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Chinese Companies Go Abroad (Introduction)
Posted by: guruek (IP Logged)
Date: January 22, 2009 10:22PM

The following is the introduction for a 10 part series published by the China Market Research Group as part of the CMR Business Quarterly. We are going to carry the series in the next 10 days so our viewers can get a good measure of exposure to Chinese companies:

Just as a good China strategy is increasingly important to the continued growth and competitiveness of MNCs worldwide, expansion overseas is a top priority for many of China's leading firms. CMR interviewed several hundred key executives in ten industries to better understand the extent of their globalization thus far, their goals and plans going forward, and the major challenges they are meeting along the way. With China facing little of the credit squeeze problems afflicting much of the rest of the world, many Chinese companies plan to take advantage of the global downturn to make greater inroads into the West.

The vast majority of large industry leaders and over half of smaller industry leaders interviewed have already begun moving overseas, or plan to begin within the next five years. While primary motivations in moving abroad vary by company and industry, major drivers across the board are the desire to establish an international brand image, overseas demand for Chinese products, and/ or increasing competition from MNCs and other domestic companies at home.

In the move overseas, Chinese companies tend to focus first on emerging markets. While demand for Chinese exports has decreased worldwide due to the financial crisis, Chinese products remain competitive in emerging markets where they can compete well on existing quality and technology, and there is large demand for cheaper but "good enough" products. A majority of respondents who have begun to move overseas have already established presence in North American and Western Europe as well. The vast majority of respondents with plans to go abroad consider developed markets their ultimate goal, both for their size and the status implications for their brand.

Respondents are increasingly fazing out export of OEM and intermediate products in favor of their own branded products, and have begun investing more in the transfer of capital and technology overseas, including building factories, engaging in M&A, establishing R&D centers, and creating the complex partnerships and relationships necessary to build a more significant and influential presence abroad. Companies plan to increase dramatically their adoption of M&A as a main growth strategy over the next five years, and cash rich companies will likely use the current decreased valuations abroad as a way to gain entry on favorable terms. In this way, the financial crisis can be an opportunity for cash rich, low debt or debt free Chinese companies.

Respondents have encountered a variety of challenges as they move to compete on more than price alone and sell into more developed markets. Meeting international rules and regulations has proved one major challenge, slowing efforts to expand in developed markets in particular. Related is the challenge of finding the right talent with the right skill set to lead a multinational company, both abroad and at home; companies are struggling to find not only the technical knowledge but the managerial skill and experience they need to produce and operate overseas. Many respondents reported difficulty understanding the subtleties of overseas markets, which translates into difficulty tailoring products to fit foreign markets and adapting to a new business environment and culture. Companies are often going abroad with inadequate understanding of local conditions and are often over-reliant on inadequately suited partners or distributors on the ground for insight and guidance.

Respondents are working hard to overcome these challenges, focusing substantial resources on hiring the talent necessary to lead their expansion, and partnering with firms on the ground overseas to better understand target markets. Companies should continue employing these methods to ensure the move abroad is smooth and successful. Improving management in particular will be important as companies must be more aggressive to work through the global drop in demand. However, Chinese companies must be careful not to be too hasty in their expansion overseas. More than those from any other emerging economy, Chinese companies cannot afford negative publicity from quality and safety scandals. As it is much easier to build a good reputation than to repair a negative one, Chinese companies looking to build a name for themselves abroad need to make sure they get it right the first time.



This report seeks to analyze Chinese companies' progress in the move overseas, their methods and strategies of expansion, and the challenges they are facing along the way.


CMR conducted 20 to 60-minute phone interviews with several hundred senior executives at ten companies in each of ten different industries: automotive, consumer electronics, food & beverage, software and internet, alcoholic beverages, apparel, retail, finance, pharmaceuticals, and FMCG. Five large industry leaders and five smaller industry leaders were analyzed in each industry. Larger and smaller industry leaders were chosen according to 2007 sales revenue.

