Accelerating the construction of a new development pattern with domestic and international cycles as the mainstay and mutual promotion of domestic and international cycles is a major development strategy for China from the 14th Five-Year Plan to 2035.
China has a huge domestic demand market, which is a solid foundation for internal circulation. At the same time, after more than 40 years of reform and opening up, the Chinese economy and the global economy have been deeply integrated. The world needs Chinese manufacturing, and Chinese manufacturing capabilities with cost-efficiency advantages also need the world market.
In the 20 years since China’s entry into the WTO, the proportion of goods imports and exports in the world has increased from 3.8% and 4.3% in 2001 to 11.5% and 14.7% in 2020, respectively. China has become the world’s largest exporter. Country and the second largest importing country. China’s domestic export-related industries have brought about 200 million people in employment. It can be seen that the international cycle is also of great significance to China.
Looking forward to the future, China will build influence and cultural soft power in the global economy, including the “Belt and Road” initiative, and enhance its national image. Goods, services, and investment are also good carriers.
From the “Win-Win Maritime Silk Road” program group of Shenzhen Satellite TV in 2016 to interviews in the Middle East, Africa, and India, in the past 5 years, I have not stopped paying attention to the “going out” of Chinese companies. I have worked with Huawei, BYD, and Lenovo Group. , Hisense, China Jushi and other companies have conducted research abroad, and have been tracking the globalization of companies such as Haier, TCL, Xiaomi, and vivo.
I am writing this article to share the following three points of view:
- One is to establish the concept of “double cycle” instead of “single cycle”;
- The second is to enhance the awareness of global layout, instead of treating globalization as an export;
- The third is to work hard to build a group of Chinese companies into global companies and international brands.
At present, many objective conditions are already in place, and we must not cover one’s eyes and go inward because of the backlash of “reverse globalization”.
1. Why must globalization be necessary?
The globalization of an enterprise means to base itself on the world, allocate resources around the world, and build a global company.
According to the life cycle, it is roughly divided into five stages: export; initial expansion (beginning to establish an organization and management system abroad) ; multinational company (focusing on localized operations, but branches in various countries are more like independent companies, less Synergy) ; multinational companies (establishing a global organization, manpower, and governance structure, combined with localized operations) ; global companies (focusing more on operating as a large-scale integrated organization, and establishing the division of labor and global value chain based on global resource conditions) Cooperation system) .
According to the research of economist Jiang Xiaojuan, to measure the degree of corporate globalization, three indicators can be used: the proportion of overseas assets, the proportion of overseas markets, and the proportion of overseas employees. The three indicators are combined into a transnational index. The transnational index of the world’s 25 largest multinational companies reached 57% in 2009 and 49% in 2016.
The reason for the decline is that the division of labor in part of the industrial chain has reached the “ceiling”, and if it is further subdivided, the efficiency is not high. Second, the host country in the industrial chain strives to improve the level of localization. Finally, the exporting countries on the industrial chain promote “industry return.” In other words, the global high-efficiency supply chain has begun to evolve in the direction of “high efficiency + safety and control”.
Now that globalization has indeed undergone certain adjustments, and many people believe that China has a vast land and abundant resources, a large population, and everything, and it can completely circulate independently. Why must it be globalized?
Let me give some examples.
1. The need for a resource-oriented industrial chain
I have communicated with Mr. Xiang Guangda, the founder of Qingshan Industrial. Qingshan Iron & Steel, a subsidiary of Qingshan Industrial, is one of the world’s largest stainless steel companies. In the raw material link of the stainless steel industry chain, it is not iron that accounts for the highest cost, but nickel metal that can resist high temperature corrosion.
Tsingshan entered the low point of the market after the 2008 financial crisis, invested in Indonesia and obtained the right to mine a huge laterite nickel mine. Now Qingshan is the world’s largest ferronickel producer, and its park in Indonesia is a comprehensive industrial park with the most complete stainless steel upstream and downstream industrial chain and supporting projects in the world.
