Chinese international expansion - Essay Example

? CHINESE INTERNATIONAL EXPANSION al Affiliation) The worldwide economy has transformed swiftly in the past quarter era. The capacity of global trade as well as investment has increased intensely than that of worldwide output, denoting that domestic economies are growing into single, interdependent, integrated as well as globalised economic structure. The globalisation of the world economy has at the same time brought about formation of non U.S. multinational corporations. Such multinational corporations have been on the rise in developing countries such as China. Following 25 ages of economic and political restructuring, China has attained an outstanding performance within her economy (Ronghui, 2005 p. 10). Amid 1978 and ’04, China’s GDP boomed up by a percent of 9.3 per annum, three times quicker than the US did. China with its large consumer market has attracted numerous investors and at the same time, its local firms are becoming unsatisfied with the domestic market that they have become powerful rivalries in the international market. Some Chinese firms have gone to the extent of fabricating individual brands to capture market share globally from famous and bigger players (Ronghui, 2005 p. 12).This paper will explain the international expansion of Chinese businesses using Lenovo Group Limited. The Lenovo Group Ltd. was started in 1984, as an ICT Company a pin-off establishment from the ICT (Institute for Computer Technology) with RMB200, 000 of primary capital investment (around 85,900 U.S. dollars at previous sanctioned exchange rate (Ronghui, 2005 p. 10). Lenovo Group Ltd started by selling as well as dispensing personal computers manufactured by foreign makers (especially Hewlett-Packard). During the initial phase, Lenovo Group Ltd. not only accrued capital, but accrued marketing experience as well as management expertise and absorbed how to consolidate distribution networks (Ronghui, 2005 p. 20). Liu Chuanzhi, the founder as well as the former Lenovo’s CEO articulated that Lenovo’s earliest as well as the best tutor was Hewlett-Packard. Following the early learning as well as competence development, Lenovo launched its own computer production plant with its joint-venture within Hong Kong. Through the solid backing from the parent organisation, ICT, Lenovo attained huge success through add-on cards market that became the utmost chief source of returns in this phase (Ronghui, 2005 p. 19). From 1991, Lenovo Group Ltd. started to vend its own PCs brand. Because of its suitable business approaches, it put up a renowned PC brand within Chinese market within a very brief time. By 1994, Lenovo Group converted to a public firm, listed at the Hong Kong Stock-Exchange. By 1997, it beat IBM, HP and Compaq turning into the leading computer vendor in China and has remained in the first place up to now with an incessantly expanding market-share of virtually 30 per cent of the total market-share. Its product groupings have been differentiated to encompass PC modules, servers, printers, digital cameras, network machines and mobile phones (Ronghui, 2005 p. 25). Though Lenovo attained the excellent success within national market, its global business still remained in a premature stage. Afore the IBM PCD’s acquisition was announced, its foreign ventures have been established only within a few overseas countries largely focusing upon East-South Asia (Ronghui, 2005 p. 22). Lenovo sales from foreign market accounted for roughly only 10 percent of Lenovo’s overall revenue. Before the IBM PCD’s acquisition, Lenovo was, nonetheless, continuing with a premature phase of internationalisation procedure of employing stages approaches, for instance, Dunning’s eclectic model or Uppsala model. For example, through employing Dunning’s IDP methodology, Lenovo’s was in the phase two up to time of acquisition. Rendering to these stages concepts, Lenovo should have followed an incremental procedure for its transnational expansion procedure. Nonetheless, Lenovo assimilated IBM PCD and within an extremely short time sprung to become a cosmopolitan firm with world-wide scale functioning business within numerous of domestic markets that cannot be expounded by the stages methodologies (Ronghui, 2005 p. 34). To realize such immense success, Lenovo held its own distinctive fundamental competence yielding competitive advantages. During Lenovo’s initial stage, it acquired some pros from its parent organization, ICT. The parent organization, ICT reinforced Lenovo through providing ICT’s amenities for free; Lenovo utilized ICT’s label for conducting business as well as later obtained the strong backing from the government). These may be viewed as supportive components for building central competence (Ronghui, 2005 p. 35). Learning Ability Lenovo exhibition of a noteworthy learning ability for competency development may be considered as one of Lenovo’s core competence. Crucial basis for learning came from its clienteles. Lenovo was able to learn from its clienteles via its direct interaction with clients and its broad PC distribution channels. Aside from cautiously observing client buying habits, Lenovo keenly sought out client help to pilot its service and product development. Another basis for learning came from other multinationals. While producing its individual brand, Lenovo acquired a great deal from Compaq, HP and IBM, for instance, marketing as well as management skills, product design, personnel training and customer services (Ronghui, 2005 p. 56). Another basis for learning came from its internal Research and Development activities. Lenovo became aware that proper Research and Development activities must be pooled with the exploration of client