The Dawning Age of the Chinese Multinational

Chinese companies have historically been characterised as low-cost, low-quality producers of manufactured goods. However, there is growing evidence of a new breed of Chinese company emerging that is able to compete on the world stage.

In a recent blog entry we highlighted the emergence in the global telecommunications market of a fast-expanding Chinese firm - Huawei.

Huawei is one of several Chinese “Corporate Champions” - multinational firms that have expanded fast and established strong positions in important global markets.

This article on the BBC is superb reading for students wanting to broaden their understanding of emerging markets, and it links in nicely too to AQA BUSS4 (takeovers and mergers).

Joel Backaler, the article author, makes a useful strategic point about the growth options facing Chinese firms that want to participate in global markets:

“Chinese companies have two ways to expand overseas: either ‘organically’ by scaling their existing operations, or ‘inorganically’ by buying foreign rivals.”

Initially Chinese firms prefered to adopt the organic growth option, establishing themselves in easier-to-enter markets in South East Asia. However, increasingly they are choosing the takeover option, following the example set by China’s Lenovo, which bought IBM’s personal computer division in 2005.

Backaler suggests that there are three reasons for this “inorganic growth” overseas:

“Chinese firms want to acquire new distribution channels, obtain more advanced foreign technology, and benefit from long-established international brands.”

So, look out for names like Huawei, Haier, Sany Heavy Industry, Shandong Heavy Industrial Group and China Aviation Corp and Geely Holding Group. Perhaps not the most glamorous of names; but emerging competitive threats to many established firms in developed economies.

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