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risk management case study and need an explanation and answer to help me learn. "Cifa Cross-cultural Integration with Chinese Company" In a concise, 100-125 word response: What are two actions that Zoomlion can take to rebuild trust with Cifa following the internal audit and one-sided directives? Why do you expect your proposed actions to drive greater team performance? Include course concepts in your response. Requirements: 100-125 word CB0128 REV: June 16, 2021 GIANFRANCO SICILIANO DELFINO CORTI ZHIJING CAO Cifa: Cross-Cultural Integration with a Chinese Company On a sunny spring afternoon in May 2011, Cifa CEO Stefano Marcon (Mr. Mark) sat quietly behind his desk in his office in Senago, on the outskirts of Milan (Italy). He was mulling over the past three years at Cifa, wondering what he could have done differently to improve the relationship with the managers of their mother company, the Chinese giant Zoomlion. Mark had just returned from Changsha (China) where he met Zhan Chunxin, the President of Zoomlion. While brooding over the new organizational guidelines set by the president, he was awaiting a visit from the internal audit team, which had just arrived from Changsha. After acquiring Cifa in 2008, Zoomlion had become one of the top three players in the concrete pump industry in the world. Thanks to an efficient, but not easy, integration process between Cifa and Zoomlion, the Chinese group was able to support the newly acquired Italian company during the 2009– 2010 financial crisis and recover its financial and market performance. The two companies aimed to achieve significant competitive advantages and create unique abilities as a result of sharing both knowledge and technology. For instance, in 2011 the two companies had just started designing a new carbon fiber arm-pump truck using Cifa’s technology. The goal was to further strengthen Zoomlion’s market share in China, consolidating its leadership position in the market and contending with the other industry giant, Sany, also based in Changsha. However, many questions were left unanswered. How could Zoomlion manage Cifa effectively? Although the two strong international brands had risen after the deal and increased their market power in both Europe and China, Marcon was thinking about the challenges ahead in managing their cultural integration. What problems would cultural and communication barriers bring? Had Italian managers always been able to understand their Chinese counterparts’ strategy? Could they trust them? And why were Zoomlion’s managers now sending their internal auditors to spend a month and a half in Senago? Professor Gianfranco Siciliano of China Europe International Business School, Delfino Corti of Impactinternational and Case Researcher Dr. Zhijing Cao of China Europe International Business School prepared this case. Funding for the development of this case was provided by China Europe International Business School. CEIBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2021 China Europe International Business School. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Zoomlion: Fast-growing Chinese SOE Formerly known as the Changsha Construction Machinery Research Institute, Zoomlion (中联重科 ) was founded in 1992 in Hunan (China) with a loan of ¥ 500,000① (about US$ 70,000) (see Exhibit 1).1 The company was created through the collaboration of seven engineers coordinated by Zhan Chunxin, a math professor turned entrepreneur. In the beginning, the company manufactured small concrete mixers. Later, it developed quickly within the guidelines of China’s economic reform and market open door policy. The company gained support from the National Institute of Technological Development (a government institution), which had the mission to develop know-how and innovation in various industries in China. By leveraging its relationship (guanxi) with the provincial government, Zoomlion attracted many engineers and designed the first concrete pump prototype. These changes helped the company take advantage of the rapidly growing construction market in China, at a time when over 95% of concrete pump equipment was still foreign branded.2 In 2000, Zoomlion was listed on the Shenzhen Stock Exchange, and with this fresh capital the company started diversifying its product portfolio by extending its production from concrete machinery to other products, such as mobile and fixed cranes, excavators, and road cars. Around that time, the company was involved in various merger and acquisition (M&A) deals of local Chinese construction equipment manufacturers. The goal was to integrate the company’s supply chain. Moreover, after China joined the World Trade Organization (WTO) in 2001, the company started to search for foreign suppliers to acquire new technology and components (i.e., semi-finished products for pump arms), which became a breakthrough