Navigating the strategic maze

Updated: 2012-09-20 12:48

By George Hudson (China Daily)

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External PR agencies can help Chinese companies circumvent investment hurdles in Europe

The primary benefits of considering hiring an external public relations agency are the same for any company whether it is Chinese, British or Brazilian. These benefits manifest themselves in a variety of ways from raising and managing a company's reputation and profile in the media to handling stakeholder communications around merger and acquisition deals, crises, product launches or new office openings.

Consumer PR agencies have operated successfully in China for many years. However, for the vast majority of Chinese executives, financial and corporate PR - focused on transactions, capital raising and financial calendar activities - is an alien concept. The challenge for PR agencies is to educate and enlighten those firms that would benefit most from the value-added that an external agency contributes, especially when these Chinese firms "go global" with M&As or initial public offerings.

The generic benefits of hiring an external agency include the following:

The agency adds an outside, objective perspective to an issue or initiative. Internal PR executives, beholden to management, may not push back as readily on a bad idea. A good PR firm will use its experience and judgment to provide honest, strategic counsel.

The agency can add significant specialist experience and strength in providing historical perspective and industry knowledge.

External PR advice can be invaluable in a crisis, where resources are stretched and quick, sound decisions must be made.

The agency will act as a company's advocate and champion, defending and promoting its reputation and acting as its eyes and ears collating market intelligence.

The agency resource can drive multiple communications activities on the client's behalf, be it implementing a strategic outreach program, leveraging their network of contacts with key opinion formers, drafting documents such as press releases, Q&As and key message sheets, conducting media or analyst perception audits, drafting corporate website content, drafting CEO op-ed comment articles and so on.

Despite the increased flow of Chinese M&A activity in Europe recently, the level of enthusiasm shown by Chinese executives has not always been matched by the press, investor or political sentiment in the West. Communications remain a key issue and educating and engaging with skeptical stakeholders will help deliver win-win solutions for Chinese companies.

The key issues that are often cited by the press and those in the investment community when analyzing Chinese companies, both on the international stage and domestically, are focused on transparency, disclosure, trust and corporate governance. Given recent corporate scandals in China, those companies stepping out onto the international stage should want to demonstrate they are prepared to adopt best practices, full disclosures and an open dialogue with all stakeholders, in particular the media.

The media in the UK, North America and Europe operates in a very different way to that in China. Chinese management teams will find that foreign audiences will question their transparency, independence from the central government, the commercial motivation for doing a deal, and the rationale and background to the investment.

There is still considerable skepticism and ignorance about China in the West and a perception that most State-owned enterprises are saddled with China's political baggage. With these negative perceptions persisting, few people are prepared to give Chinese companies the benefit of the doubt.

Nationalism and protectionism is rife and fears of Chinese takeovers are strong, prompting target companies and popular opinion to call on politicians to intervene.

For all these reasons, and to ensure win-win strategies, those Chinese companies that invest in building and improving their reputation with the media and other key stakeholders will benefit the most.

A strategic communications agency is much more than just a PR machine that pumps out press releases. It can also help Chinese companies understand the regulatory and political landscape plus how other stakeholders such as investors, analysts, unions, employees and customers are likely to react in their new target market. It is worth reminding ourselves of the new paradigm of outbound investment from China.

In recent years the volume and value of outbound M&As by Chinese companies into Europe has grown rapidly. In 2011, Europe attracted more than $12 billion (9.16 billion euros) in Chinese investment through 64 deals. The continent also accounted for around 30 percent of all the Chinese outbound M&As in terms of deal value. This was up from $2.5 billion from 35 deals in 2010.

Transactions such as Shanghai Bright Food Group's recent acquisition of a 60 percent stake in Weetabix is a classic example of a relatively unknown Chinese firm acquiring control of an iconic consumer brand that is well known and loved in the UK and internationally. The same can be said for Zhejiang Geely's acquisition in 2010 of Volvo cars. On both occasions, the Chinese buyers used international PR agencies to good effect.

The benefit of hiring an external PR agency has also been seen on multiple occasions this year with the latest wave of Chinese companies that have raised money on the London Stock Exchange securing positive press coverage in influential newspapers. As with those firms that are involved in the M&A arena, there is a clear need for them to employ the services of a high quality strategic communications agency to help navigate the uncharted waters.

The author is head of China Practice, Maitland Consultancy. The views expressed here are not necessarily those of China Daily.

(China Daily 09/20/2012 page7)