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Dr. Youzhen Zhao FDU 1
Chapter 8 Expanding abroad:
from emerging markets
Chinese Firms as examples
Dr.Youzhen Zhao FDU
Outward FDI from China (1990-2011)
(In 100 million US$)
Source: World Investment Report (data for 1990-2001); Ministry of Commerce, P.R.C. (data
for 2002-2011), non-financial OFDI for year 2002-2005, OFDI of all industries afterwards
746.5
2011
Dr.Youzhen Zhao FDU
Major players of China’s OFDI at the end of 2010
State-owned
enterprises
Collective
companies
Companies from
TW,HK, Macao Others
Private
companies
Share-holding
companies
Co. Ltd.
Foreign
companies
Share-
cooperative co.
Dr.Youzhen Zhao FDU
Non-financial OFDI stocks by the end of 2010
State-owned
enterprises
Foreign
companies
Others
Collective
companies
Others
Companies from
TW,HK, Macao
Co. Ltd.
Private
companies Share-
cooperative co.
Share-holding
companies
Dr.Youzhen Zhao FDU
Industry distribution of OFDI stocks by the end of 2010 (unit: US$ 100 million)
Leasing and business service
Finance
Mining
Wholesale and retailing
Transport, warehousing & postal service
Manufactury
IT
Real estate
Construction
Science research, service & geo-survey
Power and other utilities
Resident service and other services
Agriculture, forestry, husbandry ,fishery
Water, environment and public facility mgt.
Residential and catering trade
Others
Dr.Youzhen Zhao FDU
Top 10 destinations of China’s OFDI stocks by the end of 2010 (Unit: Billion US$)
Ranking Country (region) Accumulated Value (US$ billion)
1 HK, China 199.056
2 BV Islands 23.243
3 Cayman Islands 17.256
4 Australia 7.868
5 Singapore 6.069
6 Luxemburg 5.787
7 USA 4.874
8 South Africa 4.153
9 Russia 2.788
10 Macao 2.229
Dr.Youzhen Zhao FDU
Top 10 destinations of China’s OFDI flow in 2010 (Unit: Billion US$)
Ranking Country (region) Value (US$ billion)
1 HK, China 38.505
2 BV Islands 6.12
3 Cayman Islands 3.496
4 Luxemburg 3.207
5 Australia 1.702
6 Sweden 1.367
7 USA 1.308
8 Canada 1.142
9 Singapore 1.119
10 Burma 0.876
Regional distribution of China’s OFDI stocks
(by the end of 2010)
Dr.Youzhen Zhao FDU
Latin
America North America
Oceania Europe
Africa Asia
Dr. Youzhen Zhao FDU 9
Motivation of Chinese firms’ internationalization
1- 5 means from Not important to Very important
Source: IBM Institute for Business Value and Fudan Globalization survey, 2005
Dr. Youzhen Zhao FDU 10
The McKinsey Quarterly , May 2008
• Chinese firms are reaching for new opportunities in new markets abroad, searching for raw materials, talented employees, technologies, brands and customers.
• Chinese companies have found acquisitions the fast way to establish a global presence. E.g. Lenovo, CNOOC, Huaneng Power International
• Behind these headlines, however, the true story of Chinese
globalization is unfolding more slowly.
