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Chinese Multinationals in international markets

Chinese Multinationals in international markets.

1. To what extent have multinationals from mainland China competed successfully in different international markets, and which major factors explain these achievements and shortcomings?

2. To what extent have Japanese multinationals competed successfully in different international markets, and which major factors explain these achievements and shortcomings?

In November 1971, the Times newspaper marked its protect site with “The Chinese Are Coming”, but in those days, few would have anticipated the Chinese to get come quiet with regards to where they can be these days. Within five decades, China has undergone an economic miracle, rising from one of the least developed countries in the world to becoming its second-largest economy. In 2018, the GDP of China was about 13.46 trillion U.S. dollars, with an annual 6.6 percentage growth (IMF 2018), ranking it between the U.S. and Japan in size. Although the estimated GDP growth rate for 2019 is expected to slow down to 6.2% (IMF 2018), it still indicates huge economic expansion.

As a large country with great development potential, China has attracted enormous volumes of foreign direct investments (FDI). It has been one of the most popular foreign direct investment destinations since the initiation of its economic reforms (Wu and Burge 2018; Zhang et al. 2016b). While in the 1980s domestic investment was of great significance, FDI became much more important over the 1990s, and increasingly has contributed to China’s overall economic growth (Wu and Burge 2018). By the end of 2017, 136,997 foreign-invested companies were registered in China (NBSC 2018). In 2018 alone, 60,533 foreign-invested enterprises were newly established, and 134.97 billion U.S. dollars of foreign capital was invested in China (MOFCOM 2019), among which the U.K and Germany were distinct with 150.1% and 79.3% annual investment increases, respectively (MOFCOM 2019). Foreign companies have been and will continue to be important actors in the Chinese market.

There are lots of prospects that unfamiliar businesses can take advantage of, much like the huge and fast-expanding household market, an improving institutional setting, numerous businessman-warm and friendly guidelines in local and centrally controlled specific financial and-technician improvement areas (Wu and Burge 2018), an ever improving premium quality of people options (Ma et al. 2016), and better infrastructure. Recent national nationally recorded development data illustrate an optimistic future. In 2017, China invested 12.59 billion U.S. dollars in transportation infrastructure, 3.02 billion in energy and 1.43 billion in water, roughly equal to 4, 2, and 29 times to India respectively (World Bank 2019). Such impressive investments promise a better developed industrial society which is a good foundation for further business, human and social development. Nevertheless, the most attractive part of China is probably its sheer market size. Thanks to the 1.4 billion population, China has become the largest market for many products. In 2017, Volkswagen sold 41.58% of its passenger cars in the Chinese market (Volkswagen 2017), and many other giant multinational enterprises (MNEs) such as Nestlé and L’Oréal also reported their highest growth in China compared to other regions. Moreover, China can provide a good environment for exciting new business possibilities in the domestic market as a digitally advanced country. The thriving digitalization in China offers opportunities for foreign companies to break the fences and penetrate the market or access resources with new business models. For instance, L’Oréal took the chance and evaluated its digital sales with “very good e-commerce results” (L’Oréal 2017, p. 51).

Despite these options, foreign companies increasingly face a variety of problems especially through the “soft-landing” from the Chinese economy. Perhaps due to the clear signals in 2018 of the anti-globalization tendency, the IMF forecasts decreases in some of the main economic factors in years ahead, not only in China but also in many other major economic entities (IMF 2018). The increasingly unfavorable international environment will have significant influences on foreign companies in China, such as causing fiercer competition from local companies who shift back to the domestic market. Another notable disadvantage that foreign companies cannot ignore is the liability of being outsiders. A very recent example was the backlash against the Italian luxury brand Dolce and Gabbana after it launched an advertisement with unflattering stereotypes. The founders of the brand apologized for delivering offensive messages due to “cultural misunderstandings” (BBC 2018), again confirming the importance of gaining local knowledge.

Running from the international nation is just not a basic task, as well as the radiant Chinese industry position plays a part in a much more difficult environment. Despite its impressive economic development, China is still a transitional economy, as it is arguably still moving from a position were few market supporting institutions existed (i.e., a centrally planned economy). Thus, it may still be problematic to apply management approaches from advanced Western countries in China (Warner 2009; Zhao and Duc 2012). This calls for more novel and contextualized research. Based on a review of the extant literature, we provide an overview of some of the key challenges for foreign companies in China, and provide directions for future research and business practice. Building on international business (IB) research and recent business developments in China, we focus on two key challenges related to the business environment, namely regulatory and cultural challenges, and two key management challenges, namely innovation and human resource management.

International companies in Asia experience government, lawful, and regulatory challenges on two key fronts. First, China is an emerging market, characterized by a comparatively weak and fast evolving judicial and regulatory institutional environment. There is great flux in regulatory change across a broad range of spheres, including: environmental regulation and pollution prevention (He et al. 2016); capital/financial sector regulation (Zhang et al. 2016a); housing and real estate regulation (Glaeser et al. 2017); labor markets (Chang and Cooke 2015); and digital media content (Han 2016), to name but a few areas. Related government procedures, moreover, are generally less transparent. This can mean that relatively standard everyday tasks, like obtaining permit and product approvals, for example, may potentially become a drain on management resources.

Secondly, and arguably of far increased relevance due to their asymmetric impacts, local community and main degree governmental celebrities could very well utilize community institutional fragility and regulatory flux to preferentially favor and help home companies. Indeed, China has long espoused ambitious domestic industrial policies to nurture national champions (Sutherland 2003). The policy to build a ‘national team’ of around one hundred large internationally competitive business groups, for example, follows an East Asian model of development (particularly Japanese and South Korean industrial policies, with their large keiretsu and chaebol groups). This Chinese development strategy actually dates back to the early 1980s (Guest and Sutherland 2009). Its evolution over four decades is now reaching its zenith. The current China ‘Manufacturing 2025’ policies, for example, target ten specific industries (including new advanced information technology, automated machine tools and robotics, aerospace and aeronautical equipment, maritime equipment and high-tech shipping, modern rail-transport equipment, new-energy vehicles and equipment, power equipment, agricultural equipment, new materials, and biopharma and advanced medical products). In areas such as new electric vehicles and battery technology, semiconductors, solar panels/modules and wind power, interventions have been extensive, ongoing and highly prominent (World Bank & DRC 2013.