Globalization of Chinese Enterprises - Case Study Example

Globalization of Chinese Enterprise Name: Institution: Course: Lecturer: Date: Globalization is usually termed in incremental relations as a more or less steady progression, commencing with improved exports or international sourcing, after that an uncertain worldwide presence, developing into an international business, and eventually progressing into a worldwide posture. This form of gradualism, nevertheless, is illusive. It disguises the major vicissitudes that globalization necessitates in a business’s operation, fundamental capabilities, arrangement, procedures, and culture. As a concern, it makes administrators to underrate the huge alterations that happen between management of global operations, an international creativity, and management of an international corporation. Industries and firms both have a tendency of globalizing in phases, and at each phase, there are various opportunities for and dares related with creation of value (Kluyver 2013). Strengths of Chinese companies Chinese market An early footing in the fast developing Chinese market has usually and is continuing to be a significant aspect in Chinese companies. This is exhibited in the leading roles of the Chinese trades are continuing to have in the total deals of the Chinese brands. There is also a low-cost basis on both the manufacturing and R&D, management, designing and engineering. There is closeness to the supply chain and the accessibility of skilled and itinerant labor force. China has considerable volumes and improving economies of scale and the internalized R&D in Northern American, Japanese and the Chinese markets. Companies, located in the backbone of the “international factory”, enables the Companies in china to be producing and accessing parts at considerably higher volumes and enhances the customization at the scales. For the firms that are dominating the Chinese market share, the blending of the economies of scale in the industrial and resilient local sales resulting into a robust platform for their venture into the international market. For instance, the Chinese personal computer market share is a representation of approximately 20% of the worldwide capacity. The globalization of R&D facilitated Lenovo to have a development of a more diverse range of goods on the basis of various markets and enabled more stylish high-end innovation in any developed market (Thompson 2011). Cost innovation Through cost innovation, most of the companies from China are capable of yoking their competitive gains. Cost innovation refers to high-technology goods at lower cost, big diversity at lower costs and specialty goods at lower costs. Since Lenovo started its operations in Chinese market, was significant since it gave the company a robust background for it to go worldwide. Lenovo had low-cost designs and R&D program, low-cost processing using its personal and contractual manufacturers (who had their cost reduced by the foreign clients), and low-cost production and management. The cost innovation and vicinity of the Chinese international companies to the production has been allowing them to concentrate on the incremental and adaptive innovation where they would be offering exceedingly customized goods. The customization and adaptive innovation has been significantly appropriate to the Lenovo since it has a main proficiency on assembly and Production (Zeng and Williamson 2007). Most of the Chinese companies are continuing to invent and simultaneously being sensitive to prices. Consequently, the tablets and ultrabooks from Lenovo Company are continuing to bring about a cutting-edge aspects at considerable costs. The supercomputers and relevant R&Ds are being used in the business applications, e.g. its collaboration with the Formula one racing, its concentration is on the considerably low-cost application of the fruits of that R&D (Biedeger 2005). In-House manufacturing specialty Some Chinese companies are focusing on the in-house specialty with the motive of lowering the marginal cost, and this has ever since been serving as a one stop shop with the good lines that cover mid-end to high-end goods. By having in-house production mechanism, these companies are able to benefit from the access of the reliable suppliers in the eastern coast industrial clusters of China. In 1993, Taiwanese firms were dominating the worldwide supply by supplying low-cost personal computer products but later had dislocated its production volume to mainland. Thus, Lenovo could take advantage of the situation by setting up the industries in same locations and then purchasing components from the suppliers from Taiwan, at lower prices, as compared to the worldwide market. (Zhou 2008). Labor Another major strength is the savings on labor cost in the Chinese companies, not only on the sourcing and production. Low-cost labor in China is also entailing the R&D engineering and designing. Some of the international Chinese companies respond to the increasing labor cost in the southern part of China by building inland factories. In 2010, Lenovo signed a deal with the Chongqing municipal government to construct a Lenovo West China operation Centre around the Chengdu Hi-Tech locality. This facility was to have a cutting-edge by housing various functions like a manufacturing center planned for a yearly manufacturing volume of 10 million personal computers, a marketing center that would be covering Western China, Central and southern Asia and Europe and R&D center for approximately 1,000 individuals. Similarly to the incident of the development of Chinese coast industrial locations, as the information technology firms like Lenovo, Dell and the Intel were moving to the inland high-technology (Xing 2010). Government support Support from the Chinese government to all the Chinese businesses has been very significant. In 1980s, the Chinese government was protecting its domestic PC infant industries from any foreign rivals by imposing higher tariffs on the foreign-made personal computers. The tariffs of China on imported computer accessories also allowed firms like Lenovo to create revenues through the trade of imported computer accessories between Hong Kong and the Inland since this might have import permits for