Analysis and Study on the Internationalization strategy for Chinese Enterprises

Analysis and Study on the Internationalization strategy for Chinese
Enterprises
WEI Xiangming, CHEN Hanmei
Management College of Hubei University of Technology, P.R.China,, 430064
：
Abstract
As aggravating of the globe economic integration and the sustainable, stable growth of the
Chinese economy, the Chinese enterprises anxious to execute the international strategy. The existing
limitations of the development strategy for the Chinese enterprise internationalization were analyzed.
Learning from the successful experiences of the Japanese enterprise internationalization, the paper
indicated that, when the Chinese enterprises run the internationalization, they should enforce the
independent innovation in the technology, and hasten to develop the independent innovation ability.
Keywords: Internationalization; Independent innovation; OEM
．Introduction
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As the global development of economy, the domestic market gradually comes under the impact of the
cheap goods from foreign enterprises. However, the best defend is powerful attack. The Chinese
enterprises should augment the sensation of the crisis and pressure, use all the chances, on the one hand
keep tightly the home market, on the other hand make every effort to hold of the international market.
Looking back the growing course of the 500 transnational corporations in the modern world, we may
also find out a common characteristic: The international strategy was one of the main strategies for these
corporations to expand quickly and become to have the international competitive advantage.
Consequently, whether the own law of the enterprises development or analysis of the objective situation,
the implement and acceleration of internationalization of the Chinese enterprises are very important and
urgent. The development strategy of the enterprise internationalization refers that the enterprises actively
take part in the world labor division system under the background of the global economic integration,
and make the strategy choice in the course of the development from the home working to the global
working. For developing strategy of the enterprise internationalization, the development of the core
competences will be the aim, the independent innovation should be implemented on the basis of the
introducing technology.
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2 The necessity of the development of the Chinese enterprise internationalization
The international development strategy of the Chinese enterprises is an inevitable choice to deal with
of the global economy. Nowadays, the worldwide socialization production network has been formed.
The traditional resource and products based labor division has been broken, and the transnational
corporations play a more and more outstanding role in the economic action of the world. ”
Internationalization of the domestic market and the nationalization of the international competences”, as
a new competition form, have been formed. According to the statistics, by the end of 2004, 450 of the
500 top corporations in the world have invested in china; they built more than 3000 of dividing agencies
in china. The investing industry distribution mainly focuses on the manufacture, petroleum and
chemistry, electron and communication, pharmaceutical, food and drink, textile process and costume,
metal smelting and manufacture and so on. The trend of global integration demands the enterprises to
become into the international enterprises. This is irreversible and inevitable. Either the transnational
corporation enters to conquer us, or we must face the transnational corporation. The Chinese enterprises
should implement the international strategy without a moment's delay.
．The strategy analysis of the international development of Chinese enterprises
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In 2005, the trade gross of the foreign trade in china came to US 1422.1 billion, the export was US
762 billion, and import was US 660.12 billion. The export gross of china was the third in the world,
but the export proportion of the independent brand was not high, the most exports of the enterprises
were processing trade using the foreign brand and the order trade giving the original equipment
manufacture. In 2005,the export of the processing trade was US 416.48 billion, being 54.7% of the
total export trade; the import was 274.03 billion being 41.5% of the total import. Data showed that,
the foreign trade enterprises with the independent brands were 20% less than the whole foreign trade
enterprises in China. The export gross of the independent brands was 10% less than the export gross,
famous brands with the international effect were fewer. The processing trade developed the powerful
productivity, but we must also depend on the transnational corporation greatly because of the lack of
market ability and brand stature. Detail analysis is following:
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3.1The original equipment manufacture
Above situation for Chinese enterprise internationalization mainly related to the application of the
internationalization model - the original equipment manufacture. The original equipment manufacture,
i.e. OEM, is developing and manufacturing products under the committing of the original enterprise
(brand enterprise), the original brand, sales and business method of the original enterprise are used in
this cooperation business production method. The direct aim of the international strategy of the OEM is
that it can use the cheaper domestic product elements, especially the labor resource which is nearly
infinite. The result of this strategy also shows the competition on the export and international market,
but these products are produced by the foreign businessmen who invested in china. The products are
“Manufactured in China” and not “made in china”. Most of them are the famous international brand of
the transnational corporations, the domestic enterprises in china don’t either gain the international
chance, or come into being the famous brand of the world by themselves. For example: the can industry
is all along to grow quickly in the recent years. Since 2000, the productivity and export of the can
industry are quickly growing every year. Some kinds have absolute advantage and share. However, by
far, most of export cans were manufactured of the original equipment manufacture (e.g,OEM) except
that a few export cans used their own brands, especially some quickly develop kinds such as peach and
orange cans, are almost 100% manufactured by OEM. The most world famous cans are manufactured by
OEM in China.
