Chapter 8 Expanding abroad: from emerging markets

Transcription

1 Chapter 8 Expanding abroad: from emerging markets Chinese Firms as examples Dr. Youzhen Zhao 1

2 Outward FDI from China ( ) (In 100 million US$) Source: World Investment Report (data for ); Ministry of Commerce, P.R.C. (data for ), non-financial OFDI for year , OFDI of all industries afterwards

3 Major players of China s OFDI at the end of 2010 Companies from TW,HK, Macao Others State-owned enterprises Collective companies Private companies Sharecooperative co. Share-holding companies Foreign companies Co. Ltd.

4 Non-financial OFDI stocks by the end of 2010 Private companies Sharecooperative co. Share-holding companies Collective companies Foreign companies Companies from TW,HK, Macao Others Others Co. Ltd. State-owned enterprises

5 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

6 op 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 BV Islands Cayman Islands Australia Singapore Luxemburg USA South Africa Russia Macao 2.229

7 Top 10 destinations of China s OFDI flow in 2010 (Unit: Billion US$) Ranking Country (region) Value (US$ billion) 1 HK, China BV Islands Cayman Islands Luxemburg Australia Sweden USA Canada Singapore Burma 0.876

8 Regional distribution of China s OFDI stocks (by the end of 2010) Latin America North America Europe Oceania Africa Asia

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 9

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 10

11 Top 100 companies by market capitalization, 2006 Proportion out of home country/area ( %) Sales Assets Employees Shareholders Top management Mainland China India South Korea Taiwan Dr. Youzhen Zhao 11

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 12

13 Global strategy of successful Chinese firms cases and analyses Galanz Goodbaby Haier Lenovo Huawei Dr. Youzhen Zhao 13

14 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)

15 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

16 The way to success Challenges : Sustaining development continuously Maintaining market share Brand building (Original Brand Manufacturing) vs. OEM For comparison: Goodbaby 好孩子 / Geoby ( overseas) ----next slide

17 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)

18 The way to success Case : Setting up factories and channels overseas Set up factories overseas since 1998 Brand value of Haier reached 81.2 billion RMB in 2009 Manufacture household appliances and electronics

19 The way to success Dream: Building up global brands Global Brand Strategy *From the end of 2005

20 Facts: The way to success 29 manufacturing bases and 8 comprehensive R&D centers worldwide 10 overseas trading companies Worldwide employees: more than Worldwide sales: 119 billion RMB in billion RMB in 2011

21 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

22 The way to success Benefits: Get access to talents and technology to build the global brand Provide the management team with overseas experiences Localize its marketing channel, sales, services

23 The way to success Challenges ahead Plateau in its globalization, e.g. mainstream market penetration in USA Cross-cultural trust and respect Balance global and regional interests

24 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

25 Lenovo Inception in 1984, Lenovo Group Limited, the largest IT corporation in PRC Sales Revenue RMB million in 2000 In 2005, acquired IBM PC business Customers over fields including Finance, Insurance, Manufacturing and Government

26 Acquisition of IBM PC (2005) before after Public Lenovo holding IBM Public Lenovo holding IBM 43% 57% 35% 46% 19% Lenovo Group PC business New Lenovo (Lenovo + IBM PC) US$650 million cash US$600 million stock of Lenovo 1.75 billion US$500 million debt of IBM PC

27 Management team of the new Lenovo Chairman Yang Yuanqing Liu Chuanzhi CEO Steve Ward William J. Amelio Yang Yuanqing SVP CFO Ma Xuezheng VP Lenovo Mobile Liu Zhijun SVP,COO Product Group Fran O Sullivan SVP,COO Global supply chain Liu Jun SVP Region Ravi Marwaha SVP Market Deepak Advani VP Desk PC Lv Yan SVP Global purchase Qiao Song VP China Region Chen Shaopeng SVP,CTO R&D and Technology He Zhiqiang CSO Wu Yibing CIO Kevin Burns VP New business Steve Petracca SVP HR Bill Matson SVP,CIO Steve Bandrowczak VP, Communication Carol Makovich SVP General Counsel Jim Shaughnessy Integration/Strategy Executives SVP Corporate Functions BT and core application Wang Xiaoyan

28 The way to success Benefits: 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 wellrespected business partner and a highly established brand.

29 The way to success Challenges : Business and cultural integration after the acquisition Brand maintenance and building Obstacles in business development

30 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 Fiscal Year (Liu as chairman, Yang as CEO) Sales: US$ 16.6 billion Net profit: billion US dollars ( billion US dollars 1 year ago) Market share in global PC market: 8.8% (a record high) Fiscal Year Sales: US$ 21.6 billion ;Net profit: US$ 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

31 Latest news about Lenovo(2) 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$ 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.

32 The way to success Case: Huawei

33 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. ( billion RMB into R&D in 2011) By the end of 2009, Huawei s accumulated number of patents had been (China Business News, March 31,2010),serving 45 of world s top 50 telecom operators( up from 36 by the end of 2008)

34 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

35 Building R&D capability globally (2) Local R&D centers in,e.g. Europe, USA Description Familiarity with local customers and culture High speed of infrastructure exchange Proximity to local competition Impact Deep understanding of local customers and competition

36 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

37 Sales of Huawei in recent years billion US Dollars ( a 48% increase over that of 2006) (China Business News, March 31,2010),19% increase over billion RMB, 24.2% increase over billion RMB ( profit: 11.6 billion RMB), billion US Dollars 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, and , May

38 Market Share in North America (Source: China Business News, ) 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)

39 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.

40 Video:Huawei Story (tentative) Dr. Youzhen Zhao 40

41 Obstacles: SMEs internationalization(1) Scale and transaction constraints Access to capital Lack of knowledge Lack of market power Vulnerability to intellectual property violations Dr. Youzhen Zhao 41

42 Advantages: Innovativeness Creativity SMEs internationalization(2) Entrepreneurial spirit Lower overhead cost The ability to move fast to take advantage of new opportunities Dr. Youzhen Zhao 42

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 43

44 Geographical distribution of overseas affiliates of transnational SMEs (%) Host country Home country Developed countries Developing countries USA Japan Europe China, Middle and East Europe All countries Source: Fujita(1998), The transnational activities of small and medium-sized enterprises, Kluwer Academic Publishers Dr. Youzhen Zhao 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 Dr. Youzhen Zhao 54