(see the next slide)
Dr. Youzhen Zhao FDU 11
Top 100 companies by market capitalization , 2006
Proportion out of home country/area ( %)
Sales Assets Employees Shareholders Top
management
Mainland
China
11 3 2 25 3
India 21 9 2 25 4
South
Korea
28 11 11 31 4
Taiwan 48 24 32 29 2
Dr. Youzhen Zhao FDU 12
Major constraints of Chinese firms’
internationalization
• Inexperience in the international market
• Unfamiliar with some business practices that are widely
accepted in developed countries
• Re-organization is needed
• Lack of talents who have international experiences
Dr. Youzhen Zhao FDU 13
Global strategy of successful Chinese firms
—— cases and analyses
• Galanz
• Goodbaby
• Haier
• Lenovo
• Huawei
The way to success
Case : Galantz
--- OEM for Microwave Oven
A small company in China in the early 1990s
Focusing on the microwave oven production at first
Holding about 50% of the global market share now
Now pursuing diversification in white goods (e. g. air-conditioner in 2001; refrigerators; washing machines; other home electric appliances)
Dr.Youzhen Zhao FDU
The way to success
Vision: Aiming at the world top-ranking company
Goal: world top 5 white goods producer in 5-10 years
try to reach sales of 100 billion RMB at 2015
Galanz Group 2008 Sales: 28 billion RMB
2008 Export: 1 billion US dollars
2010 Sales: 37.2 billion RMB
Choosing the right industry at the very beginning
Investment on R&D exceeding 3% of sales, 5 R&D centers (HK, USA, South Korea, 2 in Mainland China)
Operating on the global management system
Dr.Youzhen Zhao FDU
Challenges :
Sustaining development continuously
Maintaining market share
Brand building (Original Brand Manufacturing) vs. OEM
For comparison: Goodbaby 好孩子/ Geoby ( overseas)
----next slide
The way to success
Dr.Youzhen Zhao FDU
Goodbaby Group
• Located in Kunshan of Jiangsu Province
• CEO and founder: Mr. Song
• From OEM to ODM , not OBM
• 280 domestic patents
• 13 international patents
• 70% domestic market share
• 4% of sales going to R&D, replacing
partners’ R&D resources;
• Seeking international partners with the best
local brands and channels, while putting
it’s own brand “Geoby” on the sides
(putting local brand on the back to attract buyers)
Dr.Youzhen Zhao FDU
Case :
Setting up factories and channels overseas
The way to success
Set up factories overseas since 1998
Brand value of Haier reached 81.2 billion RMB in 2009
Manufacture household appliances and electronics
Dr.Youzhen Zhao FDU
Dream: Building up global brands
The way to success
Global Brand Strategy
*From the end of 2005
Dr.Youzhen Zhao FDU
The way to success
Worldwide employees: more than 60000
Worldwide sales: 119 billion RMB in 2008
Facts: 29 manufacturing bases and 8 comprehensive
R&D centers worldwide
10 overseas trading companies
150.9billion RMB in 2011
Dr.Youzhen Zhao FDU
New developments of Haier’s
internationalization
• Bought Sanyo’s white goods business in Japan and
South-East Asia in October 2011
• Launch two-brand strategy in Japan in 2012
(Haier + AQUA)
• Set up Asia RHQ and R&D center in Japan in 2012
Dr.Youzhen Zhao FDU
The way to success
Get access to talents and technology to build the
global brand
Provide the management team with overseas
experiences
Localize its marketing channel, sales , services
Benefits:
Dr.Youzhen Zhao FDU
Challenges ahead
• Plateau in its globalization, e.g. mainstream market penetration in USA
• Cross-cultural trust and respect
• Balance global and regional interests
The way to success
Dr.Youzhen Zhao FDU
The way to success
Case : LENOVO
Largest personal computer manufacturer in China
Lenovo acquired IBM PC division in 2005
The third largest PC giant worldwide after the
acquisition
Dr.Youzhen Zhao FDU
Lenovo
• Inception in 1984, Lenovo Group
Limited, the largest IT
corporation in PRC
• Sales Revenue RMB 28400
million in 2000
• In 2005, acquired IBM PC
business
• Customers over fields including Finance,
Insurance, Manufacturing and Government
Dr.Youzhen Zhao FDU
Acquisition of IBM PC
(2005)
Public Lenovo
holding IBM
Lenovo
Group PC
business
43% 57%
New Lenovo
(Lenovo + IBM PC)
Public Lenovo
holding IBM
46% 19% 35%
before after
US$650 million cash
US$600 million stock of Lenovo 1.75 billion
US$500 million debt of IBM PC
Dr.Youzhen Zhao FDU
Corporate Functions Integration/Strategy Executives
SVP,COO
Global supply chain
Liu Jun
SVP
Region
Ravi Marwaha
VP
Lenovo Mobile
Liu Zhijun
CEO Steve Ward
William J. Amelio
SVP
CFO
Ma Xuezheng
SVP
General Counsel
Jim
Shaughnessy
SVP
Market
Deepak Advani
SVP,CTO R&D and Technology
He Zhiqiang
SVP
HR
Bill Matson
CSO
Wu Yibing
SVP,CIO
Steve
Bandrowczak
CIO
Kevin Burns
VP
New business
Steve Petracca
VP, Communication
Carol
Makovich
SVP,COO
Product Group
Fran O’Sullivan
SVP Global purchase
Qiao Song
SVP
BT and core application
Wang Xiaoyan
VP
Desk PC
Lv Yan
VP
China Region
Chen Shaopeng
Chairman Yang Yuanqing
Management team of the new Lenovo
Yang Yuanqing
Liu Chuanzhi
Dr.Youzhen Zhao FDU
Sharpen Lenovo's competitive edge in the global
market by acquiring some critical resources
Gain the global reach and scale to compete
internationally
Gain access to regions outside China with a well-
respected business partner and a highly established
brand.
