1. Dancing on the Stage of a
Multi-Polar World:
The Path to Globalization for
Chinese Enterprises

2. 2
Table of Contents
I. Globalization: the necessary choice 4
1. Through reform and opening up, China has integrated itself into the global economy 5
2. The rise of a multi-polar world and emerging market multinationals (EMMs) creates
globalization opportunities for China 5
3. To develop further, Chinese enterprises must globalize 5
4. Globalization catalyzes new ways of competing 7
II. A closer look at globalization 8
1. What is globalization? 9
2. How do enterprises globalize? 9
III. Globalization of Chinese enterprises: an overview 12
IV. Globalization: strategic choice 23
1. Why should our company go global? 24
2. What businesses do we want to compete in? 26
3. Where should we locate our global businesses? 30
4. What means of investment will we use? 33
5. Different industries require different strategic choices 37
V. Global operating models 41
1. What is a global operating model? 42
2. A global company’s corporate culture must balance global vision with local perspectives 52
3. Post-merger integration presents unique challenges 53
4. A successful global operating model has several hallmarks 54
VI. Challenges facing globalizing Chinese enterprises 56
1. The multi-polar world has presented new difficulties 57
2. Chinese companies are taking steps to address the challenges 58
VII. Conclusion 62
VIII. Appendixes 63
Appendix 1: Overseas M&As by Chinese enterprises, January 1, 2008-June 30, 2010 63
Appendix 2: Research methodologies 71

3. 3
an export orientation and efforts to
optimize the organization’s value chain;
the advanced stage is distinguished by
true realization of global operations
that is not bound by national borders
in designing strategies and carrying
out business activities. Few Chinese
enterprises have reached the advanced
stage of global operations.
• Chinese enterprises embarked on the
road to globalization in the early days
of reform and opening up. Since the
financial crisis struck, they have forged
ahead more vigorously.
• An enterprise seeking to “go global”
must craft strategic plans detailing what
businesses to be in, where to compete on
the global stage, and how to invest in the
overseas market. To make such decisions,
business leaders need to consider, among
other things, the goals they want to
achieve through globalization and the
characteristics of their industry.
• To ensure the success of their
globalization drive, companies must build
a global operating model that aligns with
the local environments in which they are
doing business. This means constructing
a model that has the right leadership
capabilities, organizational structures,
talent management practices, processes,
technologies and performance metrics.
• As newcomers to globalization, Chinese
enterprises face a raft of challenges.
While they are moving ahead with
confidence, they must also devote
sufficient attention to developing a
leadership team with a global vision,
recruiting the right talent through the
right means, accommodating local
business environments and establishing
a global ecosystem of local partners and
fellow Chinese companies going global.
Chinese enterprises have already set sail
on their globalization voyage. Nothing
can stop them. However, the voyage
will prove long, arduous and stormy.
It is our sincere hope that they will
remain undaunted despite the inevitable
setbacks. If in the not-so-distant
future, people who are talking about
globalization associates it with a string
of names of Chinese companies, then we
can safely say that China has successfully
navigated the journey. We will continue
to closely follow the efforts of Chinese
businesses as they pursue globalization
and will do our utmost to help new global
leaders emerge.
Foreword
Gong Li
Chairman, Accenture
Greater China
Li Decheng
Executive Vice President and
Director-General, China
Enterprise Confederation
In the aftermath of the worldwide
financial crisis, Chinese enterprises
are grappling with questions about
globalization: Should they pursue it?
And if so, how? The answers to these
questions will have a great bearing on
these companies’ strategic directions and
growth tactics in the post-crisis era, as
well as on their standing in the global
economic system. The answers seem
apparent. The world has witnessed a series
of stunning acts by Chinese companies
toward globalization since the downturn
struck. These firms have initiated and led
wave upon wave of overseas investment
and have participated in a storm of
high-profile merger-and-acquisition
(M&A) deals. While Western markets
remain troubled by the “new normal” of
sluggish growth and depressed consumer
demand, Chinese enterprises have shown
remarkable vitality. They are making
big strides beyond China’s borders and
constitute a gathering force on the global
economic stage.
These developments have prompted
Accenture and the China Enterprise
Confederation to join efforts to study
the phenomenon. For the past three
years, Accenture has analyzed how high
performance Chinese businesses have
achieved profitable growth, narrowed
the gap between themselves and their
world-class peers, coped with the short-
term impact of the global financial crisis
with a vision for long-term growth and
pioneered their future beyond the recession.
For the past eight consecutive years,
the China Enterprise Confederation has
published its annual list of China’s
top 500 enterprises, followed by
research reports, in a bid to help
Chinese businesses enhance their
performance. The current research
undertaken by the two organizations,
reflected in this report, builds on their
respective previous studies. In a global
economy characterized by increasing
interdependence, pursuing cross-border
operations has become an indispensible
component of companies’ efforts to
achieve high performance. The stronger
and bigger an enterprise becomes, the
more it must seek new space for growth
beyond its traditional familiar competition
base. We hope that this report will go
a long way toward assisting Chinese
enterprises in this effort.
Our research has yielded the following
principal findings:
• Globalization is the necessary choice
for Chinese enterprises today. Businesses
in China are embracing the globalization
trend to spur their own development and
evolution, to support China’s integration
into the global economy as a result
of reform, to reinforce China’s rising
economic power and to transform their
business models.
• Through globalization, an enterprise
gradually becomes dependent on overseas
markets and continuously augments its
capabilities to better manage globalized
production, distribution, resources
allocation and operations management.
A globalized enterprise does not yoke
itself to the local market. Instead, it uses
the global market as its only reference in
shaping its strategies, operating decisions
and corporate culture.
• Globalization is marked by an initial
stage in which a company has some
interaction with the global market; the
intermediate stage is characterized by

4. 4
I. Globalization:
the necessary choice

5. 5
1. Through reform and
opening up, China has
integrated itself into the
global economy
Since the initiation of reform and
opening up in the late 1970s, China
has achieved sustained, rapid economic
growth. From 1978 through 2009,
its annual GDP growth averaged 9.8
percent, the highest in the world for that
period of time.1 Over the past 30 years,
China has evolved from a centralized
economy with widespread shortages
of suppliers of goods and services, and
the ever-present danger of collapse
to a vibrant economic world power. In
doing so, the country has stepped out
of self-imposed seclusion to integrate
itself into the global economic system.
This achievement has stemmed not only
from the opportunities presented by
economic globalization but also from the
country’s relentless efforts to develop a
market economy, follow market rules and
participate in the international division
of labor.
Today, China is the world’s second
largest economy, as measured by
GDP and imports and exports. With
its increasingly significant role in the
global economy, it will need to adopt a
broader vision and seek new space for
its development. At the same time, it will
have to shoulder more responsibilities
in global economic affairs and
reassess its position in the worldwide
economic system. Only by doing so
can it successfully address the array of
challenges it will encounter in the post-
crisis era.
To go global on a grander scale is
the next logical step for China. But
globalization must be supported and
sustained by both soft power, such
as culture, value, talent, corporate
governance, social responsibility, and
respect to intellectual property rights,
and hard power, such as technology,
equipment, capital, and resources.
Therefore, the country’s economic
strength will be put to a severe test. The
world’s major economies are still reeling
from the impact of the financial crisis,
and the global economic balance of
power has shifted. At this unique point
in history, the Chinese economy, with its
sustained, stable growth, has the rare
opportunity to accelerate its pursuit of
globalization.
2. The rise of a multi-
polar world and
emerging market
multinationals (EMMs)
creates globalization
opportunities for China
Over the past decade, globalization
has entered a new phase marked
by the appearance of emerging
economies including China. Following
the footprint of the four Asia tigers
(Hong Kong, Singapore, South Korea
and Taiwan), Brazil, Russia, India and
China (BRIC) now stand as the world’s
emerging market powerhouses.2 This
development has transformed the
global political, economic and social
landscapes—creating a multi-polar
world. A distinguishing characteristic
of the multi-polar world is the
spreading of economic power from
the traditional centers of developed
countries to the developing countries.
The traditional economic structure, led
by the advanced Western market, was
characterized by one-directional flows
of economic power from the advanced
markets to the developing markets.
This is giving way to a structure
characterized by many centers of
economic power, multiple directions
of capital, talent and technology flows
and interdependency among all the
players. This new configuration has
made further globalization of emerging
markets possible and has provided them
with rare opportunities for further
development. Today, the extent to which
an economy is globalized determines its
status in the world.
A country integrates, by necessity,
into the global economic system when
its economic development reaches a
level that national boundaries become
constraint to further growth. Similarly,
competition dictates that an enterprise
must goes global when it achieves a
certain scale. Only by competing on the
global stage can it continue to produce
the innovative products, services,
processes and technologies on which its
future depends.
The tidal wave of globalization has
spawned a host of emerging market
multinationals (EMMs). In the past, most
people associated the word multinational
with Western consumer-product giants
such as the Coca-Cola Company, Exxon
Mobil and GE, and later with developed-
world high-tech leaders including
Microsoft, Intel and Nokia. Seemingly
overnight, multinational now also
includes the Tata Group of India, Vale of
Brazil, Samsung of Korea, PetroChina,
Huawei, Lenovo and Baosteel of China.
According to a joint study by Columbia
University and Fudan University,3
by the end of 2007, the combined
overseas assets of China’s 18 topmost
transnational corporations had reached
US$105.7 billion, or 15.4 percent of these
companies’ aggregate assets. The rise
of EMMs in a multi-polar environment
has captured worldwide attention. Born
out of globalization, EMMs are now
powerfully adding to its momentum.
3. To develop further,
Chinese enterprises must
globalize
In the so-called post-crisis “new normal,”
shrinking consumer spending and
slowing economic growth have triggered
much discussion among economic
experts, scholars and business leaders
in the West. Since China has protected
itself from the worst of the crisis, it
has managed to sustain high levels of
growth and avoid the brunt of “new
normal” hardships. Nonetheless, the
crisis has prompted China to reflect on
its economic development models. From
a macroeconomic point of view, national
leaders know that China cannot continue
driving economic growth primarily
through investment, exports and huge
consumption of resources. This approach
simply is not sustainable. The nation
must move to a more balanced growth
model—one comprising investment,
exporting and domestic consumption
that uses resources efficiently.
Businesses, for their part, can no longer
rely on extensive manufacturing that
hinges on low costs. They will need to
put more emphasis on innovation and
move up the value chain. The worldwide
recession may have dealt a moderate
blow to Chinese business operations.
However, it has transformed the way
people in China think about business.
As the global economy recovers, Chinese
enterprises will need to ponder two sets
of fundamental questions:
• Will the financial crisis lead to a
deceleration of globalization? Will
the problems inherent in developed
economies and enterprises that made
them vulnerable to the crisis mean
the demise of Western management
thinking? Or is such thinking still
instructive to Chinese enterprises?

