Internationalization: A Long Way for Chinese Overseas Companies

SINCE the outbreak of the global fi nancial crisis， China’s outward FDI （Foreign Direct Investment） has increased dramatically， with a relatively high average sales profit margin and strengthened international standing. The internationalization level of these firms， however， remains low. They still have a long way to go to attain the international status of transnational or multinational corporations.

More FDI

China’s FDI outflows ranked a world third in 2012， after the U.S. and Japan， according to UNCTAD （United Nations Conference on Trade and Development） statistics. The country’s global share of 6.31 percent， compared to its 2007 share of 1.17 percent right before the global fi nancial turmoil， also showed an increase of 5.14 percent. At 2.25 percent by the end of 2012， compared to 0.61 percent in 2007， its FDI stock ranked 13 in the world — an increase of 1.64 percent. Ministry of Commerce data show that from 2007 to 2012， China’s FDI was on the rise （see Table 1） against the background of the world 46.7 percent decline. Even in 2009， when the financial crisis came to a head， China still achieved an FDI increase of 1.1 percent. The year 2012 also saw a 17.6 percent increase in China’s FDI， while the world figure fell 9.2 percent. Meanwhile， growing numbers of Chinese companies have invested overseas. By the end of 2012 their numbers had reached 22，000， and the total overseas assets of Chinese companies amounted to US $2.3 billion.

Chinese enterprises’ overseas investment also features industrial concentration， including renting， commercial services， fi nance， mining， wholesale and retail， manufacturing， communications， transportation and warehousing， mail business， and construction industry. From 2007 to 2012， the year-end stock of China’s renting and commercial services grew to a value of US $175.698 billion from 30.525 billion — 25.9 percent to 33.0 percent of the total； that of fi nance grew from US$16.72 billion to 96.45 billion — 14.2 percent to 18.1 percent of the total； mining grew from US$15.01 billion to 74.78 billion — 12.7 percent to 14.1 percent of the total； wholesale and retail grew from US $20.23 billion to 68.21 billion — 17.2 percent to 12.2 percent of the total； and manufacturing grew from US $9.54 billion to 34.14 billion— 8.1 percent to 6.4 percent of the total. Communications， transportation and storage grew from US $12.06 billion to 29.23 billion — 10.2 percent to 5.5 percent of the total； and that of construction industry grew from US $1.63 billion to 12.86 billion — 1.4 percent to 2.4 percent of the total.

The world standing of Chinese enterprises， moreover， has gradually risen. Fortune lists the world top 500 companies according to their sales， and the Forbes list of the world top 2，000 companies is based on their sales， prof its， capital and market value， so giving a clearer picture of their international standings. Data show that from 2006 to 2012， more enterprises from the Chinese mainland appeared on the Forbes list， taking their number from the previous 28 to 136， respectively representing 1.4 percent and 6.8 percent. Petrochina ranked 52nd in 2006， 41st in 2007， and 30th in 2008. The Industrial and Commercial Bank of China （ICBC） ranked 12th in 2009 and fifth in 2010. In 2011， Petrochina ranked sixth and in 2012， ICBC made the world number one spot. Table 2 shows that from 2006 to 2012， Chinese enterprises gained a greater presence in the Forbes’ top 2，000 companies， with regards to sales and capital. Other than in the year 2011， Chinese companies have gained more spots in the ranking by virtue of profit and market values.

Chinese enterprises’ profit rate has on average been towards the top of the world list. From 2006 to 2012， however， their average sales profits among the top 2，000 global companies declined from 14.5 percent to 9.1 percent. But all surpassed that of the U.S.， Germany， France， Britain and Japan， and were above the 2，000 top enterprise average. （See Table 3）

Expectations of Better International Standing

Even so， Chinese enterprises have a comparatively low international standing.

First， their number and quality lag behind companies from the U.S.， Japan， and other developed countries. Taking 2012 as an example， that year saw 136 Chinese enterprises listed in the world top 2，000. U.S. enterprises， however， accounted for 543 and those from Japan for 251. These two countries have occupied the biggest share for some years. In 2012， ICBC was number one， but its profits stemmed mainly from the domestic market， along with those of petroleum， banking， insurance， and telecommunications –mainly state-owned， highly protected industries in a limited market with low competition. Even so， certain Chinese enterprises showed a red balance. Take CHALCO （Aluminum Corporation of China） as an example， which ranked 853 in 2012， but with a loss of US $1.3 billion.

Second， the internationalization level of Chinese enterprises is still low. There are few world famous Chinese brands， and insufficient core patents. UNCATD statistics show that in 2010 the transnational index of China National Offshore Oil Corporation （CNOOC） was 9.4 percent and that of China National Petroleum Corporation was 2.7 percent， relatively low compared with the world level. Best Global Brands data， jointly released by businessweek and Interbrand， show that from 2000 to 2013， no Chinese brands appeared among the top 100.

Third， the average sales of Chinese enterprises are less than satisfactory. From 2006 to 2012， of the sales of the world top 2，000 companies， those of Chinese enterprises reached an average of US$22.19 billion from the previous US $8.97 billion. Before 2012， they were lower than the world average， noticeably lagging behind those of the U.S.， Germany， France， Britain and Japan. But in 2012， they improved to a level higher than the world average， and also exceeded that of the U.S. and Japan. （See Table 4）

In brief， Chinese enterprises need greater world competitive capabilities to hasten their development and raise their profits. These firms must also abide by international rules and undertake corporate social responsibility before they can become cross-national or global enterprises of international standing.