The Road to Globalization for Chinese Multinationals

This book examines the rise of Chinese companies in international markets during the last two decades of rapid expansion of the Chinese economy. The fruit of.
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The Road to Globalization for Chinese Multinationals - China Business Review
The Road to Globalization for Chinese Multinationals
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Brazilian agents and researchers would have to understand structures and implications of Chinese international insertion better in order to increase Brazilian chances of adapting itself and seizing opportunities that would be more conformed to its productive interests.

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Therefore, Brazil could not simply import or imitate existing technologies or capabilities, including those offered by China, anymore, but it would need to create its own Canuto Through the use of Institutional theory of International Relations Keohane and Nye ; Keohane , this study aims at understanding how some key Chinese MNCs have been operating in Brazil over the past ten years, and whether how and why they would be leading to an increase in the asymmetries between the two countries.

The specific purposes of this paper are: This work argues that Brazil-China relations are characterized by asymmetric interdependence due in large part to successful internationalization strategies of Chinese MNCs. In other words, the asymmetrical interdependence that characterizes Brazil-China relations is due to successful Chinese going global strategies, adopted by its MNCs. In this work, institutions are presented as "formal rules, compliance procedures and standard operating practices that structure relationships between individuals in various units of the polity and the economy" Hall , 20 apud Savigny and Marsden , Multinational corporations MNCs , as a specific kind of institution, are defined here as "a firm that owns and manages economic units in two or more countries.

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Most frequently, it entails foreign direct investment FDI by a corporation and the ownership of economic units services, extractive industries, or manufacturing plants in several countries" Gilpin , In general terms, the main objective of an MNC is to secure the least costly production of goods, goal that could be achieved by acquiring the most efficient locations for production facilities or obtaining taxation concessions from host countries Gilpin , According to some Institutionalists, institutions are not always efficient and cooperation does not always generate more profits.

For Keohane and Nye, relations of cooperation and interdependence should not be understood only through the prism of effects mutually benefic or equally balanced between the parties. The interdependent relationships often present particular distributive characteristics, influenced by power relations that allocate the gains resulted from exchange unequally. This unequal distribution of earnings makes an actor more sensitive or vulnerable than another.

The worst result of cooperation between two actors or institutions would be one in which one actor has no viable alternatives in the foreseeable future to change a frame that is not favorable to it, having to bear the costs imposed by changes in the relations with other actors Keohane and Nye , According to Dicken , 61 , MNCs have basic features that have promoted the emergence of new forms of production, income generation and power relations: Since the s, in particular, MNCs have acquired new features, accompanying the changes in the modes of production.

Among them, we highlight the fact that MNCs started being considered as business networks that operate in the midst of other business networks networks within networks Dicken , According to Pind Deng , Chinese MNCs tend to acquire strategic assets-those resources and capabilities that are valued by the firm for their potential to contribute to competitive advantage-in international expansion for some particular reasons: First, it is affirmed that Chinese MNCs conform themselves to the rules and beliefs of the system in order to acquire legitimacy. Under this argument, Chinese firms are especially motivated to seek legitimacy or approval for their actions from those constituents on which the firms depend for critical resources Oliver apud Deng , Second, Chinese MNCs are constrained by an institutional environment of continuous economic liberalization and gradual institutional transition and substantial roles played by the government: In addition, corporate strategic decisions in China are, to a large extent, governed by a mix of political and economic motives Deng , In this sense, the Chinese government has been creating different supports to stimulate strong Chinese firms to invest abroad for the purpose of becoming globally competitive.

Especially since , the "going global" strategy would seek Chinese firms to invest overseas as part of China's overall strategy of joining global competition and adjusting itself to the trend of economic globalization. Additionally, there are several economic factors at play, which can be categorized as less concerned with the environment of the home country and more with the host countries.

As an example, the pull from host countries can be explained by the fact that Chinese investments look attractive to foreign companies trying to finance their projects but unable to access bank financing Tan , China's emergence as a global direct investor entails a number of consequences, which are yet to be understood. The next section seeks to shed light on the drivers and division-making process of China's investments in Brazil from the perspective of energy and telecommunication sectors.

China has become a new investor and credit supplier to the Brazilian market since the second half of the s, giving a new profile of these bilateral relations, and giving some relief to discontentment in the commercial area. In Brazil, Chinese companies at first until invested in industries related to natural resources and energy. As of , Chinese companies have also invested in the Brazilian manufacturing sector, in particular through the creation of new businesses Greenfield , but also through the acquisition of existing companies including some of European origin Frischtak and Soares The number of Chinese investment projects in Brazil has not ceased growing.

The next sections will study the cases of Chinese companies operating in energy and telecom sectors. According to the International Energy Agency IEA , Brazil-China relations in the energy sector have intensified over the past decade due to the increased innovation capacity and generation of investment flows between the two countries.

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For that Agency, elements such as the Brazilian abundance of energy resources, China's great potential to finance projects, and the increased Brazilian and Chinese ability to expand their technological capabilities explain the emergence of new business opportunities IEA The IEA also believes in the potential of Sino-Brazilian cooperation in the petrochemical industry due to Brazilian oil reserves and China's ability to fund its exploration and development. Meanwhile, Petrobras has developed, in recent years, oil exploration technology in deep waters, which China does not have.

More recently, the Chinese State Grid Company revealed its interest in settling permanently in Brazil, increasing its investments in the electricity market. This bid was considered unbeatable and demonstrated Beijing's strong interest in settling permanently in Brazil. The two other bidders offered far more modest proposals: The consortium formed by Taesa and Alupar offered a discount of 4.

