Access to Asia

Cross Border Due Diligence

Getting the facts right requires more than just sending the local team of accountants over to check the books. It requires extensive understanding of threats and liabilities of the local environment.
The cross border element adds extra complexity in Asia as the cultural differences are more wide, the regulatory and legal environment is sometimes more ambiguous, and the business relationships are not always clearly defined.

We advice caution when moving ahead, unless you have experience in starting a business yourself, in the country/region where you intend to aquire your target, it can be extremely dangerous to go blind.

Cross Border PMI (how to do it right)

Cross Border cooperation requires high intensity of communication, especially when changes need to be implemented and synergies need to be achieved. In all these processes, the international element causes corporations to make mistakes. It's not uncommon for takeovers to fail due to incompatibilities encountered during the PMI phase. For cross-border and cross cultural transactions, this is even more common. Mostly the following reasons are behind the failure to integrate:

Under-Estimating Distance (Cultural, Time-zone & Language)
This leads to reduced effectiveness and problems in communication and remote management, ultimately leading to a failed Acquisition.

Management sends the "second-best" to the overseas target
Candidates for expat positions are not easy to find. Experienced (change) managers with deep roots in the company culture are not always equipped with the right cultural baggage to deal with Asia. Even if they do, they can sometimes not be missed on their current position either, or their age and family situation makes them reluctant to move. Therefore companies are inclined to send their "second-best" managers, high potentials who are either young and adventurous, but not yet experienced, or more senior people, that can be "spared".

This creates two problems:
The expat manager doesn't have the deep rooted network at HQ to back them up. This leads to lower credibility and influence with HQ. Lack of network and communication with the right people also leads to lower levels of understanding from key people at HQ. Because of this the HQ management is unable to fully comprehend the threats and opportunities of the local situation, and unable to make the right decisions or deliver the right support.

Also the interests of the local team are not defended well enough, which can lead to mistrust from the local managers. If the manager is too young he or she will suffer from a lack of acceptance from the local managers and will not command the same influence and respect needed to make any significant change. If the manager is not "impressive" he or she fails to effectively communicate the reason for change and fails to sufficiently inspire the local teams. All of the above leads to high churn among local management. Combine this with the sentiment of uncertainty of a newly acquired company and it is not hard to understand that the Target starts to feel like the Victim.

Underestimating the reaction and influence of local government and local customers
Local governments and local customers can be extremely upset or alarmed by a takeover bid, and start preparing their scenarios long before you get to the PMI phase. Nationalistic sentiments can play a role in this response or a combination of factors. When Dubai (UAE) based company DP World planned takeover of British firm P&O, US authorities were extremely alarmed that their national security was under threat. As mayor operations in US ports would fall under the hands of an Arabic company.

This may be an exaggerated scenario, but it is likely Chinese authorities (like any other nation) would react similarly unfavorable to a foreign takeover of a strategic cooperation.

Taking over a small player can possibly stir up sentiment from customers, as they see a relatively safe business-partner becomes part of a more big, possibly unfriendly or competing Multinational. Local competitors may stir up the mood by miss-presenting the post merger scenario for their customers and frightening them.

The strategic response to the takeover announcement needs be fully assessed during the Due-Diligence phase. Also the response of local competitors needs to be understood and addressed.

Misunderstanding, or disregarding the local business methods and way of working
Forcing rules and regulations that do not add value to the acquisition, example is not just forcing the HQ code of conduct, but applying logistical, financial and other ways of working without testing their appropriateness to the acquired business.

Example is Philips takeover of ColorKinetics. For synergy reasons, CK sales were channeled through Philips infrastructure. By disintermediating European agents who earlier handled the stock keeping (in exchange for a margin), lead-times for EU customer orders increased from two weeks to three months. This was incompatible with project based way of working of 90% of the original customers, who massively turned away from using CK products.

Loss of communication, vicious cycle!!
The expat managers sent from HQ are not just confronted with different local ways of working. Due to the culture shock they are more likely to be immersed in the local situation and lose their mental foothold and sound judgment.

Because of the great distance and high communication barriers, management in HQ is unable to fully comprehend the situation and therefore doesn't always make the right decisions.

The expat managers feel increasingly abandoned by HQ, because of the sometimes silly or unrealistic requests bestowed on them. The expat managers are more and more reluctant to communicate the real issues, in fear of being misunderstood. This leads to further misalignment between HQ and the overseas subsidiary.

Add to that the hardship of having to do regular conference calls at ungodly hours, and it is easy to see why communication drops to a minimum.

The solution is not just regular calls but frequent trips of all involved managers, to increase situational awareness and allow them to develop a network of trust on both sides.

What we can do to make things work right

Depending on the timing of your request for assistance we can help you in several different ways.
If XS2Asia has been has involved already in an early stage of the Due-Diligence process, you would already have an overview of threats and weaknesses, along with a solution on how to avoid these pitfalls. We would be guiding and coaching your managers along the way and you most likely would be a very pleased client.

If you haven't, not all is lost. When you contact us earliest, in the middle of a PMI process after you realize things are moving sideways, we can still do a lot. This situation however will require a more urgent response from our side. Most likely, a quick scan of the situation can reveal already some good action points to help you straighten things out. If needed we will dedicate ourselves to step in, and have a more hands on approach. Interim Management is part of our portfolio and depending on the availability of our managers, we can see how to help you.

Strategic Assessment

We can perform strategic assessments for your portfolio company as preparation to a turnaround, or as part of a due-diligence for your takeover target company. Our strength here lies in understanding High Technology products and Semiconductor Markets. Because of this we will be able to give you a much more in depth assessment than any other "general" business consulting firm would be able to do.

We can appreciate technology as close as possible to it's true value (for better or worse!!), this can mean a totally different outcome for your investment then relying on purely business consulting firms who have no in depth industry experience. In all earlier assessments XS2Asia has proven to be closer to the mark than anyone else. Our predictions in terms of valuation were not only precise in quantities but also with regards to timing of the expected revenues we were remarkably close.

Turnaround

You have a loss-making portfolio company or subsidiary and you are considering to close it down. Please stop and think before you decide to do this. XS2Asia has earlier achieved success in re-organizing companies to avoid bankruptcy and to stop further losses. If you are interested to find out how to bring your company back to profitability, please let us take a look.

In 2010 XS2Asia has re-organized a technically bankrupt EMS (Electronic Manufacturing) company in Thailand and brought it back to profitability within one year. We divested one out of two loss-making factories to a buyer who needed the labor and some of it's assets as a going concern. This delivered immediate positive cash-flow but also helped preserve 350 jobs that would have been otherwise lost in the impending insolvency procedure. We also found two promising products and matching customers. Final result was a healthier and smaller production company who had sufficient production demand to satisfy it's cost of operation.

We understand that companies in need of turnaround services are not always capable to pay for these, however we would be more than interested to see what we can do for you against a flexible result oriented reward.