While China’s share of the international market is increasing, there remains little understanding about how Chinese companies attained such a large share. Questions remain over which firms and industries have benefitted the most from China’s economic rise.
Carnegie–Tsinghua’s Shi Han hosted Joel Backaler, director at Frontier Strategy Group, to present his findings on the global expansion of Chinese business and implications for U.S. and European multinational corporations. These findings are published in his latest book, China Goes West: Everything You Need to Know About Chinese Companies Going Global.
- A Changing China: Backaler explained that China’s reputation as the world’s factory is changing due to its growing domestic consumer market. Western companies in China now face competition from domestic firms in China. Backaler noted that 41 percent of China-based multinational executives he interviewed listed intensified local competition as a top concern in 2014. The increasingly competitive domestic market in China is why Chinese companies are now looking West.
- Why Expand West? The expansion of Chinese companies into developed markets in the West is driven by both government and business interests, Backaler said. Beijing is hoping that by increasing the depth and scope of Chinese investment, it will grow the country’s soft power. Chinese businesses are interested in obtaining new technology, purchasing high-profile brands, acquiring talent to improve best practices, and accessing new markets due to the increasingly competitive domestic market.
- Impact of Chinese Westward Expansion: Backaler described a number of benefits to China’s expansion into the Western market, including improved local infrastructure, the revival of local companies, and increased tax revenue at the local level. One example he gave is Nexteer Automotive, a U.S. automotive components firm that has gained a tremendous global presence after being acquired by Chinese firm AVIC Automotive in the wake of the 2008 financial crisis. This demonstrates how outward mergers and acquisitions by Chinese firms can be beneficial to Western companies, he added.
- Problems Facing Chinese Firms: Chinese companies face obstacles as they expand into the West, said Backaler. Executives in Western-based offices often lack the authority to make major decisions and have to take orders from China-based managers who do not understand local Western markets. He added that Chinese firms continue to fight negative perceptions of them and their products in the West.
- Next Steps for Chinese Companies: Backaler recommended that Chinese firms delegate more autonomy to overseas branch offices in order to establish stronger relationships with overseas employees. In addition, Chinese companies should invest in public relations to improve the image of Chinese companies and Chinese products. Public relations will also enable more strategic marketing and branding in order to increase the name recognition and brand strength of such companies.