An on-the-ground understanding of Chinese business and culture combined with a global perspective gives CKGSB’s dean unique insight into the globalization of Chinese companies
Beijing, 24, July 2012—CKGSB advanced its mission of fostering two-way Knowledge exchanges between China and the world on June 19 when the school’s Dean, Xiang Bing, shared his insights on the globalization of Chinese companies at the fourth Harvard Kennedy School (HKS) Globalization Forum. The forum, hosted at the HKS campus, gathered scholars, advisors and policymakers for, “candid conversation and meaningful collaboration on key topics related to United States-China relations,” according to organizers.
The globalization forum’s focus on China-US issues was timely and it provided an opportune moment for Xiang to share CKGSB’s unique on-the-ground insights on the vital role that Chinese firms will play in the globalization process in coming years.
The future of globalization lies in emerging markets
The globalization process has undergone important changes in recent years. It was once driven largely by companies from established economies entering emerging markets either to sell goods and services or to outsource manufacturing. Today the rise of trade between emerging economies—often called “South-South trade”—has fundamentally altered the course of globalization.
Xiang believes that the next game changer in the globalization process will be when large numbers of emerging market enterprises start going global, with the most successful putting pressure on existing global market leaders.
There are already a few well-known examples, such as China’s Huawei, the network systems company that has outcompeted dominant European and American rivals in some emerging markets. But there are also a vast number of companies from emerging markets around the world that have not yet started the globalization process, argues Xiang.
CKGSB educates both leaders from global Chinese enterprises and Chinese enterprises that have been extremely successful at home and may very well be key drivers in the next wave of globalizing Chinese enterprises. The school is therefore in a unique position to understand how the globalization of Chinese and other emerging market firms will once again reshape the face of globalization in coming years.
The historical context for Chinese firms
Xiang, an expert on the subject of how and why various Chinese enterprises go global, shared his insight with participants by first setting the historical context.
Despite China’s astounding transformation during the past three decades, regional, and even global, economic heft is the norm for China rather than anomaly, argued Xiang. He noted that China was a leading contributor to global gross domestic product during eighteen of the last twenty centuries. As of late 1820, says Xiang, China produced 30 percent of the world’s annual GDP.
In order to be a driving force in globalization, however, China must also be open and integrated with the world economy. Xiang pointed out that there is historical precedence for these attributes, especially in the Tang Dynasty (618-907) and Ming Dynasty (1368-1644). The latter produced renowned mariner and explorer Admiral Zheng He, whose fleet is believed during the 15th century to have sailed as far west as the Horn of Africa.
Fast forward to today, and this openness and curiosity remain engrained in Chinese business culture. As evidence, Xiang noted that trade as a percent of GDP was unusually high in China, that for many multinational corporations China is now their biggest source of revenue outside of their home markets and Chinese consumers’ preference for foreign brands and curiosity about the outside world.
But Xiang also pointed out that that despite high levels of integration with the global economy and openness to outside investment, Chinese companies have been slower to globalize their operations than their size and profit growth would predict.
One reason may be the relative youth of these companies. Contemporary Chinese companies—both the state-owned pillars of the economy and the private firms that are driving new growth—have a shorter history than the majority of established multinationals. These companies emerged in waves. Key waves include after China’s 1978 establishment of “Reform and Opening Up” policies, after Chinese leader Deng Xiaoping’s reaffirmation of those policies with his 1992 “southern tour” and after China officially joined the World Trade Organization in 2001.
But Xiang believes age is only part of the explanation for why more Chinese companies have not yet globalized. He shared with forum participants the details of a number of other factors. These include resistance by some governments to acquisitions by Chinese companies, strong growth at home that renders international expansion less attractive to many companies and a cultural heritage that, despite ocean voyages and significant trade with the outside world, never saw China set up overseas colonies or launch military campaigns in far flung locations in the manner of European colonial powers.
Xiang used the example of Admiral Zheng’s voyages to illustrate this last point. Zheng’s fleet, “dwarfed the Spanish Armada—which was still 150 years away,” said Xiang. “But no conquests were contemplated, no colonies planned, and there is no evidence of territorial ambition.
Looking forward to the mass globalization of Chinese firms
The talk ended with Xiang offering an overview of the current state of the globalization of Chinese firms, as well as existing successful models that other firms may emulate in the future.
This included a recap of recent acquisition activity by some star Chinese enterprises that are increasingly looking globally for new growth. A few examples are Wanda Group’s successful play for AMC Entertainment Inc. of the US and Sany Group’s acquisition of Germany’s Putzmeister.
Though acquisitions have been a common and successful model for Chinese companies to globalize, Xiang noted that not all companies are following that model. Huawei for instance exemplifies an organic growth model while Fosun has followed a model of equity participation.
It is important for the global business community to pay attention to these different models of the globalization of Chinese firms, said Xiang. Not only might they yield clues to the behavior of other Chinese firms that follow in their footsteps, but each model also carries unique implications for global business leaders who are trying to understand how emerging markets will shape the business world of tomorrow.
Eventually, Xiang believes, there will be a surge of Chinese companies looking outward for growth, and the global business community needs to equip itself with the insight to effectively incorporate the challenges and opportunities of this wave of Chinese companies into its global strategy.
“Chinese companies have to leverage resources globally to complete well in global markets,” said Xiang, “and global businesspeople need to be prepared for these new global players.”