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58 Outward Foreign Direct Investment by Enterprises from China
However, as the earlier discussion indicated,
these motives vary in degree between different types
of Chinese TNCs. Resource-seeking OFDI is almost
entirely initiated by state-owned TNCs, whereas
market and asset-seeking investments are conducted
by both state-owned and private-owned TNCs.
D. Expansion and performance of
selected international Chinese
enterprises
There are two main types of Chinese TNCs,
two types of “champion”. The first set of champions
are defenders of the Chinese miracle, motivated by
the need to maintain and secure energy and other raw
materials increasingly demanded by a burgeoning
economy – resources that China is no longer in a
position to entirely provide for itself. Most of these
champions are state-owned enterprises. This type of
champion, engendered because of concerns about
over-reliance on existing energy/raw material TNCs,
is not new; many companies from other countries
have trod a similar path. An obvious parallel is the
government-sanctioned role of Japan’s Sogo Shosha
(general trading companies) in securing resources to
fuel the Japanese economic miracle during and after
the oil crises of the 1970s. As the Chinese economy
evolves, the relative importance of energy and other
resources will diminish and, in consequence, so will
the significance of such TNCs.
The second group of champions is, as yet,
relatively few in number – and competitively weak
– compared to their international competitors both
within and outside China. The very policies that
have propelled China’s rapid development in recent
years are one of the main reasons for their weakness;
the mass entry of foreign TNCs into China has
simultaneously strengthened the country’s export
industries and, through their presence, created a
formidable competitive quandary for the nation’s
home-grown firms and entrepreneurs. Nevertheless,
these local companies represent a part of the future of
China in terms of advanced industries and services,
typified by the information technology, electronics
and electrical cluster of industries/companies. Most,
but not all of these “champions”, are quite recently
established private companies. In order to prosper
they are trying to secure local and global markets
and, to do this, they are seeking to bolster both their
productivity (hence access to technology) and their
market position (hence entry into new markets and
promotion of brand credibility).
The Haier Group is a good example of a Chinese
company in this second group which has become a
major TNC through carefully planned international
market and asset seeking FDI. Established (in its
current form) in 1984, the company spent a number
of years boosting the quality of its products (initially
refrigerators), followed by product line diversification.
Its first overseas venture was to the United States
(in 1994) where it currently maintains an industrial
park in South Carolina. Local design has boosted the
quality and brand recognition of its products – and
improved the company’s technology and productivity
because competition is extremely fierce. It competes
against the likes of Whirlpool, Frigidaire and GE;
nevertheless its sales of white goods in the United
States have grown by more than 24 per cent a year
and its refrigerators are regularly among the top five
best selling models in the country. Interestingly, by
proving itself in the United States, Haier found itself
able to break into European markets (e.g. for markets
and technology acquisition in the United Kingdom
and Italy) and markets such as Pakistan, India and the
Middle East. It uses its position in the United States
to improve its brand and standing in developing
markets; and in consequence it has production
subsidiaries in all these countries and regions. It now
has 10 manufacturing complexes outside of China
(the one in Jordan opened in 2005), which comprise
some 30 factories. As Liu and Li (2002) remark, the
Haier approach has been to crack the most lucrative
developed market in the world (through FDI), learn
in the process – and thereby ease its entry into both
37 38
developing and developed economies.
Other such champions include the likes of
Midea, Huawei, TCL, and Lenovo. Midea is a
home appliance manufacturer like Huawei, but has
taken a contrasting approach to internationalization
by maintaining the vast bulk of its manufacturing
activities in China. Nevertheless, it has established
overseas ventures in Europe, Japan and the United
States in order to access markets, raise capital and
secure technology. 39 Huawei produces telecom
products and has established overseas labs in Britain,
India, Sweden, and the United States in order to tailor
products and serve 90 telecom companies in over 30
countries while maintaining a Chinese manufacturing
base. 40 TCL is in electronic appliance and is largely
owned by the Huizhou municipality, with Philips and
Toshiba as strategic investors. It aims to expand into
high-end products such as plasma televisions and
LDC displays and to this end has acquired Thomson’s
37 Hong Liu and Kequan Li (2002), “Strategic Implications
of Emerging Chinese Multinationals: The Haier Case Study,
European Management Journal, Vol 20, No 6.
38 Business 2.0 (2003), “When your customer says jump…”,
October.
39 Ping Deng (2004), “Outward Investment by Chinese MNCs:
Motivations and Implications”, Business Horizons, May-June.
40 Business Week (2004), “Huawei: More than a local hero”,
October 11.