Zhang Shiguo, a researcher from the Ministry of Commerce's Economic Research Institute engaged in the study of transnational corporations, listed Chinese enterprises' 10 methods of transnational operation, the People's Daily reported on October 26.
Establish brand names
In 1998 the Haier Group began to establish its factories overseas on a grand scale. "Starting with European and American markets, Haier aims to break a new path for transnational operation," it predicted. However, eight years later, little effect can be seen.
A branch of the Huawei Group in Zambia
Differing from Haier, the Huawei Group chose new markets in Africa, Asia and Russia to start its business. In 2005, Huawei's overseas sales volume accounted for over 50 percent of its total sales volume. Its brand name is widely acknowledged and products are utilized by main European telecommunications facility suppliers. Huawei has trail-blazed in transnational operation.
Buy brand names
In 2003, the TCL Corporation, one of China's largest television makers, purchased brand names Thomson and RCA from France's Thomson Corporation during the reshuffle of the latter's global color television service. The deal enabled TCL's international sales volume to exceed its domestic one and rapidly form a transnational operation framework. However, this came at a large mark-up cost.
In November 2004, the Lenovo Group bought IBM's PC service at the cost of US$1.7 billion, enabling it to use IBM's global PC service reputation and helping its main operational earnings exceed 100 billion yuan (US$12.7 billion). Meanwhile, the deal helped Lenovo's overseas markets' sales volume exceed domestic one for the first time. It also benefited IBM's five-year operational permission in global market.
This is an important choice for most Chinese enterprises engaged in transnational operation since the United States and the European Union (EU) use anti-dumping methods to restrict Chinese manufacturers' runaway exports.
Color television industry: The Prima Electronic Services Co. Ltd. has OEM (Original Equipment Manufacturer) processing factories in Germany and in France. The Hisense Group has factories in Italy and France and its main products have developed from color television sets to PDP (Plasma Display Panel) and LCD (Liquid Crystal Display) plates. The Changhong, Skyworth, Haier and TCL groups also established overseas production bases and joint ventures in Mexico, Russia, Hungary, Czech Republic, Poland and Belgium.
Automobile industry: In 2004, three domestic companies -- the Dongfeng Motor Corporation, the Chery Automobile Co., Ltd. and the Guangzhou Panyu Huanan Motors Group Co., Ltd. -- signed an agreement with the Sneda Automobile Co. Ltd. of Ghana to build an automobile production base in the African country to manufacture trucks, motorcycles, Chery cars and wagon cars. The cooperation has set a record among Chinese domestic automobile group enterprises establishing their first overseas factories. The ChangAn Automobile Group has reached an agreement with a Vietnamese company to establish a factory in the country. The Geely Group Co. Ltd invested in Malaysia to build a production base. The Lifan Company, in cooperation with six component parts companies from Chongqing Municipality, established a joint venture -- the Lifan-Vietnam Motorcycle Company -- in Vietnam and factories in Combodia, Malaysia, Thailand and Pakistan. The Zongshen Motorcycle Group invested US$2.2 million in Vietnam to establish the solely Chinese-funded Vietnam Motorcycle Engine Co. Ltd.
Textile industry: In 2003 the Wuxi Huayuan Garment Co, Ltd. started its overseas processing business. When receiving order lists from European and American countries, the company transported Chinese textile materials to Vietnam which were processed into prêt-a-porter clothes with added value exceeding 30 percent and bearing Vietnamese certificates of origin. In 2005 the Ningbo Shenzhou Knitting Co. Ltd. invested US$33.8 million in a garment factory in Cambodia with daily output reaching 230,000 items of clothing and exporting directly to the United States. In December 2005, the Zhejiang Langsha Group, a world-famous socks producer, spent US$5 million to buy 51 percent share of a US-based hosiery and build a production base locally.
Agriculture industry: In 2001 the New Hope Group established three factories in Vietnam and the Philippines, with a total overseas sales volume of US$50 million in 2005. The Liaoning Hefeng Stock-Raising Co. Ltd. established a forage manufacture in North Korea with an investment of 10 million yuan and with an annual forage output exceeding 20,000 tons. Later the company established another factory in Nepal with an investment of 5 million yuan.
In March 3, 2004 four Chinese iron and steel groups -- the Wuhan Iron and Steel (Group) Corp., the Ma'anshan Iron and Steel Shareholding Co. Ltd. (Masteel), the Jiangsu Sha-Steel (Group) Corp. and the Tangshan Iron and Steel Shareholding Co. Ltd. -- reached an agreement with BHP Billiton of Australia to take 40 percent shareholding in Jiblear's iron ore. Since then the companies have bought rights to 12 million tons of Australian iron ore annually. The agreement was valued at US$9 billion and is set to last 50 years. The Huaneng Group spent 150 million yuan to buy coal in Australia. The China Petroleum & Chemical Corporation (Sinopec) and the China National Petroleum Corporation (CNPC) have also bought oilfields overseas.
In October 2005, China Mobile (Hong Kong) Limited issued an announcement stating its purchase of all issued shares of Hong Kong's China Resources Peoples Telephone Co. Ltd. at a price of HK$4.55 per share in form of a cash tender offer on a conditional voluntary basis. The valuation of all issued share capitals of China Resources Peoples Telephone Co. Ltd. stood at HK$3.384 billion. Besides, TCL, Lenovo and CNPC also purchased expensive shares overseas for resources, technologies or brands.
In 1994 the Wanxiang America Corporation was founded and engaged in forming an automobile component parts network covering European and American markets. In August 1997 it cooperated with the Wanxiang Qianchao Co. Ltd. to form a complete set of products with General Motors (GM) of the US. Meanwhile, it established good relationship with Citibank and Merrill Lynch. Its "QC" product has sales companies based in US, Mexico, Venezuela, Brazil and Canada.
In November 2005, China's non-ferrous metal industry's Foreign Engineering & Construction Co. Ltd. signed a contract with the Electrolytic Aluminum Shareholding Co. Ltd. of Kazakhstan, valued at US$290 million. According to the contract, the Chinese partner was responsible for the project's construction, installation and equipment supply. In January 2006, the China Metallurgical Group Corporation signed a contract with Mauritania to overtake its capital airport construction. The contract was valued at US$200 million.
In 1993 the Beijing Tongrentang Group Co. Ltd. began to have independent import and export rights. Since then, 18 drugstores and sub-companies have been established in 12 countries and regions, forming a sales network covering Hong Kong, Macao, Taiwan, Singapore, Malaysia, South Korea, Britain, Australia, Canada and the US. In October 2003, Gome established a distributing store in Hong Kong. In November 2004 the Hong Kong Gome Electrical Appliance Co. Ltd. opened the precursor to Gome's transnational operations. In early 2006, Gome's business stretched to Thailand, Malaysia, Japan and Taiwan.
Many Chinese enterprises buy raw materials and spare parts of high quality at favorable prices overseas. Assembled in domestic markets, the products are resold to European and America markets.
Research and development (R&D)
Many Chinese companies establish R&D centers overseas to follow and master latest international technological trends. The Guangdong Galanz Group Co. Ltd. established its center in the US, and Haier has even expanded its center to India.
(People's Daily, translated by Li Jingrong for China.org.cn, November 7, 2006)