for the Chinese construction machinery industry. In 2001, Zoomlion entertained mere business relationships with Cifa: Zoomlion bought a few hundred steel booms. This was a good deal for both companies, but Zoomlion definitely did not yet have an explicit interest in acquiring Cifa. In 2002 and 2003, Zhan traveled to Italy several times for company tours, and in 2003, he formally contacted Cifa to express Zoomlion’s interest in acquiring Cifa. 3 At that time, Zoomlion was still an SOE (state-owned enterprise), with a brand that was unknown globally. Operational inefficiencies, lack of management incentives and skills, and state interference continued to curb its development. As a result, Cifa rejected Zoomlion’s initial offer. The following years witnessed important changes at Zoomlion and, more generally, in the Chinese construction market. Zhan implemented an organizational structure based on strategic business units. Meanwhile, the impressive growth in the local real-estate market, into which the government was pouring colossal investments, contributed to the company’s rapid growth. Zoomlion became one of the top ten companies in the global construction machinery industry at that time, with sales of ¥13.5 billion and a profit of ¥1.6 billion (see Exhibit 2) in 2008, growing from zero to 20,000 employees.4 Zoomlion was the second-largest company, behind Sany, in the concrete machinery industry in China (see Exhibit 3). However, the market was crowded and with tough competition. This situation made Zhan worried about oncoming overcapacity of the industry. As a result, he put forward a model of internationalization, which led Zoomlion’s executives to turn their eyes overseas. After acquiring Powermole in the United Kingdom in 2001, with the main purpose of absorbing the company’s trenchless technology, Zoomlion increased its presence in Algeria, Russia, the United Arab Emirates, and Brazil, where it built up local distribution networks. A few years later, between 2006 and 2007, the world construction industry was at its highest level ever, with double-digit year-on-year growth in most continents. 5 ① ¥ = CNY = Chinese yuan renminbi; ¥1 = approximately US$0.1542, ¥1 = approximately Euro€0.1073, as of the end of May 2011. 2 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 A target like Cifa was crucial to Zoomlion’s internationalization strategy. Cifa was the world’s third largest concrete machinery manufacturer,6 making up over 20% of the global market except for China. Moreover, Cifa’s global distribution network and brand reputation could help Zoomlion enhance its market leadership in the concrete machinery industry in Europe and in emerging markets. Cifa could also provide Zoomlion an indisputable opportunity to move up the value/price range with higher quality and a more diverse range of products to support market expansion in China (see Exhibit 4). Under these premises, Zoomlion was preparing the largest ever European acquisition by a Chinese company at the time. Cifa: Long-established Italian Company Cifa (Italian Steel Forms Company) was founded by Carlo Ausenda in 1928 in Senago, near Milan. This location was home to a very competitive cluster, near the capital of Lombardy, the most dynamic and productive region in Italy, one of the most dynamic in Europe.① The company produced steel structures for the construction of concrete infrastructures, such as tunnels, dams, bridges, and viaducts. With a patent purchased from an American company (Blaw Knowx), Cifa started designing and producing formworks for containing concrete casting and realizing trellises and antennas for radio transmissions. After World War II, an Italian economic boom together with internal technological creativity contributed to a significant growth of Cifa’s business, making it one of the most reputable construction machinery brands, not only in Italy, but also abroad. During the 1960s and 1970s, the company exported batching plants, formworks, and mixers to Africa and the Middle East. In the 1980s and 1990s, it set up a sales and service network of dealers in Europe, the Middle East, and North Africa, covering about 70 countries. 7 In 2000, the company opened two subsidiaries in the United States and Mexico and signed a joint venture in India. The Ausenda family always maintained full control of Cifa, until 1987, when Ferruzzi, a leading Italian group in the cement business, purchased the company. Cifa was owned and managed by a private equity fund from 1995 until 1999, when the company was acquired by a group of suppliers. In 2006, a new private equity fund based in Milan, the Magenta Fund, purchased 70% of Cifa’s shares. The new shareholders intended to maintain their investment in the company for three to five years and then exit to benefit from a considerable capital gain. In 2007, Cifa achieved total sales of €300 million and built strong market influence in Western Europe and other regions, such as the Persian Gulf area and Russia.8 Cifa’s products were relatively cheaper than those offered by other main competitors (e.g., the German companies Putzmeister and Schwing).