6. 6
• Do Chinese businesses need to change
their business and operating models?
Should they reinvent themselves by
adopting new strategic perspectives?
The answer to the first set of questions
should be self-evident. Although the
financial crisis laid bare the serious
flaws inherent in developed economies,
the claim that Western management
philosophies and experiences are no
longer valid or instructive is untenable.
Rather, the lessons Western enterprises
have gleaned from the global downturn
can help all businesses guard against
another worldwide recession. Still,
Chinese business leaders will face a
daunting challenge in using such lessons
to restructure, transform and improve
managerial skills to establish highly
competitive modern corporations.
The answer to the second set of
questions is a decided yes. The global
financial crisis turned the global
economic landscape and operating
environment upside down. Accordingly,
all countries must reconfigure their
macroeconomic structures, and
businesses should rethink their growth
models. Pre-crisis business models may
not necessarily be valid in the new
global competitive environment. It is
imperative that enterprises seek new
ways to fuel growth through reform and
transformation. Integrating themselves
into the global economic system and
competing on a larger stage will be
vital steps for Chinese enterprises.
The previous 30 years of reform has
produced a roster of competitive
enterprises; these same businesses will
likely take center stage in the global
economy in the next 30 years, and will
powerfully shape global business rules.
As a necessary and sound strategic
choice, globalization is gaining
acceptance by an increasing number
of Chinese enterprises. In our survey
investigating the main strategies that
enterprises plan to adopt post-crisis, as
many as 12 percent of the respondents
selected globalization (See Figure 1).
When asked about the importance of
global business in corporate strategy,
85 percent said “very important”
or “fairly important” (See Figure 2).
Interestingly, independent innovation,
expansion of the domestic market and
business diversification are more favored
by Chinese enterprises at this stage,
mirroring globalization’s salience for
China’s business leaders.
Figure 2 The importance of globalization in corporate strategy
(Percentage of respondents)
Very unimportant
1%
Not so
important
6%
Source: Joint survey by Accenture and the China Enterprise Confederation, May-August, 2010
Very important
43%
Average
8%
Fairly important
42%
Figure 1 Core corporate strategies in the post-crisis era
(Select two items. The percentage is calculated by dividing the number votes for each
item chosen by the total number of votes obtained)
Others
1%
Brand building
12%
Expansion of
domestic market
24%
Independent
innovation
29%
Source: Joint survey by Accenture and the China Enterprise Confederation, May-August, 2010
Globalization
12%
Business
diversification
22%

7. 7
4. Globalization catalyzes
new ways of competing
Economic globalization emerged first in
the early 1970s. Since the dawn of the
new century, it has entered a new and
more complex phase characterized by
the rise of a multi-polar world. In this
environment, companies face significant
challenges in the struggle for talent,
capital, customers, resources and
innovation. And the rules of the game
have changed accordingly:
• Talent: The war for talent is no
longer confined within national
borders, and competition for innovative
employees with strong technical skills is
intensifying.
• Capital: The flow of capital is no longer
unilateral. Developing countries are
simultaneously recipients and exporters
of capital.
• Customers: New consumer groups are
developing rapidly in emerging markets.
Their demands for products and services
vary; businesses must think hard about
how best to meet those demands and
capture these consumers’ loyalty.
• Resources: Competition for resources
will be fiercer than ever. It will center not
only on control of resources, but also on
their sustainable use.
• Innovation: Developed countries no
longer have a monopoly on the creation
of new technologies, products, services
and even managerial expertise. Today,
emerging markets and businesses
are contributing their fair share of
innovations in these areas.
Any business, be it in a mature market
or emerging market, must grasp the
dynamics of competition to achieve
high performance and attain growth
in today’s increasingly complex global
environment. In the multi-polar world,
economies are becoming increasingly
interdependent and connected. To
maintain a sharp competitive edge,
companies must adopt a global mindset
and operations.4
Accenture and the China Enterprise
Confederation have jointly undertaken
the research presented in this report
as part of the effort to illuminate the
globalization process experienced
by Chinese enterprises, explore the
formulation and implementation of
global strategies and operating models,
and summarize lessons learned from
globalization. Our hope is that this
work will support the efforts of Chinese
enterprises seeking to become global
companies. Drawing on extensive
surveys of Chinese companies, face-to-
face interviews with senior executives,
previous research and Accenture’s
methodologies in the areas of global
operating model, this report aims to
answer the following questions:
1. Why should Chinese enterprises pursue
globalization?
2. What is globalization, and how should
it be measured?
3. What is the current status of
globalization among Chinese businesses?
4. How can Chinese business leaders
make strategic choices to support their
pursuit of globalization?
5. How might Chinese companies build
and implement effective global operating
models?
6. What challenges does globalization
present, and how can Chinese companies
best address those challenges?

8. 8
II. A closer look at
globalization

9. 9
The global economic landscape
underwent tremendous changes after
the Second World War, as many Western
multinational corporations became
active in non-Western economies. The
1960s and 1970s saw the largest scale
of post-war transformation in the global
economic structure. Numerous labor-
intensive manufacturing industries
from the developed countries, armed
with capital and technologies, sought
to gain a foothold in the Third World
countries. Under the new paradigm of
global division of labor, export-oriented
economies such as the Four Asian
Tigers (Hong Kong, Singapore, South
Korea and Taiwan) were created. The
concept of globalization emerged in the
1980s and has stimulated discussion
among politicians, economists and
management researchers ever since.
Another epochal event in the 20th-
century world economy was the adoption
of reform and opening-up program in
China. This program brought the most
populous country on earth into the
global division of labor, further fueling
globalization’s momentum. The pace of
globalization accelerated in the 1990s
thanks to advances in information and
communication technologies, particularly
the rise of the Internet.
Globalization has changed dramatically
since the outbreak of the 2008 global
financial crisis, which resulted in the
rise of multiple centers of economic
power and activity. In this new multi-
polar world, the flows of products,
services and capital are no longer one
directional but rather bi-directional or
multi-directional. Economies have grown
increasingly interdependent. Developed
countries no longer have a monopoly on
the export of capital and technologies.
And EMMs are striding onto the global
economic stage.
1. What is globalization?
The term globalization has inspired a
number of definitions and interpretations
by international organizations,
researchers and the business world.
Consider these examples:
• According to the IMF’s World Economic
Outlook 1997, “Globalization refers to
the growing economic interdependence
of countries worldwide through the
increasing volume and variety of cross-
border transactions in goods and services
and of international capital flows,
and also through the more rapid and
widespread diffusion of technology.”5
This definition accentuates economic
interdependence and the role played by
technology in the globalization process.
• According to the United Nations
Conference on Trade and Development
(UNCTAD), globalization occurs when
producers’ and investors’ activities are
increasingly internationalized, and when
the world economy consists of a single
market and production zone, rather than
being linked by trade and investment
flows among different economies. Regions
and countries are only sub-units of the
world economy.6 This definition further
expands the meaning of globalization,
emphasizing the integration of the global
economy. It stresses the merging of
economies into one entity, rather than
the exchanges and interdependencies
between economies.
• Similarly, the Organization for Economic
Co-operation and Development (OECD)
interprets globalization as a process
in which markets, technologies and
communications function in ways marked
increasingly by “globality,” whereby
national and regional characteristics
become less and less distinct.7
• Alan Rugman, former president of
the Academy of International Business,
defines globalization as activities of
transnational corporations in conducting
cross-border foreign direct investment
and establishing commercial networks,
thereby creating value.8
• The Economics Institute of the Chinese
Academy of Social Sciences defines
globalization in its Dictionary of Modern
Economics as “the trend of global
free flows of goods, labor, capital and
information.”9
2. How do enterprises
globalize?
While a universally agreed definition of
globalization does not exist, each of the
above definitions captures the essence
and implications of the concept from a
unique angle. However, these definitions
take a macroeconomic approach to
globalization, giving scant attention
to organizations’ micro-level strategic
and operational activities. Our current
research centers on how globalization
has influenced companies’ strategies and
operations and how enterprises should
cope with the challenges created by
globalization to become global players.
Therefore, we examine globalization from
a micro-level perspective; that is, in the
context of enterprises.
First, globalization has geographical
implications for enterprises: Globalized
businesses rely to some extent on
overseas markets for their products
and services, raw materials sources,
technologies and operations.
Second, globalization is a process, not an
event. An organization enters the global
market progressively through several
stages, each of which exhibits unique
characteristics of globalization.
Initial stage
In the initial stage, some of an
enterprise’s raw materials, technologies,
equipment and personnel originate
from other countries. The company’s
Globalization is a process in which an enterprise
increasingly relies on overseas markets for its business,
and acquires and enhances its capabilities in global
production, distribution, resource allocation and
managerial expertise. A globalized enterprise does not
limit itself to the local market in its ways of thinking,
formulation of strategies, decision making and corporate
culture. Rather, it uses the global market as the sole
context for all of these matters.

