Chinese Multinationals

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Chinese Multinationals

This analysis answers the question, ‘To what extent have Chinese multinationals competed successfully in different international markets, and which major factors explain these achievements and shortcomings?’ Multinationals from mainland China have continued to expand their global footprint as they support China’s strategy to open itself up to the outside world since its accession to the World Trade Organization in 2001. Companies like Huawei and Alibaba are Chinese multinationals that are recognized globally today in stark difference to the situation at the turn of the century because they have developed unique country-specific advantages (Rashidin et al. 4). China has been intent on raising its citizen’s living standards and internationalizing its business enterprises, which has been critical for advancing its economic modernization ambition. Currently, China attracts the most foreign direct investments (FDI) globally (Pankaj and Hout 87). In turn, many Chinese firms have ventured into international markets using various market entry strategies with mixed results.  This analysis dwells on the extent to which Chinese multinationals have ventured into global markets and their performance record over time, alongside the critical factors that have influenced their performance. The analysis begins by identifying when and how Chinese companies internationalized and the role played by foreign direct investments (FDIs) in this transition. After that, the analysis shifts to the performance of Chinese multinationals based on their advantages, resources, and capabilities, and whether these multinational corporations have employed the linkage-leverage-learning (LLL) or the ownership-location-internalization (OLI) framework to propel their success. After that, the strategies employed in the management and organization of these multinationals are interrogated. Finally, the role of the Chinese government in stimulating inward and outward foreign direct investments (FDIs) is explained.   

FDI and Internationalization of Chinese Firms

China has continuously attracted foreign direct investments since it acceded to the World Trade Organization (WTO) in 2001. China entered the international business community by allowing the first foreign direct investments into the country in 1978, following the open door policy instituted by the then leader, Mao Zedong, who intended to end Chinese political and economic isolation. In the 1990s, the inward foreign direct investments into China were valued at less than $19 billion. However, this figure burgeoned dramatically after 2001 to reach $163 billion in 2020, more than the $134 billion that went to the United States (Singh para 2). Consequently, China has overtaken the United States as the leading recipient of FDI globally. Similarly, Chinese outward direct foreign investments have grown significantly, to reach $153.71 billion in 2020, after declining from their highest amount of $196.15 billion in 2016, which is attributed to stricter regulation of capital flows by the Chinese government and security concerns in the foreign markets, as illustrated in figure 1 (Textor para 2). Notably, while most inward FDIs into China came from the United States and European countries, outflows went to Australia, Hong Kong, Singapore, and the United States (Textor para 2). This means that Chinese multinationals ventured and invested more in markets in the pacific region than anywhere else globally. In addition, Chinese corporates preferred developing markets to developed ones as their foreign business destinations. 

Figure 1. Outward FDI from China 2010-2020

Source: Textor (para 1)

Many of the present Chinese multinationals were founded in the 1980s and later through the encouragement of the Chinese government, which supported the opening up of the country following decades of isolation from the outside world.  For instance, Huawei, a large technology firm, was founded in 1987 to help China modernize its highly-underdeveloped telecommunication infrastructure. Although it was founded by Ren Zhengfei, a former Chinese People’s Liberation Army director, it has continued to enjoy government’s support through cheap loans and tax breaks. Similarly, China Petrochemical Corporation (Sinopec Group) was founded in 1998 as a state-owned enterprise (SOE) in the energy industry. In addition, CITIC Group (formerly China International Trust Investment Corporation) is a large state opened enterprise founded in 1979 as a financial investment company to attract foreign direct investment inflows in the form of financial capital, advanced technologies, and international business management and operational practices. There are numerous examples of Chinese firms in various sectors that have grown to become corporate powerhouses in the global marketplace.

China is a highly attractive FDI destination because Chinese firms are resource hungry and ambitious to catch up with the more established multinationals from Europe and North America. Consequently, the FDI China attracts go to research and development (R&D), buying operational licenses from established international brands, and acquiring advanced technology through mergers and acquisitions with innovative foreign firms. On the other hand, Chinese multinational are hungry for international business experience to promote the government’s ambition of global integration. Consequently, many Chinese companies are venturing into international market, taking with them outward foreign direct investments. Although Chinese multinational target developed and developing economies, they prefer venturing into emerging economies than the mature ones due to the greater chances of success. Consequently, the entry strategies in the two types of economies differ. For instance, Chinese multinational invest in emerging economies through export and in developed economies using the acquisition, joint venture, and wholly-owned subsidiary entry modes mainly (Du et al. 1). In the same vein, Chinese multinationals use FDIs differently from those in developed economies, such as the multinationals from European countries and the United States. Notably, while Chinese multinationals adopt the asset-seeking strategies to develop competitive advantage,  developed markets’ multinationals focus more on acquiring knowledge about foreign markets and adapting their strategies to suit the external markets.