In July 2019, Indonesian President Joko Widodo said in a meeting with Chinese entrepreneurs such as Xiang Guangda, “You are not just using Indonesian resources to produce semi-finished products, but to produce finished products, and you are commendable for driving the development of downstream industries.” As of that time, Qingshan has invested US$8 billion in two parks in Indonesia.
Similar examples include overseas investments in agriculture, dairy, and mining by Chinese companies. Some private enterprises are investing in resource-intensive industries abroad, exchanging surplus domestic manufacturing capacity with them, forming a closed industrial chain. Anyone who really understands China’s energy, minerals, agriculture, and other aspects knows that if it does not make an early global deployment, China may also be “stuck” in these aspects in the future.
2. Responding to the needs of trade protectionism
We now regard trade protectionism as a negative concept. In fact, trade protectionism exists everywhere, but in different ways and degrees. For example, in 2002, TCL bought Schneider Electric, a German color TV manufacturer, for 8.2 million euros. The reason was that the EU’s annual export quota for seven Chinese color TV companies was only 400,000 units. Schneider Electric sells 410,000 color TV sets in the European Union each year. TCL hopes to bypass quota restrictions through acquisitions.
For another example, a large number of Chinese export companies have undergone foreign countervailing and anti-dumping investigations, as well as imposing tariffs.
There are more and more obstacles to export, what should I do? Li Dongsheng, chairman of TCL Group, believes that only by establishing a global industrial supply chain, can we cope with the impact of anti-globalization and trade protectionism. In 2018, the Sino-US trade friction escalated. After the United States imposed tariffs on Chinese products exported to the United States, because TCL has factories in Vietnam, Poland, Mexico, India and other countries, it can decompose part of the production capacity exported from China to Mexico, Vietnam and other factories. Over the past few years, overseas business has been improving.
Li Dongsheng said that the export business and the global business are the same on the surface. They are both foreign-related businesses, but they are not a concept. One way of TCL’s globalization is to export complete machines (manufactured products) , and one way is to export core components, materials and equipment to form value-added in TCL’s overseas industrial chain, that is, to assemble and manufacture products locally and sell them locally.
According to TCL’s calculations, selling locally made products worth US$100 overseas will probably drive the export of domestic core devices and materials worth US$60, and another US$40 will be generated locally. Although this method cannot be the same as exporting manufactured goods, 100 US dollars of sales are domestically generated and attributable to the country, but it can effectively avoid trade protection. Moreover, as the global business becomes larger, the total export volume from China will also increase simultaneously. This is a concrete manifestation of the domestic cycle that is driven by the international cycle.
3. The need to maintain industrial competitiveness
I went to Ningbo to investigate the apparel foundry giant Shenzhou International. They are now the largest textile companies in Vietnam and Cambodia. It is estimated that more than 20,000 employees will be recruited in Vietnam and Cambodia in the next two to three years. Shenzhou International’s “Going Global” began in 2005. At that time, it set up a garment factory in Cambodia. It started production in a textile factory in Cambodia in 2012, a fabric factory in Vietnam in 2014, and a garment factory in Vietnam in 2015. Plant put into production…
According to research conducted by relevant institutions, as of October 2020, Shenzhou International has 12,000 employees in Cambodia, and its production capacity accounts for 15%; it has 13,000 employees in Vietnam, and its production capacity accounts for 16%. It is expected that in 2023, a balanced goal of half to half of the production capacity of domestic and overseas garments will be achieved.
The reason why Shenzhou International “goes out” is because it invests in Vietnam and Cambodia, and exports to the United States and the European Union enjoy preferential tax rates, and because the two countries give tax refund incentives, but the most important thing is that China has no advantages in labor and land costs. NS. This is also the root cause of the relocation of manufacturing industries in many parts of China.
4. Spillover needs of advanced capabilities
After decades of hard work, Made in China has established a global cost-efficiency quality advantage in many aspects, and has reached the top in more and more categories. Unlike in the past relying on acquiring foreign companies, relying on foreign brands, and entering foreign markets, many leading Chinese manufacturing companies can now compete in the world market like German, Japanese, and Korean companies back then.