10. 10
products are sold on the global market
directly or indirectly, and as finished
or semi-finished goods. However, the
organization’s operations are firmly
rooted domestically, and its global
business accounts for only a modest
proportion of its total business.
Intermediate stage
In the intermediate stage, globalization
presents two models and emphases:
• Export orientation. The enterprise
manufactures products to be sold in
overseas markets using local cheap
labor and land resources. Over the
past decade, a large number of labor-
intensive and export-oriented original
equipment manufacturers (OEMs) and
original design manufacturers (ODMs)
have sprung up in China’s Pearl River
Delta and Yangtze River Delta areas,
transforming the country from a manual
workshop to the world’s factory. These
enterprises have strong manufacturing
and factory-management capabilities.
They rely on low-cost labor and achieve
low profit margins. Few of them have
their own brands or sales channels in the
domestic market or abroad. They derive
most or all of their income from exports.
• Value-chain optimization. The
enterprise capitalizes on globalization
to move up and expand the value
chain. It strives to improve its position
in the value chain and achieve better
performance through a variety of means,
including acquisition of technologies,
recruiting of talent, market expansion,
enhancing of brands and acquisition of
resources. For example, many Chinese
enterprises set their sights on the
European and US markets to improve their
competitiveness in areas such as research
and development, product design,
technologies, marketing and branding.
Other Chinese enterprises are eager to
establish their presence in the Middle
East, Africa and Latin America to tap
these regions’ abundant local resources.
Globalized operations stage
In the globalized operations stage, the
enterprise becomes truly globalized
in terms of its resource distribution,
industrial value chain, strategies,
operations and culture. Its national origin
ceases to be important. At this stage,
the enterprise is no longer satisfied with
global connectedness but devotes itself
to global orchestration. That is, the
organization not only makes itself present
in various places of the world, but the
global presence enables it to structure
and operate in a more efficient and
coherent way to take advantage of the
large global market.10 More important, it
transcends national borders in its ways of
thinking, decision-making processes and
corporate culture. Nevertheless, achieving
truly globalized operations is an arduous,
protracted process, requiring painstaking
efforts to build capabilities in business
architecture and operation proficiency. In
fact, only a sprinkling of enterprises has
reached this lofty stage, including the
Coca–Cola Company, PepsiCo, Toyota and
Exxon Mobil.
Taking geographic footprint and the
above-described stages into account, we
propose the following working definition
of globalization:
Globalization is a process in which an
enterprise increasingly relies on overseas
markets for its business, and acquires
and enhances its capabilities in global
production, distribution, resource
allocation and managerial expertise.
A globalized enterprise does not limit
itself to the local market in its ways
of thinking, formulation of strategies,
decision making and corporate culture.
Rather, it uses the global market as the
sole context for all of these matters.

11. 11
Figure 3 Globalization of enterprises
Global operation capabilities (X)
Export orientation
The initial stage Value-chain optimization
Globalized operations
Shareofoverseasbusiness(Y)
What distinguishes a truly globalized
player? Does the fact that the company’s
products are exported mean that it is
globalized? Is it globalized if it owns
overseas assets or has established
branches or subsidiaries in other
countries? Or, is it globalized if it relies on
overseas markets for sales of the majority
of its products? Although globalization
remains the goal for Chinese enterprises,
a consensus has not been reached on
the criteria for defining or measuring an
enterprise’s degree of globalization.
Some international organizations and
scholars have tried to clarify these
criteria. For instance, in its 1995
publication The World Investment
Development Report, UNCTAD advanced
the Transnationality Index to gauge a
transnational corporation’s overseas
activities relative to its domestic
activities. In 1979, the late Harvard
professor Raymond Vernon put forward
the Network Spread Index, which
measured an enterprise’s degree of
globalization by the number of countries
where it established branches or
subsidiaries.11 In 2009, Fudan University
School of Management and the Vale
Columbia Center on Sustainable
International Investment compiled
rankings of 18 Chinese multinational
companies using three measurements:
the proportion of overseas assets to
overall assets, the proportion of overseas
employees to overall employees, and the
proportion of overseas sales (exports not
included) to overall sales.12
In our view, the degree of globalization
of a company should be measured not
only by the share of its overseas business
in its overall business, but also by its
operational and managerial capabilities
on the global market. The former reflects
the company’s degree of dependence
on overseas markets. The latter reflects
its production-base distribution,
resource allocation and management
capabilities, which normally include
management’s global vision, cross-
cultural communication skills, global
organizational and coordination abilities,
and global R&D and brand management
expertise. Our measurement of
globalization hence includes two
dimensions: performance (share of
overseas business) and operational
capabilities13 (See Figure 3).
With this matrix in mind, let’s look again
at the globalization stages through
which an organization passes. Enterprises
in the initial stage of globalization have
modest levels of overseas operations
and business. In addition, their global
operations capabilities are relatively
weak. A considerable number of Chinese
enterprises are in this stage.
Export-oriented enterprises generate
a fair share of their revenues from
exports, and some of them have
begun to own assets overseas.
However, their operations are deeply
entrenched domestically, revealing
that their globalization capabilities
are incommensurate with their level
of overseas business. Many export
processing and OEM enterprises belong
to this category of enterprises.
Companies in value-chain optimization,
typically businesses started by returnees
from overseas studies and private
entrepreneurs, have stronger global
operations capabilities but a relatively
meager share of overseas business.
Finally, enterprises that are truly
globalized with respect to markets,
employees, operations base and
management do not distinguish between
domestic and overseas markets, since
their overseas business constitutes a
considerable share of their total business.
Currently, few Chinese enterprises have
reached this stage.

12. 12
III. Globalization of
Chinese enterprises:
an overview

13. 13
Figure 4 China’s outbound FDI
China’s outbound FDI (100 million US dollars)
Source: Statistical Bulletin of China's Outbound Foreign Direct Investment 2009, Ministry of Commerce of the PRC
0
100
2000
9.16
68.85
25.18 28.55
54.98
122.61
211.60 224.69
521.50
720.51
2001 2002 2003 2004 2005 2006 2007 2008 2009
200
300
400
500
600
700
800
We can trace the beginnings of Chinese
enterprise’s globalization process back
to 1978, when the country launched
its reform and opening-up program.
The period from that year through the
1980s constitutes the initial stage of
globalization. Chinese firms began to
participate in the international division
of labor through exporting their products
and establishing joint-venture businesses
with foreign companies, which were
entering China in increasing numbers.
At the same time, certain forward-
looking Chinese companies attempted
transnational operations. For instance, in
November 1979, the Beijing Friendship
Store established Kyowa Co., Ltd. in
Tokyo through a joint investment with
Japan’s Maruichi Shoji, Inc.—marking
the onset of overseas investments
by Chinese enterprises.14 Economic
globalization and regional economic
integration gathered momentum starting
in the mid-1980s. According to UNCTAD
statistics, Chinese investors’ foreign
direct investments (FDI) surpassed the
US$100 million threshold for the first
time in 1984 and averaged $670 million
annually for the next five years. However,
only a scattering of Chinese enterprises
were seeking to go beyond their nation’s
borders. Moreover, their awareness and
scale of globalization were modest.
In the 1990s, as the wave of
globalization engulfed the world, Chinese
enterprises entered the second stage of
globalization. In 1992, China defined a
goal of establishing a socialist market
economy, ushering in a golden age for
Chinese enterprises. In the mid-1990s,
the country announced its “going
out” strategy15 and launched a series
of policies and measures designed to
encourage Chinese enterprises to expand
into overseas markets. Soon a large
number of enterprises sprang up. At the
same time, China’s overseas investments
increased. UNCTAD data indicate
that China’s outward FDI reached the
US$1 billion mark in 1992 and, despite
downturns after the 1992 and 1993
peaks, averaged $2.3 billion annually for
the entire decade.16
Since the year 2000 and especially since
the outbreak of the worldwide financial
crisis in 2008, Chinese companies have
accelerated their globalization efforts.
This third stage of globalization has
been driven by the rising trend toward
globalization worldwide as well as
favorable domestic policies. Since
2001, when China acceded to the
World Trade Organization, Chinese
enterprises have further integrated into
the world economy and deepened their
understanding of the rules of the game
in making overseas investments.
1. China’s outward FDI
has grown increasingly
diverse
The past two years have been
phenomenal for Chinese firms. They
have been able to implement their
globalization strategy after 30 years of
continuously strengthening themselves.
In the 2010 Fortune Global 500 list, 42
companies hailed from the Chinese
mainland, equal the number coming from
France, and second only to the number
based in the United States (139) and
Japan (71). At the same time, demand
for external capital by developed
markets devastated by the financial
crisis, along with availability of devalued
overseas assets, has created favorable
opportunities. Statistics provided by
China’s Ministry of Commerce suggest
that China’s outward FDI reached a
historical high of US$50 billion in 2008,
up 96.7 percent year-on-year, and
amounted to $72 billion in 2009, 78
times that of 2000 (See Figure 4).

14. 14
Chinese enterprises have made steadfast,
impressive progress on the road to
globalization, evidenced by their outward
FDI, the diversity of investors, and the
scope of such investments. Consider
that China’s overseas investments
have occurred in almost all industrial
sectors. In recent years, mining, retail
and wholesale, financial services and
leasing have each accounted for more
than 10 percent of these investments. In
2008, these industries accounted for a
combined 86 percent (See Table 1). By
contrast, share of manufacturing has
decreased.
China’s overseas investments in mining
are of increasing strategic importance,
as domestic demand for minerals and
energy soars with the nation’s rapid
economic development. At present, a
significant proportion of China’s overseas
investments has gone to mineral-rich
Australia. According to China Economic
Net, in 2009 China surpassed Japan
as Australia’s second-largest foreign
investor, and most of its investments
flowed into the mining and energy
industries. To be sure, China’s overseas
investments in the retail and wholesale
industry (mainly in trade), the financial
services industry (primarily through
the banking sector), and leasing and
services (mostly through shareholding)
have grown rapidly. However, these
investments tend to be more scattered
than concentrated. They are therefore
small in scale at the firm level and do
not reflect the typical characteristics
of Chinese companies’ globalization
effort. In contrast, China’s investments
in the manufacturing, mining and energy
industries show significant concentration
and are dominated by a number of
heavyweight enterprises. Most have
resulted from high-profile mergers and
acquisitions and joint investments. Our
current research effort focuses on these
investments.