② The core of Cifa’s strategy, prior to the deal with Zoomlion, was its highly skilled and sophisticated R&D department. All those years, Cifa strove for continuous improvement and innovation, collaborating with local universities and research centers of excellence and maintaining a strong focus on patents. The core of the company’s competitive performance lay in its ability to combine ① The area has 826,000 active companies, 8.2 active businesses for every 1,000 inhabitants (www.investinlombardy.com). Lombardy is also at the forefront of innovation in Italy, with its world-ranked R&D centers and universities. The area is also famous for its local industrial districts, the backbone of regional development in Italy, with skilled human resources and agglomeration of industry-specific knowledge-based and supporting infrastructure. The Chinese acquirer could benefit from economies of knowledge and specializations in several clusters related to metal work and metal processing, electronics, and rubber and plastic processing. Lombardy was also the leading region in Italy for retail networks and logistic and financial services that could make connections with China very easy. ② Until the 1990s, China was dominated by Germany firms Putzmeister and Schwing. Later, local players such as Sany and Zoomlion expanded their market shares in China. 3 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 technology, design, and functionality to maximize performance. This was made possible by its flexible business model and assembly phases, and its strong relations with suppliers. In 2006/2007, as the company’s market performance was flourishing, Magenta’s partners discussed the possibility of liquidating their shares in Cifa. From December 2007 to April 2008, Cifa’s majority shareholders worked with the management team and external advisors to prepare an official document to present to potential buyers. The Acquisition Phase: Cultural Differences Showing Up While Zoomlion made 90% of its sales in China and the rest mostly in Africa and in the Middle East, Cifa confidently offered a complementary distribution network. The Italian company was generating 70% of its revenues in Europe and the rest in the Persian Gulf, Russia, and North Africa.9 Nevertheless, Cifa and its brand reputation were attractive not only to Zoomlion. Other companies also attempted to seek integration and added value through M&A. In November 2007, Cifa launched a public auction for its shares. Four bidders made an offer: the first negotiation was with an English fund, the second with an American fund, and the remaining two with Chinese industrial investors Sany and Zoomlion. 10 The two Western funds failed to make adequate offers, leaving the two Chinese companies for the final bidding. Both companies submitted bids in January 2008. Although they had the same motivation to make this deal, Sany and Zoomlion behaved quite differently during their meetings with Cifa. Sany’s managers were more assertive and worked aggressively to close the deal, while Zoomlion’s appeared more cautious. 11 As these two companies were competing internally (in the local market), so they did also during the negotiations. Finally, the Development and Reform Commission of Hunan Province stepped in to induce Sany to abandon its negotiations with Cifa to prevent the acquisition price from rising far higher than Cifa’s actual valuation. 12 Afterwards, the president of Zoomlion stated that, even though the timing of the bid was not right (on the eve of the global financial crisis), Zoomlion could not let Cifa fall into the hands of other competitors. Since Zoomlion had dealt mainly with domestic acquisitions,① it sought external help from more experienced partners: 60% of the Cifa shares were financed by Zoomlion itself, while its partners, the Chinese private equity firm Hony Capital (18.04%), Goldman Sachs Private Equity Group (12.92 %), and Mandarin Capital Partners (9.04%), held the remaining 40% (see Exhibit 5).② To finance the operation, Zoomlion obtained a loan from the Export-Import Bank of China. The entire operation was the largest deal in Italy by a Chinese group: it gave rise to one of the world’s largest concrete machinery manufacturers with consolidated sales of more than €1.3 billion, ahead of German rival Putzmeister.13 In June 2008, Zoomlion announced the acquisition. The news generated great turmoil in public opinion. The agreement was discussed with a mixture of sensation and skepticism by newspapers all over the world.14 The final value of the deal was €271 million.15 Right after the announcement, the two management teams held a series of meetings to interact with their colleagues—and the first misunderstandings were not long in coming. As Zhan recalled, during a speech delivered at the Harvard Business School in March 2011: “I was told on the day after the Cifa acquisition that the ① In 2003, Zoomlion took over Puyuan Group and Zhongbiao Group, venturing into the construction-crane and environmental-machinery areas. In 2008, Zoomlion acquired Shannxi Xin Huanggong and Huatai, expanding its range to include earth-moving and material-handling machinery business. It also acquired a hydraulics supplier, Xinchen Hydraulics, and an axle maker, Huaitai Group. ② In 2013, Zoomlion acquired the remaining 40% of shares in Cifa’s equity from these three investors. 