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Understanding the Growth Models of Chinese Multinational Corporations


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Title: Understanding the Growth Models of Chinese Multinational Corporations

Understanding the Growth Models of Chinese
Multinational Corporations
  • Yuping Du Rongping Kang Yinbin Ke

  • For the purposes of this paper , Chinese
    multinational corporations (MNCs) are defined as
    non-financial local corporations that were
    initially established in Mainland China which
    have since gone abroad and are developing
  • This paper makes pertinent points about flaws in
    dominant thinking and existing literatures
    regarding MNCs , and then proposes Emerging
    Globalization MNC Theories as our new
    theoretical viewpoints to the development of MNC
    theories in the era of globalization

  • The main methodology applied in this paper is
    case study.
  • 16 corporations in 8 industrial sectors were
    surveyed as target cases. Each case companys
    initial overseas investment is defined
  • By using Foreign Direct Investment(FDI),
    internationalization and MNC theories, a primary
    summary of the growth models of Chinese MNCs is
    presented based on these case studies
  • The characteristics of Chinese MNCs are
  • Finally a Two-stage Model of Chinese MNCs
    internationalization is proposed, which has laid
    the foundation for revising some of the MNC

Key words
  • Chinese corporations
  • MNCs
  • FDI
  • Internationalization

  • Section One
  • Introduction

  • As more Chinese companies have responded to
    international opportunities, China's overseas
    investment has increased remarkably.
  • According to the Chinese Ministry of Commerce, in
    2005 Chinese non-financial overseas investment
    reached US6.92 billion, up by 25.8 percent
    compared with the same period in 2004.

  • The academic literature has begun to explore this
    new internationalization phenomenon of Chinese
    multinational corporations (MNCs)
  • The objective of this research is to study the
    Chinese MNCs growth models by using an individual
    case study approach to facilitate an
    understanding of the Chinese corporations
    presence overseas as MNCs
  • And to stimulate discussion in a relatively new
    area of study rather than to provide definitive
    general conclusions.

In order to achieve the papers goal and
  • firstly, secondary research of literatures was
  • Secondly, interviews were carried out with
    Chinese management experts of Chinese Academic
    Institution of Social Science in Beijing and
    other appropriate informants. Then surveys with
    questionnaire were conducted.
  • Finally, on-site data collections were gathered
    on opportunistic samples of the home offices of
    Chinese companies.

Organisation of the Paper
  • Seven major sections
  • Introduction
  • Literatures review
  • Theory development based on some MNCs theory
    models in the era of globalization.
  • Case studies and our proposition of the three
    growth models of Chinese MNCs.
  • The characteristics of Chinese MNCs are analyzed
  • A Two-stage Model of Chinese MNCs
    internationalization is proposed
  • Lastly, summarizes the closing discussion.

Section Two Literature Review
Literature Review
  • Mainstream MNC Theories
  • After the Second World War, the rapid
    development of MNCs and their FDI caused
    widespread interest among western scholars. They
    adopted different research methods and created
    basic assumptions towards different research
    objects, and consequently created various MNC

Mainstream MNC Theories
  • The Monopolistic Advantage Theory
  • Hymer (1976)
  • Vernons Product Life Cycle Theory (1966,1979)
  • Oligopolistic Reaction Theory
  • Knickerbocker (1973)
  • The Internalization Theory Buckley and Casson
    (1976), and Rugman (1980)

Dunnings Eclectic Paradigm (1973, 1977, and
  • The international production eclectic paradigm.
  • The basic assumptions of the theory are that
    firms undertake FDI when meeting the following
    conditions 1) (O) - Ownership advantage
  • 2) (I) -
    Internalization advantage
  • 3) (L) - Localization
  • Different combinations of the three variables
    determined the modes, industries and geographical
    distribution of MNCs international production.

The Uppsala (Process) Internationalization Model
  • The works of Carlson (1975) Forsgren and
    Johanson (1975) Johanson and Wiedersheim-Paul
    (1975) Johanson and Vahlne (1977,1990,1992) and
    Welch and Wiedersheim-Paul (1980).
  • Incremental commitments manifests themselves in
    the sequence of modes of operation used by the
    firm and the sequence of foreign markets entered
    by the firm

The Uppsala (Process) Internationalization Model
  • To start and continue to invest just in one or a
    few neighbouring countries, rather than to invest
    in several countries simultaneously
  • That the investment in specific country are
    carried out cautiously, sequentially and
    concurrently with the learning of the firms
    people operating in that market.
  • Companies are expected to follow a sequence from
    low to high commitment modes of operation and to
    enter new markets with successively greater
    psychic distance.