15. 15
Industry 2004 2006 2008
1. Leasing and services 74,931 13.63% 452,166 21.36% 2,171,723 38.85%
2. Financial industry — — 352,999 16.68% 1,404,800 25.13%
3. Retail and wholesale 79,969 14.55% 111,391 5.26% 651,413 11.65%
4. Mining 180,021 32.74% 853,951 40.35% 582,351 10.42%
5. Transportation, warehousing,
postal services
82,866 15.07% 137,639 6.50% 265,574 4.75%
6. Manufacturing 75,555 13.74% 90,661 4.28% 176,603 3.16%
7. Electric power, gas and water
production and supply
7,849 1.43% 11,874 0.56% 131,349 2.35%
8. Construction 4,795 0.87% 3,323 0.16% 73,299 1.31%
9. Real estate 851 0.15% 38,376 1.81% 33,901 0.61%
10. Information transmission, computers
and software
3,050 0.55% 4,802 0.23% 29,875 0.53%
11. Agriculture, forestry, animal
husbandry and fishery
28,866 5.25% 18,504 0.87% 17,183 0.31%
12. Scientific research, technological
services and geological surveys
1,806 0.33% 28,161 1.33% 16,681 0.30%
13. Residential services and other
related services
8,814 1.60% 11,151 0.53% 16,536 0.30%
14. Water resources, environment and
public facility management
120 0.02% 825 0.04% 14,145 0.25%
15. Hotel and catering industries 203 0.04% 251 0.01% 2,950 0.05%
16. Culture, sports and recreation
industries
98 0.02% 76 0.00% 2,180 0.04%
17. Education — — 228 0.01% 154 0.00%
18. Health care, social security and
social welfare
1 0.00% 18 0.00% 0 0.00%
19. Public administration and social
organizations
4 0.00% — — — —
Total 549,799 100% 2,116,396 100% 5,590,717 100%
Source: China’s Outward FDI Statistics Report 2008
Table 1 Industrial distribution and share of China’s outward FDI 2004-2008 (in US$10,000)

16. Continent 2005 2006 2007 2008
Total 1,226,117 100% 1,763,397 100% 2,650,609 100% 5,590,717 100%
Asia 448,417 36.60% 766,325 43.50% 1,659,315 62.60% 4,354,750 77.90%
Africa 39,168 3.20% 51,986 2.90% 157,431 5.90% 549,055 9.80%
Latin America 646,616 52.70% 846,874 48.00% 490,241 18.50% 367,725 6.60%
Oceania 20,283 1.70% 12,636 0.70% 77,008 2.90% 195,187 3.50%
Europe 39,549 3.20% 59,771 3.40% 154,043 5.80% 87,579 1.60%
North America 32,084 2.60% 25,805 1.50% 112,571 4.20% 36,421 0.70%
Continent Investment
coverage
Overseas businesses As a percentage
of total overseas
businesses
Asia 90% 6,000 51.2%
Africa 81% 1,600 12.9%
Europe 74% 2,000 16.3%
North America 75% 1,400 11.3%
Latin America 55% 600 4.8%
Oceania 42% 400 3.5%
Figure 5 Overseas M&As by Chinese enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
50
100
150
200
250
300
4.70 4.52 10.47
149.04
63
302
175
16.47 11.25
52.79
350
Source: UNCTAD M&A statistics for 2000-2006, Chinese Ministry of Commerce statistics for 2007-2009
Overseas M&As (100 million US dollars)
16
Source: China’s Outbound FDI Statistics Report 2008
Source: China’s Outbound FDI Statistics 2008
Table 2 Geographical distribution and share of China’s outward FDI 2003-2008 (in US$10,000)
In addition to Australia, Asia has
become a magnet for Chinese outward
FDI. From 2005 to 2008, Chinese
investments in Asia as a share of total
investments climbed nearly 40 percent,
whereas those in Latin America dipped
by 46 percent (See Table 2). Recipients
of Chinese investments also show
increasing diversity. For example, the list
of countries and regions receiving more
than US$100 million of such investments
expanded from just three in 2003 (Hong
Kong, the Cayman Islands and the British
Virgin Islands) to 22 in 2008. That year,
Hong Kong, South Africa, the British
Virgin Islands, Australia, Singapore
and the Cayman Islands each received
more than US$1.5 billion of Chinese
investments.
2. Strategies for Chinese
overseas investments
have changed
Notable changes have emerged in the
means by which Chinese enterprises
make foreign investments. In particular,
the number of businesses established
overseas by Chinese companies has
risen. By the end of 2008, 8,500
Chinese companies had set up 12,000
businesses in 174 countries and regions
throughout the world, over half of which
were located in Asia. Globally, Chinese
investors established businesses in 71.9
percent of the world’s countries and
regions, with continents ranking as
follows from high to low: Asia, Africa,
Europe, North America, Latin America
and Oceania (See Table 3).
Table 3 Distribution and investment coverage of Chinese enterprises’ overseas
businesses, 2008

17. Figure 6 The globalization process of Chinese enterprises (Number of respondents (%))
Not intending to engage in
overseas business in two years
6%
Currently engaged in
overseas business
89%
Source: Questionnaire surveys by Accenture and the China Enterprise Confederation, May-August 2010
Planning on overseas
business in two years
5%
Figure 7 Ways of doing overseas business
(Choose those that apply; the votes obtained are added up)
Source: Questionnaire surveys by Accenture and the China Enterprise Confederation, May-August 2010
45
41
33
32
13
10
3
Export agents or establishment
of export posts
Establishment of branches/
representative offices
Establishment of overseas sales
branches/subsidiaries
Overseas production
Establishment of overseas
business units/operating centers
Overseas research and development
Others
17
Also, transnational mergers and
acquisitions have emerged as the
leading means of overseas investments
by Chinese enterprises (See Figure 5).
According to UNCTAD statistics, China’s
overseas M&As reached US$470 million
in 2001, with jumps observed in 2005
and 2006. China’s Outward FDI Statistics
Report suggests that in 2003, 18 percent
of the country’s overseas investments
were in the form of acquisitions; another
14 percent, in equity investments. In
2008, 54 percent of these investments
were accomplished through mergers and
acquisitions; the figure decreased to 40.4
percent in 2009. Drawing on published
information and statistics, we found
that the number of M&A deals involving
Chinese investors was 41 in 2008, 48
in 2009 and 29 in the first six months
of 2010. Chinese private companies
have been increasingly involved in these
agreements, but their investments have
remained relatively small. State-owned
enterprises have made the lion’s share of
such investments. China’s M&A efforts
have been concentrated in mining,
energy, manufacturing and IT; 16 of the
20 major M&A deals from January 2008
to June 2010 occurred in mining and
energy (See Table 4).
By industry, the geographic
concentration of such agreements
is as follows: mining and energy
industries in Australia, Canada, Africa
and certain Latin American countries;
IT, semiconductors and other high-
tech industries in the United States,
Hong Kong, Taiwan and Japan; and
manufacturing in the United States and
other advanced European countries.
The growth of China’s economy has
helped spur its increasing participation
in the globalization process. Of the 89
Chinese enterprises that responded to
our surveys, 89 percent indicated that
they are currently conducting overseas
business. Another 5 percent plan to
have overseas operations in five years.
At present, the major ways of doing
overseas business are through export
agents or the establishing of export
departments, followed by the setting
up of overseas representative offices.
Establishing overseas sales companies is
the third most common means. Clearly,
exporting is still the major focus of
Chinese firms (See Figure 6 and Figure 7).

18. No. Time Acquirer Acquiree Country/
region
Investments Equity/
assets acquired
Industry
1 2008.1 Chinalco Rio Tinto Great Britain 14 billion USD 9% Mining
2 2008.4 China Ping’an Fortis Investment
Management Co.
Belgium 2.15 billion Euros 50% Investments
3 2008.6 China
Merchants
Bank
Wing Lung Bank Hong Kong 17.2 billion RMB
yuan
53.12% Commercial
banking
4 2008.7 China Huaneng TuasPower Singapore 4.24 billion
Singapore dollars
100% Traditional energy
5 2008.7 China Oilfield
Services
AWO OS Norway 2.5 billion USD 100% Traditional energy
6 2008.9 Sinopec Tanganyka Canada 2 billion USD 100% Traditional energy
7 2009.4 CNPC JSC
Mangistaumunaigas
Kazakhstan 3.3 billion USD 100% Traditional energy
8 2009.6 Sinopec Addax Switzerland 49.5 billion RMB
yuan
100% Traditional energy
9 2009.6 China
Minmetals
Corporation
OZ Minerals Australia 1.35Billion USD Mineral
Assets
Mineral Resources
10 2009.7 China
Investment
Corporation
Teck Resources Canada 1.74 billion
Canadian dollars
17.2% Mining
11 2009.8 Yanzhou Coal
Mining
Felix Resources Australia 19.8 billion RMB
yuan
100% Mining
12 2009.8 CNOOC Kosmos Energy Ghana 3-5 billion USD N/A Traditional energy
13 2009.9 Sinochem Nufarm Australia 16.3 billion RMB
yuan
N/A Agriculture
14 2009 PetroChina Merapoh Malaysia 10 billion USD Refining project Traditional energy
15 2009 PetroChina Athabasca Oil Sands
Corp.
Canada 1.9 billion
Canadian dollars
Right to extract
60% oil sands)
Traditional energy
16 2009 PetroChina Arrow Australia 3.5 billion
Australian dollars
100% Traditional energy
17 2009 Ansteel Gindalbie Metals Australia 1.7 billion
Australian dollars
190 million shares Mining
18 2010.3 Geely Volvo Cars Sweden 1.8 billion USD 100% Automobile
19 2010.5 CNOOC Bridas Latin
America
3.1 billion USD N/A Energy resources
20 2010.6 Bright Food CSR subsidiary Australia 1.75 billion
Australian dollars
Sugar and
renewable energy
business
Foodstuffs
18
Table 4 Top 20 M&A deals involving Chinese enterprises, January 2008-June 201017
Source: Online content at: http://www.investide.cn/case/investCaseDetail.do?investCaseId=10107, http://www.investide.cn/case/investCaseDetail.do?investCaseId=10108
and other published information.

