On 28 May 2019, FalkenSteg worked together with selected partners to organise SMEs: Expanding in China – an event held on the Frankfurt School of Finance and Management campus.
Around fifty major names from German SMEs and consultants specialising in German and Chinese business dealings accepted our invitation, attending four exciting talks from expert speakers. The speakers shared their practical experiences and best-practice approaches with the audience, explaining how companies can start doing business in China or expand their existing activities in the country. In addition to Jochen Wierz from FalkenSteg, there were also talks by Prof. Serden Ozcan from the WHU – Otto Beisheim School of Management, Inna Gehrt from Mandarin Capital Partners and Tim A. Fongern from Sheng Heng Law Firm, focusing on the challenges and pitfalls facing small- to medium-sized enterprises looking to expand in China. The GoingPublic media group from Munich provided valuable support as the event’s media partner.
The audience was welcomed by their host, Dr Schalast, who is the managing partner at Schalast & Partner and academic director of the LLM Mergers & Acquisitions programme at the Frankfurt School of Finance and Management. Jia Song, the owner of West Meets East Business Consulting and a partner at the Europe division of CEBC China Industrial Ltd., then introduced the speakers and went on to host the event.
The keynote speaker, Prof. Ozcan, Associate Dean for Corporate Connections and holder of the Otto Beisheim Endowed Chair of Innovation and Corporate Transformation, presented the findings of his latest study on investments in German companies by Chinese strategists. His research involved analysing seventy-five selected M&A transactions in Germany since 2002, then comparing their profitability trends with comparable companies that did not participate in any transactions. This yielded some interesting and sometimes surprising results. Ozcan found evidence that acquisitions by Chinese investors have adversely affected profitability in the long run when measured against developments at comparable companies. According to the study, the factors driving this phenomenon include different corporate-governance structures and management changes (Chinese managers taking over from their German counterparts).
With their curiosity now piqued, the audience listened with great interest to the presentation by Tim A. Fongern, a practising lawyer and Managing Partner for Germany at Sheng Heng Law Firm. Fongern shared various insights from his day-to-day work providing legal advice to businesses and investors with a focus on business law in China. Among the topics he covered were regulatory trends in China, which to date have moved increasingly in the direction of opening the market and easing regulatory restrictions (for example, shortening the so-called negative lists). In particular, Fongern argued that the new Foreign Investment Law will bring a further significant simplification of the legal climate for foreign investment in China, albeit while presenting a whole range of legal issues that will need to be resolved in the future.
After this, Jochen Wierz, a corporate-finance partner and head of the China Desk at FalkenSteg, shared his experience from working with German strategists looking to enter the Chinese market via joint ventures with Chinese companies. Wierz explained the challenges and pitfalls associated with M&A activities, using the real-world example of a German automotive supplier under pressure to expand its operations. In this process, he detailed the key differences from other forms of market entry, such as regular M&A or greenfield investments, as well as highlighting the pros and cons. In particular, the ubiquitous cultural differences may have adverse effects on the success of a new joint venture. Wierz also provided specific practical advice and suggested solutions for how to arrange German-Chinese joint ventures – explaining, for instance, that the integration of intellectual property into joint ventures is subject to different legal treatment in different provinces and is not an option in some instances. A dedicated location analysis should therefore be conducted right at the start of the process to avoid any surprises at a later date, Wierz noted.
The event concluded with a talk by Inna Gehrt, a partner at Mandarin Capital Partners (MCP). Gehrt spoke about the growth opportunities MCP provides for German and European mid-market enterprises via smart money. By way of three case studies, Gehrt explained the positive effects a Chinese expansion in collaboration with MCP can have for SMEs. A key factor in achieving success, she argued, is the value that MCP adds above and beyond pure investments and growth financing. Gehrt explained that significant export growth has been realised for portfolio companies in the past, and therefore also high returns at exit, thanks to MCP’s many years’ presence in China and excellent local networks in various sectors.
At a post-event reception with food and refreshments, the speakers and guests were then able to network and compare notes about their experiences in the field. FalkenSteg would like to thank all those involved for being part of this informative and sociable evening, especially Inna Gehrt, Serden Ozcan, Tim A. Fongern, Jia Song, Christoph Schalast and – needless to say – the outstanding audience.