Today, the group met with Yingxi Fu-Tomlinson of the Kay Scholers Asia Practice. Yingxi is a member of the firm’s Shanghai office and concentrates on mergers and acquisitions (M&A).
Yingxi took time from her busy schedule to meet with us and discuss her M&A work in China despite traveling to Hong Kong and Beijing on the previous day.
Yingxi discussed the main differences between M&A and doing business in general in China from that of the United States. The three main distinctions she noted included the role of government, the role of government officials, and the laws and regulations around business.
In the US, the role of government is that of a regulator, referee, and facilitator; while in China the government’s role is more that of a parent overseeing its children (notions of national interest), although it is trying to move to a more US-based model.
The role of government officials in the US are that of public servants, while those in China “face south¨. That is, they sit back and listen to the problems brought before them. If they occupy a high enough position, they are referred to as a parent official.
The laws in the US are created to establish the integrity of political institutions (constitution, etc) and to regulate and balance economic and social interests. In China, there are a limited number of laws to establish political institutions. Rather, the system is based on civil law in which the interpretations of judges are not necessarily precedent setting. A judge in one jurisdiction may rule one way, while another jurisdiction may rule another way and there not nbe a tension between the two.
Yingxi also discussed some myths about doing business in China. Such myths include China as a lawless country, connections are everything, and contracts are useless. As a practitioner of M&A Yingxi rebuffed these myths by stating that China has many business laws (cited examples of advertising regulations during dinner time) and that while connections are important, China is now progressing to the point that any deal must have merit to be considered regardless of connections. She further stated that contracts are not useless but must be structured differently than in the US. She suggested that contracts have economic leverage for both parties so that both parties have an incentive to fulfill the obligations of the contract. She also reiterated the obvious that the contracts should be well understood by both parties and should be as fair as possible.
In the afternoon the MBA group visited the office of BearingPoint office in Shanghai, China. Mr. Afzal Tarar, Managing Director & Greater China Financial Services Leader led a discussion on opportunities for Bearing Point in China.
Mr. Tarar, a graduate from Case Western School of Business started his career as a consultant for Deloitte Consulting in New York, NY. After several years he moved to IBM Business Consulting and had his first assignment in China. Few years later he was finally recruited by Bearing Point and moved on a full-time basis to Shanghai, China.
After working with the big names in consulting, Bearing Point presented Mr. Tarar with a unique opportunity to help the revamp of Bearing Point. In China the firm is also known as the first enterprise risk management financial services consulting company, the second largest financial management and transformation company, and the third largest in business process animation. These strong client perceptions and a supportive senior management team gave Mr. Tarar the energy to take this challenge in China.
The first challenge faced by Tarar was the fact that all consulting companies in China produce negative operating income. His first goal objective was to change this situation for Bearing Point. His initiatives to achieve these goals are: 1. Focus on Strategic Clients, selecting engagements with higher potential of being profitable 2. Recruit, develop, and retain talent; and 3. Rationalize costs, from operational costs to higher consultant time utilization
While Mr. Tarar foresaw a 9 to 12 months for the turnaround the senior management only granted him 3 to 6 months for results. For this demanding timeframe Mr. Tarar focused his initiatives with a selected group of clients that included the China Construction Bank (the most important), the China Agricultural Bank, and the China Industrial Bank, among others.
To face this challenge, Mr. Tarar mentioned that having entered the Chinese market before India gave Bearing Point a first mover advantage, to the point that as of today, the firm is the only foreign consulting company allowed to quote major public consulting projects.
As for the future, Mr. Tarar added that the company will avoid areas that have been commoditized, such as integrating systems, and keep focusing on the Financial Services as the one area with higher potential for growth and profitability.
Our day ended with a journey to Hangzhou, where we checked into the Ramada Inn and had dinner at West Lake.