Twenty years ago, the Chinese government initiated the Going Global Strategy to encourage Chinese enterprises to venture abroad and seize opportunities in international markets. Since then, China’s foreign direct investment has risen dramatically and an ever-increasing number of Chinese enterprises are going global.
To better understand how these Chinese enterprises are performing globally, Aon conducted a study of nearly 100 companies spanning 10 key industries. These respondents include state-owned enterprises, private enterprises, and foreign MNCs in China – all in various stages of globalisation.
10 key trends today
- Increasing global competitiveness
Many Chinese enterprises desire to be major players on the global stage, and this ambition has pushed them to increase their global competitiveness. The goal is to become a world-class enterprise that allocates resources globally, introduces technological innovations, and wields global influence.
- Regions along the Belt and Road are most popular
The Chinese government’s policies have proven to be influential, as regions along the Belt and Road Initiative in Asia and Europe are the top picks for many Chinese enterprises’ expansion strategy.
- More enterprises are profiting
About 25 percent more Chinese enterprises with overseas operations are achieving their profit targets today, as compared to 2015. Many enterprises are also making investment decisions that go beyond mere expansion to focus on enhancing their existing business.
- Global integration to achieve synergy
Chinese enterprises are starting to integrate the management of their overseas operations to achieve global synergy. This is a shift away from regional management or overseas localised management.
- Strategic governance is favoured
Most Chinese enterprises adopt the strategic governance model, which offers a balance between centralised and decentralised control. Overseas subsidiaries are given autonomy to shape local operations while headquarters will be able to influence the strategic development of the entire enterprise.
- Reform needed in three key areas
There is an urgent need for Chinese enterprises going global to review and reform three key areas: global governance, organisational structure, as well as compensation and benefits. These are crucial in ensuring that the enterprise’s operations are supported as they expand further into international markets.
- Talent shortage is the biggest challenge
Over 65 percent of enterprises surveyed cited a lack of talent with global skill sets and experience as an impediment to expanding their international investments and operations.
- Building a globally-unified company culture is difficult
Building a company culture that is relevant from Shanghai to Sydney remains an elusive goal for many Chinese enterprises. Only 30 percent of Chinese-funded enterprises have a globally unified company culture, as compared to 70 percent of foreign-funded enterprises.
- Top three external risks: Economic, legal and financial
Over 59 percent of respondents believe that the two biggest external risk factors are the economic growth prospects of the country they are investing in, as well as the legal and taxation policies. This is closely followed by financial risks, which includes credit, interest rates, and foreign exchange.
- Top three internal risks: Strategies, research and management
For 53 percent of the respondents, the biggest internal risk is a lack of a clear investment strategy. Secondly, companies sometimes fail to conduct adequate research into the risks and liabilities prior to making an investment. Thirdly, after the investment is made, not enough is being done to manage and integrate operations.
Outlook for 2019
How will these 10 key trends shape the globalisation of Chinese enterprises in 2019? Aon has four predictions.
- Stricter supervision for overseas investments
Towards the end of 2016, the Chinese government started to release regulations to direct overseas investments, control risk, and to ensure that Chinese enterprises make more strategically-sound investments. We can expect more of these regulatory guidelines to shape future overseas investments.
- Managing uncertainty with robust strategies
The global climate is set to become increasingly complicated with Brexit and policies introduced by Trump’s administration in the United States. However, Chinese enterprises will be undeterred and will continue their global expansion with more robust strategies.
- Africa will be a popular destination for investments
Africa features prominently in many of the Chinese government’s policies. It is one of the regions along China’s Belt and Road Initiative. On top of that, the Forum on China-Africa Cooperation (FOCAC) has seen steady progress over the years. It is likely that we will see an enthusiastic growth of Chinese investment in Africa.
- HR solutions will play a bigger role
Many of the challenges that Chinese enterprises have faced in going global are human capital challenges such as talent shortage, compensation strategies, post M&A integration and more. In the coming year, we are likely to see HR solutions play a bigger role in the business strategies of Chinese enterprises.
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