For example, home appliances, computers, smart phones, power tools, production materials products, and so on. The global miracle created by export cross-border e-commerce companies like Shein fully demonstrates the power of “China’s supply chain + Internet marketing innovation”.
Bloomberg commented that Shein can react to customer preferences almost immediately. This process is called real-time fashion . In front of Shein, a model of “fast fashion” like Zara has fallen behind.
In summary, it can be said that China must go to the world and is capable of going to the world. This is also conducive to the expansion of the internationalization of the RMB based on actual economic needs and China’s international balance of payments. It is not because of the lessons of “irrational overseas investment” at a certain stage in the past and the fear of the outflow of domestic capital, and we should not give up the historical opportunities that belong to Chinese companies when the big picture can be opened up.
In fact, on the whole, the degree of globalization of Chinese leading companies is not enough. A huge domestic demand market can certainly create a Chinese leader, but only through tempering in the turbulent flow of globalization can it become a world leader.
For example, on May 31 this year, Sany Heavy Industry announced that its excavator sales reached the top in the world. In 2020, it sold 98,705 excavators, accounting for 15% of the global excavator market. However, Sany Heavy Industry President Xiang Wenbo also stated , “About 90% of the sales of nearly 100,000 excavators are sold in China, and the global market still needs to be further expanded.”
2. How many challenges are there in globalization?
Of course, the road to globalization of Chinese companies is by no means easy. It is likely to “soak three times in clean water, three times in blood water, and three times in alkaline water.” The fate of Huawei, ZTE, TikTok, and a large number of companies that have been included in various restricted lists by the United States all illustrate this point.
But from another perspective, the mass production of outstanding Chinese companies is restricted by the “world’s No. 1 economic power”, which precisely shows the increase in their global competitiveness. Therefore, we should continue to promote globalization more firmly and at the same time more strategically, rather than shrinking from it.
Chinese companies are not afraid of hardship or tiredness, but many challenges in the process of globalization have nothing to do with suffering and tiredness.
In September 2018, I participated in the Fudan University’s “Fufan Zhizhi Forum”. One of the guests was a senior executive of China Investment Corporation (“CIC”) . At that time, CIC’s total assets were about US$1 trillion. An audience member asked: “We are a private company and we are weak. Can CIC give us some support and let us wear red hats when we go out?”
CIC executives answered that the internationalization of Chinese companies needs to be promoted from three aspects: overall, strategic and tactical, and innovative overseas investment methods. If you wear a red hat, you may encounter resistance precisely because the international emphasis is on “competitive neutrality.” He said humorously: “When we go out, we have to wear blue hats instead.”
An executive of a Chinese manufacturing company investing in South Carolina I interviewed said that industrial land, electricity, and natural gas are very cheap, local governments also have financial support, and the investment environment is very standardized. During the 2020 epidemic, there will be three or four million. The wages of employees in US dollars are also borne by the government. But American workers do not work overtime like Chinese workers. They strictly follow the contract and do not work for one minute, and they will be charged for overtime work for one minute. All aspects of “standards” have increased the expected investment costs.
It is also not easy to recruit manufacturing workers in the United States. Basically only black people participate. If workers are not recruited, production cannot be put into operation as expected. The executive said: “The actual investment cost far exceeds expectations. With the same investment, one production line in the United States can be built, while China can build two.”
The United States has problems, but the overall business environment is still very good, with a high degree of rule of law. In African countries, although the cost is low, the uncertainty is high. A subsidiary of a Chinese state-owned enterprise leases a large area of land in an African country to grow sweet potatoes and make ethanol gasoline. The input-output ratio calculated in advance is very economical. As a result, money is invested in it, but construction cannot be started. Because the farmers protested, it took two or three years to defer it. Although the legal documents were signed and the government endorsed it, it was useless.