19. 19
Case study
Haier’s global branding
strategy
The Haier Group was established in
December 1991. Its predecessor was the
Qingdao Refrigerator Company, founded
in 1984. In 2009, the company generated
124.3 billion yuan in revenue globally,
and its brand name was valued at 81.2
billion yuan.18 For each of the past eight
years, Haier has topped the list of the
most valuable brands in China. It was
ranked 27th in Bloomberg Business
Week’s list of the 50 Most Innovative
Companies in June 2010.19 Data from the
business intelligence firm Euromonitor
International, as cited by Dazhong Daily
in December 2009, suggest that in 2009
Haier took the top spot in white-goods
retail volume, boasting a global share
of 5.1 percent, up 0.8 percent from the
previous year.20
Since 1984, Haier has evolved from
a collectively owned small enterprise
with 53 dissatisfied employees and
annual losses of 1.47 million yuan21 to a
renowned global consumer electronics
giant. It brings in annual revenues in
excess of 100 billion yuan (30 percent of
which are generated overseas). It owns
16 industrial parks (four overseas), 29
factories (24 overseas), eight research
and development centers (five overseas),
61 trading companies (19 overseas) and
58,800 sales outlets (45,800 overseas).
The company employs 60,000-plus
people (more than 3,000 overseas). Its
overseas business revenue soars at an
annual rate of 30-50 percent.22
From “defender” to “extender”
What has enabled Haier to transform
itself in such a short span of time?
Haier’s management team firmly
believed that an enterprise cannot move
onto the international stage without
first establishing a leadership position
in its home market. However, executives
also realized early in the company’s
history that Haier could not sustain its
competitive advantage if it clung to
the home market. They therefore made
participation in global competition
a core component of the company’s
strategy. After China joined the World
Trade Organization, Haier’s leaders
resolved to expand internationally while
staying strong in the domestic market
and letting the two markets complement
each other.
Haier’s strategy had two stages, which
moved the company from “defender” to
“extender.” First, the company established
itself as a leading brand in China by
enhancing its core competencies and
improving product quality. Its place in
the domestic market secure, it began
to reach out to the global market with
its products, brand name and corporate
culture, therefore achieving its objective
of “dancing with wolves” (See Figure 8).
Figure 8 Two stages of Haier’s strategy
Source: Haier.com
1984 1991 1998 2005
Capturing the domestic market Developing the global market
Branding
strategy
Total quality
control
OEC management
model
“market chain” process
reengineering
The T model in
processing orders
Diversification
strategy
Outward looking
strategy
Global branding
strategy

20. 20
Capturing the domestic market
Haier implemented its branding strategy
from 1984 to 1991, focusing its time
and energy on building up a refrigerator
brand name. In 1988, the company
was awarded a gold medal for product
quality--the first of its kind ever
awarded in China’s refrigerator industry.
At the same time, Haier accumulated
experience in managing refrigerator
production lines.
From 1991 to 1998, Haier carried out its
diversification strategy. Having made its
name with its refrigerators, the company
set out to transfer its operational
expertise to other product lines. To do so,
it revitalized the industry’s “shocked fish”
(enterprises that were well equipped but
poorly managed) through a series of low-
cost mergers. Its goal? Establish a “fleet,”
rather than a handful, of well-branded
products in the home-appliances market.
Developing the global market
By 1998, Haier was the undisputed leader
in China’s home-appliance industry.
However, domestic and international
competition was intensifying. Rivals were
upgrading their offerings. And consumers
were growing increasingly sophisticated
in their demands. Under these conditions,
Haier could not afford to rest on its
laurels. The company promptly set its
sights on the international market.
Haier initially focused its global market
strategy on exports, realizing the
importance of gaining a foothold in
the overseas markets. It then took its
globalization effort to the next level by
constructing research and development
centers, sales and distribution channels
and after-sale service networks around
the world. These constituted the
company’s localized operations.
In implementing its global growth
strategy, Haier took a “difficult to easy”
approach, selecting foreign markets with
meticulous care. It first set its sights
on the hard-to-penetrate US market,
characterized by mature technologies
and varied consumer demand. By doing
so, it established a solid reputation for
its brand name in the world’s developed
markets. Its successful experience in the
United States would serve as a model
for its expansion in other countries
and regions. In 1998, Haier founded its
industrial park in the United States and
a refrigerator manufacturing facility
in South Carolina, thereby achieving
localized production. In 2001, it set up
another industrial park in Pakistan, also a
production center.
At the end of 2005, Haier began pursuing
a customer-centric approach to its global
growth strategy, realigning internal
resources to serve customer needs. For
example, it created the T model, whereby
teams try to create value for customers
on a specific link and timing of the value
chain by fulfilling certain targets on time
through collaboration.23 (To illustrate,
T = manufacturing day; T-10 = order
placement day; T+20 = container loading
day.) The collective task of meeting
customer demands can be broken down
to each individual’s responsibilities,
and each person’s efforts aggregate
into overall company performance.
Individual employees and a customer’s
“order form” are thus combined into one.
Haier’s Chinese name for this model—ren
dan heyi—means “unity of people and
customer order.”
The company’s global branding strategy
was one step ahead of the outward-
looking international strategy. While
“outward looking” views China as a base
reaching out to the outside world, global
branding focuses on creating localized
brands in every market into which Haier
had made inroads.

21. 21
Three steps to globalization
In 1999, Haier defined a three-step
strategy of “going out, going inside,
and going upward.” This strategy would
complete the company’s globalization
process by establishing its capabilities
for globalized operations and laying
a solid foundation for becoming a
prestigious local brand in every market
Haier entered (See Table 5).
By 1999, Haier had established its global
presence. Consider these highlights in
the Haier story:
• The United States: (the first stop
in Haier’s road to globalization): In
1998, Haier established a research and
development center in Los Angeles, an
industrial park in South Carolina and a
sales center in New York City.
• Europe: In 2001, Haier took over a
refrigerator manufacturing facility under
Italy’s Meneghetti Company (the first
transnational M&A case involving a
Chinese home appliance manufacturer).
Earlier, Haier had established R&D
centers in Italy, the Netherlands,
Germany and Denmark. It had also
constructed a sales and distribution
center in Italy’s Milan.
• South Asia: In 2001, Haier set up an
industrial park in Pakistan and in 2006
established the Haier-Ruba Economic
Zone. By 2005, the company owned
nearly 3,000 sales outlets and 14
exhibition halls in India. In 2007, its
manufacturing facility in India became
operational.
• Africa: In 2000, Haier and Great
Britain’s PZ Group established a joint
venture in Nigeria for assembling and
marketing Haier-Thermocool product
line. In June 2007, Haier’s largest
exhibition hall in Nigeria opened in
Victoria Island, the business center of the
capital city of Lagos.
• ASEAN: In July 2005, Haier established
an exhibition hall in Malaysia. In April
2007, it acquired the Refrigerator
Factory from Sanyo in Thailand.
• Oceania: Haier is currently purchasing
local manufacturing shares in New
Zealand and Australia. (In 2009, it
acquired FPA, New Zealand’s famous
home appliances manufacturer.) Haier
is also forming alliances with local
marketers.
“Going out” “Going inside” “Going upward”
Timeline 1990—1999 2000—2006 2007—2010
Objective Enter mainstream markets in
Europe and North America
Enter mainstream channels in the
mainstream markets
Become local mainstream brand
Difficulties • Low brand recognition; “made
in China” not widely accepted
in international market
• Insufficient understanding
of the European and North
American markets
• Insufficient sales networks
and low energy consumption
standards
• Localized design falling short of
consumer requirements
• Limited resources for channel
construction and advertising
• Lack of understanding of
consumers
• Consumer demand becoming
more sophisticated and
individualistic
Solutions • Expand overseas markets
mainly through exports
• Take advantage of local small
distributers and retail stores
• Fully utilize low-cost
advantage
• Keep products affordable
• Develop niche products
• Establish overseas production
facilities
• Form localized operational system
combining design, production and
marketing
• Enter mainstream channels
• Develop mainstream products
• Create localized brands
• Implement “Resource for
resource” strategy, gaining
global resources by exchange
of domestic resources
• Establish stable relationships
with big local customers
• Differentiate brand to make it
well known locally
• Develop high-end products
Table 5 Haier’s three-step globalization strategy

22. 22
Case study
Holley Group, founded in September
1970, is a diversified enterprise with
pharmaceuticals as its core business.24
It currently owns factories, industrial
parks and more than 20 sales outlets in
other countries, and its products are sold
in 120 nations and regions. Exports and
imports account for 15 percent of its
revenues. It employs more than 10,000
people worldwide.25
Holley started off mainly as a
manufacturer of electric meters and
commands 40 percent of China’s
domestic market for these products.
Having experienced explosive growth in
the 1990s, Holley began facing stiffer
competition on its home turf. China has
more than 600 meter manufacturers. The
company had to seek new opportunities
for growth, and it opted for product
diversification. Holley entered the
pharmaceuticals industry by acquiring
the Kunming Pharmaceuticals Company
and Wuhan Jianmin Pharmaceutical
Group, and by reconfiguring its internal
business.26
In 1999, Holley defined its “international
strategy for the 21st century,” which had
several components:
• Independently develop international
brands. Holley’s leaders believed that
creating an internationally recognized
brand name would be more important
than merely selling its products in the
international market. It has accomplished
this by registering the Holley brand
name in its major overseas markets and
potential markets, doing so in more
than 100 countries to date. Since 2000,
95 percent of the company’s electric-
meter exports bear the Holley brand.
The independent branding strategy has
sharpened the group’s competitive edge.
• Take advantage of synergies in
overseas sales outlets. Holley owns
more than 20 overseas sales companies
or agencies. Each deals in Holley’s
products as well as other companies’
products, including electric meters,
pharmaceuticals, cable and satellite
receivers. This has not only increased
the sales companies’ revenues but also
expanded other Chinese companies’
overseas sales.
• Localize talent. Holley relies heavily
on local partners and recruits talent
locally. At the same time, it encourages
Chinese employees stationed overseas
to settle there. When the company first
implemented its strategy of “going out,”
it tightly controlled its expatriates; for
example, requiring them to live in dorms
and forbidding them from socializing
with foreigners at night. Gradually, its
management philosophy shifted. For
example, it now encourages expatriates to
learn the local languages and assimilate
into the surrounding society. And it allows
them to live in rented houses as well as
socialize with local colleagues and friends.
Indeed, since this change, six or seven such
employees married local people, and many
of them have stayed overseas for more
than 10 years.
• Shift from manufacturing to services.
The year 2006 saw Holley’s creation
of the Thai-Chinese Rayong Industrial
Zone, with a planned area of 4 square
kilometers. The first phase of the project,
with an area of 1.5 square kilometers,
has now been completed, with road,
utilities and other infrastructure ready
for industrial use. More than 20 Chinese
enterprises have set up factories there,
with combined investments totaling
US$170 million. The industrial zone
created a thriving ecosystem for other
Chinese companies investing there.27
Its success has bolstered Holley’s
confidence, and plans for another zone
in Indonesia are now in the works.
• Move from wholly owned to joint
venture. Holley usually chose to work
alone when it first went global. However,
as its overseas business grew more
complex, it felt the need to partner with
other players (for example, through joint
ventures) to navigate in an unfamiliar
business environment. The company
adopted the strategy of allying with
local partners, especially for projects
that required coordinated efforts among
multiple parties and that were under
government regulation. The Thai-Chinese
Rayong Industrial Zone, for instance, is
collaboration between the company
and its Thai partners. The project has
proceeded smoothly, thanks to the local
partners’ social and political networks.
Despite Holley’s successes, its
globalization journey has not always
been smooth. Volatile market conditions
and companies’ unpredictable responses
to change have introduced obstacles.
For example, in 2001, to gain a foothold
in the telecommunication-equipment
sector, Holley purchased the US-based
CDMA chip R&D center from Philips in an
attempt to get access to the CDMA core
technology. With this move, it hoped
to acquire a competitive advantage in
the telecom value chain by combining
technology with the vast application
market in China. However, things did
not pan out as Holley had hoped. First,
Philips and Qualcomm had certain cross-
licensing agreements on CDMA chips,
and most 3-G-related CDMA patents
are in the hands of Qualcomm.28 As a
result, Holley found it more difficult than
it had expected to gain access to some
key 3-G related technologies. Second,
China’s domestic 3-G market had been
slow in getting under way, so it took
longer to realize the financial benefit
of the investment. Third, as a newcomer
to the communications industry, Holley
found it difficult to manage an R&D
center located as far away as the United
States As a consequence, communication
between engineers and researchers and
the management team suffered. The
company also saw its operating costs
skyrocket. By 2005, Holley had achieved
breakthroughs in its pharmaceutical
business, which had grown large enough
to become the company’s core offering.
Pharmaceutical products accounted
for 50 percent of its revenues. Holley
redirected its strategy, cut back on the
operations of its CDMA R&D center and
relocated the center’s main operations
to China.
Holley Group’s corporate
transformation through
globalization