demand, product engineering and design, marketing as well as manufacturing, rather than purely chasing cutting-edge technologies, for instance, large-scale incorporated circuits as well as digital switches(Ronghui, 2005 p. 57).An interrelated view in respect to discovering is that evolving countries’ multinational companies develop their leads through the amassing of skills and technology. The amassing of technological competency is important in the international expansion of businesses in developing nations (Ronghui, 2005 p. 66). The Competence of Contending on Price A core competency is Lenovo’s splendid aptitude of competing upon the centre of commodity price. The costs of Lenovo’s commodities are only approximately 2/3 of those of overseas products (Ronghui, 2005 p. 10). Lenovo has successfully sustained a lower price structure than oversees multinationals (Ronghui, 2005 p. 68). Primarily, Lenovo’s management costs are lesser than those of its rival’s particularly foreign companies conducting business within China. Secondly, because of existence of more overseas component manufacturers establishing manufacturing operations within China, for instance, Seagate (the number one hard drive maker globally), Lenovo as well as other Chinese computer fabricators profited from cost savings from inexpensive components buying. Aside from, Lenovo has constantly focussed upon cost reduction throughout all of its activities including R&D, manufacturing, marketing as well as distribution as well as has accrued immense experience within this field (Ronghui, 2005 p. 66). The Aptitude to Institute and Manage Efficient and Effective Distribution Network Amid foreign IT and domestic companies within Chinese market-share, Lenovo may be endowed as the number one corporation with the unsurpassed distribution system management. Lenovo owns approximately fifty authorized distributors within each of the 7 provinces in China; in addition, every distributor owns its individual reseller channel (Ronghui, 2005 p. 10). There are above 2, 000 resellers within Lenovo’s distribution channel. Furthermore, it owns 130 “1+1” computer specialty store within major towns (Ronghui, 2005 p. 21). In comparison with IBM that owns not more than 10 main distribution networks in major cities, Lenovo has more channels of distribution. To control and manage such an immense huge network, Lenovo has cultured a positive affiliation with its distributers by employing a win-win approach. Majority of distributers had developed with Lenovo Group over years. Still when Lenovo continually enlarged the breadth and depth of its distributing channel, it never stumbled upon any huge conflicts amid its distributers. The enormous and effectual network affords Lenovo much bigger geographic exposure than either foreign or domestic corporations in Chinese Information Technology market (Ronghui, 2005 p. 67). Lenovo group Limited’s $1.75 b acquisition of IBM’s computer division created the 3rd largest computer vendor globally and provided IBM greater access into the fast growing China’s market (Ronghui, 2005 p. 10). Rendering to the contract of the purchase, Lenovo gained domination of IBM’s ThinkPad laptop and Think desktop brands, together with the many of IBM PC clients. Lenovo was permitted to utilise the IBM label for 5 years. Nonetheless, the novel Lenovo had a strong IBM presence (Ronghui, 2005 p. 68). Seemingly, Lenovo recognized that there was not much potential from the Chinese computer market after converting into a leading computer manufacturer in China. Converting into a real world-wide player became Lenovo’s mission (Ronghui, 2005 p. 21). A common observation of business’s internationalisation procedure is that it involves the procedure of amassing experiential knowledge as well as market commitment within foreign markets. Companies tend to begin their internationalisation procedure through exporting to nations with similar ethnicity. Nonetheless, some researchers contend that it might be more problematic to develop into a global corporation if the company’s process of amassing knowledge and experience is longer, particularly in such context as fierce rivalry (Ronghui, 2005 p. 55). Lenovo, therefore, chose the best efficient manner for its global expansion as well as foreign market entry (acquisition). The tactical goal of Lenovo to instigate the acquisition is rather clear. The main benefit of purchase is that it affords the quickest technique to enter overseas markets as well as rapidly foster the business’s presence within these novel national markets (Ronghui, 2005 p. 56). Via the acquisition, Lenovo became the 3rd biggest computer multinational company globally from a little known Chinese computer manufacturer and then made an enormous step towards internationalisation. Moreover, the acquisition provided Lenovo with a great chance to obtain valuable capitals of the assimilated company (Ronghui, 2005 p. 21). The acquisition enabled Lenovo to attain the IBM’s world-wide market share, international management expertise, top computer technologies as well as the outstanding capacity of R&D, proficient managers as well as other personnel. Lenovo attained great confidence in their learning ability for obtaining these advantages from IBM PC (Ronghui, 2005 p. 10). For instance, IBM PC was universally branded as are fined connoisseur in serving company customers, whereas Lenovo was ominously effective at vending PCs within consumer-market. Such an effective mishmash of these pros from both sides has resulted in immense performance. Furthermore, Lenovo hoped that merging Lenovo’s price lead with IBM’s manufacturing would tackle Dell’s challenging threat (Ronghui, 2005 p. 22). Studies on China’s outward foreign direct investment