The strategies employed by Chinese multinationals are informed by the policies of the central Chinese government. Notably, China adopted the open door policy and later the go global policy to promote the internationalization of Chinese firms and direct foreign direct investment outflows. While the open door policy focused on learning from successful neighboring countries and setting up special economic zones to incubate local firms and prepare them for the international market, the go global policy encouraged Chinese firms to venture into the international market to source resources that were scarce domestically to spur the ambitious economic growth agenda (Toma and Tohănean 138). Currently, the internationalization ambition of China is embodied in the one belt, one road initiative that aims to network the economies around China with infrastructure to help the country and Chinese firms integrate with the regional and emerging economies, export excess capacity, and share Chinese standards (Toma and Tohănean 142; Wang and Miao 17). This would influence the future performance of Chinese multinationals.

Performance of Chinese Multinationals

Multinationals from mainland China have enjoyed mixed performance and success in the international marketplace. Chinese companies have enjoyed huge support from the central and provisional governments, who have availed huge resources to support the internationalization strategies and operations. For instance, CITIC Group Corporation Limited has grown to become the largest state-owned corporation with 44 subsidiaries, most of which are banks, and a huge portfolio of foreign assets in the mining, construction, oil and gas, and food industries spread around Australia, New Zealand, and Hong Kong, in addition to Canada and the United States. Another example is China National Petroleum Corporation (CNPC), which started operations formally in 1993, as a creation of the Chinese government to take over the oil exploration and refining activities from the Ministry of Petroleum. Although it was formed to exploit the China’s oil assets, it is now involved in oil industry operations in many locations outside mainland China.  COSCO Shipping is another state-owned conglomerate whose operations commenced in 2018 following a government-approved merger between China Shipping and China Ocean Shipping Company, as a government strategy to restructure the country’s shipping sector at a time when the global marine transportation industry was performing dismally. Alibaba Group is a large technology multinational that started as an online retail platform in 1999. Although it was founded by private citizens led by Jack Ma, it intended to turnaround the Chinese e-commerce, help China export merchandise to the global market, and address the business challenges presented by the World Trade Organization. From these examples, Chinese multinationals operate in numerous industries, from financial services to petroleum, construction, shipping, and retailing industries, which demonstrates the zeal of China to participate in all sectors of the global economy. The distribution of international businesses conducted by Chinese companies is summarized in figure 2.

Figure 2. Types of foreign businesses conducted by Chinese companies and their numbers

Source: Tian et al. (3)

It is evident that the Chinese government is heavily involved in the formation and running of most Chinese multinational companies, thus affording them huge resource and advantages not enjoyed by other similar corporations around the world. Foreign direct investments (FDIs) play a critical role in China’s economy and have propelled the country’s economic development, making China a competitive destination of foreign investments globally. China has also become a formidable technology innovator globally by attracting FDI in the form of advanced technologies from the developed countries of the west, including the United States and Europe (Zeng and Zhou 1). Therefore, Chinese firms were initially motivated to satisfy the huge and expansive domestic market that enjoyed a burgeoning middle class following the successful poverty eradication strategies of the Chinese government. However, these companies ventured into international market following the Chinese government’s ambition to open up its economy and unlock the domestic entrepreneurial potential. Notably, the internationalization of Chinese corporations have been driven by China’s intend to capitalize on its soft power capabilities to dominate the global economy and unsettle the balance of economic power, which for a longtime has been in the favor of western economies.

Many present day Chinese multinationals entered the global market through mergers and acquisitions, joint ventures, and buying stocks in foreign companies, as indicated in figure 3. These companies have managed to grow their brands after extended and sustained growth initiatives that have transformed the firms from imitators to creators and innovators. Consequently, many Chinese multinational have caught up and surpassed many well-established foreign multinationals with long-standing brand presence globally.