There are also cultural issues. In China, managers pat workers on the head and buttocks, which is a kind, at least innocent way of communication, but abroad may mean insults. Chinese workers will not pick up on the documents and verbal promises issued by the management and ask for them to be fulfilled. However, as long as you say something that involves your own interests, American workers must implement them. In Europe, especially in France, layoffs are the most troublesome problem and it is not easy.
These questions are not aimed at Chinese companies, but at all companies. An investment by a Chinese company in Australia failed to solve the sewage problem. The sewage flowed into a nearby stream and killed a fish. As a result, the entire project could not go on. The acquisition of farms by Chinese companies in New Zealand has also often aroused criticism from the New Zealand media. Opinion surveys often show that “the vast majority of New Zealanders want the government to suspend” the sale of farms to Chinese buyers.
The head of the New Zealand Overseas Investment Office once told the Chinese media: “The transaction of New Zealand farms has always been a sensitive topic that can easily arouse New Zealanders’ emotions. Only when the investment is beneficial to New Zealand and does not conflict with New Zealand’s investment laws, May be approved.”
There are also compliance issues, which are also obstacles for Chinese companies to go global. Recently, the hot products of many well-known cross-border e-commerce companies in China have been taken off the shelves by Amazon, and a large amount of funds have been frozen, causing heavy losses. When Chinese sellers first entered Amazon, international sellers were a bit disapproving. As a result, the topic they discussed after two or three years became “how to beat the Chinese on Amazon.”
Many Chinese sellers spend money on reviewing reviews to increase their star rating; a “gift card” is attached to the package. If consumers leave a five-star review, they can get the money in the gift card. Some people say, “Isn’t it the common domestic order checking, comment checking, and ranking checking? We are all used to it. Besides, Amazon also turned a blind eye before.” But now once Amazon warns, you still don’t care. It will really strike a thunder.
At the end of 2017, Deloitte China conducted a questionnaire survey of 166 companies from multiple industries (51% of state-owned enterprises, 26% of foreign companies, 21% of private enterprises, and 2% of public institutions) . The survey showed that the early challenges of Chinese corporate globalization were mainly The strategy is not clear, followed by financing issues. Now, “risk, supervision, and talent” are the three main challenges facing overseas investment.
A large number of examples have proved that insufficient preparation for risks in advance, poor response to risks during the event, and failure to summarize and improve risks afterwards are the main reasons for the failure of many companies’ overseas investments. In most countries related to the “Belt and Road”, the situation is complicated. It is far from enough to conduct risk analysis on one side and one time. Enterprises should customize a set of risk analysis and early warning for themselves and their projects on the premise of comprehensive risk analysis. And coping mechanisms.
Zhang Hua, co-director of the China-Europe Center for Globalization and Emerging Markets Research of China Europe International Business School, pointed out that the choice of entry method for corporate globalization mainly depends on the matching degree of various methods with corporate strategy and the costs and risks of various methods.
The cost of global operation includes not only high capital costs, but also management costs, communication costs, and the costs of coping with cultural risks and policy risks. After deciding to operate globally, it is necessary to check the company’s resources to see if existing resources can support global operations. The resources here include financial strength and personnel reserves, as well as organizational soft power such as management capabilities and R&D capabilities. The existing shortcomings should be filled in time.
3. Global competition is ultimately a competition of ability
Huawei is undoubtedly the forefront of Chinese companies in terms of globalization.
In 2001, Ren Zhengfei said at the “Farewell to Overseas Soldiers and Soldiers Conference” that as China is about to join the WTO, we will not only allow foreign investors to enter China, but Chinese companies must also go to the world.
“We still don’t have the ability to gallop in the international market at all. Our sailing sails out of the ocean, we found problems… We can’t wait for no problems before we attack, but we must be familiar with the market in the fight in overseas markets. , To win the market, to train and bring up a team of cadres… If we cannot build an international team within three to five years, then once the Chinese market is saturated, we will sit back and die.”