A Non-mainstream Theory Kojima (1978)
  • The Kojima (1978) Model (Theory of Marginal
    Industrial Expansion )analyzes and explains the
    Japan-style outward direct investment.
  • The theory included three basic propositions  
  • 1) The labor and capital factors in
    Heckscher-Ohlin Theorem or HO Model(Case and
    Fair, 1999)could be replaced by labor and
    management resources
  • 2) The differences of comparative profit rate
    were related to the differences of comparative
  • 3) Different from the Japanese style, the
    American style FDI regarded management resource
    as a special production factor and the American
    oligopolistic reaction behaviors were just based
    on it.

  • This theory holds that FDI should begin from the
    marginal industry.
  • FDI beginning with marginal industry can manifest
    host countrys comparative advantage due to
    invest country lacking of technology or
    productive experience.
  • On the other hand, investing country can adjust
    and upgrade structure of industry by
    transformation. The behaviors of transnational
    corporations allocate industrial chains to make
    profits in the world and promote to transfer
    international industries on the principle of
    comparative advantage. In this way, less advanced
    countries (host countries) and more advanced
    countries (investing countries) both gain profit
    and fulfill the escalation of industrial
  • According to the motives of FDI, he proposed four
    styles 1) natural resource-seeking 2) labor
    resource-seeking 3) market-seeking and 4)
    production and sales internationalization.

  • Kojima summarized the differences between
    Japanese and American styles of FDI
  • 1) Japanese FDI mainly focused on natural
    resource exploitation and import, standardization
    and labor-intensive industry.
  • 2) Japanese small and medium corporations made
    most of the FDI, thus the scale of Japanese FDI
    is much smaller than European and American FDI.
    Most of the transferred techniques were general
    techniques, which were in accord with the
    structure and level of local production factors.
    Most of them adopted joint ventures for their
  • 3) Japanese FDI and trade are mutually
    complementary, so this FDI was called
    trade-oriented FDI. Furthermore, the theory
    analyzed bilateral FDI among developed countries.

Analysis of the Existing MNCs Theories
(limitations )
  • Those theories were concentrated on first-movers
    of European and American MNCs, Few studies were
    focused on the large amount of emerging post-war
    late-movers of MNCs, especially overseas Chinese
  • The background of those theories was the economic
    and technological environment before the
    mid-1980s.MNC theories, have been based on the
    previous history, which can not explain the
    development of MNCs in recent decades.

Section Three Theory Development
Theory Development - Emerging Globalization MNC
  • The business environment greatly changed in last
    decades of the 20th century.
  • Such a dramatic change has inevitably raised
    many challenges to existing MNCs theories, and
    has called for the exploration and development of
    new MNCs theories that conform to MNCs practices
    in the era of economic globalization.
  • We therefore propose Emerging Globalization MNC
    Theories as our new theoretical viewpoints of
    the theory models Transnationalization,
    Acquiring Advantage Theory, and Strategic

Transnationalization A Fundamental Growth Model
for Corporate Globalization
  • The main premise of traditional MNC theories was
    that, compared to development in domestic
    markets, the corporations transnational
    development faced qualitative, discriminative and
    higher transactional costs.
  • Therefore the prerequisite of transnational
    operation was to possess the advantage that
    competitors did not possess(Hood Young, 1979).
  • Prior Competitive Advantage (Child and
    Rodrigues, 2005)

  • In our opinion, there was another connotative
    premise. This premise was that most of
    corporations could survive and develop normally
    under the condition of non-globalization before
    the 1980s.
  • Transnationalization was not the prerequisite of
    surviving and developing.
  • It was a typical mode of corporate growth in the
    era of non-globalization.

  • However, the development of economic
    globalization and global information-sharing
    changed that premise.
  • Firstly, economic globalization lessened the
    obstacles of transnational production factors
    the practice of offering concessions to attract
    FDI is rising higher and higher in most
    countries the emergence of information
    technology. This has substantially reduced the
    cost difference between domestic and
    transnational transactions. In many circumstances
    there was little difference in the nature of
    businesses, which invalidated the Prior
    Competitive Advantage
  • Secondly, one of the most important components of
    economic globalization was market globalization
    (Corsi and Akhunov, 2000).