4 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 company was not going to arrange for anyone to accompany me throughout my stay in Italy. This would be deemed an act of disrespect back in China, but it is indeed a norm in Italy. Finally, I did realize that it was merely a cultural difference.”16 The Post-Acquisition Phase: Hard Integration Just like many other Chinese companies, while Zoomlion had an abundance of assets, performance, people, and financial resources, it had little experience in international culture. Managers did not speak English and had a vision predominantly oriented to the local market and culture. The first meetings reiterated the “line of demarcation” between the two management styles and sensibly different approaches. On the one side, Zoomlion had the arduous task of absorbing a foreign and complex body within itself: Cifa, a company with 80 years of history. On the other side, Italian managers at Cifa had to become acquainted with unfamiliar business protocols and unknown management practices. As Zoomlion’s top managers could not speak English, translations were sometimes conducted by a young middle-level manager who could speak English. This person was usually selected according to the agenda topic. During one meeting, an interpreter chosen by Cifa was rejected as he was considered a “foreign person,” and all participants were explicitly asked to “turn their microphones off” immediately after the start of the meeting, due to the confidentiality of the subject matter. “In some situations, Zoomlion’s managers started using even their local Hunan dialect,” the sales, marketing, and service director of Cifa at that time, Delfino Corti, recalled, “so that it was difficult also for other non-Hunan (Chinese) people to understand the messages they tried to convey to us.” 17 Maurizio Ferrari, Cifa’s president and CEO until 2008, recalled the difficulty in conveying concepts that had to pass from the Italian vocabulary and forma mentis through a foreign language, English, to a Chinese audience, who had to elaborate what was heard in a language that was not his: “In the end the message was not understood perfectly, but only in part,” he said. 18 Unfortunately, this situation happened quite often. The problem was not merely language, however. More generally, it was communication style: Zoomlion’s managers followed a way of communicating with Cifa’s team that seemed unusual to its managers. Corti recalled a few dinner meetings: “Those meetings, usually held at the end of very intense working days, did not simply consist of pure ‘content.’ They followed a sort of liturgical structure, at the time still totally unknown in our [Italian] culture. Usually, only the heads of both delegations [i.e., the most important persons from each ‘side’] were speaking while sitting at the table in front of each other, with the leaders at the center of their teams. During these meetings, the team members were introduced one by one, then they stood up in turn waiting for their introduction to end; finally, they saluted with a bow and took their seats. We quickly learned this practice, trying to be as respectful as possible, avoiding any ‘formal’ mistake. Sometimes we pretended to understand the role of the people presented in sequence, although most times they were surrounded by an aura of mystery. All had a mix of concern and excitement.”19 Cifa’s managers, however, accepted these moments of conviviality as rituals needed to get to the heart of the discussions. Although neither party fully trusted the other, these meetings served to consolidate small seeds of reciprocal trust, sometimes even to guide business decisions. “Trust” was a broad concept and had different contours depending on whether it was seen from a Chinese or from a European perspective. In the first years post acquisition, communication and actual behaviors remained an issue in general. Several times, both teams seemed to have agreed; however, in practice, divergences arose. In 2011, for example, Cifa-Zoomlion took part in the Bauma Trade Fair in Shanghai. Delfino was 5 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 responsible for organizing the event. After a positive exchange of emails from Italy to China before the event, Delfino