Then, Ren Zhengfei uttered a few words that were widely praised later–
- An enterprise needs to have a global strategic vision in order to work hard;
- A nation needs to absorb the essence of globality in order to prosper;
- A company needs to establish a global business ecosystem in order to survive;
- An employee needs to have the mind and ability to be a home from all over the world in order to have an outstanding career.
Ren Zhengfei also said that Huawei’s globalization is because Huawei’s international competitors are integrating global resources to compete with Huawei in China. If Huawei only has Chinese resources, it will inevitably lose at its own door.
Unlike TCL and Lenovo’s international mergers and acquisitions model, Huawei has always adopted an independent approach to promote globalization from the peripheral market to the central market.
In 1996, Huawei took its first step overseas to Russia. After three years of persistence, it won a very small order from the Russian National Telecommunications Agency. In 1998, it entered Thailand and its first customer was a small operator AIS, and it entered India in the same year. ; From 1999 to 2000, Huawei entered more than a dozen countries in Africa, the Middle East, the Asia-Pacific, the CIS, and Latin America, and the Huawei brand was established in the third world.
After 2000, Huawei turned its attention to Europe and the United States. In 2002, in order to enter the short list of British Telecom’s procurement, it accepted the certification for up to two years. It also took more than two years to obtain Vodafone approval. In 2004, Huawei won the bid for the telecommunications equipment construction project for the Athens Olympics and established its European regional headquarters in the United Kingdom. In 2005, Huawei’s overseas sales accounted for 60% of the total sales revenue. In 2007, Huawei entered the ranks of cooperation with all mainstream operators in Europe.
In 2004, TCL acquired Thomson’s color TV business and Alcatel’s mobile phone business in France, but suffered major setbacks since then. Over the years, TCL’s globalization path has been criticized continuously from outsiders. But in fact, TCL’s global operation has never stopped. In 2020, the sales volume of TCL smart screens will rank among the top three in the world. Among them, the scale of overseas revenue and the growth rate are faster than those in China.
Li Dongsheng said: “The original two mergers and acquisitions laid the foundation for TCL’s international layout. Mergers and acquisitions have two major strategic values: one is to enter the mainstream markets of the United States and Europe. Today TCL’s EU market, Polish factory, US market, and Mexican factory are all It was obtained after M&A. The second strategic value is business growth. After the M&A, there is a huge sales volume of color TVs. This is an important foundation for TCL China Star to launch in 2009, because it can be connected upstream and downstream. Without the acquisition of the year, there would be no TCL. Huaxing Optoelectronics’ LCD display project.”
Wang Cheng, CEO of TCL Industries, said that global operations must be well configured for the team. To establish a core talent pool for global operations. TCL has figured out a set of talent training methods ranging from regional managers to country managers, from emerging market country managers to mature market country managers, and to ensure that core talents are highly consistent with the company in terms of values.
At the same time, TCL regards localized talents from various countries as the base for overseas companies and factories, and expatriate talents must cooperate with local talents and stimulate each other. When recruiting talents in China, TCL Industry also pays special attention to recruiting talents with international literacy or potential, including foreign employees. In addition, domestic and international management systems must be connected without isolation from each other. Through the consistency of the IT system, the control of the financial system, the management of human resources, and the extension of the supply chain, a “global game of chess” is achieved.
Whether it is Huawei’s globalization path or TCL’s globalization path, one thing is in common, that is, no matter how you enter the global market, you will ultimately rely on capabilities. Only those who help themselves can God help.
China is undoubtedly a world economic power, but it is not yet a world economic power.
Throughout the history of modern industry, there is no manufacturing power and great manufacturing company that was not formed through the trials and tribulations of globalization. Apple is the most valuable, profitable and most profitable company in the global manufacturing industry. It is also the most globalized company. The Apple ecology and Apple industry chain have linked many partners around the world to create value for customers around the world.
Chinese companies should have ideals and ambitions, and use Apple and Samsung as benchmarks. Although they can’t be reached for a while, they must have aspirations. From the government to the society, the globalization journey of Chinese companies that insist on productive innovation should also be actively encouraged and supported.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/tell-you-a-real-globalization/
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