  • The globalized market and the free flowing
    production factors have changed the prerequisite
    of corporation survival and development.
  • That means only when a corporation can allocate
    resources globe-wide, can it survive and develop
    normally, even though there will be variations
    between different industries.
  • Therefore transnationalization becomes a
    fundamental means of way of corporate growth.

Acquiring Advantage Theory instead of Prior
Competitive Advantage Theory
  • 1) Corporations, which have some existing
    advantages exert and maintain the same advantages
    through transnational business (typical
    traditional style)
  • 2) Corporations with some existing advantages
    acquired new advantages through transnational
  • 3)Non-advantaged corporations acquired advantages
    through transnational business.

  • Table 1Corporations transnational styles

Source by the authors based on literature review
of FDI theories, such as Narula and Dunning
(2000) Dunning(2001), Child and Rodrigues (2005)
and Deng (2004) .
Section Four The Three Growth Models of
Chinese MNCs
 Case Analysis of Initial Overseas Investment of
Chinese Corporations
  • Reviews of Initial Overseas Investment of Chinese
  • We chose 16 Chinese MNCs as our target case
    study corporations. They are non-financial local
    corporations that were initially established in
    Mainland China, which have since gone abroad and
    are developing overseas.
  • These corporations all have their facilities
    and other assets in at least one country other
    than in China. They have offices and/or factories
    in different countries and have a centralized
    head office where they co-ordinate
    global/overseas management.

The 16 corporations from 8 industrial sectors are
  • 1)The household appliances and electronics
  • Haier Group (Haier),

Hisense Group (Hisense),
  • TCL Corporation/Group (TCL)

  • 2) The telecommunication and IT or equipment
    sectors Huawei Technologies Co., Ltd. (Huawei),
  • Shanghai Electric Group Co., Ltd. (Shanghai
  • 3) IT and electronic devices sector Lenovo Group
    (Lenovo used to be called Legend), BOE Technology
    Group Co., Ltd. (BOE)

  • 4) Biopharmaceuticals sector with diversified
    assets in other sectors China WorldBest Group,
    Ltd. (CWGC), Holley Group (Holley)
  • 5) Energy and oil-gas sectors China National
    Petroleum Corporation (CNPC), China National
    Offshore Oil Corporation (CNOOC)

  • 6) Automotive parts and machinery components
    sectors Wanxiang Group (Wanxiang), Jincheng
    Group (Jincheng)

7) Iron and steel manufacturing and construction
sectors Shougang Group (Shougang), Baosteel
Group (Baosteel)
  • 8)      Mining and engineering sectors China
    Nonferrous Metal Mining Co., Ltd (CNMC)

  • Initial overseas investments were based on the
    domestic operations, their initial going abroad
    to conduct production and research and
    development activities in other countries or
    regions. This is a crucial turning point in the
    process of company growth.
  • Before this, the companies invested and operated
    primarily in domestic markets even though they
    have been involved in some international
    activities such as exporting, importing
    technologies and international co-operations.
  • After this, investment and operations took place
    in many countries or regions, some even world
    wide. The companies are in a strategic
    transformation period and will be confronted with
    an increasingly challenge for international
    resources and internal management capabilities.

  • The purpose of analysing the initial overseas
    investment is to determine the foundation and
    conditions of the initial investment, to
    illustrate the new demand of business resources
    and capabilities for initial investment, to
    analyse the strategic differences of domestic and
    overseas operations, and to put forward
    implications for companies that are preparing to
    go global.
  • The analysis mainly covers three perspectives
    the domestic business operation, the
    international operation in the domestic market,
    and export. Detailed information is provided in
    appendix 1.

Classifications of Internationalising Chinese
corporations Two Categories of
Internationalising Corporations
  • Basing on Kang and Kes (1996, 2001) prvious
    research, we classified Chinese
    internationalising corporations into two
    categories according to the growth of MNCs
    internationalising procedures first-movers and

Figure 2 MNCs growth and internationalization
(1) First-movers (A-A)
  • The main features of first-movers were firstly,
    there were few MNCs in the industry when those
    corporations started their initial process of
    internationalization secondly, the core
    technology of those corporations was basically
    invented themselves or possessed by them. Most of
    the giant European and American MNCs belong in
    this category.

