None State Owned Enterprises are Cultivating Globalization in China

None State Owned Enterprises are Cultivating Globalization in China
You Hongbing Duan Yuan
School of Economics & Management Nanjing University of Science & Technology, P.R. China, 210094
Abstract the paper demonstrates that internalized operation of China’s non-state owned enterprises
(NSOEs hereinafter) is still at the primary stage by analyzing its internationalization. It points out that to
cultivate the NSOEs’ internationalization competitiveness is the key way to success and puts forwards a
series of ways to cultivate their competence.
Keywords Noses, Inward Internationalization, Outward Internationalization, MNCs
1 Introduction
The advent of economic globalization has been changing the operational mechanism and development
mode of the world economy and the national/regional economy. It is widely recognized that a country's
and industrial competitiveness are ultimately reflected by the enterprises’ competitiveness. The
internationalization is both the main way for the enterprises to strengthen themselves and the foundation
to enhance the competitiveness of a nation or industry. With the extensive development of economic
globalization, “Any enterprise has to face the internationalization, while the internationalization strategy
has in fact be an extremely important component of the enterprises’ strategy.” China’s non-state owned
enterprises (NSOEs hereinafter) are of no exception.
2 The Internationalization of China’s NSOEs has achieved a Lot
In 1999, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) endowed 20 NSOEs
with the right of self-conducted export, which symbolizes that China’s NSOEs had obtained the right to
participate in the internationalization. Foreign Trade Law of the People’s Republic of China(2004
Revisiong) authorized natural person to deal in foreign trade. This means the ownership system is no
longer a threshold for those who want to participate in the foreign trade. Since then, the NSOEs have
truly obtained the opportunity to participate in the international competition, and achieved a lot.
2.1 Contribution to China's Foreign Trade Expands Gradually
In 1999, the export value of China’s NSOEs was only 4.342 billion US dollars, but it developed well
since then. In 2001, the export was 14.22 billion US dollars, and 32.64 billion US dollars in 2002, 59.88
billion US dollars in 2003, 101.04 billion US dollars in 2004. It reached 148.74 billion US dollars in
2005 which is 34.26 times as that of 1999. And in the half year of 2006, it was 91.08 billion US dollars,
increased by 39.3% than it was last year this time. The practice has proved that the NSOEs have a very
strong desire and ability to export. While their export increased rapidly, their import also developed
rapidly. The “2005 Questionnaire Tracking Survey report of Thousand NSOEs Operators”, which was
finished by two authoritative institutes, shows 47% of NSOEs in 1,207 sample NSOEs has exported.
Besides; those exports accounted for more than 50% of their sales revenues were more than 30% of the
sample NSOEs.
2.2 The Enterprises’ International Competitiveness unceasingly Strengthens
On September 6th, 2004, the Ministry of Commerce and the National Statistics Bureau jointly issued
China's Foreign Direct Investment Statistics Bulletin of 2003(non-financial) (Bulletin hereinafter),
which was the first time that China has announced the foreign direct investment data. Despite the
Bulletin showed in the 33.2 billion U.S. dollars of the net foreign direct investment in Chinese
enterprises in 2003, “The private sector in 2003 accounted for 1.5% of the amount of net foreign direct
investment, only they came into the prominence in the foreign direct investment.” But in 2005, the
Bulletin of 2004 showed that in the foreign direct investment of Chinese enterprises in 2004, the NSOEs
accounted for 12%, while the collective enterprises accounted for 2%. This shows that the NSOEs
develop foreign direct investment very quickly.
Although the amount of foreign direct investment is still small, the NSOEs have exercised a great
influence in Chinese enterprises’ internationalization and obtained good results. Wanxiang Group is one
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of the NSOEs, which developed in 1969 with only seven individuals and CNY4, 000 capitals. But she
has owned 25 companies by building, merger & acquisition or shares in more that eight countries such
as the United States, Britain, Australia, Canada, etc. at present. Feiyue Group, founded in 1986 was once
rejected by the Guangzhou Fair, but it now has established 17 branch offices in 16 countries and regions
by foreign direct investment.