23. 23
IV. Globalization:
strategic choices

24. 24
Chinese companies seeking to globalize
face numerous strategic questions—
including why the company should go
global, what businesses it should engage
in, where it should locate its global
activities and operations, and what
means of investment the company will
use to conduct business globally. The
goals of globalization and the industries
in which companies compete will
influence the answers that executives
generate for these strategic questions.
1. Why should our
company go global?
Globalization has now become an
inevitable trend for Chinese enterprises.
In the post-crisis era, in particular,
globalization enables Chinese companies
to achieve performance breakthroughs
and fuel long-term development. A
globalized firm has access to more
resources, wider markets, more
diversified talent and a more innovative
environment. However, Chinese
businesses have gone global for a set
of distinctive strategic reasons and
motivations. The “breakthroughs” they
seek by way of globalization therefore
have multiple meanings – breaking
threats to their survival, breaking
limitations to development, breaking
their reliance on certain growth paths
and breaking their traditional status
as followers rather than leaders. Our
observation reveals four different
motivations behind Chinese companies’
push for globalization.
Reduce threats to survival
The global financial crisis presented
Chinese enterprises with immense
challenges; some businesses’ very
survival was threatened. Export
processing enterprises, represented
by the traditional OEM manufacturers
of apparel and toys in the Pearl River
Delta, have borne the brunt of the
crisis, owing to their lack of adequate
domestic sales and marketing systems,
insufficient capabilities for innovation
and reliance on foreign orders. As many
countries raised trade barriers during the
recession, numerous Chinese exporters
faced a shrinking international market
and the specter of bankruptcy. At the
same time, countries including India
and Vietnam increasingly became the
destination of choice for multinational
corporations seeking cheap labor, a
trend that has eroded China’s labor-
cost advantage. Under these worrisome
circumstances, many export-oriented
businesses have decided to go beyond
China’s national border and capture host
countries’ markets by establishing local
production and distribution channels
or leveraging those countries’ low-cost
advantage. For example, one Chinese
company runs an industrial park in a
Southeast Asian country jointly with a
local partner. The executives from the
company revealed that the majority of
investors setting up businesses in the
park were Chinese enterprises. Some
Chinese businesses quickly signed leasing
contracts because their exports from
China to the European and US markets
faced anti-dumping investigations. They
had to relocate their businesses quickly
to a third country to avoid disruption to
exports.29
Expand space for development
Although the global economy remains
sluggish, China has a vast number of
ambitious and pioneering enterprises
that are experiencing a growth spurt or
have remained stable and strong. The
global devaluation of assets in the post-
crisis era has created a rare opportunity
for these companies to expand their
overseas markets and leverage those
markets’ resources. At the same time,
other Chinese enterprises are following
suit because of saturation of the
domestic market, vicious competition
or dearth of critical resources. For
instance, competition within China’s
construction industry has intensified,
especially with the entry of foreign
construction contractors. In the face of
shrinking profitability, many construction
companies, such as the China
Construction Engineering Corporation
and the Anhui Construction Group, have
chosen to go global. Ambitious and
strong firms have decided to globalize
to escape the constraints of the home
market and maximize their development
on the global stage.
Move up the value chain
Moving up the value chain can help
Chinese businesses improve their
profitability and achieve sustainable
development. But deficiency in
capabilities in business functions such
as financing, research and development,
production, branding and marketing
has limited these companies’ ability to
move up the value chain. Globalization
provides the necessary conditions for
Chinese enterprises to optimize their
operations and extend their value chain.
The Chery Company, for instance, has
promoted its products in the EU and
North American markets while meeting
the domestic need for low-end cars.
(See “Case study: A tale of two Chinese
automakers..”) The Haier Group, on
the other hand, pursues globalization
through the “resource for resource”
approach, thereby extending its value
chain from its main line of products to
high-end products.
Become a global player
Since China’s movement toward reform
and opening up, foreign investments
have flowed into the country and have
brought advanced technologies and
managerial expertise. Most Chinese
enterprises were passive recipients of
these new experiences at first. Some
gradually became active followers
of best practices. As China is more
and more integrated into the world
economy, Chinese companies are no
longer content to follow and compete
in the domestic market. Going global is
the right choice for Chinese enterprises
seeking to develop and excel today.
Since the launch of the “going out”
strategy in the mid-1990s, the Chinese
government has consistently supported
enterprises of various ownership
structures in their efforts to engage
in international economic activity
and technological cooperation and to
build global brand names. The global
financial crisis in 2008 created the
opportunity for Chinese enterprises to
“go out” further. Blessed with favorable
conditions, a large number of visionary
companies are pursuing globalization
in an effort to become multinational
companies with international brand
names. The Chery Company, in expanding
to overseas markets, will focus on the
long-term objective of constructing an
international brand name. The Wanxiang
Group has also established its “going
“For CSR, [competing] in the global market today means
[our] survival and development tomorrow.”
Zhao Xiaogang, Chairman, CSR Corporation Ltd.30

25. 25
out” strategy of using overseas resources
and achieving localized operations.
Depending on its objective, each
enterprise has its own unique place, and
plays a distinct role, on the global stage.
Our research has identified five types of
globalized enterprises setting forth from
the emerging markets:
• Full-fledged globalizers are
comparable to big Western
multinationals with long histories and
deep-rooted traditions. Examples include
the Tata Group of India and CEMEX of
Mexico.
• Regional players have set their
sights on neighboring markets, at least
for the time being, owing to cultural
and geographical affinity. However,
they strive to break through their
home market to enhance profitability.
Examples include VinaCapital of Vietnam
and PKO BP of Poland.
• Global sources, while focusing on sales
in their home market, make international
purchases of raw materials and semi-
products to cope with domestic resource
constraints. These companies are
concentrated in the energy and bulk-
commodities sectors. Examples include
CNOOC of China and Reliance Petroleum
Limited of India.
• Global sellers, unlike global sourcers,
focus on domestic manufacturing for the
overseas market. SUEK of Russia is one
example.
• Multi-regional niche players draw on
innovative technologies or processes to
specialize in operations in a number of
regions. Examples include the business
service and technology firm MDS
Holdings of Lebanon and the specialized
3-D display technology manufacturer
Holografika of Hungary. (Its CEO labels
Holografika “a small global company.”32)
Regardless of to the motivation to
go global, the strategic purposes of
globalization invariably consist of several
key elements—namely, overseas markets,
raw materials, talents, technologies
and international brand names.
Responses to our surveys indicate that
the globalization strategies pursued by
Chinese enterprises have centered on
these elements with varying degrees
of emphasis. At present, developing
overseas markets is still the major
motivation behind the decision to go
global (See Figure 9).
38.7%
16.1%
9.1%
9.0%
7.1%
6.1%
5.6%
2.7%
1.9%
1.9%
1.8%Eschewing trade barriers
Reducing cost pressure
Reducing risks
Accelerating capital flows
and operations
Responding to the trend of
economic globalization
Expanding sales
Obtaining international managerial
talents and expertise
Obtaining advanced technologies
Acquiring raw materials
and resources
Establishing self-owned
international brand names
Developing the overseas market
Figure 9 The main aims of globalization
(Select three items, which are weighted in order of importance: most important=0.5, important=0.3, least important=0.2.
The marks obtained for each of the three are divided by the total marks.)
Source: Accenture and China Enterprise Confederation Questionnaire Surveys, May-August 2010
“Globalization represents the third pioneering effort of the
Sany Group. Without globalization, we would be small.”
He Zhenlin, Vice President, the Sany Group31

