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How Should Western Multinationals View Chinese Companies Going Global?

Joel on November 21, 2014 - 7:49 pm in Insights

(This is the third and final installment of my three-part series of posts that summarize key takeaways from my recent trip to Europe where I spoke about topics from my new book, China Goes West: Everything You Need to Know About Chinese Companies Going Global. To read Part I about Chinese companies building global brands, click here. To read Part II about why Chinese firms go global if China’s such a large market, click here.)

Smithfield Shuanghui

At the tail end of my two-week journey, the last few talks I gave were primarily for policy and government audiences in Brussels and Rotterdam. We discussed one of the more controversial questions about Chinese companies going global – should the internationalization of Chinese firms be viewed as a threat or an opportunity?

I reminded them of a quote from the prominent Chinese economic reformer, Deng Xiaoping. He famously remarked, “打开窗户,新鲜空气会进来,苍蝇也会飞进来,” or, “When you open a window fresh air will come in, but so will some flies.” He said this in reference to foreign investment coming into China. He recognized that while investment from foreign companies would bring many benefits to China, there were bound to be negative externalities as well.

From the corporate perspective, this means Western multinationals will increasingly find Chinese companies taking on new roles in the international business landscape. Their new relationships with Chinese firms will vary depending on whether the Chinese firm is a competitor, partner, or owner.

Competitors

The extent to which Chinese firms compete on equal footing will be determined by the level of oversight and regulation provided by the government where the investment occurs. In advanced economies like the US and EU where regulations are more strictly enforced than many emerging markets, Chinese firms do not play by a separate set of rules – and if they attempt to do so, they will face consequences. Take the case of Sinovel, a Chinese wind turbine producer that divested its U.S. operations last July after it was charged in federal court with stealing trade secrets from its former U.S. supplier.

Partners

Over the course of my trip and during my ongoing interactions with my firm’s clients, I find that more and more Western multinationals are interested in identifying ways to partner with Chinese companies overseas. Western firms should proceed with caution.

To cite just one example, Hollywood studios like DreamWorks and Chinese firms like Alibaba and Dalian Wanda are forming partnerships at a rapid pace. As collaboration between Hollywood and Chinese firms deepens over time, it will be interesting to see the impact these partnerships have on the Chinese movie production industry. What will happen when Chinese firms begin producing blockbuster international films of their own?

Owners

Last year I was surprised to discover that a former client, Virginia-based Smithfield Foods, had been acquired by Shuanghui International, a Chinese pork producer. Smithfield is not the only American firm to be acquired by a Chinese company and it surely won’t be the last. Chinese ownership presents a unique alternative for American companies seeking strategic investment beyond traditional routes like private equity investment or acquisition by a larger domestic industry incumbent.

For a more in depth analysis of the three types of relationships Western businesses have with global Chinese firms, see my piece in the Harvard Business Review.

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