The way to success
Benefits:
Dr.Youzhen Zhao FDU
Challenges :
Business and cultural integration after the acquisition
Brand maintenance and building
Obstacles in business development
The way to success
Dr.Youzhen Zhao FDU
Latest news about Lenovo(1) Reported JV with NEC (51% ownership) (China Business News, Jan. 2011)
In June 2011, announced to purchase 37% of Medion AG, a German company producing and selling computers and notebooks, as well as TV sets, refrigerators, etc. in Europe, USA and Asia Pacific.
2009-2010 Fiscal Year (Liu as chairman, Yang as CEO) • Sales: US$ 16.6 billion
• Net profit: 0.129 billion US dollars
(-0.226 billion US dollars 1 year ago)
• Market share in global PC market: 8.8%
(a record high)
2010-2011 Fiscal Year Sales: US$ 21.6 billion ;Net profit: US$ 0.273 billion
Next steps (China Business News, B1, May 28, 2010) • Input more in brand ,marketing, R&D
• Defend leading position in China and explore emerging markets
Dr.Youzhen Zhao FDU
• No. 2 worldwide in sales, second only to HP (from 9% difference to 2%)
• Market share:global 14%;mature market 9.4%;emerging market
7.8%;China 35.3%
• Profit: US$ 0.192 billion (third fiscal quarter by the end of 2011)—59%
increase from the same period of the previous year
• Sales in mature market increased by 81% to reach US$ 3.6 billion,
accounting for 43% of global sales (benefiting from JV with NEC in
Japan and acquisition of more than 51% of Medion in Germany)
• Sales in emerging market increased by 13% to reach US$ 1.3 billion,
accounting for 15% of global sales. After losing the leader Chen
Shaopeng(陈绍鹏),loss reached US$ 30 million.
• Second only to HP in traditional PC areas, but lagging far behind Apple
in mobile internet and digital family businesses.
Latest news about Lenovo(2)
Dr.Youzhen Zhao FDU
Dr.Youzhen Zhao FDU
Case: Huawei
The way to success
•
Some info. about Huawei
• Huawei has captured the opportunity in a huge overseas market.
• Huawei has started building R&D capability globally. No. of R&D employees reaches more than 62000, accounting for 44% of total employees, with 23 R&D institutions worldwide.
