Twists and turns for Chinese SOEs abroad

Xiang Xiaobo, president of the Chongqing-based China Silian Instrument Group, echoed Fejfer's warning with his Group's lessons from taking over a Canadian mine from America's Honeywell four years ago.

"The mine producing luminescent materials used in LED lights was supposed to sharpen our technical edge, but after the takeover, the worst scenario was surfacing as many Canadian experts were leaving," said Xiang.

"We knew something had gone wrong. We knew we were not smarter than the Canadian side, so we stayed humble to learn, to do as the Canadians do. Finally, we've managed to retain the best experts and succeeded in producing LED light materials of the same quality," said Xiang.

Also at the meeting, Michael Smith, chief executive officer of Australia and New Zealand Banking Group Limited, elaborated on the significance of getting localized with real deals.

One relates to Chongqing Grain Group, which invested in 200,000 hectares of soybean production in Brazil to help secure supply. After the first shipment of soybeans was delivered, the Brazilian government stepped in its way.

To get over the obstacle, CGG changed its strategy from merely sourcing soybeans to building a soybean industrial base in Brazil and promised to not only to buy soybeans from local producers but also manufacture soy locally to expand local employment and contribute to local fiscal revenue.

Instead of direct land purchase, the company lent money to local soybean producers at discount rates, enabling them to expand their land and upgrade their equipment. In return, it can exercise the option of buying soybeans at pre-determined rates.

According to Smith, the case illustrates how China's agriculture market players have grown up to become more attuned to local sensitivities. He said they are more integrated with international supply chains in ways similar to existing multi-nationals from developed countries.

Reaching out

Foreign executives also warned that creating a win-win situation may be particularly important to Chinese firms investing abroad, since many enterprises have their eyes on resources abroad, such as energy, mining, forage and metal.

Fejfer noted that a significant challenge facing Chinese companies going abroad related to bad public relations and an irrational fear of the unknown. "There is a perception that Chinese firms come here for global dominance and they can be a potential security risk."

Yang Lin, president of Chongqing Light Industry & Textile, said in closing the deal with SaarGummi, it was difficult to swing the negative perception of a Chinese takeover among the German press.

"The prejudice brought us immense trouble, but we won support of the workers' unions, the press and the original equipment manufacturers for SaarGummi in the end," he said. "We did it with a sincere attitude and feasible plans in a way that was quite German."