Chinese companies going global: Operational strategies and communication challenges

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Chinese companies going global Operational
strategies and communication challenges

• May H. Gao, Ph.D.
• Department of Communication
• Kennesaw State University
• Metro Atlanta, GA
• mgao_at_kennesaw.edu

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Presentation Summary

• Current situation
• Supporting structure
• Government policy Financial support
• Reasons for going global
• Operational strategies
• Communication challenges

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From FDI to ODI

• China has been the destination for growth in the
  past 25 years.
• China has experienced a 36 increase in Fortune
  500 representation.
• China has the worlds 4th economy now, after
  U.S., EU, and Japan.

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Operational strategies

• Chinese MNCs establishing overseas production
  bases
• Acquiring global mergers and acquisitions
• Building up global brand names invested in
  technology and efficiency
• Accumulating overseas capital from global stock
  markets
• Practicing Wenzhou style snowball model
  distribution

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Some eyecatching deals

• In December 2004, Lenovo acquired IBM PC branch
  with 1.5 billion dollars
• China Mobile Communications Corp is near a
  5.3billion pact to acquire Millicom
  International Cellular SA of Luxumbourg, which
  operates in many of the world poor nations.

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Going global comparison

• Similar to Japan in 1980s and Korea in 1990s, the
  Chinese companies are in a transformation from
  labor-intensive to high value added operation.
• But the domestic Chinese market is already very
  open and mature.
• Hi-tech companies are going global pioneers.

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Case studies

• Lenovo-IBM deal

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Lenovo, a rising computer star

• Lenovos global headquarters are in Purchase, NY.
  
• Its principal locations are in Beijing, China and
  Raleigh, NC.
• The company employs more than 19,000 people
  worldwide.
• Lenovo was founded in 1984 by 11 Chinese
  scientists with RMB200,000 (US25,000) in seed
  money.
• It was originally named as Legend, then changed
  to Lenovo in 2003.
• In May 2005, it generates a 13billion annual
  revenue, only after Dell and HP.
• It is global For example, its Senior VP and
  chief marketing office was born in India,
  educated in the U.S., and now works for a Chinese
  company.

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Huaweis global transformation

• Customer-centered, innovation-driven
• In 2003, Huawei settle in court with Cisco
  Systems for patent issues
• Huawei strives to sell products with its own
  brandname
• Huawei employs global consulting firms for
  marketing and branding strategies
• Huawei copies its Chinese Guanxi strategies to
  the global market
• Think global, act local The Thai Color ringing
  and gambling signals on Huawei cell phones

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Haier, Made on Earth

• On April 30, 1999, Haier established its American
  production base in South Carolina. In March 2003,
  the first Made in USA Haier refrigerator was
  assembled.
• Haier has production bases in China, Pakistan,
  Bangladesh, Indonesia, the Philippines, Malaysia,
  Iran, etc.
• They make refrigerator, washing machine, dish
  washers, computers, laptops and cell phones.
• Haier owns 35 share of the 200- liter American
  market. Its 5 kg- small washing machine stands as
  No 2 in Japan.
• Innovation in technology is a key strategy. Haier
  owns a total of 5,469 patents, of which 618 are
  innovation patents.
• In 2004 alone, Haier applied for 695 patents, 2.7
  patents per day.
• Haier treats customers as teachers. (The French
  and Pakistan examples.)

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More on Haier

• Haier has 62 distributors and more than 30,000
  outlets around the world
• In the U.S., Haier products are sold in Wal-Mart,
  Best Buy, Home Depot, Office Depot and Target

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Chinese governmental support

• WTO entry since Jan. 1, 2005
• The anxiety for Foreign wolfs coming to China
• Going global became a national policy in 10th
  Five year plan for 2001-2005
• The government provides support for 50 Chinese
  companies to be listed on the fortune 500 before
  2010.
• A move from defense to offence in marketing
  and competition after Chinas accession to WTO.

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Specific support policies

• Eased loan procedures
• Bank conglomeration supports going global
  companies (for example, Jingdongfang got 740
  million from 9-bank group.)
• The appreciation of Chinese currency (from 8.3 in
  2005 to 7.9 in 2006)
• Chinese currency developing toward hard currency

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Various forms of going global

• Export and import
• Listing on global stock markets
• H-share (listed in Hong Kong, New York, London,
  and Singapore)
• Searching for resources, e.g. oil, iron, other
  metals
• Bidding for overseas projects (construction,
  mining, highway and railways)

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Some statistics

• Till May 2004, there are 7720 Chinese companies
  registered abroad, totally 33billion dollars in
  investment.
• They are in 160 countries.
• Just from Jan to May 2004, there are 250
  companies going global, with 767 million in
  investment, up 65.56 and 40.62.
• Half of total investment is in Hong Kong and
  Macao, next would be North America, Oceania and
  Europe. The first 10 destination countries
  absorbs 80 of Chinese ODI.
• Most investment takes the form of joint ventures,
  M A, etc.
• The focus of investment is in resource industry,
  and consumer products (including home electronic
  appliances).
• Small and medium companies account for 70 of the
  outward investments.