• Huawei input 13.3 billion RMB into R&D in 2009, a 27.4% increase over the previous year. (23.696 billion RMB into R&D in 2011)
• By the end of 2009, Huawei’s accumulated number of patents had been 42543 (China Business News, March 31,2010),serving 45 of world’s top 50 telecom operators( up from 36 by the end of 2008)
Dr.Youzhen Zhao FDU
Building R&D capability globally (1)
Indian software development center
Description
Indian CMM software development skills combined with Chinese manufacturing skills
First CMM Level 5-certified R&D center
Targeted as their most important overseas R&D center
Impact
Best expertise leveraged
Dr.Youzhen Zhao FDU
Building R&D capability globally (2)
Description
Familiarity with local customers and culture
High speed of infrastructure exchange
Proximity to local competition
Impact
Deep understanding of local customers and
competition
Local R&D centers in ,e.g. Europe, USA
Dr.Youzhen Zhao FDU
Building R&D capability globally (3)
Customer interface R&D center
Description
Gathering information on customer preferences, and
feedback on products
Deducting potential R&D topics from customer
demand
Coordination with R&D on technology
and customer needs
Impact
• High degree of flexibility in adjustments to changing needs
Dr.Youzhen Zhao FDU
Sales of Huawei in recent years
2002 2.1 billion US Dollars 2003 2.7 2004 3.8 2005 6.0 2006 8.5 2007 12.56( a 48% increase over that of 2006) 2008 18.33 2009 21.8 (China Business News, March 31,2010),19% increase over 2008 2010 185.2 billion RMB, 24.2% increase over 2009 2011 203.9 billion RMB ( profit: 11.6 billion RMB), 32.396 billion US Dollars 2012 35.313 billion US Dollars • Serves 45 of world's top 50 telecom operators by the end of 2012 (35 by July 2008 )
• Ranked only after Ericsson in 2009 and 2010 in terms of sales Source: China Business News, 20080710 and 20100331, May 2011 http://www.huawei.com/cn/about-huawei/corporate-info/index.htm
Dr.Youzhen Zhao FDU
Market Share in North America (Source: China Business News, 20081009)
• Mobile operators AT&T 25%
Verizon 24.8%
Sprint 22%
T-mobile 10% Top 4: 81.8%
• Telecom companies
Motorola 46%
Alcatel-Lucent 21%
Nortel (北电) 13%
Ericsson 10%
Huawei 1% (contract with Leap Wireless, No. 5 or 6 mobile
operator in the USA; 0.1billion US$ sales in 2007)
Dr.Youzhen Zhao FDU
Dr.Youzhen Zhao FDU
Conclusions
Chinese companies are usually at early stages
of internationalization.
There is still a long way to go for Chinese
enterprises to implement the global strategy.
The emerging Chinese Multinationals are not
threats to the world, but important contributors to
the world economy.
Video:Huawei Story
(tentative)
Dr. Youzhen Zhao FDU 40
Dr. Youzhen Zhao FDU 41
SMEs’ internationalization(1)
Obstacles: • Scale and transaction constraints
• Access to capital
• Lack of knowledge
• Lack of market power
• Vulnerability to intellectual property violations
Dr. Youzhen Zhao FDU 42
SMEs’ internationalization(2)
Advantages: • Innovativeness
• Creativity
• Entrepreneurial spirit
• Lower overhead cost
• The ability to move fast to take advantage of new
opportunities
Dr. Youzhen Zhao FDU 43
SMEs’ internationalization(3)
Nature of FDI by SMEs:
• Emphasis on developed markets (next slide)
• Selective globalization
---focus on one link in the supply chain as well as on a selected market
• Strategy: SMEs often adopt niche strategies, pursuing areas that are not covered by large firms due to neglect, lack of expertise or high cost structure
Dr. Youzhen Zhao FDU 44
Geographical distribution of overseas affiliates of transnational
SMEs (%)
Host country
Home country
Developed
countries
Developing
countries
China, Middle
and East Europe
USA 82.6 16.9 0.5
Japan 46.6 52.3 1.1
Europe 92.1 7.8 0.1
All countries
81.4
18.3
0.3
Source: Fujita(1998), The transnational activities of small and medium-sized
enterprises, Kluwer Academic Publishers
Dr. Youzhen Zhao FDU 45
Some perspectives on Chinese SMEs’
internationalization (1)
Driving forces of Chinese SMEs’
internationalization
• Globalization of world economy
• China’s access to WTO in 2001
• The development of E-commerce
Dr. Youzhen Zhao FDU 46
Some perspectives on Chinese SMEs’
internationalization (2) Main advantages of Chinese SMEs’
internationalization
• SMEs have a large variety of products with small
volumes catering to the different market needs
(flexibility and quick response)
• Absolute cost advantage in terms of price
Dr. Youzhen Zhao FDU 47
Some perspectives on Chinese SMEs’
internationalization (3) Problems on the level of SMEs
• Domestic mentality of quite many SMEs
• Limited financial resources and weak abilities to raise funds
• Short of information and knowledge of international market
• Relatively preliminary stage of internationalization
• Mostly low value-added products, low-to-middle end
products
• Poor control over FDI due to shortage of talents and
experiences
• Limited technological innovation capabilities
Dr. Youzhen Zhao FDU 48
Some perspectives on Chinese SMEs’
internationalization (4)
Problems on the level of Macro Environment
• Policies to promote SMEs’ internationalization are not mature;
• There are very limited channels for SMEs to raise funds;
• Social service system for SMEs needs to be upgraded;
• Protection of intellectual property rights is relatively poor, which influences SMEs’ incentives to innovate;
• Some foreign exchange controls still exist;
• Price war among domestic SMEs to get overseas orders still happens;
• Lack of laws in FDI and complex approval procedures;
• Lack of insurance system for SMEs’ FDI to reduce risks.
