A successful entry strategy into China is the holy grail for many companies. Nestlé, the world’s biggest food group by sales, is there already, but sold just Sfr2.8bn worth of its products in the country last year – about the same as its sales in Australia. Given that China’s population is about 60 times greater, the opportunity is obvious. Nestlé’s latest attempt to expand in China involves Hsu Fu Chi, a Chinese confectioner worth about S$3.2bn, which sports a handy domestic distribution network. On Monday, Hsu Fu Chi requested a trading halt on its shares, indicating talks of a possible deal between the two may be advancing quickly.

Nestlé’s motivation is clear. Chief executive Paul Bulcke wants revenues from emerging markets to comprise 45 per cent of the group’s total by 2020, up from the current 38 per cent. All else being equal, that means Nestlé needs to boost its sales from emerging markets by Sfr14bn, or about one-third, on 2010 levels. This is no small task. Only three of the company’s top ten markets by sales (which contribute two-thirds of total sales) are emerging markets, and together they generate barely one-tenth of total revenues.

A full acquisition of Hsu Fu Chi would add a modest Sfr565m to Nestlé’s sales on 2010 numbers, but Mr Bulcke should be cautious. The Sino-Forest scandal made some sceptical of Chinese companies quoted on even the most reputable exchanges. Hsu Fu Chi is listed in Singapore – regarded as a less prestigious exchange – and the company also has a history of run-ins with health and safety authorities. Nestlé has learnt the hard way that it can take decades to recover from health-centred reputational damage. Price is key in most deals, but in this case qualitative considerations should top the priority list.