4 min read
Why and How are Chinese Companies are Expanding Overseas: Conversation with Joel Backaler, Author of ‘China Goes West’
Joel Backaler is the author of China Goes West: Everything You Need to Know About Chinese Companies Going Global (Palgrave Macmillan, 2014). He is an Associate Vice President at the Washington D.C.-based Frontier Strategy Group, and a member of the National Committee on United States-China Relations. Following a Fulbright Fellowship in Taiwan and advanced Mandarin study at the IUP Center at Tsinghua University in Beijing, Joel worked with Atos Consulting’s China state-owned enterprise practice in Beijing. Joel answers a few questions about his book, focusing on Chinese technology and internet companies.
On the motivation behind writing such a book
I believe we are at the early stages of a tremendous global phenomenon – the internationalization of Chinese companies. I wrote China Goes West because I am convinced that this is the next chapter in China’s development. I wanted to provide readers with a comprehensive overview of why Chinese companies are expanding overseas, what paths they are taking to do so, and introduce potential costs and benefits for the markets where they invest. Ultimately, I wrote the book because it’s the time to understand this trend – it is only going to become more important in the years to come.
Research for writing China Goes West
Like most books, my research approach involved a combination of primary and secondary sources. Given how early we are in the development of this trend though, I found first-person interviews to be most effective in uncovering and connecting underlying themes. Another reason why first-person interviews were so important was due to how I decided to write the book. It was important to me early on that China Goes West not become a dry “China business book”.
I filled the book with rich narrative and stories about the Chinese executives behind these firms. Rather than write a traditional case study about how Geely acquired Volvo cars, I wanted readers to get a sense of the path Li Shufu, Geely’s founder, took to reach that point. A few years ahead of the acquisition when he first founded his firm Li remarked that a car is “simply four wheels and three sofas – how hard would it be to produce?” Conversations with executives in China and working for Chinese firms in international markets were critical to my research in order to gain a comprehensive view about why they decided to go global and what challenges they encountered along the way.
Tech companies included as case studies
China Goes West includes a cross-industry selection of examples and cases studies. Interestingly, many of the challenges that Chinese firms face when expanding overseas that I cover in my book are due to the overall maturity of the companies, their executives, and the industries in which they operate. Some of the specific technology companies that are included in the book are Alibaba, Tencent, Huawei, TCL, ZTE and Lenovo. Yang Yuanqing, Chairman and CEO of Lenovo Group has actually endorsed the book.
Some underlying themes when it comes to Chinese tech companies go global
First, one of the main points I make is that Chinese companies are going global for a variety of motivations. While on one hand, there are government ambitions tied to the zouchuqu or “go out” policy, there is a very practical set of reasons why it makes sense for Chinese companies to go global out of business necessity. Chinese firms can gain access to advanced technology, international talent, global brands and access to new markets. Often, these motivations are driven by a desire to make their firms more competitive within China, where costs have increased and competition is heating up across a wide range of industries.
For technology firms in particular, I make the case in my book that they are much better positioned to be successful in their initial attempts to go global. This is partially due to the fact that they often compete on more equal footing with industry incumbents operating in industries that are relatively new – take the internet industry for example. Additionally, the executives leading these firms are often more globally exposed and more willing to incorporate proven business practices from the West.
Is going global a challenge for Chinese tech companies, given that their business models are often very specific to the domestic market?
You make a very good point. Most Chinese internet companies tend to do well because they design a unique set of offerings for Chinese netizens, which also happens to be the world’s largest internet population. However, Chinese internet companies are not immune from increasing competition within China and it is in their interest to look at markets outside of China today.
In my book I interviewed Kaiser Kuo, Head of International Communications at Baidu. He told me, “If you were to poll our analysts, you would find some who would rather not see us go global for fear that it would take our attention off the prize at home. Diversification into other markets is inevitable and there’s no time like the present to begin this push. If we do things right, I believe that a significant portion of our future revenues will come from abroad.” Other Chinese internet firms would be wise to adopt a similar approach and begin to develop initial international business experience to set their firm’s up for long-term opportunities in markets outside of China.