Figure 2. Types of foreign direct investments used by Chinese multinationals

Source: Tian et al. (3)

The internationalization strategies employed by Chinese firms have focused on accelerated internationalization to help the catch up with other well established global firms (Lynch and Jin 1597). Therefore, these firms rely on the linkage-leverage-learning (LLL) model rather than the ownership-location-internationalization model, which is outdated and not suited for the contemporary global business environment (Si et al. 544). However, Chinese multinational are yet to master and perfect their LLL-based strategies to enjoy similar performance levels as those enjoyed by the multinational from developed economies (Mathews 770). Consequently, Chinese multinational experience mixed performance after venturing into developed and developing markets and economies. For instance, in developed markets in the United States and Europe, many Chinese multinationals experience dismal performance initially upon entry, which improves over time after the organsational learning benefits are gradually realized. Contrastingly, in emerging markets, Chinese multinationals enjoy good performance immediately upon entering these markets, although the performance levels off as they face increased competition from domestic firms and erodes when the internalized advantages decay (Yuan et al. 332).

The mixed performance of Chinese multinationals that have ventured into international markets is demonstrated by the following examples. The challenges and failures encountered by some Chinese multinationals in foreign markets are attributed to several factors. For instance, the liabilities of foreignness, emergingness, and chineseness have prevented many Chinese multinational from gaining a significant foothold in overseas markets, particularly those in advanced economies (Cooke et al. 459). These liabilities have prevented the multinational corporations from gaining trust and high-value resources in addition to challenges in attracting and retaining high talent (Cooke et al. 459). Specifically, many international markets are apprehensive about the deep Chinese government involvement in the internationalizing Chinese state-owned enterprises. For instance, Huawei has been banned from implementing its 5G project in several European and North American countries, including Sweden, the United Kingdom, Canada and the United States because of privacy and security concerns, with these countries alleging that China would use this technology to conduct espionage (Wang and Miao 26). Indeed, the Chinese technology companies are compelled to collaborate with the intelligence agencies, in addition to being subsidized by the Chinese government, which concerns developed markets (Kaska et al. 4). Similarly, the trade war between China and the United States has made it difficult for Chinese multinationals to enter and succeed in this market (Wang and Miao 22). Besides, Chinese multinational are slow in learning the business culture of western foreign markets because of the large cultural distance. However, some Chinese multinational have succeeded in international markets because of leveraging e-commerce and venturing into regional markets where the cultural differences are few. In addition, African countries are more accommodative of Chinese firms and foreign direct investments because they have fewer security concerns. Despite these challenges, China continues to pump outward foreign direct investments into foreign markets, which contradicts the internationalization theory, which suggests that FDI are useful when they deliver more benefits than costs (Wei and Nguyen 870). This demonstrates it intent on globalizing its businesses regardless of the costs.

Management and Organization of Chinese multinationals

Chinese multinational have undergone tremendous evolution over time as the central Chinese government allowed more private entrepreneurs to enter the economic arena. Consequently, the management and operational decisions are made more by private entrepreneurs today than government officials in the past. The evolutionary theory of economic change can explain the management and organsational transformation of the Chinese multinationals. According to this theory, agents are rational entities that act, learn and search for new approaches in ambiguous and fluctuating environments. In this regard, chines companies evolved by first imitating already existing products and services, before selecting the successful ones and abandoning those that are utilize resources ineffectually and inefficiently. Specifically, Chinese firms transited from duplicative imitation in the initial stages, to creative imitation as they developed more capabilities, and finally innovation after acquiring the requisite technology and developing their capabilities to enable autonomous and independent operations (Malerba et al. 3; Mathews 769). In this regard, learning and capability development have been the main drivers of innovation and growth in the Chinese multinationals, considering that Chinese business were seeking to catch up and overtake the already well-established corporations in Europe and North America (Malerba et al. 4). Nonetheless, Chinese firms prefer retaining control of their international operations, while western multinationals diversify their management practices and localize them to the host markets’ conditions. This is because china and its multinational corporations insist on preserving their chineseness and business culture, which do not resonate with that in the host market. Consequently, Chinese multinational are unable to connect with their foreign customers as well as western multinationals do.

Role of Government and FDI

The Chinese government plays a central role in stimulating FDI inflows and outflows. China has a centrally planned economy in which the government, through the Chinese Communist Party, makes economic decisions guiding businesses in the country. However, during the market-oriented reforms of the 1980s that saw China introduce market strategies in a command or planned economy, first introduced as a socialist market economy seen today. The specific changes included the central government retaining the policy development function while the provisional and local governments implemented these policies. In turn, provincial and local governments enjoy autonomy, which allows them to promote and invest in enterprises that promote local industrialization, while building political careers (Malerba et al. 27).  