(2) Late-movers (B-B)
  • Corporations that started their
    internationalisation when there were already
    numbers of giant MNCs in their industry and their
    operations occupied most of the global market
  • Whats more, the core technology of these
    late-movers was imported from foreign companies.
    Most previous Japanese MNCs, and the present
    developing countries and less developed countries
    belong in this category and they are dependent
    upon others technology.

Three Growth Models of Chinese MNCs as Late-movers
  • Chinese companies are all late-movers, only
    starting internationalization in the 1980s as
    opposed to Western countries in the 1960s. These
    are classified into three major sub-types or
    models (Du, 2001). Figure 2 illustrates the three
    growth models of Chinese MNCs as late-movers.

Figure 2 the growth models of Chinese MNCs as
  • The three models are normal, open, and
  • The criteria of classification were created
    according to the following elements
  • system (mainly the extent of economy openness)
  • domestic resources and market circumstances of
    the industry
  • and specific elements of late-movers.

  • From figure 2, we can see that B-B-B is the
    normal model, C/C-C is an open model, and
    A-A-A is a transitional model.
  • The environments were different when those
    corporations were founded. Normal and open
    models of corporations were founded under open
    economic environments, while transitional model
    corporations were founded under closed economic

  • Their starting points of internationalization are
  • Normal model corporations were internationalized
    in natural progression from domestic to a certain
    international extent.
  • Open model corporations started their
    internationalization process at their initial
    stage or even before the formal founding of the
  • transitional models only started their
    internationalization when they were well
    developed in both scale and capability.

  • The routes of internationalization were also
  • The normal model corporations increased their
    international management capability and level
    while their business scale and capability
  • Open model corporations increased their scale and
    capability while their international management
    capability increased.
  • The transitional model corporations increased
    their scale and capability and their
    international management capability by promoting
    each other.

  • Table 3 The Growth Models of Chinese MNCs

Section Five The Characteristics of
Chinese MNCs Growth
The Characteristics of Chinese MNCs Growth
  • We generalise the 16 cases into two categories
  • One is companies which have existing comparative
    advantages before they invest overseas,
  • The other category is comprised of those which
    first invest overseas and then acquire

  • The first category can be divided into three
  • 1) the technology dominating type,
  • 2) the scale of economy/low cost type
  • 3) the scope of economy/ diversified business
    group type.
  • The second category can be further divided into
    three sub-types
  • 1) the technology resource-seeking type,
  • 2) the sales resource-seeking type
  • 3) the natural resource-seeking type.

(1) Assimilation in Generic Strategy
  • 8 among our 16 case corporations have the clear
    objective of building a world-class
    corporation. They are Haier Group, Hisense
    Group, TCL Group, Huawei Technologies Co, Ltd.,
    BOE Technology Group Co., Ltd., Jincheng Group,
    Shanghai Electric Group Co. Ltd., and Baosteel
  • As latemovers, the major strategies of theses
    large Chinese corporations are catch-up ones.
  • World first-class corporation is Chinese
    entrepreneurs dream.

(2)Diversification of Business Positioning
  • With the objective of becoming a world first
    class corporation, Haier Group has not disclosed
    its main business, but it is determined to
  • TCL Group has defined five business units, and
    clearly expounds its limited diversified
    scope.When TCL put forward its great strategic
    goal Dragon Tiger Plan in 2003, there was no
    clear identification about its cultural business.
  • Hisense Group doesnt have a clear positioning of
    its business but only has computer products and
    will have business in Internet terminal unit in

Table 4 The Characteristics of Chinese MNCs
Growth Category One Having existing advantage,
then go abroad
Table 4 The Characteristics of Chinese MNCs
Growth Category Two First go abroad, then
acquiring advantage
Section Six The Two-stage Model
The Two-stage Model of Chinese MNCs
  • Stage Oneinward internationalization or
    inward internationalization /FDI,
  • Stage Two outward internationalization or
    outward internationalization /FDI.

Table 5 The Two-stage Model of Chinese MNCs
Table 5 The Two-stage Model of Chinese MNCs
Section Seven Conclusion Discussion
Conclusions and Discussion
  • Western scholars have conducted substantial
    research on internationalization, MNCs and FDI,
    yet their conclusions were not completely
    applicable to late-movers of FDI and
    transnational operational Chinese corporations
    and MNCs. In this paper, some mainstream and
    non-mainstream MNCs theories were reviewed. Based
    on globalization theories and models, Emerging
    Globalization MNC Theories of Internationalizatio
    n and Acquiring Advantage Theory, were proposed
    as our new viewpoints to the MNCs theory
    development from the perspective of Chinese MNCs
    as late-movers.

