This action might not be possible to undo. Are you sure you want to continue?
There is no specific definition to globalisation. To begin with, Flynn and Giraldez have defined it as the permanent existence of global trade, when all major zones of the world exchange products continuously and on a scale that generated deep and lasting impacts on all trading partners. The deep lasting impact according to our understanding may refer to the economic integration that countries seek when they go global. Why and how aspects of the globalisation will be discussed later but to further emphasise on the meaning of globalization we would like to take help from some other definitions. It is also referred to as the gradual integration and growing interdependence of national economies (Cavusgil et al., 2008). Now globalisation can be explained as economies globally integrating through technology, knowledge, people and values which ultimately leads to interdependence of the countries on each other (Knight, 2004).
Globalisation has been occurring for the past several hundred years. Its increase over the past 20-30 years is largely accounted to the integration of large developed economies with less developed economies through FDI (foreign direct investment) and the reduction of trade barriers. The firms and enterprises which have entered into the global economy faced myriad obstacles and opportunities along the way. In this essay, we will be discussing some of the opportunities Chinese enterprises are seeking and the challenges they have faced for going global.
Why to Globalise?
Globalisation is seen as an objective trend in economic development. In order to develop a country, one cannot keep itself isolated from integrating to the global economy (Zhang, 2005). In case of China, the increased productive capacity of firms and the highly competitive market led it to globalisation as it was hard for them to survive in the local market due to low profitability and immense competition. Another important reason for China to go global was to acquire raw material. Over the past few years, the demand of natural resources in China and other countries has risen swiftly. By acquiring natural resources, the firms can become captive suppliers of middle kingdom (The Economist, 2010)
the Chinese government has supported the firm to invest in mergers and acquisitions since their accession in WTO in 2001. 2011). Greenfield investment (subsidiaries/organic growth) in case of Haier in US and M&A like Lenovo did by acquiring IBM s computer division are some of the examples how Chinese companies entered into the global market (Lecture. But initially Joint ventures and Greenfield investments were the major forms of investments. Joint ventures with Western and European companies like Huawei and 3Com. 2011). Studies conducted by Zhou and Shuller showed that Asia remains the most attractive place for China to invest but most of the outward FDI has been made in M&A with Western countries. China s Outward FDI: A Look at the Progress China s outward FDI figures are underestimated due to the deficiencies in their statistical system. It has since then supported the enterprises to invest in the foreign markets. Improvement in the quality of the projects was another objective of this policy. Chinese companies seek high level of . (Bloomberg Businessweek. In turn. China has used various modes of entry into the global market. 2009). China invested its money by actively acquiring assets overseas. 2009). Support for the M&A (mergers and acquisitions) has been the main industrial policy to promote the globalisation of the Chinese firms (Schuller and Turner. All outward FDI figures are based on statistics established by MOFCOM. As discussed above. 2007). The investments in M&A have been impressive. This policy was formulated to encourage the enterprises to invest into the global markets (Liu. then the outward FDI could be 40% more than total established figures (Lecture.The go out policy was launched by China in 2002. The reason to introduce this policy were the huge foreign reserves China was keeping and the increasing demand from the international community for China to float its money. The policy entails the increased Chinese FDI into the foreign market. 2005). MOFCOM only captures the data of approved and registered outward FDI which gives a limited understanding of China s investment overseas (Zhou & Shuller.. 2009). China seeks diversification in production and production methods along with brand recognition in EU and US market. China became a part of WTO (World Trade Organisation) in 2001. If the records of China s FDI in OECD countries are considered. China s outward FDI has grown massively over the past decade but it is not as fast as expected (Zhou & Shuller. How to Globalise? China has been a champion in exports but in order to grow further it should also find other business avenues.
China s outward FDI rose to 6. China has been investing in other countries from past couple of decades.9 billion USD. It acquired China 5th rank in all economies on the basis of total money spent in Outward FDI (UNCTAD. According to the statistics provided by OECD and MOFCOM. they rose to a modest level of 2. By the end of 2009 the China s Outward FDI increased to 56.53 billion USD. Another graph showing percentage distribution of China outward FDI in different sectors is listed below. China (Website) By end of the year 2009.75 billion USD in 2009 (OECD. manufacturing. Sources: Ministry of Commerce.equity participations in companies abroad. 2009). MOFCOM) Based on the statistics a graphical representation is listed below. retailing etc. The investments made in 1980s were very negligible. Up until 2009 most of the Outward FDI has been made on leasing industry followed by mining. Statistics show that there was 20 times increase in Outward FDI between 2004 to 2008.14% of 1. They were as low as 0. 2009). In 2001 after China s accession in WTO and the launch of Go Global policy gave it a big leap ahead and brought it in the race of high outward FDI countries. Most of the investments have been made in mining and manufacturing (Zhou & Shuller.1 trillion USD of world s total Outward FDI.3 billion USD on average per year but in 1994 there was a dramatic increase in outward FDI and the total investments rose to 4 billion USD.9 billion USD in 2002 to 245. A tremendous increase has been shown in Outward FDI stocks from 29. .45 billion USD per year. China s share reached 5. In 1990s. World investment report.