26. 26
While constructing an overall
globalization strategy from a long-
term perspective is essential, it is
equally important that an enterprise
approach globalization in line with its
current situation and objectives. More
specifically, companies need to consider
such factors as their capabilities, stage
of development and characteristics of
the industries in which they compete
in formulating globalization strategies.
Otherwise, globalization will remain
out of reach or could even endanger
an enterprise’s development. While
globalization is a worthy goal, a firm
should not pursue it merely for its own
sake. Of the enterprises that responded
to our surveys, most indicated that they
have finalized globalization moves of one
sort or another or plan to do so within
two years, but 6 percent said they have
no plans for globalizing within the next
two years. Evidently, globalization is not
the only road worth pursuing.
Regardless of the objectives globalization
is intended to support, success requires
a leadership team with a vision and
capabilities for globalization. The
ultimate goal of any enterprise is
to create value. Strategies that do
not contribute to value creation are
unjustified, however grand they may
appear. Therefore, the material result
of a globalization strategy ought to be
enhanced international competitiveness
and the creation of value for
stakeholders.
2. What businesses do we
want to compete in?
In addition to assessing desired
outcomes of globalization, companies
must ask, “What kinds of overseas
businesses do we want to engage in?”
Companies achieve global growth in
various ways but mainly through the
following stages:
1. Relocating existing lines of business
overseas. This approach enables
optimization of a company’s current
operations to reduce costs and improve
profitability, thus ensuring sustainable
development. Coca-Cola setting up
production lines in China is an example
of this model. It is true to the majority of
companie’s overseas busineses.
2. Extending the value chain
downstream or upstream, or moving
up the value chain. By adopting this
approach, an enterprise enlarges its
sphere of business in its own industry
through expansion of the activities in
which it engages.34 For instance, Google,
which generates the bulk of its income
through online advertisements, has taken
a major step by establishing Google
Wave, a shared space on the Web where
people can collaborate using richly
formatted texts, photos, videos, maps
and more. This product has significantly
expanded Google’s advertising business.
3. Developing new business in a new
environment. GE offers an apt example
of such transformation. The company
has made breakthrough innovations in
emerging markets by designing portable
and affordable medical instruments.
For instance, it has developed portable
electrocardiographic equipment priced at
US$1,000.00 for the Indian rural market
and portable ultrasound equipment
priced at US$15,000.00, for the Chinese
rural market. In the process, GE has
reaped huge profits in these emerging
markets and has fueled growth by
bringing these low-end products back to
the US market.35
Few globalizing Chinese enterprises have
reached the stage of developing new
businesses in new environments. Notable
exceptions include the Holley Group and
the Haier Group, which have established
industrial parks overseas. While some
enterprises cling to their original line of
business, many others strive to extend
their value chain. In an interview with
us, the senior manager of one enterprise
said that his company had gone global by
establishing a global value chain rather
than by exporting its products to the
global market.
We believe that this approach has
great merit. An enterprise’s value
chain represents the various processes
involved in the production of goods
(and services)—from research and
development to the acquisition of
raw materials, and from production
and marketing to final delivery of
products. It also represents the various
activities the enterprise undertakes
to generate profits and strengthen its
competitiveness. A company establishes
its core competencies by enhancing
various capabilities while managing
and developing its value chain. The
value chain varies from enterprise to
enterprise. In setting up a globalization
strategy, a business should first
analyze its comparative strengths and
weaknesses in terms of resources and
capabilities, and then determine which
links in the value chain should go global.
Innovation is a primary consideration
for the majority of Chinese enterprises—
it is the only avenue through which
they can expand to the global market,
extend from the low end to the high
end of the value chain and therefore
achieve profitability and sustainable
development. Amid a volatile
international business environment
and rapid technological advances, it
is imperative that Chinese enterprises
fundamentally improve their managerial
and innovation capabilities to become
truly globalized players.
“An enterprise should think through and be clear about
what it wants to achieve by globalization. The financial
crisis has led many export-oriented companies to realize
the importance of market. Foreign companies flock
to China because China is a big market. An enterprise
may not necessarily have to go the harder way of
globalization; it may not be so late for it to do so when
it has been well established in the domestic market.”
Liu Chuanzhi, Chairman, Lenovo Group33

27. 27
To maximize profitability, Chinese
companies must become more
innovative in research and development,
marketing, brand construction and other
key business functions.36 They used to
compete on cost and price, without core
innovative technologies or independent
brands, and seldom broke into the
highly profitable service sectors.
Most Chinese primary equipment
manufacturers, for example, are at the
bottom of the global value chain, with
their profits accounting for less than 5
percent of the value of their products.
At a time when the global economy
and the manufacturing industry are in
a critical period of recovery, Chinese
enterprises need to shift their products’
reputation from “Made in China”
to “Made with China” or “Created
in China.” Such a transformation is
crucial for Chinese businesses seeking
to own world-class brands and thus
feature more prominently in the global
economic landscape.
To access advanced technologies and
upgrade their value chain, more Chinese
enterprises are focusing their research
and development efforts in North
America and Europe. Some have taken on
independent technologies and absorbed
technological advances in developed
countries by means of overseas mergers
and acquisitions or the establishment of
R&D centers or labs in other countries.
Gree Air Conditioners, for instance,
successfully developed an advanced
air-conditioning technology following
its failure in 2001 to purchase such
technology from a Japanese company.
The company has long insisted on
mastering core technologies to support
its development strategy. It does not
set a ceiling for R&D expenditures,
and it became the first in its industry
to establish three research institutes
devoted to medium- and long-term
research in sophisticated technologies.
It has moved on from medium- and
low-end manufacturing, and is the
global bellwether in air-conditioning
technologies.37
Other enterprises, by contrast, have
acquired advanced manufacturing
technologies, managerial expertise, sales
channels, customers, markets and even
brands by purchasing overseas peers that
are technological leaders. For example,
in April 2010, the Chongqing Machinery
and Electronics Company acquired the
UK-based Precision Technologies Group
(PTG) for £20 million. The company
plans to pump £10 million into PTG in
the next several years to strengthen its
competitiveness in the machine-tool
product area. PTG, which owns two
factories in the UK, has provided the
Chongqing Machinery and Electronics
Company with precision machinery
manufacturing technologies, thereby
enhancing Chongqing’s technological and
managerial prowess.38
“The first phase of our strategy is a global market for our
products, and the second phase is a global brand.”
Wu Fei, General Manager of COFCO Wine39

28. 28
Case study
A tale of two Chinese
automakers
The year 1997 will go down as a
shining page in the history of China’s
automobile industry. In March of that
year, the Chery Motor Company broke
ground. Also in 1997, the Geely Company,
which had started in the refrigerator
components business, declared its entry
into the automobile industry.
The two companies have striking
similarities. Both had begun by developing
cars targeted to the masses and following
a low-price strategy. They adopted
this approach because of the large
gaps between them and their foreign
counterparts with regard to technological
levels, brand value and market influence.
Because multinational automakers’ prices
were relatively high, middle-income
Chinese families could not afford them.
Chery and Geely concentrated on the
medium- and low-end segments of
the market for middle-income Chinese
families, carving out a narrow space for
themselves in the crowded and highly
competitive auto market.
The two companies have also tried to
push into the global market. China
accounted for no more than 10 percent
of the global automobile market in the
late 1990s, so a Chinese automaker
had to go global to achieve world-
class status. Yin Tongyue, Chairman of
Chery Company, noted, “The Chinese
auto market is a small part of the
global market though it grows fast.”40
Li Shufu, Chairman of Geely Company,
pointed out, “China’s auto industry
has got to participate in global market
competition in order to improve its
competitiveness.”41 Both started to “go
out” by selling their products on the
world market. Owning independent
brands, they could decide where to
export. Unlike partners in a Chinese-
foreign joint venture, which is limited
by foreign partners’ global strategies,
Chery and Geely took globalization into
their own hands. In October 2001, Chery
began exporting its sedans to Syria. In
August 2003, Geely also began to export
its sedans.42
However, the two businesses chose
different paths to expand into the global
market. Chery took the incremental
approach of emphasizing exports, green-
field development and independent
research and development. In contrast,
Geely chose the more radical strategy
of strengthening itself through overseas
mergers and acquisitions—swiftly
increasing its scale and market presence.
Spotlight on Chery
The Chery Company has spread its
wings overseas cautiously. Its chairman,
Yin Tongyue, sees overseas M&A as
risky, especially when it comes to the
integration of diverse corporate cultures.
Consequently, Chery has focused on
organic growth.43 It reached out to the
overseas market in a substantial way
in 2004 and established a specialized
international company for its export
business. The destinations of its
products initially included the Middle
East, Southeast Asia and Africa, and
slowly expanded to include Russia,
Southeast Europe and Latin America.
Chery targeted medium- and low-
income consumers in these countries and
regions. And it refrained from entering
the West European and North American
markets, which set more rigorous quality
and environmental standards.44
Chery began building factories overseas
in 2006. In light of financing and
operational risks, it chose to embark
on this building effort jointly with
local partners. In exporting products, it
insisted on constructing CKD (complete
knock down) or SKD (semi-knock
down) assembling facilities with these
partners. Such localized production,

29. 29
which contributed to local taxation and
employment, largely protected Chery
from local trade protectionism.45
In 2008, the Chery Company sold
356,000 cars, winning fifth place on
China’s passenger-car sales chart. For
the 10th consecutive year, it was the
champion in sales of domestic brand
products. About 135,000 of the cars it
sold were exports, which made Chery
the No. 1 auto exporter for the sixth
year running. The company is now firmly
established in Asia, Europe and Africa,
with localized production and selling
in countries including Thailand, Russia,
Argentina and Uruguay. Its products
have reached more than 70 countries
and regions.46
Spotlight on Geely
In contrast to Chery’s methodological
approach, the Geely Company has
globalization more energetically. In
October 2006, it signed a deal with
UK-based Shanghai Maple and
Manganese Bronze Holdings (MBH) to
jointly produce brand-name taxicabs.
By acquiring a shareholding stake
in MBH, Geely obtained related car-
manufacturing technologies and, most
important, sales channels in Europe for
its independent brand products. Also, it
could take advantage of MBH’s after-
sales services in the UK and in Europe
overall.47
In June 2009, Geely plunked down 54.6
million Australian dollars to acquire the
Australian automatic gearbox maker
Drivetrain Systems International Pty
Ltd. (DSI), which was under bankruptcy
protection. As one of the two
independent manufacturers of automatic
gearboxes in the world, DSI had strong
design, R&D and production capabilities.
The move significantly improved Geely’s
technological and production capabilities
in the area of automatic gearboxes. In
addition to meeting its own demand for
gearboxes, it supplied these products to
other automakers. The acquired business
had strategic importance for Geely’s
core car manufacturing business. Indeed,
the acquisition helped Geely to upgrade
its value chain.48
In March 2010, Geely completed the
purchase of Volvo Cars from Ford Motor
Co. with a hefty US$1.8 billion, acquiring
100 percent of Volvo’s equity and related
assets (including intellectual property
rights). The deal constituted the biggest
overseas acquisition ever by a Chinese
automobile manufacturer.49 Geely
maintained that the acquisition met its
strategic needs in an age of globalization.
It expects to create high-end products
as quickly as possible and therefore
improve its international visibility, by
relying on Volvo Cars’ core intellectual
property rights, brand value and
market position. However, Geely faces
formidable challenges in integrating
Volvo Cars’ advanced management
systems, establishing a cross- cultural
management team and making Volvo
Cars’ technologies and brand name
entirely its own.
Wang Ziliang, Vice President of Geely,
noted that Geely’s acquisition was made
with the company’s unique situation
and needs in mind, and that acquisition
for acquisition’s sake is meaningless.50
However, inking the deal is only the
first step. The post-merger integration
process, upon which the acquisition’s
long-term success hinges, is anticipated
to be protracted.
The Chery Company and the Geely
Company have taken diverse approaches
to globalization not only because of the
differences in their strategic orientations,
management philosophies, market
positioning and corporate cultures, but
also because of the differences in their
leadership styles and preferences.