"Going Abroad"

Companies are considered to have gone abroad if their branded products are being sold in foreign markets (OEM and intermediates were not counted) or if they have established factories, production centers, distribution networks, R&D and offices outside of China. M&A and partnerships are also included in this definition of "going abroad."


Results reflect the increasing importance of a global presence for leading Chinese companies; the vast majority of larger industry leaders and over half of smaller industry leaders have already begun moving overseas or plan to within the next five years.

However, the extent of globalization varies greatly between the ten industries studied. Nearly all respondents in the automotive and consumer electronics industries have gone abroad, for example, while other industries such as retail and food and beverage are much farther behind. The reasons for these differences will be explored in detail in the body of the report.

Motivations for Going Abroad

The majority of respondents consider building brand image and brand awareness a top goal in the going abroad. Many respondents feel they are already very well known throughout the Chinese market, and view "going international" as the next step for their brand. Most respondents desire to "move from being just a Chinese brand to a truly international brand" for the sake of status and the marketing value of being able to describe their brands as international. Many respondents also mentioned a sense of national pride from building "a Chinese brand known to all the world."

Other main factors motivating respondents to move abroad were demand in foreign markets, and increasing competition at home. Many Chinese companies have found considerable demand overseas for products that are "cheaper but good enough", which many respondents can easily meet with given technology and capabilities. Respondents also feel a push from fierce competition at home, where markets are increasingly saturated by both domestic and international rivals.

Current Operations

Emerging markets are currently the most popular destination for Chinese companies moving overseas, followed by the American and European markets. Emerging markets are particularly attractive at this point due to their comparatively less strict standards for market entry, and rapidly growing demand for "cheap but good enough" products. Developed markets, and North American markets in particular, are much more important to respondents' future overseas expansion strategies; the vast majority consider building a presence in these developed markets their ultimate goal, and feel that such a presence will show they have "made it" as a truly international brand.

Expansion Strategies

Specific methods and strategies used to develop overseas presence also vary widely between respondents. The most popular strategy was the creation of partnerships, with partners ranging from distributors to academic institutions to PR and law firms, followed by organic and export-focused growth. While M&A is currently used much less frequently, respondents expect to use this strategy with increasing frequency going forward, as a way to tap into existing brand awareness overseas, as well as existing sales channels and distribution networks, talent pools, and to gain first hand insight into overseas markets.


Meeting international rules and regulations is considered the biggest challenge to growth in target markets. Local safety and quality tests, for example, are two challenges preventing China's auto and pharmaceutical industries from growing as fast as they might like in overseas markets.

Adapting to a new business environment was also considered a major challenge. Many companies are seeking local partners in an effort to better understand local consumer tastes and needs, effective marketing methods, and other issues such as local business customs. However, many respondents are currently over-reliant on partners such as distributors to help them "learn the ropes" in target markets, when they should be seeking advice from more qualified third parties such as a PR, marketing, or law firm.

The majority of respondents also face challenges finding the talent they need to move overseas, not only in terms of technical skills needed to create products that can compete at an international level, but the managerial skills necessary to lead company growth in a cross-cultural environment.

Overcoming cultural differences was also considered a significant challenge. Companies are working hard to understand local market needs and adapt their products and marketing campaigns to better target local consumers, as well as adjusting management techniques to work more effectively with local talent.

Creating the right organizational structure and communicating with home offices were also considered major challenges in the move abroad. These and other challenges such as rising cost of labor and appreciation of the RMB will be explored more deeply in specific industry sectors.

Going Forward

Despite these challenges, CMR is optimistic about Chinese companies' prospects. While some respondents, especially smaller industry leaders, are choosing to focus on growth opportunities at home for the near future, the majority of respondents consider overseas expansion a critical part of their growth plan going forward. Companies that choose to go abroad must plan carefully and devote the resources necessary to make sure expansion is done right. MNCs need to understand the rising threat that Chinese companies will be in the coming years.

China Market Research Group

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Re: Chinese Companies Go Abroad (Introduction)
Posted by: jimprit (IP Logged)
Date: January 23, 2009 06:03AM

Very well written intro. I'm anxious to see the whole report.

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Rating: 2.7/5 (3 votes)

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