Dr. Youzhen Zhao FDU 49
Suggestions to Chinese SMEs’ in their
internationalization (1)
• Fostering international mentality is the first step in SMEs’
internationalization process;
• Try to develop suitable strategy to explore international
market;
• Utilize modern IT to facilitate the internationalization
process;
• Improve competitiveness by cooperating with foreign
firms and big domestic firms.
• Take a focus strategy and pay attention to highly
specialized market segment.
Dr. Youzhen Zhao FDU 50
Suggestions to Chinese SMEs’ in their
internationalization (2)
• Engage in a cluster to develop together with others and
improve the anti-risk ability.
• Invest in human capital.
• Borrow “brains” from universities and research
institutions to enhance R&D strength and foster
innovations.
• Accumulate experiences in international competition
while using OEM to expand the scale and prepare for its
own brand building .
Dr. Youzhen Zhao FDU 51
Suggestions for the external environment
improvement(1)
• Create a better institutional environment for SMEs’
development;
• Provide more financial support for SMEs’ international
expansion;
• Relax the approval process of SMEs’ import and export
activities;
• Improve the information consulting and social service
system for SMEs;
• Provide a better protection of intellectual property rights;
Dr. Youzhen Zhao FDU 52
Suggestions for the external environment
improvement(2)
• Build and regulate official , semi- official and private
agencies to coordinate international business activities
of SMEs and reduce price wars in SMEs’ exporting;
• Further relax foreign exchange control in FDI and
promote SMEs’ foreign investment;
• Improve China’s overseas investment management
system and establish FDI laws while paying attention to
protecting enterprises’ overseas investment benefits;
• Treat SMEs favorably in terms of tax and other fiscal
policies;
Dr. Youzhen Zhao FDU 53
Suggestions for the external environment
improvement(3)
• Establish and improve the insurance system for FDI , and fully utilize the multilateral investment protection mechanism;
• Further develop venture capital to foster technological SMEs’ development and their innovation capabilities;
• The government should strongly support high-tech SMEs’ development and their cooperation with research institutions in hope to improve SMEs’ international competitiveness;
• Try to train more talents for international business activities and provide policy incentives for them to work for SMEs;
• Advocate and foster entrepreneurship to promote SMEs’ internationalization.
Dr. Youzhen Zhao FDU 54
内容提要:
本书分析了传统的企业国际化理论在解释中小企业国际化方面的不足,提出了针对中小企业国际化的理论诠释。本书还以国际视角考察中小企业国际化的实践和政策,对“天生的国际企业"这一特殊群体和新现象进行了探讨,然后阐述和分析中国中小企业国际化的发展历程、现状和问题,并针对其国际化过程中的融资、技术创新、人力资源和控制等重要问题进行了专门研究。最后,本书根据中国中小企业国际化的现实,在借鉴国际经验的基础上,从中小企业自身和外部环境两个层面提出对策建议。
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