arrived in Shanghai three days before the fair began. “The organization of the event was not simple: installation arrangements, permissions, machine setup. But, to my surprise, upon my arrival I realized nothing had been done, and we only had three days to go!” Delfino recalled. “Everything was bleak and so depressing. I said this to my friend Franco Battistiol, an Italian manager who moved to Changsha. Yet, some young Chinese women and men from Zoomlion kept reassuring me everything would have been OK. I could not figure out how, however. I kept watching the whole process; I intervened only when they required my authorization. Magically, on the inaugural day, everything was ready! This experience taught me that Chinese people and Italians manage governance processes differently. We Italians did not understand yet what the true organizational mechanisms were, as well as the Chinese relational processes.” 20 Other differences included methods of discussion, problem-solving approaches, and managerial experiences. On the human side, then, there were divergent customs (e.g., the dinners after working hours), the slow decision-making processes, and the difficulty in understanding Zoomlion’s complex hierarchal organization. Achieving Synergy from Top to Bottom Amid these cultural differences, in one of his first meetings with Cifa’s managers, Zhan stated the strategic rationale of the acquisition, summed up in the following five points: 1. Boosting the internationalization process 2. Enhancing technology 3. Developing both brands in a premium segment 4. Increasing market share 5. Building a strong management team21 In regard to the last point, Zhan summarized the underlying philosophy of the group: 1. Understanding (tolerance): Both countries should appreciate the cultural diversity between Italy and China. 2. Sharing: Both companies should have a joint vision on the underlying strategies and joint access to benefits. 3. Responsibility: Both companies need to comply with corporate social responsibility rules in Italy, paying great attention to employees’ rights. 4. Compliance with the rules: Both companies need to define common rules of conduct for managers and human resources in both China and Italy. 5. Coordination: Both companies need to be able to act in a synchronous manner, despite cultural and business practice differences.22 Sharing these values was indispensable to realize synergies (see Exhibit 6). However, a sense of caution and wariness grew inside Cifa. Not all managers shared the same sense. While some of them experienced a sense of resistance, others witnessed a sense of curiosity and openness: daily business cases nourished discussions, albeit not all of them with a wide consensus. In sum, Italian and Chinese 6 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 colleagues had the difficult role of being “synthesizers” of two different sets of values, systems, behaviors, customs, organizations, and cultures. In such a scenario, envisioning a solution that would suit everyone was quite utopian. The Liaison Office Zoomlion executives immediately realized the importance of working together with Cifa’s managers. Considering the biggest barrier, language, Zoomlion decided to immediately set up an organizational function, the Liaison Office. This office was divided into 5–6 teams from different functions including marketing, supply chain, finance, R&D, etc. There were another 5–6 working groups helping the office conduct daily communication for mutual parties. 23 The working groups played important roles: first, translation; second, explanation and other specific tasks, such as setting up meetings and conference calls. All members had a technical background and high language ability. At the early stage, Zoomlion even hired two Chinese people who could speak Italian to join the Liaison Office. However, as time went by, communication problems were not lacking. “Sometimes the office was felt like an external element in the organization, many collaborators came from outside Zoomlion. Moreover, their role of ‘communication enabler’ between Cifa and Zoomlion became more and more difficult as on the one hand Zoomlion was growing in China while on the other hand the shadow of a severe crisis was going to put Cifa to the test” – Mark added. 