Our approach to mergers encompasses the entire process: from contributing to per-merger strategy, through merger negotiations, to ensuring that maximum business value is derived from the new, merged entity.

The path towards achieving logistics success, however, is a difficult one. Initially, a multinational's factory typically establishes its own crude distribution system, patching together a combination of locally sourced rail, water, and road transportation to move product from the plant to wholesalers. The result tends to be poor quality and reliability.

Limited infrastructure poses a key challenge. Navigation throughout the Chinese bureaucracy and its licensing and approval procedures remains a difficult and time-consuming task complicated by rapidly changing rules. Training also adds significantly to operating costs.

Finally, understanding the Chinese culture poses one of the most perplexing barriers for many foreign managers. Developing and leveraging a network of "guanxi," or relationships, of mutual obligations among friends and family ties to exchange favors is usually essential to penetrate bureaucratic walls. Establishing and maintaining credibility is especially important. Foreigners have to prove their contribution to the local environment before attempting to change any aspect of it. "Doing it right" the first and every time is critical, as mistakes are not forgotten.

A number of companies set their strategic sights on acting as corporate carrion, cleaning up the mess inside old-established but inefficient industrial sectors. Their method was to buy untidy groups, many of them suffering from an overdose of diversification. They would then quickly sell off bits and pieces of their purchases, trim back staff and production in the remaining bits, spin it all around a new slim-line headquarters, and throw up some astounding profits. When Canada's Campeau Corporation bought the USA's Federated Department stores for $6.8 billion, the Canadian company had sold half of Federated for more than the purchase price almost before the ink on the seal was dry.

The recognized master of this practice was the British conglomerate Hanson. Its sales increased 12 times and its profits more than 20 times between 1980 and 1990. And despite the fact that the company did not launch a single significant new product or service during the period.
 
The model for the 1990s looks likely to be the more sober Japanese attitude to mergers and acquisitions. The Japanese go to great lengths to avoid hostile takeovers, for the very good reason that there is little point in paying a lot of money for a disaffected team of managers that will be looking for an opportunity to get out.  Far better to start on a greenfield sites where the investor does not inherit somebody else's (probably incompatible) culture.

Nevertheless there are circumstances when the Japanese will make acquisitions. In 1987 Sony paid $2 billion for the American recording company CBS, and in 1989 it paid $3.4 billion for the Columbia film company. A year later it was pipped by its great rival Matsushita, which paid $6.6 billion for MCA, another famous American film and software company.
 
These purchases where made for strategic reasons that go beyond the mathematical magic of accountants and finance directors. Japanese companies realize that the price of electronic hardware is falling while the cost of Japanese labor is rising. In the not-to-distant future the profit to be made in consumer electronics will lie (as it will in computers) in the software - the films to watch on the VCR and TV, the music to listen to on the CD player, and the programs to play with on the Game Boy or PC - the products without which the hardware is about exciting (and as valuable) as a rock in Arizona.

In the late 1980s the Japanese were drawn into a restructuring of the world tire industry. Japan's Bridgestone bought 75% of the USA's Firestone for something over $1 billion, in a contested bid with the Italian company Pirelli. Its aim was to buy market share in a mature industry where reaping economies of the scale was increasingly the key to competitive advantage.

In addition, Bridgestone wanted to service its biggest customers - the Japanese care companies - in their new factories in the USA. It made no sense, however, for the company to follow what might have been its natural instinct; to open new greenfield plants in Kentucky and Ohio where Honda and Toyota were setting up. That would only have increased capacity in an industry already suffering from serious overcapacity. So, instead, Bridgestone chose to acquire an existing company with a well-established market share in the USA.

These are sound strategic reasons for a takeover; and there are plenty more. Even corporate carrion has a role to play in normal corporate life. But acquisition is just one way of achieving a particular corporate aim; there are times when it is the best way, and there are many more times when it is not.