Transcript china business

The Global Institute RIC Conference
Emerging Super Trio: Global Economic Implications
New Delhi, 20-21 November 2008
Outward FDI from China: Trends
and Implications
Professor Changqi Wu
Guanghua School of Management
Peking University
Beijing, China
Changqi Wu
[email protected]
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1 Globalization and China
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China benefits enormously in the process of globalization
in the last 30 years of economic reform.
China realizes its comparative advantage through
international trade and direct investment.
China’s domestic market becomes less fragmented.
Foreign invested enterprises strengthen the
competitiveness of China’s industries and more than half
of the total export of China is so called process trade.
Intensive competition and spillovers from foreign invested
enterprises create a group of Chinese companies that are
competitive in international markets.
Changqi Wu
[email protected]
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Inward FDI in China
2. FDI in China
The graph is an illustration of China´s FDI trend for the past 30 years. FDI rates
soared in the year 1993, showing a positive trend ever since.
FDI in China 1978-2006 (billion$)
72
69
61
53 54
47
45 45
42
38
40 41
34
28
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Changqi Wu
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Inward FDI in China
2. FDI in China
FDI in China 1978-2006 (billion$)
The first graph reveals that
although there has been a
huge increase in FDI in recent
years, these are normally
measured in contracted form.
250
Contracted
200
Realized
150
100
50
0
Number of Projects
90000
80000
Overall, there has been a
positive trend in the
number of projects,
peaking in 1993.
Changqi Wu
70000
60000
50000
40000
30000
20000
10000
0
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Inward FDI in China
2. FDI in China
By analysing FDI as a percentage of China´s GDP, there has been small increase,
suddenly peaking in 1993. However, from then on the trend has been constantly
decreasing.
This is rather interesting to note as a lot of sources pointed out to the increases in
FDI in China in recent years. However, this portrays that the dependence of China´s
economy on FDI has been exagerrated by the media.
Weight of the FDI in the GDP of China
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Changqi Wu
[email protected]
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Outward FDI from China
Changqi Wu
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Investment by CIC
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Changqi Wu
China Investment
Company is the 4th largest
sovereign wealth funds
with investment capital of
$200 billion dollars.
It invested $3 billion in
Blackstone Group at its
IPO price of $29.61 in
July, 2007.
The Chairman of the
Board of CIC claims
recently that its
investment in Blackstone
is a good one.
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2.
Motives for Chinese Firms Going
Global?
 Market
seekers
 Resources seekers
 Intellectual property seekers
 Efficiency seekers
 Reducing transaction costs
 Institutional void fillers
Changqi Wu
[email protected]
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Source: MOFCOM, 2008
Changqi Wu
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3. A Tale of Two Companies
 TCL in
Europe
 SMTCL and
Changqi Wu
Schiess
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TCL in Europe
TCL is one of the largest TV producers in China.
 In October 2002, it bought then bankrupted TV
operations of Schneider in Germany and resumed
its 120 employees.
 November 2003, TCL bought the TV operation of
Thomson and formed joint venture in which it
held 70%.
 Both acquisitions are unsuccessful and do not
meet the strategic objectives. TCL lost a lot of
money in both acquisations.
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Changqi Wu
[email protected]
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Why TCL Failed Twice?
 Insufficient
understanding of operational
environments
 Rapid technological change
 Old brand name
 Cultural conflicts
 Most importantly, going global to buying
back
Changqi Wu
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SMTCL
SMTCL (Shenyang Machine Tool Company
Limited) is the largest (in units) machine tool
manufacturing company in China.
 Schiess is a company founded in1857 and enjoys a
good reputation in machine tools industry.
 After several restructurings since 1990, it declared
bankruptcy on 1 August 2004.
 SMTCL bought Schiess on 1 November 2004.
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Changqi Wu
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Horimaster 5 G.M.W. Burg
XYZ
CWBA-
13000
6000
3000
360°
2000
360°
±95°
90kW
9000Nm
Changqi Wu
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Horimaster 5 mit Dreheinheit for（Alstom
Belfort)
Changqi Wu
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Vertimaster VMG 1.30
PCA Halberstadt
Changqi Wu
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Old and New
Changqi Wu
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Overall Performance in 2007
SMTCL Products
(2,5 m.€)
SMTCL Design
(0,9 m.€)
7%
Job Shop
(2 Mill.€]
Services
(7 m.€)
7%
18%
31%
37%
Machine Tools
(53,6 m.€)
Germany
China
USA
ROW
Russia
Machine Tools only
Total Volume
(66 m.€)
Changqi Wu
(53,9 m.€)
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A Win-Win Situation
SMTCL
SCHIESS
SM mochine tools
Mediam sized
machine tools
Large machine
tools
Technological Cooperation
Changqi Wu
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Design
•
Purchasing
•
Manufacturing
•
Assembling
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Why Germany and Why Machine Tools
SMTCL-Schiess is one of series purchases made
by Chinese machine tool companies in Europe.
 China is in its mid-stage of industrialization
process
 These purchases are usually small and focuses on
particular technology where there is a huge market
in China.
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Changqi Wu
[email protected]
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4. New Generation of Chinese Companies
 There
are a group of new generation of
Chinese enterprises that are emerging at the
global stages.
 Companies
that can take advantages of
comparative advantages of the country and
develop into firm specific capabilities
Changqi Wu
[email protected]
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The Case of BYD
 Build Your
Dream or Bring Your
Dollars?
 A private firm incorporated in 1995.
 It turns out to be the largest producer of
rechargeable batteries for mobile phones.
 It ventures into the auto manufacturing
industry and become one of the leaders in
the DM passage car business.
Changqi Wu
[email protected]
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Economics of BYD
capital
C1* Europe
A
K1
C2 China
B
Q1
K2
L1
Changqi Wu
L2
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C2 *CChina
labor
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Build Your Dream
BYD enters into dual
mode car market with
strong battery
technology.
 It is one of the real
electrical car that will
enter into market in a
matter of months.
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Changqi Wu
[email protected]
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Concluding Remarks
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Outward FDI from China is rising rapidly in
particularly with respect to its inward FDI, but is
still insignificant in the global FDI.
Chinese companies in general do not have
sufficient skills to management cross-border
operations and are still at the learning stage of
how to manage their rapid expanding operations
in an increasingly globalized world.
A group of Chinese firms are becoming world
leaders in certain industries when they manage
to transform China’s comparative advantage into
their competitive strengths.
Changqi Wu
[email protected]
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Policy Implications
Chinese government should consider how to
facilitate the companies with competitive
edges to enter into global market.
 The state-owned companies may have
different incentives, so the government
should be very careful in approving such
kind of outward investment.

Changqi Wu
[email protected]
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