
and received her PhD in International Business from the University of St. Gallen (HSG), Switzerland. in Germany
Her research focuses on the internationalization of Chinese companies, especially Chinese cross-
border M&As in Europe. Yu Chen is the corresponding author and can be contacted at: ychen0808@
gmail.com
Herbert Werle is Managing Director at goetzpartners (Schweiz) with a focus on ICT, Pharma and 471
industry cross-border M&As. He received his PhD in International Business from the University of
St. Gallen (HSG), Switzerland. His research focuses on the critical success factors in cross-border M&
A settings, especially on European M&As in China.
Roger Moser is Assistant Professor of International Management at the University of St.Gallen
(HSG) where he also serves as Director of the ASIA CONNECT Center (ACC-HSG). He received his
PhD from European Business School, Germany. His research interests focus on the development of
access-based business models in emerging markets, the internationalization of Chinese and Indian
companies, as well as strategic decision intelligence.

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