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Three dialectics before going global

• 1. Establishing manufacturing base in China or
  abroad
• 2. Executing marketing by self or others
• 3. Going with own brand or other brand
• Some scholars are against production abroad.
• Haire has factories in the U.S., Glanze only in
  China, but TCL produces also in Pakistan

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Global distribution of global Chinese operation

• Highly competitive companies enter European,
  Japanese and North American markets.
• Small and medium companies start with emerging
  markets in Russia, Eastern Europe, Southeast
  Asia, Australia, Latin America, and Africa.
• Asia is the top destination of Chinese ODI.

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Reasons for the going global policy

• Outstanding bank savings in both RMB and USD.
• Since 1994, savings total exceeds loans total in
  Chinese banks. In 2001, savings in banks exceeds
  loans by 3,200 billions RMB Foreign currency
  reserve exceeds loans by 50 billions dollars.
  (Of course loan policy for Chinese companies are
  not smooth.)
• Labor costs in China will continue to rise 30 to
  50 in the next 3-5 years.
• Many Chinese companies accumulated global
  operational experience.
• Some companies want to avoid fierce domestic
  competition in China.
• A strong Chinese economy

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Purpose of going global

• Market expansion
• Resource seeking
• Securing strategic assets (technology,
  management, human resource)

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Mergers and Acquisitions

• In Jan 2003, Jingdongfang Group bought out the
  Korean Hynix and kept its 1700 Korean employees,
  with 380million to product Type V TFT screen
• In 2004, Chinas zinc and copper producer China
  Minmetals negotiated a deal of 5.5 billion to
  take over Noranda, Canadas binnest mining
  company.
• In 2004, TCL claimed a 55 stake in a 100 million
  euro joint venture with French telecommunications
  giant Alcatel.

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Communication challenges

• Chinese companies inefficient conflict
  management style,
• Low proficiency in understanding local cultures,
• Lack of 24/7 service communication with the
  customers

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Inefficient cultural localization

• It is not easy to overcome barriers of language,
  corporation cultural difference, national
  cultural difference, and hiring habits after M
  As.
• Teams of multinational employees working together
  now in Chinese companies
• M A causes core talents departure

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Insufficient understanding of cultures

• The most serious problem facing Chinese companies
  is a lack of international experience and weak
  marketing and management structures, including
  communication skills.
• This is why Lenovo let IBM managers to stay after
  the acquisition.

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Perception and marketing

• Chinese brands suffer from negative perceptions,
  and perhaps, negative realities. Reported by
  brand consulting firm Interbrand.
• Current perception of Chinese brands cheap, poor
  value, low quality, produced by communists.

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Wenzhou shoes tragedy

• The China-made shoes got burned in Spain because
  of perception of Chinese companies unfair
  competition.
• Wenzhou merchants do not understand local customs
  are not motivated to adapt in terms of
  linguistic, time and space concepts.

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Ineffective conflict management style

• The Nanfu vs. Duracell case
• Cultural tariff is a deeper tariff than trade
  tariff.
• Chinese companies need to take on more social
  responsibilities in local societies. (the India
  iron mine case)
• The best policy of adaptation is to transform
  from going global to Going local

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Interpretive and Critical Approaches to Social
Conflict

• Conflict is deeply rooted in cultural differences
  in the context of social, economic, and
  historical conflict.

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Face and Conflict

• Ting-Toomey (1991) suggests that the direct and
  indirect styles of communication for conflict
  management are based on different cultural values
  for identity and face saving.

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Gree Case in Brazil

• Gree Electronics has a production base in Brazil
  and aims to bring the Gree Chinese culture into
  Brazil. The workers feel being deprived of human
  right under Chinese management.

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Political factor

• Resentment against Chinese companies, perceiving
  them as being government controlled (Lenovo vs.
  Dell)
• China National Offshore Oil Corporation (CNOOC)
  losts its deal to Chevron in its Unocal bid in
  2005.
• The Chinese companies are not taking over the
  world, their investment value is only a fraction
  of the worlds total.

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Conclusion

• Being the worlds low-cost factory floor is no
  longer the countrys singular ambition.
• Chinese entrepreneurs are asking Should China
  buy Wal-mart?
• It is an opportunity for all.