How Chinese Corporations Are Going Global?

China has seen rapid development in the past two or three decades. It has become the export powerhouse of the world. However, Chinese companies were always considered to be the cheap imitators. Chinese companies were earlier contractors for American and European countries who provided cheap labor to assemble their high tech products.

However, this has changed over the past few years. Chinese companies are now rapidly moving up the value chain. They are manufacturing high-end products. Some of their corporations have started going global. The government of China encourages Chinese companies to go global by what is known as a “going out” policy. This is the reason why Chinese investments in other countries now total more than $100 billion. China is the third biggest investor globally just behind the United States and Japan.

Researchers have predicted that the FDI outflows from China will soon overtake the FDI inflows into China. This is because of a large number of Chinese companies that are going global. China still does not have many MNC’s. There are only 11 Chinese companies in the Fortune 100 whereas arch-rival, America has over 50 companies on the same list. China has therefore set up aggressive targets for itself.

In this article, we will have a closer look at how some of the Chinese corporations are going global.

Acquisition Spree

China was relatively unaffected during the 2008 crisis. At that time, other countries were reeling from the effect of the financial meltdown. This is the reason why their companies were available at throwaway valuations. As a result, Chinese companies went on an acquisition spree during that time. Notable examples of the acquisitions made by Chinese companies are the acquisition of Volvo by Geely and the acquisition of IBM Computers by Lenovo. Both the targets were iconic, and the fact that Chinese companies had the wherewithal to go through with this acquisition shows their underlying economic strength.

China now has investments in every region in the world. The investments have been made for very different reasons:

• Investments in America have been made to acquire technical know-how and intellectual property
• Investments in Africa have been made to ensure the continued availability of natural resources
• Investments in Latin America have been made to secure strategic commodities like oil
• Investments in neighboring Asian countries have been made to expand the market and sell to more consumers in this densely populated continent

The West has been very suspicious of these Chinese investments. America firmly believes that a lot of these investments are being made specifically to undermine their superiority. They also doubt that there may be military intentions behind some of these acquisitions.

Expanding Into Nearby Markets

According to product lifecycle theories, when products reach the maturity stage in the domestic market, they are exported to nearby and culturally close countries. This helps companies find a readymade market for their products and start the growth story all over again.

Chinese smartphone manufacturers like Xiaomi, Vivo, Oppo, and Honor have used this strategy well. These companies have cornered market share globally. However, they have made huge strides into the smartphone market of neighboring India.

These companies collectively control more than 25% of the market share in the Indian smartphone market. Also, the products being sold are not cheap knock-offs. Instead, they are technically advanced products.

These companies were facing nationalistic sentiments which threatened to disrupt their business. Companies like Xiaomi and Oppo started manufacturing in India. Hence, these companies are not merely selling products because they have a cost advantage. Instead, they have become multi-national corporations in the truest sense.

The problem is that China has made fewer investments in its immediate region. Instead, all its investments seem to be placed in strategic regions which seem to be in line with the Belt and Road Initiative. This is the reason why China needs more companies like Xiaomi which help to expand business in the nearby regions.

Problems Facing Chinese Multinationals

Chinese multinational corporations are facing a major trust deficit all over the world. These companies are often perceived to be the agents of their government. This is because the Chinese government is encouraging its companies to go global by providing them with cheap capital and even subsidies.

On the other hand, China does not allow foreign companies to independently conduct business within its boundaries. Hostile measures are often implemented for multinational corporations. Some of them are forced to partner with local corporations. Sometimes, they even have to give up their trade secrets or intellectual property to be able to do business in China.

This is the reason why the growth of Chinese companies is viewed negatively around the world. The expectation is that if China wants the world to offer a level playing field for their companies, they should also be willing to do the same.

To sum it up, Chinese have been using both Greenfield and brownfield approach towards growth. This means that they are using acquisition and are also growing organically. However, when they grow beyond a certain point, they face hostility because of the policies of the Chinese government back home.