Although the trade scales are relatively large in china, most of them rely on the production of the
OEM to support the trade scales, they don’t have their own intellectual property, so the trade interest is
very little. For instance: because we don’t master the core technology, 20% of the sale price of every
mobile telephone made in china, 30% of the computer and 20%~40% of the digital control machine
have to pay for the foreign patent owner. 55% of Chinese export gross, 90%of the export of the high and
new technology, all depend on the processing trade. From the present situation, although the processing
trade conforms to the demand of the economy development of china, but if we rely on other country in
long time, can’t have our own core competences, and will necessarily affect the development of Chinese
trade.
3.2 Using the “three-low” strategy (low-status, low-technology, low-price) to occupy the
international market
The rapid growth of the Chinese foreign trade mainly depends on the low level input of labor, capital,
land resource and so on. The efficiency and quality of the export growth is low, the foundation is poor,
doesn’t get rid of the three-low phase: low technology, low additional value and lying in the low status
of the international labor division.
3.2.1Resource export
China all along appreciates the fast development of the export. However it ignores the export product
construction which is excess dependent on the resource. The main part of the export product is made of
the low technology, labor density and the crude manufactured products. In some degrees, Chinese export
is a kind of resource export. China is a country with limited resource, if the export lasts in the growing
way, the Chinese resources will be unbearable. According to the statistics data of the Japanese customs,
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china exported amount to 2243 billion couples of the convenient chopsticks to Japan in the recent ten
years, to produce the chopsticks, the areas of the disforest occupied over 20% of the land of China. To
be noteworthy, the covering coefficient of the forest in Japan is 65% of the Japanese land, while China is
only 14%.
3.2.2Low price
Although China has become a big trade country in the world, the comprehensive competence of the
enterprises is not strong and the sustaining driving power is not enough. Most enterprises gained the
success with the quantity and rely on the tactics with the low price to occupy the market, it indeed got
effect in short time, but the enterprises have not enough profit to go on the product innovation, and will
affect the force of the long term development of the enterprises. At the same time, exporting products
with the low price for a long time will be easy to cause the trade frictions and decline the trade condition.
In terms of the statistics data, the antidumping research of china was at 13.3% among the world
antidumping research, exceed greatly the total share of China in the international trade, 60% of them
were adjudicated to be dumping, and caused the Chinese export sale to be reduced on a large scale, and
its economic effects are more and more obvious.
3.2.3 Low technology
The OEM products mainly focus on the product with low technology, while the key part of high
technology demand still largely relies on the foreign export. On Dec.8.2005, the accessory chairman of
the technological institution, Deng Nan said in the first fairly well-off forum of China in 2005, at present,
China depended on the foreign technology that is over 50%, more than 65% of the device investment
depended on the import and our contribution of the technology advance was only 39% or so. Because
we didn’t master the core technology, the most interest had sent to the foreign patent owner.
3.3 There is a very large gap in the internationalization degree for the direct investment compared
with the developed countries and developing countries
At present, the internationalization business of the Chinese enterprises has entered a new stage.