30. 30
3. Where should we locate
our global businesses?
Executives at globalizing Chinese firms
take into account their globalization
objectives to decide where to locate
their global business. Companies
seeking to acquire resources have to
go where such resources are abundant.
Those whose main purpose is market
expansion need to go where their target
markets are large enough. Enterprises
most concerned about avoiding trade
barriers must go to third-party countries
or regions through which they can
access their target markets. Those
whose primary aim is the acquisition
of innovative technologies have to go
to countries where businesses possess
considerable technological strengths.
Political, cultural, social and linguistic
factors also influence the geographical
choice of enterprises seeking to
globalize. For instance, some executives
we interviewed defined Southeast
Asia as an ideal destination for their
investments, noting that it is home to a
substantial ethnic Chinese population,
which facilitates communication and
management. Others said that they
would not attempt to do business in
countries that are not friendly to China.
In deciding where to go, executives
should gain a thorough understanding
of a potential market’s competitive
strengths, products and availability of
opportunities. Integration of cross-
regional resources optimizes an
enterprise’s portfolio of resources and
thus sharpens its competitive edge.
According to Bruce Kogut’s global
strategy model on comparative
strengths and geographical choice, an
enterprise should give capital and human
resource inputs primary consideration
in deciding where to locate their global
business activities. Capital and human
resource inputs are closely correlated
with countries and industries. For
example, countries have different cost
structures in areas of taxation, tariff,
transportation, salary and so forth.
Various industries require different
levels of inputs in capital and human
resource. Businesses can formulate
their geographic strategy based on their
industry’s defining characteristics, their
own competitive advantage and whether
they follow a capital- or labor-intensive
strategy. Thus, they can choose to locate
their business in developed countries,
emerging markets or developing
countries51 (See Figure 10).
Developed countries, which enjoy
comparative strengths in talent and
capital, have industries concentrated in
digitized production and manufacturing,
services and product research and
development. In contrast, developing
countries generally have cheap and
abundant labor and hence have relative
strengths in production costs. Many
transnational corporations originating
in developed countries relocate their
manufacturing processes to developing
countries to capitalize on this low-cost
advantage. Therefore, industries that are
concentrated in developing countries
and regions include food processing and
export of simple consumer products.
However, the so-called emerging markets
have already begun challenging this
paradigm. Such markets include the IMF
classifications of “newly industrialized
Asian economic entities” and “other
newly emerging markets.” Distinctive
features of these markets include a
gradually advancing market economy,
rapid economic growth, big market
potential and ongoing integration into
the global economic system through
institutional reforms and economic
progress. Emerging-market nations
usually include Brazil, China, India,
Indonesia, Mexico, Russia, South Africa,
South Korea and Turkey.52 These countries
are experiencing accelerated economic
growth and technological progress
and have accumulated huge pools of
high-end talent. Because overall wage
levels in these emerging markets are far
lower than those of developed countries,
multinational corporations are competing
to establish research and development
centers in localities characterized by a
concentration of high-quality talent. This,
in turn, promotes further technological
progress and rapid development of
high-tech industries in these countries.
Therefore, the industries in emerging
market economies currently encompass
basic production and manufacturing,
digitized production and manufacturing
and so on.
Emerging market multinationals (EMMs)
are racing to catch up with their peers in
developed countries, although they are
newcomers to globalization. Globalizing
Chinese enterprises should recognize
and employ the comparative strengths of
the aforementioned different markets in
making geographical choices.
Chinese companies’ comparative
advantages lie in low-cost labor and
Product research and development
Technological service industries
Digitalized production and manufacturing
Industrialized machinery production and manufacturing
Basic production and manufacturing
Assembly production
Exports of simple
consumer goods
Food
processing
Emerging markets
Developing countries
Developed countries
Human resource inputs
Source: “Designing Global Strategies: Comparative and Competitive Value-Added Chains.”
Bruce Kogut, in Smart Globalization: Designing Global Strategies, Creating Global Networks,
the MIT Sloan Management Review Innovation Series 2003
Figure 10 Industries’ comparative strengths in different countries
Capitalinputs

31. 23.0%
20.5%
19.3%
16.8%
14.3%
6.2%
Figure 11 Countries and regions preferred for globalization by Chinese firms
(Select two items. The votes of each item divided by total votes = %)
Source: Accenture and China Enterprise Confederation Questionnaire Survey, May-August 2010
European and North American
markets
Asia-Pacific emerging markets
Other emerging markets
Pacific developed markets
(Japan, Australia and New Zealand)
The BRICs (Brazil, Russia and India)
Taiwan, Hong Kong and Macao
31
raw materials. However, a sizable gap
exists between them and multinational
corporations with respect to market
share, technologies, innovation
capabilities and high-end talent. Chinese
enterprises generally have an edge over
their counterparts in other developing
countries in terms of capital, R&D and
technologies, but lag behind some of
them when it comes to volumes of
natural resources commanded, such as
land, forests and oil. Although emerging
market countries have achieved rapid
economic growth, the drivers behind
each nation’s growth are unique.
Globalizing Chinese enterprises should
make geographical choices on the
basis of their target industries, capital
reserve and human resources as well as
the comparative advantages offered by
potential countries and regions in which
to do business.
In our research, we have broken down
the global market into the following
components:
• European and North American
developed markets
• Asia-Pacific developed markets (Japan,
Australia and New Zealand)
• Taiwan, Hong Kong and Macao
• the BRIC countries (Brazil, Russia, India
and China)
• the Asia-Pacific emerging markets
• other emerging markets
According to our surveys, the Asia-
Pacific emerging markets are the most
favored by Chinese enterprises, with
23 percent of the enterprises targeting
these markets as the prime locations
for their overseas investments (See
Figure 11). These findings coincide with
related Chinese official statistics, which
suggest that in 2008 Asia accounted
for a remarkable 78 percent of China’s
total overseas investments. Chinese
enterprises prefer these Asia-Pacific
countries and regions for two main
reasons:
• China’s geographical proximity to
them and affinity with them historically,
culturally and ideologically. For example,
these countries and regions have long
served as markets for China’s exports.
• Rapid pace of industrialization, high
per-capita income and large markets.
The stable macro-economic environment
in these countries and regions provides
assurance of returns on Chinese
enterprises’ investments.
Roughly 20 percent of the Chinese
enterprises that responded to our
survey preferred the European and
North American developed markets
second to the Asia-Pacific emerging
markets. These markets have high
levels of economic development, a large
capacity for outside investments, an
outstanding investment environment,
highly developed transportation
and communication infrastructure,
and stable market regulations, legal
systems and societies. These countries
also offer a huge consumer market as
well as high levels of division of labor
and high market differentiation. In
addition, they are traditionally leaders
of global technological innovation and
originators of high-tech industries, such
as biomedical engineering, material
technologies, aeronautic and space
technologies and microelectronics.
Therefore, by investing in Europe and
North America, a Chinese enterprise
not only keeps in close touch with
international market trends and
regulatory standards, but also stays up
to date on the latest developments in
technologies and products.

32. 19.2%
17.4%
15.6%
14.5%
14.4%
3.0%
0.9%
0.8%
0.7%
Figure 12 Considerations in selecting target countries for investments
(Select three items in order of importance: The most important=0.5, less important=0.3,
the least important=0.2. Score of each item divided total score=%)
Source: Accenture and China Enterprise Confederation Questionnaire Survey, May-August 2010
The enterprise’s current strategic
expectations
The enterprise’s industrial
characteristics
Capacity of the target country’s market
The target country’s infrastructure and
natural resources
Policy support of the Chinese
government
The target country’s legal and
policy environment
Labor cost
Language barrier
Others
Culture and social system
18.6%
32
Countries that traditionally have not
attracted much foreign investment from
China, such as those in Africa and Latin
America, have recently experienced
dramatic improvements in their
investment environment. Thus they are
seeing more interest from globalizing
Chinese enterprises.
Consider Africa. In 2008, Africa
accounted for 9.8 percent of China’s
aggregate overseas investments, up from
just 3.2 percent in 2004. In 2002-2008,
Africa ranked second in the world in
GDP growth. (Thirteen African countries
surpassed China in terms of average per
capita GDP, and 22 surpassed India in
the same measure.) Africa is the second
most populous continent in the world,
with rapid increases in consumption
levels. The rising middle class is
boosting consumption of services,
which account for 40 percent of GDP.
Accelerated urbanization has created
more concentrated and affluent markets.
Also, regional economic organizations
and trade agreements have facilitated
international trade. Africa is blessed with
rich natural resources such as minerals,
fresh water, forestry, arable land and
renewable resources—a key advantage
in a world characterized by increasingly
severe resource shortages. Thanks to
this advantage, Africa remains a magnet
for investors from China and India. With
the strengthening of education in Africa,
the quality of labor is also improving,
and labor cost is around half that of
Central Asia, Latin America and Eastern
Europe. Market liberalization reforms
have accelerated free movement of
capital, and strengthened regulation
has improved capital market stability,
efficiency and maturity. A thriving
capital market is a boon to internal and
external trade. In addition, innovative
technologies are becoming prevalent
in Africa’s mobile communication
sector and increasingly in healthcare
and agriculture, two sectors that
were already presenting a market
for these technologies. Last but not
least, infrastructure in Africa has seen
significant improvements.53
The Latin American countries of Brazil,
Mexico, Argentina, Colombia, Chile and
Peru possess considerable potential for
growth and therefore have also begun
attracting external investment. With
a stable social and macroeconomic
environment and increasing government
investment in infrastructure
development, these countries are
enjoying stable economic growth and
vigorous domestic markets. They are rich
in mineral resources, oil, agriculture and
renewable resources. They also have a
growing young labor force; their human
capital is sufficient to sustain economic
growth for 20 years. The middle class in
these nations is expanding as well. (In
2008, Brazil’s middle class accounted for
46 percent of incomes.54) Brazilian media
anticipated China to be the biggest
investor in the country in 2010.
For an enterprise deciding where to
invest, an in-depth analysis of a potential
host country’s industrial characteristics
is critical. For instance, the company
should define its current strategic
expectations, ascertain its alignment
with the local industry to invest in and
investigate the local opportunities,
threats and challenges. Our survey
respondents paid almost equal attention
to their own characteristics and
strategic planning; target countries’
market capacity, infrastructure and
resources; and the local legal and policy
environment. It is striking that labor cost,
language, culture and social system are
secondary considerations for globalizing
enterprises, although these are often
cited and highlighted (See Figure 12).