2003 2009 Most of the Outward FDI has been made in Asia since it remained the most lucrative and desired place for Chinese investors. China Statistical Yearbooks.Source: China National Bureau of Statistics. Source: National Statistic. The China s overall Outward FDI stocks in 2010 crossed . Heritage Foundation The above graphical representations give us an idea about the progress of China s outward FDI in world and more specifically on sector level. The graph below shows China s investment in different continents as of 2009.
China still has many hurdles in its way but there are opportunities promising rewards for those with ability to succeed.300 billion USD (Heritage foundation). International development funds were also given to all those firms which wanted to go global (Luo et al. EXIM Bank of China provides credit funds which are processed fast and have low lending rates. Some of the opportunities are explained below. Currently China has signed this agreement with 115 countries and locally it provides accident insurance to the expatriates working in subsidiaries (Luo et al. the export of the local technology. It is very important how the government stimulates the process of Outward FDI (Luo et al. 2010). The current government policy is believed to provide support to the Outward FDI enterprises. To prevent double taxation they have one corporate income tax principle which they have also signed with 89 nations (Luo et al. Chinese government in 2004 also promoted the investment in natural resources. Opportunities China has transformed from isolated economy to globalised reflecting the government s planning for long-term economic prosperity (Zhang. They . 2010). These banks also provide discounted bank loans to firms investing abroad. risk safeguard mechanism. 2010). R&D development centres which used internationally advanced technologies and managerial skills and M&A which increased the competitiveness of Chinese firms. The government also keeps record of all the difficulties a firm faces when entering into the market. The promotional measure encompasses financial and taxation policy. The Chinese government gives support to Outward FDI enterprises. The policy has two aspects to it: Promotional measures and monitoring policies. 2010). 1-Support of Government Most of the emerging economy governments encourage the globalisation of their firms (WIR. China has played an influential role in reducing the risk of Outward FDI firms through mutual protection agreement. 2005). Some of the major opportunities and challenges will be discussed in depth in the following paragraphs. labour and production methods abroad. Chinese firms have also faced a lot of opportunities as well as challenges in entering global market. information service network and direction guidance of Outward FDI. Long and short term credit insurance and credit facilities are also provided by the EXIM Bank of China. China has a great potential which led to its emergence as a great economy but just like European and Western enterprises. 2008).
There are some post investment guidelines as well for the firms listing rules for accessing corporate FDI overseas (Luo et al. 2010). All these strategic assets were acquired mostly by M&A. Lenovo over took IBM s PC unit which made Lenovo the third largest PC manufacturer immediately after the acquisition investment worth 1. 2010). . In 2001. brands to be more competitive (Deng. Chinese firms do possess competitive advantage gained from access to home country resources or production capabilities. managerial control. 2008). In 2004. 2008). but still see themselves as having an average level of competitiveness and have a powerful motive for asset-seeking especially in industries in which they face rigorous competitive pressures (UNCTAD.publish Obstacle rule report when investing in different countries . Chinese government have tried to simplify the monitoring policies as much as possible. This sophisticated system allows firms to get the reasonable information about the risks and obstacles they might have to face when going global (Luo et al. 2006). Few of the companies including Lenovo and TCL have took over patents. TCL and BOE technology group implemented same strategy for getting hold of strategic assets including brand name in the companies they have invested. The approval process has been shortened to 20 days. Government does not require a feasibility report because all they are concerned about is the investor and the direction of the investment. The importance of acquiring strategic assets should be understood in order to validate its advantages for the Chinese firms. 2-Accquisition of Strategic Assets Companies these days use resource based view which help them seek strategic assets or resources to be more competitive in the market. The government also publishes a catalogue with guidance about investment overseas. Along with other things Lenovo got IBM s brand. Many Chinese companies are establishing cross-border M&A to eliminate their competitive disadvantages. Companies which follow those guidelines get financial benefits as well and favourable treatment abroad. Chinese companies are striving hard to list themselves in Fortune s global 500 but to acquire a position in the list Chinese firms need to fill significant resource gaps (Zeng & Williamson. 2006).7 billion USD. the Chinese firms acquired strategic assets worth 450 million USD which exceeded 5 billion USD in 2005. R&D centres and distribution network (Deng. 2003). half of Chinese total Outward FDI (UNCTAD.
