The Restructuring Process for Distressed Foreign Businesses in China
The IPO Pang approach to distressed company management is a logical, practical three-phase approach.
The most important consideration in any turnaround process is that Time is the Enemy. The longer you delay in correcting course, the more dire the cash situation and the fewer the options. The fundamental causes of distress almost never fix themselves.
The Investigational Phase
A foreign company that owns a distressed China venture may already have some strongly held beliefs about the causes of that distress. While those beliefs can be accurate, not surprisingly, they are often wrong or superficial, since they are derived from the filtered perspective of either a foreign head office, or ex-pat staffers whose familiarity with Chinese culture may be limited.
Therefore, the first step in effecting a course change is to confirm through analysis the degree and nature of the venture’s distress through fresh eyes.
The typical causes of distress fall into four broad categories:
- supply (backorders, lead time)
- demand (a viable market doesn’t exist)
- lack of promotion
- misdirected promotion (lack of localization) / wrong positioning for China
- China partner lacks commitment
- China partner lacks marketing, distribution, or support capabilities
- China partner’s methods are at odds with foreign partner’s methods / China partner subverts foreign partner’s initiatives
- China partner’s goals are at odds with foreign partner’s goals (apparent or hidden, legitimate or nefarious)
- China partner’s accounting practices are suspect
- barriers to important markets / protectionism
- seemingly unending and unreasonable demands for permits, licenses, etc.
IPO Pang’s team is qualified to reveal the true nature of the venture’s distress, from the perspective of Sales, Marketing, and Operations management as well as forensic accounting. Arising from this objective investigational process, a clear and unfiltered picture of the venture’s status will emerge.
The Analytical (Recommendation) Phase
Casting aside preconceived notions about the nature of a venture’s distress, and focusing instead on the objective findings of the Investigational Phase, IPO Pang will promulgate recommendations for the foreign company to consider. Of course, one must be open to the notion that the venture is in fact performing as well as can be expected. In other words, underperformance is not a function of management but rather, it is the expectations and opportunity analysis for China that were too high for the product being offered. In such cases, a foreign partner in a China venture may choose to realign not only its expectations and guidance to investors, but also, its resource allocation and management approach to the China venture.
The range of recommendations arising from analysis could be broad, including:
- No fundamental changes
- Change marketing thrust / pricing / product mix, etc.
- Resolve disputes with China partner
- Terminate China partner / seek new partner
- Change ex-pat management
- Seek cash infusion
- Address regulatory barriers through qualified intermediaries / lobbyists
- Partial or total divestment
- Dissolution and liquidation
The Implementation Phase
Equipped with an objective analysis and recommendations, the foreign investor in a distressed China venture can effectively determine its optimal course. Trident is equipped to implement the chosen course of action(s), some aspects of which may require legal expertise in association with IPO Pang:
- installing temporary local management to manage transition as well as its associated internal and external communications
- resolving disputes with current partners
- new efforts to manage governmental or regulatory issues
- terminating existing partner relationships and identifying, qualifying, and negotiating with new partners
- identifying, qualifying, and negotiating with new investors
- divesting some or all of the foreign company’s stake
- conducting an orderly winding down and liquidation of operations
We welcome you to contact IPO Pang to consulting regarding your business, our process, and how we may be of service to you.