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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.
Table 8. Top 20 International M&As involving Chinese companies, by value, 1996-2003 (Millions of dollars) Years Value Target nation Target company Target industry Acquiring company Acquired Industry 2002 591.9 Indonesia Repsol YPF SA Crude petroleum and natural gas CNOOC Ltd Crude petroleum and natural gas 2003 380.0 Korea, Republic of Hydis Electronic components, nec BOE Electronic capacitors 2001 364.7 Hong Kong, China Industrial & Coml Bk CH-HK Banks, non-US chartered ICBC (China) Banks, non-US chartered Crude petroleum and natural gas Crude petroleum and natural gas China National Petroleum Corp 1997 325.0 Kazakhstan Aktyubinskmunaygaz (Kazakhstan) 1998 292.0 Australia Aluminium Smelters of Victoria Primary production of aluminium Investor Group Investors, nec 2003 275.0 Indonesia Tangguh LNG Project, Indonesia Crude petroleum and natural gas CNOOC Ltd Crude petroleum and natural gas 2002 262.0 Indonesia Devon Energy-Indonesian Oil Crude petroleum and natural gas PetroChina Co Ltd Crude petroleum and natural gas Air transportation, scheduled 1996 254.7 Hong Kong, China Dragonair Air transportation, scheduled CNAC (Civil Aviation Admin/CH) Crude petroleum and natural gas 1998 240.7 Venezuela Venezuela-Caracoles Oil Field Crude petroleum and natural gas China National Petroleum Corp 2000 231.0 Hong Kong, China Union Bank of Hong Kong Ltd Banks, non-US chartered ICBC Banks, non-US chartered 2004 227.0 Australia OzGen Electric services Huaneng Power Intl Inc Electric services 2003 200.0 Kazakhstan N Buzachi Oilfield, Kazakhstan Crude petroleum and natural gas CNPC Crude petroleum and natural gas 2004 200.0 Peru PlusPetrol Norte Crude petroleum and natural gas CNPC Crude petroleum and natural gas 1996 181.1 Hong Kong, China Asia Satellite Telecommun Hldg Communications services, nec Investors Investors, nec 1997 165.7 Hong Kong, China Nam Pei Hong (Holdings) Ltd Pharmaceutical preparations Investor Investors, nec 2003 164.0 Indonesia Amerada Hess Indonesia Hldg Crude petroleum and natural gas Investor Group Investors, nec 2003 134.7 Hong Kong, China TPV Technology Ltd Computer terminals BOE Electronic capacitors CHAPTER V 59 Sinochem Plastics materials and basic forms and shapes 2003 104.0 Norway Atlantis (Petroleum Geo-Svc) Oil and gas field exploration services 1997 102.1 Hong Kong, China Asia Satellite Telecommun Hldg Communications services, nec CITIC (China) National government agency 2003 100.0 Ecuador Ecuador Block 16 Crude petroleum and natural gas Sinochem Plastics materials and basic forms and shapes Source: UNCTAD M&A database.
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United Nations Conference on Trade
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Preface The landscape of internatio
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