As for financial skills. Chinese corporate leaders are still at the fundamental stage (Gupta and Wang. 2009). Managing processes and international staff is also the most important task for which experienced managers are required. All these challenges will be explained one by one in later paragraphs. Russia. Massive investments were made in mining and petroleum and long term procurement contracts were made in oil and minerals (Moran. Backed by the Chinese government. 2007). . In 2010 alone 55% of oil was imported from overseas including Africa where Chinese firms have invested (China daily. Canada and Switzerland. Chinese firms have been acquiring equity stakes in natural resources all over the world. 2010). CNPC and SINOPEC. If Chinese firms fail to produce human talent pool with first class managerial skill then they might not be able to compete successfully with the multinational giants and its outward FDI aspirations will be thwarted (Tung. two of the largest companies in China have invested n i Kazakhstan. Most common challenges faced include human resource management. The surge in the economic growth in the past two decades has seen a prominent shortage in the natural resources of the world. This could help the frequent supply of natural resources to China and also on stabilised prices. Challenges China has faced a host of challenges in establishing their firms abroad. China needs skilled people to take informed decisions and the evaluation of acquisitions abroad. The go out policy established in 2002 has played a great role in taking Chinese companies abroad which has brought China in the race of some of the top Outward FDI companies. The globalisation of the firms can lead them to take control of natural resources directly. Due to increased labour costs in China. 2010). technological backwardness and cultural differences.3-Natural resources Natural resources are vital to the economic growth of any country. These investments have been supported by the Chinese government for the stable flow of natural resources to meet the demand of the Chinese economy. 1-Human Resource Management As more and more Chinese indigenous companies invested abroad it created a need for people with competencies to compete successfully in the global economy (Tung. . firms have shifted their production units to other places in the world to deal with costs effectively and to reap more profits. 2007).
. opacity and the high esteem in Chinese corporations can raise difficulties in dealing with the western firms. 2005). Companies strive to get hold of th best e employees with the greater technical knowledge about the job (Tung. 2010). 2007). China s management pool number 5000 when it needs 75000 mangers to run Chinese firms (Farrell &Grant.The torrential flow of FDI in China coupled with the desire of indigenous Chinese companies to invest abroad (Accenture. china still is still backward technologically. Many western executives when interviewed said that the next generation of Chinese executives. 2010). increased FDI and Outward FDI. Many students from China fly abroad to get foreign education who will replenish people at managerial posts. would prove far more effective than the present cohort of chiefs. most of the sectors still lag behind as far as advanced technology is concerned. only oil and petrochemical industrial technology in china meets the standard of technology used in US and Japan. China s regulations for FDI and Outward FDI encompass the introduction of advance technology within China along with many other things. both internal and external. suitable human resources emerged as the most significant challenge (Tung. The surge in shortage of human resource is not only restricted to China but it s a world phenomenon. Yet if those firms are to achieve their full potential abroad their creators may have to relax their grip (The Economist. a survey of 25 Chinese international firms where respondents were asked to identify barriers. in their 30s and 40s today. 3-Cultural difference and business model China follows a whole different set of norms and culture when dealing in business which creates hindrance when Chinese firms deal with other firms from across the world. 2007). with more international education and experience. Regardless of the advancement in economy as a whole. The Economist in one of its article published that the sense of mission. This explains the fact that despite of China s biggest population in world there is still a critical shortage of skilled people to serve its objective of being prosperous locally and successful abroad (Tung. 2007). Over the past two decades the old guard has taken a rusting industrial base and from it made gleaming corporate giants. 2005) has created a need for people referred as shortage among plenty by Farrell and Grant (2005). It also mentioned interviews from western executives who appreciated their Chinese counterparts but show express their concern about lack of openness and discussion which leads to resistance among employees (The Economist. In 2005. According to Nolan and Zhang (2005). 2-Technological backwardness Except for few companies which have technologies comparable to US and Japan. to OFDI.