24 The Financial Crisis: Two Companies United In 2007, a severe financial crisis broke out in the United States. The crisis brought speculation in the financial sector, later moving to other sectors, including the construction sector. The following year, the crisis spread further, to Spain and Russia, and eventually hitting all European markets. The resulting recession created new challenges for Cifa: customers no longer had financial support to purchase Cifa’s products, most industrial parks remained unused, distribution networks were severely weakened, orders were cancelled, and new machines were unsold, resulting in production overcapacity (see Exhibit 7). The pressure on Cifa’s sales and economic performance was not limited to 2008, however; it extended throughout 2009 and 2010. In 2008, the year of the acquisition, Cifa’s sales were about €326 million, in 2009, but sales plummeted to about €168 million (–48% year-on-year), and further down to €127 million in 2010 (–24% year-on-year) (see Exhibit 8a and 8b). On the other hand, China was witnessing a 20-year two-digit GDP increase streak. And so did Zoomlion, which grew from zero to US$7 billion in turnover in just a few years. The big disparity between the two markets led Cifa to change its strategic priorities. The new slogan became “Stay international and become Chinese,” indicating the structural initiatives to maintain Cifa’s position in the core areas and introducing Cifa’s products and the brand in China. This new strategy reflected the investment trend after the global crisis: a shift from Europe and North America to Asia (see Exhibit 9). This solution would have never been possible without generous support from Zoomlion: no other non-Chinese company had a similar opportunity to enter the Chinese market, supported by an existing Chinese network (which did not always understand and welcome this option, though). To overcome the financial crisis, the mixed teams of Cifa-Zoomlion worked hard to formulate, propose, and implement new marketing and sales strategies to support the new double-brand strategy. 25 Specific actions included the co-engineering of different products, the launch of Zoomlion Capital Italy, the reorganization of the supply chain, and the introduction of new products, such as fixed and mobile cranes. To improve the position and weakened performance of Cifa in a declining European 7 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 market and boost its development in China, Zoomlion put forward supportive plans with great determination, showing a creative mix between Chinese hierarchical-military decision-making and Italian opportunistic flexibility. The mixed teams felt excited to discuss the new positioning of Cifa in China. It was the first time that a non-Chinese brand in a specific sector was introduced. Managers from both companies felt it was possible, but also necessary, to generate a new strategic rationale to support the positioning of both brands in China. The challenge lay not only in sharing their assumptions and deepening their options, but also in understanding the limitations and in expressing different perspectives. The projects Zoomlion pursued with Cifa in those years not only were related to customers, distributors, and business partners, but also had an impact on other important stakeholders, such as provincial government officials. The latter were putting more and more weight on the “political coherence” of the Zoomlion-Cifa project. On one occasion, at a meeting with the local government officials, Zhan affirmed that the price paid for Cifa accounted not only for the value of its technology and know-how, but also for the goodwill of its management team and reputation. 26 In the end, Zoomlion’s financial support helped mitigate the negative impact of the financial crisis on Cifa’s performance. In less than a year, in 2010, the group created Cifa Hunan, the Italian factory of excellence in the Zoomlion factory (“the factory in the factory”). 27 Its profits allowed Cifa to recover both production volumes and turnover after a severe sales contraction within traditional markets. Moreover, Cifa Hunan was the first project involving the permanent detachment of Italian personnel from Italy to China, thus promoting additional interactions between the two teams. Financial media commented that without being controlled by a Western-like group with a profit-oriented mentality, perhaps Cifa would not have survived the financial crisis. A Timid Effort to Become International At the beginning of 2010, Zoomlion sent for the first time a Chinese manager, Henry Sun, to Senago. Sun had just arrived in Zoomlion from the US, where he had worked for a technology start-up company. In Senago, Sun gained a new professional experience. He spoke fluent English, always with a calm tone. He was good at listening to his colleagues and behaved cautiously. It was not hard for Cifa’s managers to build a good relationship with their new colleague. 28 Although Sun often pointed to his little knowledge of the “Cifa system”, it was important for Cifa people to know there was finally someone who would systematically collect and analyze information and transfer this knowledge to China. However, although Sun’s effort was genuine, he felt he was still considered a “foreign element” by many of Zoomlion’s managers. 