2.3 NSOEs Promote the Internationalization mainly by themselves
Different from the state-owned enterprises, China's NSOEs have been marginalized in the internalization.
They had no chance to get various facilities which have been granted to the state-owned enterprises by
the government. They have to do everything by themselves and live by their own hard work. Because of
no policy support, the internationalization for the NSOEs was next door to cross the river by touching
the stones full of hardships and risks. Because the NSOEs conducted their business activities on the
basis of market economy, they can achieve their ultimate goal of the internationalization more easily.
2.4 Diversified Internationalization Mode
The NSOEs have been clear-headed when facing the internationalization. Most of them have chosen
suitable ways for internationalization from their own reality. Moreover, the overwhelming majority of
the NSOEs have adopted the model of multi-mode simultaneously. By the network, we have
investigated international operation status of the top 50 Chinese NSOEs of 2004. The results shows 29
enterprise (58% of the total) implemented the strategy of both inward and outward internationalization.
Among enterprises which have exercised inward internationalization strategy, 19 enterprises have
engaged in import, 23 have introduced advanced technology, and 32 have built at least one joint venture
or co-operative enterprise respectively domestically. There were 37 enterprises who have executed
outward internationalization strategy, which accounts for 74%, among which 34 enterprises have entered
into the international market by export; 16 enterprises invested abroad, and 13 enterprises have exported
and invested abroad simultaneously. There was only one enterprise that has transferred its technology
abroad. This lends some support that the technology is indeed the bottleneck for China’s NSOEs.
2.5 The Own Strength’s Upgrading is the Foundation of Internationalization
The awareness of the internationalization’s importance and the learning from the western MNCs
resulted in the internationalization for China’s NSOEs. During the process of the internationalization,
the NSOEs have upgraded their own competitiveness by several kinds of channel. These channels
include. (1) To set up R&D bases abroad. For example, Feiyue Group mentioned above bought a
bankrupt sewing machine manufacturer in Japan during the financial crisis in Southeast Asia, turned it
into a R&D center, and hired six Japanese experts to develop new products. Meanwhile, the NSOEs also
have set up R&D bases at home to make use of foreign forces. For example, the Feiyue Group set up an
R&D center in Beijing in early 2000 and hired three talents from Germany and Italy. Qianjiang
Motorcycle Production Group set up an R&D center in Italy; Chunhe Groups specialized in handicrafts
set up its R&D center in France. In conclusion, NSOEs have gained strong competitive advantage by
establishing domestic or overseas R&D centers; (2) To raise the internationalization management ability
by learning on the internationalization operation and management knowledge.
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3 The Problems in the Internationalization for China's NSOEs
Although China’s NSOEs have exercised the internationalization, there still exists various kinds of
problems. Broadly speaking, there are “Lack in five aspects.”
3.1 Lack of Pressure on the Internationalization
According to a report on China’s NSOEs in 2002, 41.9% of the 3,258 surveyed enterprises said that they
have never considered to cooperate with companies abroad., 6.2% of them had no desire to cooperate
abroad, and only 22% of them have cooperated or are about to cooperate with the overseas companies,
besides nearly 30% have the intention of going global in the following three or five years. Among the
enterprises that have invested abroad, the average investment amount was only 27,300 U.S. dollars,
accounted for 3.1% of their registered capital.
3.2 Lack of Internationalization Strategic Target
A notable characteristic of the MNCs in the developed countries is that they have a comprehensive
global strategy, take the international market as their target to compete, and arrange every links of the
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reproduction cycle internationally. But as to China’s NSOEs, they were not good enough in these fields.
For example, most of China's NSOEs have emphasized immediate interests and thus have been lack of
consideration. Some of them just aimed to open a “window” so as to get the feedback of the information
of the host country’s market. These facts tell us that some NSOEs in the process of internationalization
had seldom planed by standing on its own long-term survival and development strategy.
3.3 Lack of Confidence in the Internationalization
Because there were only several years since the NSOEs began to go global, they wre not confident
enough in the internationalization. First, they are lack of confidence on themselves whether they have
ability internationalization. Because of their low technology and various trade barriers, the NSOEs feel
that it is very difficult to go global. Second, they are short of the experience on competing in the
international market. Thus, the NSOEs do not have enough confidence on whether they can success in
the internationalization.
