September 15th, 2010 | Global Times Chinese firms dipping toes in global waters
Some believe the financial crisis has given Chinese enterprises a golden opportunity for overseas mergers and acquisitions. But is it the right time for them to “go global?” What are the risks of venturing overseas, and what are the potential benefits? The Global Times (GT) hosted the 2010 China Enterprises Overseas Development Summit on September 10 in Beijing, at which more than 200 government officials, experts, CEOs and representatives of foreign organizations expressed their views on the overseas expansion of Chinese firms.
GT: Are Chinese enterprises ready to go global?
Wang Zhile, research fellow with the Chinese Academy of International Trade and Economic Cooperation and director of the Beijing New-century Academy on Transnational Corporations: In its new world investment report published this year, the UN listed the top 100 largest transnational corporations in developing countries, including 12 from China.
However, only two of them had over half of their activities outside China, and, for instance, the China National Petroleum Corporation only did 2.7 percent of its business outside China .
The lack of overseas activities means most Chinese enterprises are still using domestic resources to earn money from their fellow Chinese and from the local market. Compared with global corporations, Chinese enterprises are far behind strategically. Chinese enterprises need to transform themselves from domestic firms to international firms, and then to transnational firms or even China-based global firms.
Gu Shengzu, member of the Standing Committee of the National People’s Congress and vice chairman of the China Democratic National Construction Association Central Committee: Each company should choose a mode fit for its conditions. Privately-run enterprises can first focus on trade, and then expand production links gradually toward the target markets through direct export, setting up overseas offices, branches and subsidiaries. This mode is represented by the home appliance manufacturer Haier.
Clustering means enterprises at upper and lower reaches of an industrial chain go global collectively so as to ward off risks gradually, having a bigger say in international negotiations and a bigger advantage in gaining preferential policies from foreign governments. This mode is represented by the telecommunication firm company Huawei, which built enterprise clusters via technologies and explored markets in developing countries before heading toward developed countries.
Xiang Ligang, secretary-general of the 3G Industry Alliance: Among all sectors I believe telecommunication has done the best job in going global, with good results from Huawei, ZTE and Datang. Two points are important: The sector set its eyes on the world’s most advanced technologies at the very beginning, so companies not only gained world-class competitiveness but have also reached a level of technology no less than that of Ericsson, Nokia Siemens and Motorola.
We have also accumulated talented people who can do more valuable jobs after returning from overseas posts.
Xia Youfu, president of the China Open Economy Research Institute, University of International Business and Economics: Chinese enterprises invest heavily in strategic resources overseas, and many problems have appeared. Industries and enterprises lack global strategic planning. Some projects lack careful planning and sometimes clash with the global pattern of strategic interest distribution dominated by developed countries.
Privately-run and State-owned enterprises (SOEs) are treated very differently in policy. Enterprises also lack a sense of social responsibility, especially for natural conservation. A rational division of labor must be considered for industrial chains and value chains to achieve common development.
GT: Are Chinese-based transnational companies a form of Chinese influence?
Liu Wenhai, director of European and US outsourcing, China National Software & Service Co Ltd: Chinese enterprises lack soft power in going global. Multinational firms in China, such as KFC and McDonald’s, are selling the US lifestyle and consumption culture and brands rather than just the products themselves. So Chinese firms need to build their soft power before entering the global market successfully.
Chen Wenling, director of the Department of General Research, State Council Research Office: The world’s 65,000 transnational corporations dominate more than 60 percent of global trade, more than 80 percent of global investment and 30 to 40 percent of global GDP. Transnational corporations control the entire world. By cultivating its own transnationals China is building its influence and control worldwide.
Jiang Hong, vice president of Sinosteel Corporation Ltd: In cultivating transnational corporations, the most important ability is strategic choice. The ultimate goal is corporate influence and a leading capability in the business field.
The second most important ability is strategic implementation, with brand going first and attention paid to local laws and culture. The third is an innovative business model and organizational structure. An innovation platform is very important because in many areas Chinese companies are in a disadvantaged position and the chance for an open field is slim. The fourth is management and control, which must be executed according to multinational standards and systems of world-class corporations.
He Zhenlin, vice president of the Sany Group: The major responsibility for cultivating transnational corporations lies in the government. This includes providing platforms for law, information, funding, and also the state’s proper political influence and military capability. With these platforms Chinese enterprises will have a better chance for success in going global. For enterprises themselves, the most important thing is brand building.
GT: What should Chinese firms be looking for in overseas mergers and acquisitions (M&A)?
Long Guoqiang, director of the Research Department of Foreign Economic Relations, Development Research Center of the State Council: You have to know what you want and what you can get from overseas M&A, instead of buying whatever is cheap.
Chinese enterprises should aim at technologies and, on top of that, international brands are also valuable assets. The Chinese government has been calling for China to build international brands, but this is easier said than done. M&As are a shortcut in obtaining international brands, from which Chinese firms can share the benefits. Overseas channels and resources are also important.
Chen Quansheng, counselor of the State Council: The world economic growth pattern will change in the wake of the financial crisis, but the world economy will continue to deepen and China’s all-round opening-up policy will remain unchanged.
Government will have an altered role in maintaining the market order but the basic role of the market in resource distribution will not change.
Wu Zhengxi, Ernst & Young partner for overseas M&A by Chinese enterprises: Judging from the cases I handled, Chinese companies have learned quickly and done well.
In Africa and South America, for example, many companies cooperated with local governments or formed consortiums with Western investors. In this way they changed the local governments’ unfavorable and biased impression toward Chinese SOEs.