its exemption from the tariffs (Guo and Feng 2007). Many Chinese businesses were benefiting from their official sanctions and government’s preferential treatment of their companies. These companies have been capable to be sustained by the government oversight. Many companies formed a cooperative endeavor in Hong Kong, an approach that was used by the Chinese firms to take advantage of the governmental special policy regarding the foreign investors and products. Therefore, they were capable of to escape the strict regulation on the allocation of resources for the local not-state companies. The Chinese motivations for the overseas direct investments in its unique economic zone and industrial parks were that the overseas investors were paying nominal tax burdens of 15% (still the preferential tax rates for the high-technology sectors) and did have an actual burden tax of 11% (following any tax rebate, tax holiday etc. have been put into consideration), whereas domestic investors were paying 33% usually and 23% actually In China, all the advanced high-tech companies are exempted from paying income taxes for a duration of two years, then halved income taxes in six years that follow. The exporting companies enjoy the benefits of two years’ exclusion and three years at half rates. VAT refunds are a substantial advantage for the exported goods. The purchase of the locally produced equipment is also eligible for tax reimbursement (Guo and Feng 2007). Weaknesses of Chinese companies Lack of proficient human resource Chinese firms are in a struggle of developing senior administration teams which possess the abilities at are essential for their effective operation on an international scale – for instance acquaintance with the overseas marketplaces, foreign language expertise and familiarity with the management of international operations. The Chinese companies are internally grooming Chinese administration teams through the provision of suitable training and progression to attain the skills required in the management of the international business. The companies are also being compelled to recruit abroad Chinese or non-nationals. But researches are showing that is usually very problematic to incorporate these knowledgeable administrators into the principles and daily processes of the parent companies (IBM 2005b). Building global brands Most of the Chinese corporations are considering brand ownership to be critical to their triumph out of the country, but they might not completely appreciate the continual investment needed for brand construction and administration. International businesses like the Coca-Cola, Nike and Philips have been investing greatly in their respective brands, as recommended by their high standings amongst the 2005 BusinessWeek/ Inter-brand lists of the topmost 100 worldwide brands. It was a point of concern since none of the Chinese corporations were mentioned in this list (Berner and David 2005). Amusingly, some Chinese applicants regarded the Chinese image as a nation to be critical to their firm’s capability of building a positive international brand. But this correlation might not be as sturdy as some of the executives from China perceives. A research by Ogilvy & Mather in the U.S.A, England and France puts forward clients in these nations are ready to purchase Chinese branded goods, despite the fact they might be having mixed opinions regarding China as a nation. Over 40% of clients in this survey were “too or fairly probable” to select a Chinese good in particular sets whereby they were feeling the goods were offering sensible quality at lower prices (Ogilvy and Mather 2005). Market entry strategies There isn’t any “right” market entry plan for the Chinese businesses seeking international growth. For OEM companies with noteworthy exports, a stratagem might be to progressively accumulate their globalization abilities through the maintenance of their OEM relations with U.S.A. and European clients while seeking the Asian, African and Latin American emergent niche markets in with their individual brands. Africa, in specific, has become a terminus of choice for Chinese firms that are sturdy economically (and occasionally have government backing) but might be lacking the administration abilities to compete successfully in the developed nations (Martyn 2005). Building an international administration team The Chinese companies are compelled to develop a sturdy global administration teams. Without these teams, disappointment is virtually guaranteed. To aid in overcoming the present scarcity of experienced international executives in China, firms are compelled to pursue a blend of training, external recruitments and external partnership (e.g. leveraging consultancy or strategic alliance). For instance, Huawei Company is selectively applying all of these approaches in accelerating the expansion of its international administration team (IBM 2006). Developing an international branding approach Not all Chinese Companies have critically decided whether or not to chase the international client. Concurrently, the connection between their brand’s stratagem in China and abroad has to be put into consideration. For instance, Li-Ning, which is a best athletic footwear and apparel firm in China, of late had hired a U.S. NBA player (Damon Jones of the Cleveland Cavaliers) in the endorsement of its brand. This endorsement deal helped to in various cases, Chinese businesses would require to get used to the branding practices they are using in China in appealing their clients in stylish markets. Chinese firms are to comprehend that brands are greatly further than just the logo. Their brands need constant investment in advertising and, definitely, resonating with clients who would be trusting the business’ goods and services (IBM 2006). Designing of an international operating model Most of the Chinese firms aren’t up to now capturing the complete paybacks of globalization through the management of operations unswervingly across nations in sectors like finance, R&D and advertising, where centralization is usually essential. Some companies are tending to run international tasks autonomously with limited relations with headquarters whereas others have hitherto to obtain complete operational collaborations