29 He had no deep knowledge of Zoomlion and did not grow up in Zoomlion, in Changsha. Moreover, before joining Cifa, he had studied and worked in the US, not China. He felt like an exogenous member of the organization. Sun left his job, then the company, and no Chinese manager was sent again to Italy. Contacts and communications occurred only through monthly trips, email exchanges, and phone calls. 30 Personal relationships between Italian and Chinese managers began to consolidate, but the apparent autonomy granted to Cifa’s managers was masking a distance. It seemed that no one in China was really interested in understanding how things were actually working out at Cifa. During the same period, Delfino (previously in charge of sales and marketing in Cifa) was appointed as strategic marketing supervisor of Zoomlion International. In his new position, he deepened his understanding of the intricate Chinese organization, including the different meanings of its organograms, its reward systems, the complex internal approval process, and the sometimes overly strict discipline with respect to minor details. He recalled: “I began to understand that accurate and 8 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 concise analyses, proposals of strategic projects, and structured business plans were short-lived if they were not supported by parallel work based on involvement, sharing, engagement, and communication.”31 One of Delfino’s new tasks was to assist Zoomlion in developing its presence in strategic areas and formulating proposals to consolidate the group position in the European and North African markets through service and technological partnerships. To do so, he went through some frustrating experiences: he realized it was difficult, and sometimes even impossible, to share a strategic rationale. “However, this didn’t happen because there were no moments of sharing within the group. It happened because during those meetings, it was hard to explicitly identify a ‘deeper’ thought. That thought which resided in the most subterranean layer of culture and cannot easily manifest to a non-Chinese mind. It was a very challenging task, but at the same time a very exciting one. As a result, it was problematic sometimes to reach the stage of signing an official agreement; or even worse, it was impossible to make it clear that a project could stop after months of frustrating ambiguity,” Delfino said. 32 Conclusions This situation of ambiguity lasted until May 2011. A team of Zoomlion officials from the internal control department came to Senago with the task of auditing. They scrutinized all accounting and non-accounting documents. 33 This was totally beyond the comprehension of the Italian managers, who soon realized that “auditing” could have a different meaning in different cultures. Besides, the internal audit department was headed not by the president of Cifa, but by an independent non–executive director on Zoomlion’s board: a prominent figure of the Hunan government. In other words, internal auditing was regarded as a fundamental tool to evaluate the value of Cifa’s projects. After a month and a half, the team sent a report to Changsha without disclosing it to Cifa’s executives. The report depicted Cifa as a company managed in ways that were not entirely shared by the auditing officials. A few days later, some organizational changes ensued. Aiming to strengthen further the integration of Cifa into the Zoomlion, both Cifa’s production and R&D departments were combined with those of Zoomlion. The same happened for the sales and marketing functions a few months before. 9 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 1: Milestones of Zoomlion and Cifa Source: Author. 10 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 2: Zoomlion Revenue: Overview and Breakdown 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 3.4 0.0 2004 Zoomlion revenue (€ billion) 47.5 39.0 31.9 20.8 13.5 9.0 3.3 4.6 2005 2006 2007 2008 2009 2010F 2011F 2012F Zoomlion revenue breakdown 100% 6% Others 90% 8% 6% 2% 8% 16%15%16%17%5% 6% 5% 5% 80% 6% 6% 7% 8% 4% 3% 3% 3% 70% Environment 47%& sanitation 60% 48% 46%40%37%35%34% machinery 50% Road machinery 40% 30% Construction 20% 34%39%35%34%39%39%39% cranes 10% Concrete 0% machinery Source: Zoomlion’s financial statements. Exhibit 3: Zoomlion vs. Sany Concrete Machinery Revenues from 2005 to 2012 for Zoomlion & SANY (€ billion) 3.000 2.605 2.651 2.500 2.360 2.121 2.000 1.783 1.500 1.408 0.948 1.000 0.679 0.540 0.716 0.322 0.500 0.468 0.201 0.351 0.157 0.095 0.000 2005 2006 2007 2008 2009 2010 2011 2012 Zoomlion SANY 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Profit Margin of Concrete Machinery for Zoomlion & SANY from 2005 to 2012 2005 2006 2007 2008 2009 2010 2011 2012 Zoomlion SANY Source: Annual reports of Zoomlion and SANY. 11 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 4: Cifa’s Perceived Product and Service Quality Source: Adapted from Francesca Spigarelli, Ilan Alon, and Attilio Mucelli, “Chinese M&A in Europe: Emerging Market Multinational in the Heavy Construction Industry,” Competitiveness Review (25): 346–370. Exhibit 5: Zoomlion’s Acquisition of Cifa Source: Yankun Hou and Roger Sher. “Machinery / China”. Nomura Anchor Report. 