However nowadays, while the central Chinese government through the Central Committee of the Communist Party of China provides the strategic direction and formulates the legal, financial and regulatory frameworks for utilizing foreign direct investments, individual companies are free to make strategic management decisions to propel their firms to global success (Buckley 8). However, the central government facilitates firm growth by availing low-interest loans, negotiating with international partners, and lowering tariffs on international business operations. For instance, the Chinese government leaders have conducted high-profile state visits to developing countries, especially in Africa, to develop political and economic relationships that have paved way for the entry of Chinese multinationals and advance the ‘Go Global’ initiative (Buckley 6). Meanwhile, the provincial and local administrations enjoy the autonomy of deciding which firms and industries to invest in based on their domestic competitive and comparative advantages.


China is a sterling example of how internationalization and foreign direct investments can turn around the economy of a country. The Chinese economy has benefited greatly from the business activities of the Chinese multinationals. Currently, Chinese companies are involved in various projects around the world, particularly in developing countries and more so, African countries. However, Chinese multinational have not enjoyed as much success in the international market as those from western countries. The challenge has been the large cultural distance with the destination markets, persistence on chineseness, and the close association with the Chinese government.

Works Cited

Buckley, Peter. “China goes global: provenance, projection, performance and policy.” International Journal of Emerging Markets, vol. 14, no. 1, 2019, pp. 6-23.

Cooke, Fang Lee, Mingwei Liu, Leigh Anne Liu, and Chao C. Chen. “Human resource management and industrial relations in multinational corporations in and from China: Challenges and new insights.” Human Resource Management, vol. 58, no. 5, 2019, pp. 455-471.

Du, Hongping, Liliana Mitkova, and Na Wang. “The paths of internationalization of Chinese innovative firms.” Sustainability, vol. 12, no. 6, 2020, pp. 1-27.

Kaska, Kadri, Henrik Beckvard, and Tomáš Minárik. “Huawei, 5G and China as a security threat.” NATO Cooperative Cyber Defence Center for Excellence (CCDCOE), vol. 28, 2019, pp. 1-26.

Lynch, Richard, and Zhongqi Jin. “Knowledge and innovation in emerging market multinationals: The expansion paradox.” Journal of Business Research, vol. 69, no. 5, 2016, pp. 1593-1597.

Malerba, Franco, Sunil Mani, and Pamela Adams. The rise to market leadership: New leading firms from emerging countries. Edward Elgar Publishing, 2017.

Mathews, John A. “Dragon multinationals powered by linkage, leverage and learning: A review and development.” Asia Pacific Journal of Management, vol. 34, no. 4, 2017, pp. 769-775.

Pankaj Ghemawat and Thomas Hout. “Can China’s companies conquer the world? The overlooked importance of corporate power.” Foreign Affairs, vol. 95, no. 2, 2016, pp. 86-98.

Rashidin, Md Salamun, Sara Javed, Lingming Chen, and Wang Jian. “Assessing the competitiveness of Chinese multinational enterprises development: Evidence from electronics sector.” Sage Open, vol. 10, no. 1, 2020, pp. 1-20.

Si, Yuefang, Ingo Liefner, and Tao Wang. “Foreign direct investment with Chinese characteristics: A middle path between Ownership-Location-Internalization model and Linkage-Leverage-Learning model.” Chinese Geographical Science, vol. 23, no. 5, 2013, pp. 594-606.

Singh, Kaniska. “China was largest recipient of FDI in 2020: Report.” Reuters. 25 January 2021.

Textor, C. “Annual FDI outfloe from China 2010-2020.” Statista, 26 October 2021.,to%20the%20COVID%2D19%20pandemic.

Toma, Sorin-George, and Dragoş Tohănean. “China’s “Go Global” strategy: An overview.” Strategii Manageriale, vol. 4, no. 42, 2018, pp. 138-145.

Wang, Huiyao and Lu Miao. Transition and opportunity: Strategies form business leaders on making the most of China’s future. Singapore, Springer, 2022.

Wei, Ziyi, and Quyen T. K. Nguyen. “Chinese service multinationals: The degree of internationalization and performance.” Management International Review, vol. 60, no. 6, 2020, pp. 869-908.

Yuan, Lin, Nitin Pangarkar, and Jie Wu. “The interactive effect of time and host country location on Chinese MNCs’ performance: An empirical investigation.” Journal of World Business, vol. 51, no. 2, 2016, pp. 331-342.

Zeng, Shihong, and Ya Zhou. “Foreign direct investment’s impact on china’s economic growth, technological innovation and pollution.” International Journal of Environmental Research and Public Health, vol. 18, vol. 6, 2021, pp. 2839.

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