Many Chinese firms looking overseas: poll

Globalizers hoping to expand R&D, manufacturing operations abroad

Approximately 60 percent of leading Chinese companies plan to move research and development centers and/or production overseas in the next five years, a study by Strategy& (formerly Booz &Co) and the World Economic Forum said on Wednesday.

That figure roughly doubles the number of Chinese companies that are currently sending these functions abroad, according to the study.

In addition, 80 percent or more of these companies plan to establish or expand sales and marketing and/or service operations overseas.

"Today's Chinese globalizers clearly have the ambition and intent to expand not only geographically but also on establishing technologies, manufacturing and R&D capabilities outside China," said Steven Veldhoen, partner for Greater China, Strategy&.

Huang Jianbing, vice-president of Guangxi Liugong Machinery Co Ltd, agreed, saying the company's focus now is brand image and technology.

"It is important for globalizing companies to adopt a holistic approach to recognize their own challenges and implement a full range of management to address them," said Veldhoen.

The United States (at 71 percent) and Southeast Asia (61 percent) were the most commonly cited target areas for Chinese globalizers' future expansion, according to the survey.

Over 40 percent of surveyed companies said they plan to expand in Europe or Latin America, with the Middle East and North Africa, sub-Saharan Africa and Northeast Asia also claiming significant attention.

The joint study was carried out in a series of comprehensive interviews and surveys of 125 Chinese companies conducted over the past 12 months. Most of the companies surveyed are regarded as having outpaced their peers in establishing a global presence.

These companies are most likely to claim that they have "systematic and comprehensive strategies concerning when, where and how to play in the global marketplace". Even these champions of globalization, however, have reported tensions and competing demands in overseas operations.

According to the report, the key to growing successfully overseas is effective execution of a balanced and sustainable global operating model in four key areas: culture, governance, processes and people.

When talking about processes, it is about pushing for global standardization, controlled flexibility and rigorous risk controls, said Olivier Schwab, executive director for China at the World Economic Forum's Beijing branch.

And in terms of people, developing global teams from the very top, hiring and incentivizing local talent, and providing development and deployment opportunities for expatriates also matter.

"Chinese globalizers must find the right balance," Schwab said. "Achieving this means developing global operating models that manage these four areas on both the strategic and the executive levels."

China has become the world's third-largest investor for outward foreign direct investment last year, but the total accumulated value of FDI is still small, accounting for a mere one-tenth of what US counterparts achieved last year, Jiang Zengwei, chairman of the China Council for the Promotion of International Trade said during the eighth Chinese Enterprises Outbound Investment Conference.

"Chinese firms are facing many challenges and uncertainties in taking to the global stage, as trade protectionism keeps growing, and a politically and economically unstable environment have put off global investors," he said. "To succeed, Chinese enterprises need to work closely with local government, financial institutions and their counterparts in local markets."