2010-12-16[2020-05-06]. https://www.nomura.com/europe/resources/upload/No_barriers.pdf 12 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 6: Expected Synergies for Zoomlion and Cifa Zoomlion Cifa Financial support Potential Chinese market Low-cost production center Economy of scale Market shares in Europe and Middle East R&D and technology A medium-high segment brand Consolidated distribution network Source: Adapted from C. Barbatelli and R. Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). Exhibit 7: Worldwide Construction Machinery Industry 250 40.00% 2004 2005 2006 2007 2008 2009 2010 2011 Market Capacity($ Billion) yoy Growth 124.1 123.5 152.4 176.9 209.9 135.1 182.5 192.1 12.50% -0.50% 23.40% 16.10% 18.70% -35.60% 35.10% 5.20% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 0 50 100 150 200 Source: Francesca Spigarelli, Ilan Alon, and Attilio Mucelli, “Chinese M&A in Europe: Emerging Market Multinational in the Heavy Construction Industry,” Competitiveness Review (25): 346–370. 13 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 8a: Cifa’s Sales Before and After the Acquisition FY2007 FY2008 FY2009 FY2010 FY2011 Cifa's Sales (Thousand Euro) 330,711 325,901 167,675 126,781 139,517 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Cifa's Sales Source: Cifa’s income statement – Aida Database (a Bureau van Dijk product). Exhibit 8b: Cifa’s Ebit Before and After the Acquisition FY2007 FY2008 FY2009 FY2010 FY2011 Cifa's EBIT 22493 15198 -2313 -22416 8821 -25000 -20000 -15000 -10000 -5000 0 5000 10000 15000 20000 25000 Cifa's EBIT Source: Cifa’s income statement – Aida Database (a Bureau van Dijk product). 14 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Exhibit 9: Investments in New Construction 4% 4% 5% 5% 5% 5% 23% 22% 19% 28% 32% 38% 41% 38% 32% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Europe Asia North America South America Africa 2002 2007 2012 Source: Adapted from Francesca Spigarelli, Ilan Alon, and Attilio Mucelli, “Chinese M&A in Europe: Emerging Market Multinational in the Heavy Construction Industry,” Competitiveness Review (25): 346–370. 15 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023. Cifa: Cross-Cultural Integration with a Chinese Company CB0128 Endnotes 1 “Zoomlion’s 20 Years: From Borrowing 500000 to Operating Revenue over 80 Billion”. Tencent Finance. 2012-09-28[2020-05-06]. https://finance.qq.com/a/20120928/003783.htm 2 “Winning Way of Brand Strategy”. Sohu News. 2006-09-12[2020-05-06]. http://news.sohu.com/20060912/n245285705.shtml 3 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 4 “Zoomlion Established a Financial Leasing Subsidiary with an Increase of over 50% in Revenue in 2008”. eeo.com.cn. 2009-04-21[2020-05-06]. http://www.eeo.com.cn/industry/energy_chem_materials/2009/04/21/135773.shtml 5 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 6 https://en.wikipedia.org/wiki/Zoomlion. 7 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 8 “Cifa Brings Italian Expertise to the Fore”. Gulf Construction. 2008-09[2020-07-05]. https://www.gulfconstructionworldwide.com/news/10103_Cifa-brings-Italian-expertise-to-the-fore.html 9 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 10 Ibid 11 Ibid 12 Ibid 13 “Chinese Construction Equipment Manufacturer Zoomlion Acquires CIFA”. Tunnelbuilder. 2008-07-29[2020-07-05]. https://tunnelbuilder.com/News/Chinese-Construction-Equipment-Manufacturer-Zoomlion-Acquires-CIFA.aspx Emerging Cultural Differences http://www.eeo.com.cn/industry/energy_chem_materials/2009/04/21/135773.shtml 14 C. DelFrate. Padrone cinese, timori in fabbrica. Corriere della Sera (archivio storico), 28 June 2008. 15 “Goldman, China's Zoomlion Win Cifa Bid”. Reuters. 2008-06-25[2020-05-06]. https://www.reuters.com/article/us-zoomlion-goldman-cifa/goldman-chinas-zoomlion-win-cifa-bid-idUKPEK26102120080625 16 Zoomlion. “Zoomlion Chairman Zhan Chunxin Addresses Harvard Students on Overseas Acquisitions”. PR Newswire. 2011-03-07[2020-05-06]. https://www.prnewswire.com/news-releases/zoomlion-chairman-zhan-chunxin-addresses-harvard-students-on-overseas-acquisitions-117530323.html 17 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 18 Ibid 19 Ibid 20 Ibid 21 Ibid 22 Ibid 23 Lin, R., Chen, J. J., & Xie, L. (2020). Transnational Governance of Zoomlion's Acquisition of Italian CIFA. Corporate Governance of Chinese Multinational Corporations. 24 Cristiana Barbatelli and Renzo Cavalieri, eds., La Cina non è ancora per tutti: dialoghi sul mercato cinese (Olivares, 2015). 25 Ibid 26 Ibid 27 Ibid 28 Ibid 29 Ibid 30 Ibid 31 Ibid 32 Ibid 33 Ibid 16 For the exclusive use of J. Zhu, 2023.This document is authorized for use only by Jielu Zhu in MHBO Section 1 taught by Neil Barman, Columbia University from Jan 2023 to Jul 2023.