3.4 Lack of the Experience to Develop the International Market
Because of the uncertain international market, the means and strategies of developing the international
markets determine greatly the results of the internationalization. Generally speaking, the gap of the
means and strategy on developing the internationalization market between China’s NSOEs and the
MNCs’ are very large. The gaps are as follows. Firstly, the means to exploit the market is relatively
simple. Secondly, the ideas used to develop international market are rather narrow. Thirdly, marketing
channels are limited, and research on the international market is lack. Fourthly, they are lack of the
awareness of intellectual property rights protection. Infringement of intellectual property has occurred
from time to time. Fifthly, both the ability of technology development and technological innovation are
low.
3.5 Lack of High-quality Internationalization Operations Personnel
The existing internationalization operation personnel of China’s NSOEs are mainly from three kinds of
channels: the domestic sales managers, those who were transferred from the other institutes and those
who were recruited from colleges and universities. As to the first kind of talents, they can easily
understand the corporation’s operation strategy, but they are in short of the internationalization operation
ideas. As to the second one, they are full of internationalization experience, but they are not stable. As to
the personnel from the colleges or universities students, they are rich in theoretical knowledge, but they
have no customer channels, struggling experience the international market. And it needs several years to
train them to be the internationalization personnel. Therefore, the NSOEs are facing great difficulties to
go global because of the lack of the internationalization talents.
In conclusion, the internationalization of China’s NSOEs is still in its early stage.
4 Cultivation of China's Private Enterprises’ InternationalizationCompetitiveness
Judged from all the NSOEs themselves, the internationalization characteristics of the foreign small and
medium enterprises (SMEs) and China’s state-owned enterprises, we do think that the
internationalization of China’s NSOEs not only require the necessary and timely support and assistance
from the Chinese government but also their own hard work and persistence.
4.1 Ideas’ Innovation
The ideas guide the action. In the process of internationalization, the chief task for the NSOEs is the
ideas innovations. First, establish the way of thinking globally. Second, correctly understand the
internationalization operation ideas. The NSOEs must understand that the internationalization is the
inevitable choice for the NSOEs when they reach a certain stage, and also it is an important way to
achieve sustainable development rather than a shortcut in the era of the economic globalization. Third,
international strategy should be gradual. Fourth, recognize that the internationalization is not just a
simple geographical expansion, which it should include the internationalization of management and
technical capacity. Only when the NSOEs examine the organization and operate in a global view, can
they have the competitiveness to fight with foreign companies. Fifth, recognize that internationalization
is a complicated systematic project; the NSOEs need to work hard in each step. In order to
internationalize successfully, the NSOEs should abide by the principle of proceed gradually and stick to
the principle of “Three-first and three-later”, that is: to foster internationalization competitiveness first
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and to internationalize later; outward internationalization first and outward internationalization later;
to internationalize the factors of commodities first and capitals and technology later. Sixth, be confident
that the internationalization prevail.
4.2 Raise the Level of Science & Technology
“Science and technology constitute a primary productive force.” In the competition of
internationalization, any enterprise is unable to escape the technical competition. As to the NSOEs, they
may take the way of “To imitate first and innovate independently later.” To keep to the way of imitation
first is mainly based on the following facts: First, it needs low investment. According to the survey by
the American enterprises, the average cost of imitation is only about 65% of innovation, some even only
40%. Second, the risk is small. Because the companies which take the lead to innovate have created the
market demands, the followers can easily seize a certain market share by meeting the consumers’
demands, or win more market by improving the products or sales arts etc. Third, the probability to
success is great. This is determined by the two characters mentioned above. After studying 36 kinds of
products before and after the World War
carefully, Gilder and Taylor found that companies taking the
lead to innovate had high failure rate, there are 44% and 50% respectively, while companies which
imitated had a very low miss ratio, 12% and 6% respectively at the corresponding period. However, we
should pay attention to the flaws and the inferiorities when we see the superiority of imitation
innovation. On one hand, the imitation may lead the imitators to be passive in technology. On the other
hand, the imitator may meet some entrance barriers. Besides, the NSOEs should protect their own
intellectual property rights and register their patents promptly both domestically and overseas.