The line should be concluded in January, For some analysts, Chinese enterprises' high capacity to finance businesses in Latin America is due to the fact that they have access to low-cost capital, which allows Chinese state-owned enterprises SOEs to offer lower rates of return for infrastructure projects, which require heavy investments Facchini et al. State Grid has since then become the owner of 12 transmission concessions in the country, besides being partner with domestic companies in three more concessions, two with Copel and one with Furnas.

In the area of electric energy, the company's strategy is to establish a platform for consistent investment in power transmission, but also in power generation and distribution. State Grid also wants to evaluate the possibility of future investments in wind and solar energy State Grid Brazil Holding This interest relates not only to the demands from the Chinese economic growth itself-that must re-take the momentum with increased domestic consumption in the composition of the country's Gross National Product GNP and with the reheat of European and North American markets-but also to the need China has to diversify its suppliers in order to reduce energy dependence on the Middle East, in particular.

However, the growth rate of these reserves has been slow over the past decade, remaining at an annual average rate of 1. In China, production rose on average 2. In , China imported Since , China has become a net oil importer, and in it was the second largest country oil importer in the world 6.

The Road to Globalization for Chinese Multinationals - China Business Review

In the near future, the oil supply from South American sources to the Chinese market may be favored by three major infrastructure projects underway in Central America and the Caribbean: Partnerships with Sinopec follow particular characteristics, according to the origins of these three state enterprises, which were created in the s, with different goals: Over time, the three companies started investing in several activities, different from the original ones, although they have maintained much of their operations concentrated in those areas where they already had expertise The Heritage Foundation ; Jiang and Sinton The analysis of the temporal distribution of these FDIs allows concluding that the Chinese government promoted in recent times waves of energy investments Figure 3 , switching companies responsible for investments.

The analysis of the geographical distribution of the FDI undertaken by oil Chinese SOEs provides additional information about the place of Brazilian oil investments in these companies' agenda. Bomco -and Asperbras companies and Brazil-China Oil. The joint venture called Bomcobras Business and Equipment for Oil and Gas was founded with the goal of producing machinery for the Brazilian oil exploration industry The Heritage Foundation ; Moura In view of the foregoing data, it can be said that the participation of oil companies CNOOC and CNPC in the consortium that won the auction of the Libra oil field was a business opportunity.

At that occasion, those companies had just undergone heavy investment in previous years, using great sums of money, decapitalizing themselves. In almost thirty years of existence, the two largest Chinese companies in the telecommunications industry, Huawei Technologies and Zhongxing Telecommunication Equipment ZTE , transformed the international market for telecom equipment.

Currently, these companies compete with other MNCs for the leadership in different segments of the global production chain and stand out among the leading companies that submit patent applications at the World Intellectual Property Organization WIPO Ahrens , ; Beiguang ; WIPO ; ; However, when these companies emerged in the second half of the s, the Telecom sector was dominated worldwide by North American, European, and Japanese MNCs. In the Chinese territory, the situation was not different; French companies such as Alcatel, Germany's Siemens, and Japan's NEC controlled the market in that country from joint ventures established with local companies Harwit First, the decisive support of the Chinese government facilitated the transfer of technology and financial resources to these companies and offered political support to conquer markets not only in its own country but also in other parts of the world Harwit ; Malerba and Nelson Secondly, one must consider the indirect support provided by global leading companies in specific technological segments, with which Huawei and ZTE have formed strategic alliances.

It was from these alliances that Huawei and ZTE have gained expertise in manufacturing equipment operating under different technological standards Ying Finally, Huawei and ZTE had a successful marketing strategy based on offering products similar to foreign ones, but at a considerably lower cost, seeking to gain ground, first, with less-demanding and less-power-consumption markets as in rural areas , to then compete in major consumer centers markets. Globally, this strategy was initially based on the search of markets in developing countries-with the goal of acquiring production scale and international experience-and only then in the entrance in developed markets.

The arrival of these companies in Brazil occurred nearly a decade after the Brazilian economy opening process and shortly after the privatization process of the national telecommunications system This process generated a major structural impact on the telecom industrial complex that existed in the country and deepened Brazil's external vulnerability in this sector.

The Road to Globalization for Chinese Multinationals

With the dismantle of the state system headed by Telebras since the s, a fragile situation took place, very similar to the weakness experienced by the country prior to nationalization, namely: The activities performed by those two Chinese MNCs in Brazil, in general, presented certain complementarities, due to informal division of labor that avoided duplication of efforts and reduced competition between their products.

While Huawei turned to the segment of infrastructure equipment-being responsible, as well, for the implementation of parts of the 3G and 4G networks of almost all operators in the country-, ZTE focused on the cell phones market. The cases involving the operators Vivo and Tim are emblematic: By doing so, it can be said that Huawei and ZTE not only contributed to the rapid expansion of telecommunications networks in the country, but also for mutual expansion of their own business.

This is because the installation of equipment capable of extending phone signal coverage at a particular location not previously met automatically expands the potential consumer market for mobile phones in that locality. In another movement, a larger volume of mobile phones in population hands tends to generate demand for improvement and expansion of signal coverage, which is attended by investments in network infrastructure and acquisition of new equipment.

The Road to Globalization for Chinese Multinationals - China Business Review

The Road to Globalization for Chinese Multinationals

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Category:Multinational companies headquartered in China