SAIC, a major Chinese automaker, wanted to grow outside its home market. As a step to

achieve this aim, it acquired a controlling interest in SsangYong, a struggling Korean

automaker, in $2004.$ However, this investment didn$$t turn out as SAIC had hoped. After five years and $$618$ million in investment, SAIC decided to stop any further investments in SsangYong and saw its ownership stake erode when SsangYong went into bankruptcy in $2009.$ Why did SAIC$$s takeover of SsangYong turn out so badly?

SAIC, formerly known as Shanghai Automotive Industry Corporation, grew from a small firm in

the $1970$s to the largest Chinese$-$based automaker by $2010.$ It has leveraged relationships with major global automakers, including Volkswagen and GM$,$ to develop its resources to design and build world$-$class cars. Building off its success at home, SAIC wanted to grow its global footprint.

As a first step in this effort, SAIC undertook its first acquisition of a non$-$Chinese firm. In

$2004,$ SAIC paid $$500$ million to acquire $49$ percent of SsangYong, the number$-$four auto

manufacturer in South Korea. SsangYong had a $10$ percent share of the Korean car market and was especially strong in the small SUV market. In addition to its Korean sales base, it was building its export business.

Analysts saw the acquisition as one with strong promise. SAIC would gain access to its first

foreign markets and also access to SsangYong$$s advanced technologies. Of great potential value was SsangYong$$s hybrid engine technology. SsangYong, which was burdened by heavy debt, would be recapitalized by SAIC. Additionally, SAIC, which had very efficient plant operations, could help improve SsangYong$$s production efficiency.

Even with all of the potential, problems quickly arose. Cultural differences between Chinese and

Korean managers hampered their ability to agree on how to restructure SsangYong. SAIC had even greater difficulties negotiating with SsangYong$$s unions. South Korea has a heritage of strong unions and difficult management$$labor relations, something that was entirely new to SAIC.

These differences were exacerbated by a steep drop in demand for SsangYong$$s vehicles. When

gasoline prices spiked in $2006,$ SUV sales dropped dramatically. Further, when the global recession hit in late $2007,$ global auto sales tanked$.$ SsangYong$$s sales were cut in half by the end of $2008.$

SAIC proposed a dramatic overhaul at SsangYong, with major changes in shop$-$floor practices

to improve efficiency and a $36$ percent reduction in SsangYong$$s workforce. SsangYong$$s unions

rebelled and charged that SAIC was illegally transferring technology designs and technology to

China. Without any further cash infusion from SAIC, SsangYong filed for bankruptcy in January

$2009.$ The unions went on strike and barricaded themselves in SsangYong$$s plants for $77$ days.

SAIC wrote off its investments in SsangYong and blamed the experience for its $26$ percent drop in profits in the first half of $2009.$

Discussion Questions

$1.$ What lessons should SAIC learn from its acquisition of SsangYong?

$2.$ When buying a firm in another country, what issues should the acquiring firm think about to limit the risks it will face with the acquisition?

$3.$ How can a firm bridge cultural differences between its home market and the country it is moving into?

Answer rating: 100% (QA)

1 Lessons for SAIC from the acquisition of SsangYong Understand and respect the cultural differences between the home market and the acquired company ... View the full answer