North American manufacturers looking to expand into China used to have two widely used options: a joint venture with another firm, or creating a wholly foreign-owned enterprise.
But as the Chinese market matures, a third option is gaining traction - acquisitions.
With more than $1 billion in foreign direct investment coming into China weekly, mergers and acquisitions are becoming a mainstream strategy for manufacturers and private financial groups.
``There has been an increased openness to acquisitions in China from outside,'' said David Eberly, a founding partner of Beringea LLC, a Farmington Hills, Mich.-based consulting and private equity group.
For some companies, like mold maker Active Burgess Mould & Design Ltd. of Windsor, Ontario, the decision to buy an existing business brings control - something not guaranteed in a joint venture. The firm bought a tool shop in Huizhou, China, in 2006, including a manufacturing operation with 100 employees.
``A lot of businesses are finding out that the joint venture partners that entered into a relationship with them have different goals in mind than they had,'' said Jeff Pluto, managing director of consulting firm Stout Risius Ross Advisors LLC's new SRR Asia LLC operations. ``One study showed that close to 75 percent of the [joint ventures in China] fail, and the primary reason behind that is because of a lack of control from the West.''
A wholly owned venture takes time to create and build. Acquisitions, though, are a way to combine immediate access to the market with control.
The trend also is gaining a foothold - enough to prompt SRR's purchase of China Optimization Group, with offices in Beijing, Guangzhou, Shanghai and Shenzhen - as firms from North America and Europe look for companies to buy in China.
Beringea opened its four-person office in Shanghai in March, with plans to expand to eight employees soon, Eberly said.
The growth in mergers and acquisitions is the next logical step for China, and it is one that is taking off on multiple levels. Manufacturers are looking for firms that can make parts for shipment outside China and to supply the domestic market.
Private finance groups and hedge funds from North America, Europe and elsewhere in Asia - Hong Kong in particular - are looking for prime investments in mainland China, Eberly said.
And Chinese companies likewise are looking at acquisitions outside their homeland to gain quick access not only to customers, but also information.
``There's a recognition that China needs to ramp up its modern business systems, its abilities in strategic planning, in commercial finance, in program management, in engineering and design and research,'' he said. ``The quick ways to get those are through acquisition.''
Evolving regulations to help speed that transition are making it easier for companies to acquire firms in China, Pluto said, but that does not mean that any purchase is easy. The same rules apply when seeking the right purchase no matter where the company is located.
Potential buyers must make sure they find a firm that matches their needs, that has a solid business plan for both domestic and international sales and that simply makes sense in the long run.
And no one should expect a cheap deal just because it is an acquisition in China. With more and more international consulting groups setting up shop in China, existing firms have access to much of the same information and expertise as their North American and European bidders.
``You really aren't going to hoodwink the system,'' Eberly said. ``Everything has to get approval there, and there are people out there who are going to be looking at everything. Maybe in the early days there were people who managed to get a cheap deal and fly under the radar, but not now.''