Foreign trade is increasing, foreign direct investment grows rapidly and the foreign merger enters the
active period. However, because of the history and realization reasons, there is a very large gap between
china and the developed counties and developing countries in the internationalization degree. For
example, for the foreign direct investment, the stock of the outward direct investment was US 44.8
billion in china in 2004,, which is not only lower than the strong outward direct investment countries
such as America (US 2069 billion), England (US 1128.6 billion), Germany (US 622.5 billion),
Japan (US 335.5 billion), but also lower than some developed and small countries, such as Finland
(US 68.7 billion), Denmark (US 77.1 billion),even less than Singapore (US 90.9 billion), Brazil
(US 54.6 billion), Russia (US 51.8 billion) and so on.
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．The comparison and revelation of the international development strategy
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between China and Japan
In the 1950s-1970s, the Japanese enterprises chose the international strategy with the product
internationalization as the export-oriented in their growth road. The strategy produced a lot of the
international enterprises and world brands that are famous in the economic stage of the world. The
successful experience of the international working of Japanese enterprises gave a lot of the new
revelations for our enterprises international development. Firstly, occupy the highest peak in the
international market and the product export. The aim of the export-oriented international strategy
occupies the highest peak in the international market (especially American market) and the product
export, and mould the enterprise image and world brand of own internationalization. Secondly, develop
the competitive ability of the international market. The export-oriented international strategy not only
use its own cheap labor and land and so on, but also develop its own enterprises in the competitive
ability of the international market, they may use the two resources and two markets. Lastly, quickly
promote the national income. The export-oriented international strategy causes the trade quantity of the
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strategy countries to rise, meanwhile the GNP is larger than the GDP, it quickly promotes its own
national income.
From the international development strategy of Japanese enterprises, we can see that, first we must be
good at our own brands, and without our own brands how to go on the internationalization? Independent
brand and independent innovation must be set step by step, practice from the foundation and then we
can have the strong base for the internationalization.
．Accelerate to develop the independent innovation ability, improve the
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international competences of the enterprises
The central of the international strategy is to improve the international competences of the enterprises
by constant innovation. Improving the international competences of the enterprises is not only the
demand of its own development of the enterprises, but also the demand of improving country
competences under the current of the global economic integration. Its core is to cultivate the core
competences of the enterprises. It is unique, long-time, latent essence of the enterprises, supports the last,
present and future competitive advantage of the enterprise, and causes the enterprises to gain the core
ability in the competitive situation for a long time. The ability may cause the enterprises constantly for
different resource, element to go on the distribution and resultant; it can cause the enterprises to gain the
higher market parts and profit or the higher investment payoff than the rivals. If we want to develop the
core competences of the enterprise, we must implement independent innovation and create independent
brand.
5.1The government is the strong supporter of the enterprise independent innovation.
The enterprise, as the main part of the market economy, its existence and death are related to the
economic development of a country. The independent innovation is the fundamental approach of the
international development of the enterprises. Hence the government should all be the strong supporter of
the enterprises whether abroad or domestic. The function of the government mainly shows two ways:
one is that our government should adopt such as the intellective property right protection, technical level,
expert quota, anti-dump and government stocking to support the domestic enterprise development and
enter the international market competence. The other is that the government should build a better police
environment, and quickly impel the intellective property right of enterprises and the management system
reformation of the modern enterprises, overcome the system handicap of the research and development,
enforce the operative work of the privilege policy of the national finance and tax, and enhance the
inward power of the technical innovation of the enterprise in order to impel the independent innovation
and long-term development of the enterprises.
5.2Fastenly building the independent innovation consciousness and culture
The idea innovation is the soul of the independent innovation. Build the innovation consciousness
must have the three kinds of views, one is the opening and the global view, the other is to go ahead with
the time and the view of the dynamic development, the next is objective view.
The innovation culture mainly refers the creator holds the science spirit, science method and the
culture situation of the whole society. It lies to build an atmosphere, causes all the members to be accord
with the innovation, and becomes the coincident innovation action of the unit. The innovation is a
different ideation and practice, its biggest function is the exploration, may be success or failure. Hence,
we advocate the doubtful spirit, exploring, merciful failure, let every person have the innovation chance
and become the innovation atmosphere of the whole society.