up to now have probed what inspires China’s outward foreign direct investment as well as whether the Chinese firms’ internationalisation experience may be dissimilar from that of companies from industrialised markets, over which existing theory is largely based. A number of publications have contended that strategic-asset-seeking, therefore, a main activity of China’s corporations venturing overseas as seen with Lenovo’s acquisition of IBM PC (Ronghui, 2005 p. 30). The common subject that has arose from these literatures, furthermore, is the impression that Chinese outward foreign direct investment is compelled more through the desire of China’s businesses to ‘springboard’ through attainment of ‘strategic-assets’. Such resources, including brands, technologies as well as management know-how, are used principally as a way of speedily keeping up with their industrialised market counterparts. Therefore, for instance, it is contended that Chinese corporations launch their competency advantage typically through acquisition of renowned firms within developed economies since they urgently must keep up with the international giants (Ronghui, 2005 p. 72). This is evident with Lenovo’s acquisition of IBM PC, where this acquisition had Lenovo Group Limited acquire attain the IBM’s world-wide market share, international management expertise, top computer technologies as well as the outstanding capacity of R&D, proficient managers as well as other personnel (Ronghui, 2005 p. 15). As such, Chinese companies do not rely for their global expansion upon prior ownership of assets, like it was the situation for most customary MNEs from Troika nations expanding abroad during past decades. In its place, these new companies exploit international expansion to draw on resources, which might otherwise be unobtainable (Ronghui, 2005 p. 24). The insinuation, hence, is that conformist concepts of outward foreign direct investment centred on the concept that companies possess some sort of proprietorship advantage might not be very appropriate in the China’s case. A discussion about whether conventional concept is so appropriate to China’s firms has arisen. Additionally, a few empirical researches have been crafted; generally with proof claiming to back the strategic-asset-seeking outlook that asserts that China’s corporations go abroad to principally boost a company’s critical instead of exploiting existing assets (Ronghui, 2005 p. 73). Why do China’s companies decide to strategic-asset-seek? The explanation to this is that Chinese firms’ tactical choices are influenced by the organisational framework wherein the company is embedded. Within China, it is contended, various organization all imitations are prevalent as well as government support is crucial for cross border M & A. It is also argued that China firms at large abide by national legitimating conditions; as well as the need to strategic-asset-seek. Furthermore, most outward foreign direct investment is assumed by state-owned companies and these companies are also afforded preferential accessibility to credit to take on strategic investments (Ronghui, 2005 p. 73). Given these reflections, it is expected that private companies that participate in ‘onward journey’ outward foreign direct investment to conduct themselves differently. Primarily, the existence of a foreign vehicle can relieve particular of the national rganizational pressures (Ronghui, 2005 p. 44). As these companies are afforded with foreign rank, brands, technologies as well as management know-how, this may aid warrant property rights, decrease regulatory improbability, governmental meddling as well as generally diminish the necessity to pursue government endorsement. Second, and perhaps more notably, private companies do not have accessibility to the like credit networks as state-owned companies (Ronghui, 2005 p. 46). Certainly, many private companies move oversees with the exact reason of raising more capital. For that reason, they are more economically inhibited than state-owned firms. This might once more have an influence upon their capacity to pursue strategic resources, ones that fundamentally may present a bigger risk (Ronghui, 2005 p. 24). Conclusively, overseas investment holding firms play a crucial role within the outward investment stratagems of Chinese private and state-owned businesses via onward journey outward foreign direct investment. A good example is the IBM PC’s acquisition by Lenovo. Seeking strategic assets is absolutely not the most crucial driver of outward foreign direct investment within these private corporations, majority of which can suffer more grim financial constrictions than big state-owned firms. A crucial reason for international expansion in these companies is to expand affairs with other prosperous TNCs, often operating as suppliers to engineering OEMs, and/or as providers of services (Ronghui, 2005 p. 71). In the case for Lenovo, it is evident that the companies in the early instance, they develop their own fundamental resources as well as capabilities. There exists a genuine function for tax harbours as well as offshore financial hubs, as they allow economic endeavour to transpire that otherwise might never have occurred(Ronghui, 2005 p. 56). The establishment of partners in tax sanctuaries is not essentially harmful. Undeniably, an unplanned tax laws consequence supporting foreign investment within China is that it has generated inducements for firms to move oversees. Offshore holding firms in renowned tax harbours, in effect, may as well build a good basis for more international expansion (Ronghui, 2005 p. 74). References Ronghui, L. (2005) The Global Expansion Strategies of Chinese It Companies: The Case of Lenovo, MBA. Read More