from international acquisitions. While autonomous nation operations might work in the short terms, eventually they hamper economies of scale and avert worldwide synergies from being completely realized (IBM 2005a). State-owned enterprises (SOEs) and privately owned enterprises (POEs) State-owned enterprises (SOEs) are the legal entities that are created by the government to carry out commercial undertakings on behalf of the government (the owner). In the Chinese lingo, a state-owned is administered by both the local government and, in the central government, the country State-owned Assets Supervision and Administration Commission. In China, examples of POEs are SINOPEC, CNOOC, PetroChina, Sinochem, Sinofert, Aluminum Corporation of China Limited, Bank of China, Dongfeng Motors, China Three Gorges Corporation, Zhejiang Expressway Company etc. (Keith 2012). Privately owned enterprises (POEs) are the business companies that are under the ownership of either the non-governmental organization or a comparatively smaller number of shareholders or business members which don’t offer or trade its firms stock (shares) to the broad community on any stock market exchange, but the business’ stock is presented, owned and merchandised or exchanged in private. In China examples include Lenovo, China Water Industry Group, China Zhongwang, Yilishen Tianxi Group, Rising Antivirus etc. (Loewen 2008). Differences between SOEs and POEs expanding global In regard to the number of the employed individuals, the growth is rather temperate. In addition to this, in the industrial sector statistics, the latest speedy development has been attained chiefly by the POEs like the external subsidiaries and self-employed individuals Conversely, most of the SOEs are suffering from stiff competition and ineffectual administration. This results to the mass sacking of employees, in excess of the augmented hiring in the flourishing POEs like Lenovo (Miyagi 2006). It has been established that the labor demand functions for SOEs and POEs exhibit dissimilar attributes pertaining the wage rates and degrees of privatization in all the sectors and regions. The more privatized each of the sectors or regions become, the inordinate is the progress in POEs in regard to the number of employees. The converse is true for the SOEs. The nature of the labor demands of SOEs is analogous to the common cases in labor money matters, but its sensitivity is lower, similar to the cases of the transition economy in Eastern Europe. In the POEs, labor demands and rates of wages have a positive correlation, which is a contradiction with the usual know-how of labor economy. But, this might be elucidated by the POE-led spreading out of the Chinese economy. All in all, these dissimilar trends of labor demands are an indication of one of the most typical characteristics of the Chinese economy as per the economic transformation: POEs in the mid of the exponential development and SOEs experiencing the problems under transitions (Miyagi 2006). POEs are the basic component of the latest economic growth in China. Their vigorous investments and production result to both the development of the whole economy and the growth of their labor demands. This brings about the tightening the labor market and the rates of wages are increased in all the units (Miyagi 2006). The development of the whole economy also results to rise in the labor demands of SOEs. Nevertheless, this probability is left out due to the inefficient structures in SOEs; soft budget constraints and superfluous employments makes it tough for them to run efficiently and enjoy the benefits of economic growth. Somewhat, the raising in wages and stiffening of competition against POEs becomes a burden on their administration and pushes them towards rationalization and the decrease in the number of workers (Miyagi 2006). In conclusion, the globalization of Chinese enterprises has been having strengths like the Chinese market, labor, governmental support, cost innovation and In-House manufacturing specialty. These strengths have made companies like Lenovo to be successful in the international market. There are some challenges like Lack of proficient human resource, Building global brands, Market entry strategies, Building of international administration teams, Developing an international branding approach and Designing of an international operating model. Reference List Berner, R. and David, K 2005, ‘Special Report: The Best Global Brands.’ BusinessWeek/Interbrand. August 1, 2005. http://www.businessweek.com/magazine/content/05_31/b3945098.htm Biedeger, J 2005, ‘Strategic Action at Lenovo,’ Organizational Dynamics 34, no.1:93 Draguhn, W and Goodman, D 2002. China's communist revolutions: fifty years of the People's Republic of China. Psychology Press. p. 38 Guo, W and Feng, Y 2007, Special Economic Zones and Competitiveness: A case study of Senzhem, the people’s Republic of China, PRM Policy Note 2,8, Manila: Asia Development Bank IBM, 2005a, IBM Institute for Business Value/Fudan University interviews, 2005. IBM, 2005b, IBM Institute for Business Value/Fudan Universityglobalization survey, 2005. IBM, 2006, ‘Going global,’ Prospects and challenges for Chinese companies on the world stage Keith, B 2012, "China’s Grip on Economy Will Test New Leaders". The New York Times, November 9, 2012 Kluyver, C 2013, Fundamentals of Global Strategy, v. 1.0, available at http://catalog.flatworldknowledge.com/bookhub/reader/5579?e=dekluyverglobstrat_1.0-ch02#dekluyverglobstrat_1.0-ch00pref. Loewen, J 2008, Money Magnet: Attract Investors to Your Business: John Wiley & Sons Martyn, D 2005, ‘Emerging markets.’ March 7, 2005. Business Day (South Africa). Miyagi, A 2006,The Ongoing Transition in China’s Labor Demand, Ogilvy and Mather, 2005, Survey of 303 consumers in France,U.K. and U.S. Thompson, W 2011, ‘Credit Suisse Equity Report,’ Lenovo Group Limited., September 13, 2011,3. Xing, W 2010, ‘Labor Costs No sweat for Lenovo,’ China Daily, August 20, 2010, 14. Zeng, M and Williamson, P 2007, Dragons at Your Door, Boston: Harvard Business School Press Zhou, Y 2008, ‘Synchronizing Export Orientation with Import Substitution: Creating Competitive Indigenous High-Tech Companies in China,’ World Development 36, no.11: 2364 Read More