We realize that our enterprises have held the independent innovation condition, it is not right to be
the proud sufficiency and gloomy feeling. In the last ten years, the devoted and incremental speed of the
research and development of our country is at the first in the world; even larger increment in the recent
years. Compared the year of 2005 year with 2000, the total cost for research and development of China
raised from 89.6 billion to 236 billion, the proportion of the GDP raised from 0.9% to 1.29%, the cost of
research and development had been the fifth of the world, the independent innovation ability enforce
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continuously. The side chairman of the international brand alliance said after reviewing: “Chinese
enterprises in the brand build method that is the biggest misunderstandings underrate their own strength,
China has held the ability to produce good productions, it is only short of the brand building”.
5.3 The enterprises building the devotion of the research and development in order to improve the
innovation ability
In terms of the international and popular opinion, if the devotion of the research and development is
less than 1%, generally, it is very difficult to exist; if less than 3%, the enterprises will not have the
competence. The relative studies showed: our enterprises appreciated to introduce, ignored to digest and
assimilate the re-innovation greatly, for example, introducing the same technical device, the cost we
used to digest and adsorb the innovation was only 0.7% of Japan and Korea. The poor proportion causes
China that enters into a reduplicated and vicious cycle. Therefore, if we can’t adopt the feasible
implement, improve the devotion of the research and development of China, increase the innovation cost
of using the digestion and absorbability and resolve the shortage of the finance of the technical
innovation, the independent innovation of our enterprises can’t stride a new step.
5.4 Enhancing the independent innovation ability to master the independent intellective property
right and improving the enterprise competence
In the course of the independent innovation, the intellective property right acts as the very important
part. If we don’t master the independent intellective property right or hold the independent brand, the
innovation will be aimless and inefficiency. Without independent intellective property right and brand,
independent innovation will lost its resource. With the coming of Knowledge Economic Age, the
invisible capital (such as the brand, patent, technology) plays more and more important function, the
enterprises must depend on the technology, management and system that master the independent
intellective property right, or it will be controlled in the intellective property right and the core
competences.
5.5 Developing and using the innovation talent to create the wealth
Bill Gates summarized the secret of Microsoft to become a global enterprise and said: “if the twenty
high talents are drained out from our corporation, the Microsoft will become a footling corporation.”
Entering the Knowledge Economic Age, the knowledge and talent are more important in the enterprise.
The enterprise managers should impel the group building of the high level talents in terms of improving
the independent innovation ability, and try to develop a group of the moral and gift, high-class technical
talents, international technical masters and technically chief talents, especially develop a group of the
middle-aged experts quickly.
．Conclusions
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Although the processing trade-based international strategy in Chinese enterprises can greatly promote
the growth of our GDP, employment, tax, creating the foreign exchanges, especially partially reduce the
pressure of employment, our own enterprises haven’t gained the international chance, and even don’t
have our own world brand. Implement independent innovation and create independent brand are the
foundation approach of our enterprises. Independent innovation involves original innovation, integrate
innovation and digest innovation. The last two are the re-innovation on the base of the technical
introduction. So for the home enterprises, advocating the independent innovation don’t give up the
technical introduction, but adopt the independent innovation on the technical innovation and digestion
and assimilation. In fact, Japanese enterprises are the re-innovation on the base of the technical
innovation. It not only abbreviated the technical gap, but also enhanced the international competences of
the enterprises. After several decades, it becomes an advanced country in technology. Our enterprises
should carry out the independent brand innovation based international strategy as soon as possible.
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References
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[2]Xiao Kai. Study on the Present Situation and Strategy of China International Trade. Times Finance
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[3]Zhang Zhixin. Compare of the International Development Strategy Between Chinese and Japanese
Enterprises. Market Modernization, 10(2006), p30 31
[4]Wang Shihao. Case-Based Analysis of the OEM Practice in International Management. International
Economics and Trade Research,5(2006), p76 80
[5] Wang Zhenhong.The Tendency and Countermeasure of the High-tech Products Export in Shanghai.
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