  • From the initial FDI of the 16 sampling cases
    studies, we concluded that the intrinsic
    characteristics of Chinese internationalization
    towards MNCs were all later-movers which are
    classified into three models normal, open, and
    transitional model.

  • The mainstream MNC theories were more suitable
    for first-movers in developed countries, but
    Dunnings Model and the Uppsala Model have
    profound impact on Chinese MNCs development. The
    non-mainstream Kojima Model is very instructive
    for Chinese MNCs FDI and the new globalization
    MNCs theories were more applicable to China, but
    still this could not cover the specific complex
    situation and explain the hidden reasons behind
    the superficial phenomena of Chinese MNCs. By
    using these existing theories, we analysed two
    categories and six sub-types of the
    Characteristics of Chinese MNCs so as to explore
    the hidden drivers and motives of Chinese MNCs.
    Based on Dunnings Paradigm, the Uppsala Model
    and Kojima Model, we proposed a Two-stage Model
    to further explain the existing stages of Chinese
    MNCs internationalization from another
    perspective, which enhances the Acquiring
    Advantage Theory.

  • Strategies of implementing each corporations
    internationalization were clustered into five
    major features assimilation of building
    world-class corporation in generic strategy but
    a strong level of diversification of business
    positioning half of them lack of compatibility
    between overseas strategy and generic strategy
    and even had no corresponding dependent overseas
    strategy and most of them had irregular
    correlation between the formulation of overseas
    strategy and the first FDI.

  • The mainstream MNC theories were more suitable
    for first-movers in developed countries while new
    globalization MNCs theories were more applicable
    to China but still could not cover the specific
    complex situation and explain the hidden reasons
    behind the superficial phenomena of Chinese MNCs.
  • Competing internationally is a critical step in
    corporate evolution of Chinese corporations, but
    from the analysis of the strategies of the 18
    sampling companies, we can see they lack key
    successful factors and strategic linkages of
    global corporations, even though they ambitious
    and anxious to acquire advantages to embark on
    the MNCs. The 18 companies merely the first wave
    of expanding abroad in trying to be real global

  • This paper has laid the foundation for revising
    some of the MNC theories by tracing the various
    growth models, characteristics and
    internationalization stages of Chinese MNCs. In
    the absence of more systematic firm-level data,
    we only relied upon case study evidence. The 16
    corporations merely the first wave of expanding
    abroad in trying to be real global MNCs. All the
    Chinese MNCs will face challenges in making the
    leap to global stage through organic growth. More
    systematic and in-depth researches should be
    conducted, such as, the role of government, the
    relations between entrepreneurs and institutions,
    and the liability of foreignness, and the
    comparisons with other emerging market
    internationalization cases.

  • 1 We only chose non-financial firms as our target
    cases in the absence of more systematic financial
    firm data.
  • 2 Sources Hong Kong Trade Statistics, Census
    Statistics Department / Hong Kong Trade
    Development Council.
  • 3 first-movers and late-movers Generally
    speaking a first mover is a company that aims to
    gain an advantageous and perhaps insurmountable
    market position by being the first to establish
    itself in a given market. In this paper we use
    these words for two different kinds MNCs.
  • 4 Prior Competitive Advantage is taken from
    Child and Rodrigues (2005). It means the
    theoretical requirement of corporations that they
    must have already had existing comparative
    advantage at home before investing abroad.
  • 5 High liability of foreignness, according to
    Child and Rodrigues (2005), which means problem
    of managing acquired assets and preserving equity
    of acquired brand.

  • Omitted

Authors of the Paper
  • 1. Yuping Du, PhD Candidate, Economic and
    Management School of Wuhan University,430072
    Ass. Professor of International Business
    Management, Guangdong University of Foreign
    Studies, 510420,
  • E-mail yupingdu_at_126.com.
  • 2. Rongping Kang, Senior Researcher and Division
    Chief of Institute of World Economics Politics,
    Chinese Academy of Social Sciences, 100732,
  • E-mail kangrp_at_sina.com
  • 3. Yinbin Ke, Chief Consultant of Beijing Third
    Dimension Enterprise Consulting Co., 100083,
  • E-mail  oldke1963_at_tom.com.
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