4.3 To Accelerate the Training of the International Operation Talents
The talents are the essence on the era of knowledge-based economy. The NSOEs can establish the
internationalization operation talents by two ways. The first and important way is to induce outer talents.
The NSOEs may forge strategic cooperation partnership with the R&D community investment
management and consultant corporations and solve the problems on technology and management in the
course of the internationalization in virtue of the wisdom and knowledge of the institutes mentioned
above. By the way, they may recruit the talents with working experiences in joint ventures or
multinational corporations by making scientific policy for recruiting talents.
Of course, these corporations who have reached first base may get the internationalization operation
talents ab intra. The local staffs can know clearly how the company is doing, especially the company’s
internationalization strategy. However, the NSOEs should establish scientific mechanism on selecting
the brightest ab intra. Besides, the brightest selected should be provided meaningful training at college
at home and abroad.
In both cases, a perfect stimulus and regulating mechanism.
4.4 To Execute Brand Strategy
The 21st century is that of the brand. Lale Lait, the chairman of the Brand Value Association of America
said:“To have a market is more important than to have a factory, while the sole route to own the market
is to posses the outstanding brand.” The first class enterprises manufacture the brands, the second class
enterprises manufacture the products and occupied themselves with marketing. As a result, the brand
internationalization is the key stage for the NSOEs’ internationalization.
Since the Chinese NSOEs’ strength are still poor, the NSOEs should take pointed brand tactics from
their own characteristics, operating fields and the competitors. In general, the NSOEs may adopt own
creation, OEM, merger & acquisition(M&A), union or the combination of the above. However, the own
brand’s advantage tells us that it is the most important strategy as to the brand establishment for the
NSOEs’ internationalization.
4.5 To Master and Utilize the International Market Rules
The international market rules are the regulations, standards or a series of modus operandi with
important guiding significance on those firms who participate in the international trade. It characterized
as follows: (1) It’s the stronger who makes the rules. (2) The international trade customs and practices
are the core of the international market customs & practices. (3) The rules are changing. (4) The rules
are trustful. However, the Chinese NSOEs are novice of the international market customs & practices.
It’s time for the NSOEs to learn them.
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By the way, the NSOEs should improve their operation action according to the international market
rules as soon as possible so as to adjust themselves in the international market and meet the customer’s
demand. A company that can gain the ISO series certificate or like may help them to get rid of the
barriers in the international market. A company who has mastered the WTO rule can avoid being sued
by dumping or invading the intellectual property rights.
4.6 To Promote the Establishment of Reasonable Management & Organization Mechanism
Firstly, the NSOEs who act as the parent companies must establish the modern corporation system and
form the corresponding administering system. Then they should standardize the decision, supervision,
stimulus and the other inner management mechanism so as to lay a firm foundation for the improvement
of the NSOEs’ international competence and reduce or even escape all kinds of risks in the process of
the internationalization. It should be kept in mind that it is important for both those companies who have
gone global and those who begin to go global.
When they establish the management and organization mechanism, the first thing is to build the
administering and supervision system. As to the whole overseas operation activities, not only the parent
company can not devote the powers completely, and can not administer too far. They should adopt the
principle of the combination of centralization and decentralization. As to those key businesses such as
technology development, investment, and financial management etc. upon which success or failure of
the internationalization depends, to centralize is necessary, while those businesses which directly
concern the operation environments of the host countries should be given the overseas branches enough
rights to make decision. The second thing is to strengthen the supervision on the internationalization
talents.
5 Conclusions
The characteristics of China’s NSOEs and China's economic development have determined that the
internationalization for China’s NSOEs is of a typical newly-developed internationalization and the
process is propelled by comparative advantage not by monopoly advantage. Meanwhile, different from
the internationalization of the MNCs in the developed countries, China’s NSOEs have to walk in two
legs in the internationalization. That is to say, to accumulate and foster gradually their competitive at
home and abroad by the outward internationalization at first, and then to execute the outward
internationalization so as to labor for the establishment of Chinese MNCs.
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