The government support for the promotion of firms in global market. Conclusion According to the figures of 2009 China ranks 5th with 56. The immense support from government gives them an advantage to flourish in the global economy. Chinese firms have a lot potential to win this race by negotiating all the challenges they face in going global. . the silence was taken a sign of agreement by the western counterparts (The Economist. The challenges have always been there but a good approach and strategies can easily tackle them.Spencer and Chao (2008) mentioned in their article about Lenovo s executive and the difficulties they had faced when dealing with IBM. 2010). The gaps in business models need to run companies overseas keep Chinese firms from taking full advantage of globalisation. The Chinese members of delegation kept quiet when they disagreed with some point. China s Outward FDI growth seems quite sustainable.52 billion USD in the race of countries with higher Outward FDI. China has shown an aggressive integration into the world economy. Chinese firms have innumerable opportunities which if channelled in the right direction can lead China to become the number one global player. At the same time Chinese firms also face some political problem within the state like we have seen in case of China National Offshore Oil Corporation. The global governance and the management system should be aligned to manage operations in offshore as well as in China. The firms in China are becoming more open towards international trading and therefore have the tendency to become global players. Chinese business models on the other hand are not efficient to operate at home as well as globally. China has also faced some political challenges within the country. the appreciation of Chinese currency and the acquisition of natural resources proves its sustainability. China needs to address all these issues in order to fully benefit from the globalisation for which they have tried really had and in fact have been successful for past many years. Embargos and sanctions by EU and US on China s trade and human rights violation have been in talks for long. China Outward FDI has grown faster than Japan which show s its steep acceleration toward globalisation and potential for more growth.
Spencer. Foreign policy centre. 3-12. New York and Geneva: United Nations Conference on Trade and Development (UNCTD). (2009). 868 889 UNCTAD. [Online] Available at: http://www.co. Int. pp. 81-108.businessweek. Wall Street Journal Tung.ece [Accessed 15 April 2011] Flynn. and Chao. (2002). J. J. 30. 2010] Cavusgil et al. J. Journal of World Business 44. Harvard Business Review. J. pp74 84 Economist. (2005). Why do Chinese firms tend to acquire strategic assets in international expansion? . 81(10): 92 99. Vol. Y. management. (2004). (2010). (2005). Available at: http://www. pp 68 79 Moran. China Aktuell. Journal of International Business Studies Luo et al. Vol..com/globalbiz/content/jul2009/gb20090710_479130. 2089 2107 Schu¨ ller. T H. and Rationales . L. Lenovo: an example of globalization of Chinese enterprises . Nolan. Economist. (2010). (2007). [online] 11 November. Knight. How emerging market governments promote outward FDI: Experience from China . International business: Strategy. China's Strategy to Secure Natural Resources: Risks. Zeng.timesonline. 1. Journal of World Business 45. R L. P 5-31 Liu. Approaches. Transnational corporations and infrastructure Challenge . P. A. World investment report 2006: FDI from Developing and Transition Economies . The Challenge of Globalization for Large Chinese Firms . Internationalization Remodeled: Definition. China goes global . (2008). Policy Analyses in International Economics 92. (2006). O. (2008). & Williamson. New York and Geneva: UNCTAD World Investment Report (WIR). pp. . The human resource challenge to outward foreign direct investment aspirations from emerging economies: the case of China . The hidden dragons . 12. and the birth of globalization: A critique of O Rourke and Williamson . Dangers. and the new realities . time lags. World Development. Deng. 8 No.References Bloomberg Businessweek (2009). (2010). Globalization Challenges Facing China Inc . & Giraldez. Zhang. and Turner. 4.. A.uk/tol/news/uk/scotland/article1138006. New Jersey: Pearson Education. (2007). C Z. No. P. (2004) Path dependence.. pp. No. Journal of Studies in International Education. But Not Without Strife . D. M. European Review of Economic History. Global ambitions: Chinese companies spread their wings . and Opportunities .htm [Accessed May 15. (2008). Journal of Human Resource Management . & Zhang. M. Being eaten by the dragon: What it feels like to be bought by a Chinese firm . (2003). P. Lenovo Goes Global.
China Daily. Y S. 2009 pp. Shuller. 3 No. (2009)..Zhou. Heritage foundation. 2542 Other Sources: OECD. MOFCOM. Lecture Handouts (2011). Chinese Management Studies. Vol. The internationalization of Chinese companies: What do official statistics tell us about Chinese outward foreign direct investment? . (All cited in various paragraphs). . 1. M. Chinese Ministry of Commerce.