Going global? Not so easy (2)

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(Beijing Review) 09:54, September 16, 2013

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Wu Liang, Administrative Deputy Editor in Chief of the Economy & Nation Weekly magazine, said that "going global" is more than a buzzword for Chinese firms: It's an absolute imperative if they want more say in the world's IT revolution. "The IT revolution changed the world, with the Internet reshaping industrial structures and a reshuffle of the global value chain. If Chinese companies fail to seize overseas opportunities during this process, they will lag further behind their foreign peers."

Li also said companies should always pursue win-win outcomes instead of only considering their own gains. A good example is Geely's purchase of Sweden-based Volvo, he said. "Geely promised not to lay off workers, not to shut down factories and not to move factories from Sweden," said Li. "This ensured a smooth purchase."

Zhao warned of a "glass door" that exists in overseas investment, something that Chinese companies should be cognizant of. "You can see through the 'glass door,' but you can't go through it. You have to understand the hidden rules behind the written ones. That's why Chinese companies should do more research before going global," Zhao said. "You can never be too careful."

But many Chinese companies, especially state-owned enterprises, have had their ambitions for overseas acquisitions thwarted in recent years. State-owned CNOOC failed to buy American petrochemical corporation Unocal for $18.5 billion in 2005, a deal that foundered on US allegations of national security concerns. On October 8, 2012, the US House of Representatives Intelligence Committee issued a report alleging that Huawei and ZTE, two Chinese telecom companies, posed a possible threat to US national security. The committee even urged the US Government and the private sector to boycott the two companies. In 2012, US President Barack Obama blocked a wind farm project by Sany Group, China's largest machinery maker, again on national security grounds. Li attributed those setbacks to mounting protectionism that surfaces when economies are in the doldrums.

Carolyn Ervin, Director for Financial and Enterprise Affairs with the Organization for Economic Cooperation and Development, however, said skepticism toward state-backed companies are not specially targeted at Chinese ones, but state enterprises in general. "A large part of the reason that countries are skeptical against state-owned companies is that they are concerned with their relationship with the government, such as unfair advantages in financing, hiring and resources," she said. To that end, China is working closely with OECD countries to make itself better understood, she said.

Marion-Bouchacourt agreed, saying that integration is the most important factor in overseas expansion. "It's all about building a partnership in a way that is acceptable and understandable."

Li said the Chinese Government should ease away from state-owned enterprises in order to address the concerns of foreign governments and should provide privately owned companies with more access to financing. Finally, if companies were the only decision makers regarding overseas expansion, they would be more rational, said Li.

Learning from failures is also extremely important for Chinese firms with a bent toward global expansion, but most failed cases are not disclosed to the public, said analysts during the 17th CIFIT.

Zhao said there are far more failed cases of overseas acquisitions than successful ones. "People love to flaunt successful cases but avoid talking about failures. This is a very serious problem," he said.

"Chinese companies should carefully study those failed cases and learn from them."