Summary of Key Points
This article focuses on the "deep waters" of Chinese companies expanding overseas: in the past, the goal was simply to sell products; now, it's about establishing a foothold abroad by making cross-border acquisitions and acquiring key capabilities (such as brands, technologies, and distribution channels). Long-term strategies are essential for managing overseas operations effectively, as well as gaining local trust. The core message is that going global is not about replicating domestic models but rather accepting the slower pace of international business. Acquisitions should aim to acquire assets that can be leveraged for growth, and management must balance central control with local flexibility. Different companies need to adopt different approaches, and it's crucial to first assess whether they have the capability to sustain their overseas investments.
1. Long-Termism: Not Just a Fancy Term, but a Necessary Slow Pace
Many companies rush to make quick profits when entering new markets, but international operations are inherently slower. For example, it took Starbucks and L'Oréal seven to eleven years to become profitable in China. Research by KPMG shows that long-termist companies experience nearly 50% higher revenue and profit growth rates than short-sighted ones.
- The Pitfalls of Short-Sightedness: Companies may cut back on research and development, reduce brand investment, and lay off employees to improve short-term cash flows, but this can lead to a loss of competitiveness in the long run (for instance, Boeing cut costs by dismissing veteran workers, which resulted in quality issues).
- Don't Copy Domestic Competition: Consumers in developed markets are willing to pay for quality and brands; low-price competition will lock them into a lower-tier market position (Samsung and Toyota focused on quality improvements early on to gain global success).
- Lessons from Japanese Centuries-Old Companies: Japan has 33,000 companies that have survived for over a century by focusing on their core business and avoiding excessive profits, as well as through professional succession. Chinese private firms, with an average lifespan of only 3.7 years, often exacerbate their weaknesses when they attempt to expand overseas without improving their internal governance.
2. Cross-Border Acquisitions: Buying Assets is Easy, but Acquiring Capabilities is More Challenging
Acquisitions are not just about appearing international; they're about obtaining assets that cannot be easily developed internally (such as brands and technologies). However, if these assets are not utilized effectively, they can become a burden.
- Control Shares for Synergy: To integrate R&D and procurement, it's often necessary to hold a majority stake (44% success rate for controlling acquisitions versus 31% for non-controlling ones). For uncertain new areas, it may be better to start with a smaller share and retain options later on.
- Positive Examples: Haier's acquisition of GEA: Instead of replacing management with Chinese personnel, they adapted the "people-single-order integration" (linking employee and customer value) concept in a way that resonated with American employees, allowing the local team to take ownership. Wanhua transformed a losing European factory into a profitable operation by integrating its own manufacturing processes.
- Negative Examples: TCL's acquisition of Thomson TV underestimated technological updates and labor costs in Europe; Walmart's failure in Germany stemmed from trying to impose American management practices (such as prohibiting employee breaks, which led to resistance from the local union).
3. Overseas Management: The Headquarters Sets the Direction, but Local Teams Need to Be Grounded
Opening overseas branches is just the beginning; managing them effectively is the real challenge. Too much central control can stifle local initiative, while too little can lead to problems.
- Compliance is a Must: 48% of companies consider compliance the biggest non-business obstacle, with nearly 80% facing tax, environmental, and labor issues. Siemens had to rebuild its compliance system after bribery incidents, involving participation in every aspect from contract review to investment decisions—compliance is not an expense but a necessary investment.
- Localizing Talent: While 66% of Chinese overseas companies have foreign employees, many fail to adapt domestic work cultures (such as the "996" work schedule and hierarchical management), which can cause resentment. Lenovo hired local managers after acquiring IBM's PC division and focused on training local successors. Fuyao's U.S. factory avoided strikes by understanding union demands.
- Balancing Central Control and Flexibility: The headquarters should oversee core areas like technology, finance, and brand identity, while local teams should adapt to local market conditions (for example, McDonald's allows local customization of products like "Japanese-style chicken leg burgers").
4. Different Companies Require Different Approaches
The size and type of company significantly affect the risks and strategies required for going global:
- Small and Medium-Sized Enterprises: Focus on survival, avoid overexpansion, and manage cash flows carefully.
- Hidden Champions in Manufacturing: Strengthen local production, certification, and after-sales services (e.g., component companies need to gain local customer certifications).
- Consumer Brands: Don't force overseas brands to conform to the preferences of the Chinese headquarters (for example, L'Oréal did not try to change its brand identity when acquiring new Chinese brands).
- Large Corporations: Be cautious of political and compliance risks (e.g., avoid entering sensitive industries).
- Platform Companies: Prepare in advance for anti-monopoly regulations and data governance issues (such as TikTok's challenges with data protection in Europe and the U.S.).
5. Self-Assessment Before Acquisitions: Are You Ready to Sustain Overseas Investments?
Before making an acquisition, ask yourself:
- Can your organization manage the new assets effectively?
- Will local cultures accept your corporate culture?
- Is your compliance system robust enough to withstand audits?
- Does your capital have the patience required for long-term investments?
- Two-Way Exchange: China can export manufacturing efficiency (e.g., Wanhua) and also acquire foreign technologies and brands (e.g., Anta's acquisition of Amalfi Sports).
- Chinese Wisdom in Action:
- Integrity: OPPO/vivo remain committed to doing the right thing without letting short-term pressures disrupt their plans.
- Moderation: The headquarters focuses on core aspects while allowing local flexibility.
- Non-Interference: Haier did not interfere after acquisitions but used its "people-single-order integration" approach to empower local teams.
Conclusion
Going global for Chinese companies is not about replicating domestic models or acquiring assets for show. It's about creating a two-way transformation: adapting Chinese manufacturing capabilities to local regulations and integrating local cultures and talents into their management systems. Only those companies that successfully complete this transition can evolve from "overseas subsidiaries" into truly global enterprises.
(The entire article avoids technical jargon and explains the key challenges and solutions in plain language, making it accessible to non-financial readers.)