Leeds University Business School research shows new trends in Chinese foreign investment
Chinese investment in foreign enterprises has grown by 25.6 percent to $95.8bn since 2000 and is set to grow further according to research by the Centre for International Business at the University of Leeds.
The Rise of Chinese Outward Foreign Direct Investment, led by Peter Buckley, Professor of International Business, shows that while China's foreign investment still only represents 0.6 percent of the world's total foreign direct investment the country is quickly emerging as a significant player - particularly in Africa.
Prof Buckley says: "Chinese multinationals can no longer be regarded as 'apprentices' on the international stage, investing primarily in the developed countries to obtain intellectual property and to support the export function, or to learn from joint venture partners."
"Rather, a small but growing number of Chinese multinationals are becoming truly 'transnational', acquiring not only the confidence but the knowledge, resources and capabilities needed to coordinate international activities and compete effectively for market share in both developed and developing countries."
According to the report Chinese multinationals' motives for foreign investment is the same as their western counterparts - an interest in accessing markets, gaining control of crucial raw materials and reducing costs by investing in lower cost locations such as the South-East Asia and Africa.
However, Chinese companies are now also exhibiting an appetite to acquire foreign assets and expertise by buying established companies with brands, research and development and high technology.
Recent examples include China Bluestar's acquisition of Belgium's Adisseo brand from Drakker Holdings; Nanjing Automobiles acquisition of iconic British motoring marque MG and Lenovo' acquisition of IBM's Think brand.
Prof Buckley argues that foreign acquisitions are often motivated by the desire to bring in foreign managerial talent, to make up for the deficiencies in traditional Chinese multinationals.
The study argues that China's new economic internationalism was ushered in when the country joined the World Trade Organisation which required economic openness in the domestic market. Prof Buckley says: "Chinese firms internationalise when domestic institutions are sufficiently well developed and policies allow them to exploit their competitive advantages across boards: it is not simply a case of a firm perceiving itself to be ready."
Prof Buckley argues that the new emerging trend in Chinese overseas investment is defined as an 'offensive strategy' - where companies seek to improve foreign market access through the establishment of sales and manufacturing subsidiaries.
"Chinese enterprises are also attempting to raise their competitiveness by undertaking strategic acquisitions of under-performing firms giving them access to hard-to-replicate assets such as advanced technology, established foreign brands, distribution channels and sources of foreign capital."
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