Unclear image hinders SOE expansion

Nowadays, more and more Chinese com panies are starting to expand overseas, but the process is full of difficulties. The following is an interview by Global Times (GT) reporter Wu Meng with Diana Footitt (Footitt), CEO Asia of Financial Dynamics Ltd, a financial communication consultancy, on the best techniques for companies looking to build a trustworthy brand image in foreign market.

GT: We see a lot of foreign companies, especially big international brands such as Samsung, Microsoft and Google, deliberately localizing their approach when they market their products in China. This makes them very popular here. When a Chinese company enters a foreign market, what could it learn from those companies?

Footitt: As you have rightly identified, one of the key factors that helps a big multinational succeed in a large foreign market is gaining a strong grasp of local concerns and demand patterns.

Each of the companies you have mentioned, Samsung, Microsoft and Google, has devoted considerable time, patience and resources into researching the Chinese market, understanding the challenges and customizing solutions to the market's unique concerns.

These multinationals also actively communicate and engage with Chinese stakeholders. They do this not just to obtain feedback and information but also to demonstrate their dedication and to win acceptance of their products and brands.

GT: A few months ago, the $19.5 billion deal between Rio Tinto and Chinalco collapsed. Some critics say that the main reason is that Chinalco is a State-owned enterprise (SOE), and therefore this deal would bring risks to Australian resources. Since many large Chinese enterprises are owned by the govern ment, what could those companies do to gain trust overseas?

Footitt: Our belief is that the collapse of the deal you mention was purely due to commercial considerations.
However you make an important point that trust is critical in any transac tion. When Chinese companies go over seas, they typically face distrust, doubt, fear, and misunderstanding from con cerned target markets and companies. All these sentiments become magni fied when the Chinese company is an SOE, because the issue of political motive and transparency then comes into play. To gain trust, SOEs first need to demonstrate sensitivity to the concerns and issues that target markets have regarding Chinese ownership and investment.

It is important to demonstrate that you know what they think, understand how they feel, and value their concerns and are taking the time and effort to address them.The bidding SOE then needs to stress that the M&A transaction in question is commercially driven – not politically motivated – and prove this by presenting a clear and persuasive commercial rationale. It must also show that it will be a responsible corporate citizen in the target market.

Finally, it must present a compelling case for why it is a better custodian of the target than the existing status quo. The bidder should assure stakeholders that their interests will not be harmed, and that in fact they will gain significant advantages and benefits if the transac tion completes.

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