ChaPtEr 14 • ForEign dirECt invEstMEnt and CollaborativE vEnturEs 429Human Computer Interaction
Richard Branson expanded Virgin to numerous markets throughout Europe, North America, and
Asia. The stores were big, well lit, and stocked music albums in a logical order, all innovations at
the time. Sales turnover was much faster than that of smaller music retailers.
Retailers also must be willing to adjust their business model to suit local conditions. Home
Depot offers merchandise in Mexico that suits the small budgets of do-it-yourself builders. It
has introduced payment plans and promotes the do-it-yourself mind-set in a country where most
cannot afford to hire professional builders.55 The major dimensions along which retailers differentiate themselves abroad include selection, price, marketing, store design, and the ways in
which goods are displayed. They must proceed cautiously while adapting to local conditions to
avoid diluting or destroying the unique features that first made them successful.
IKEA, the world’s largest furniture retailer, has enjoyed great success, launching over 200
furniture megastores in dozens of countries. Superior performance derives from strong leadership and skillful management of human resources and from the careful balancing of global
integration of operations with responsiveness to local tastes. In each store, IKEA (www.ikea.
com) offers as many standardized products as possible while maintaining sufficient flexibility
to accommodate specific local conditions. In the United States, for example, IKEA increased
the size of its beds to suit American tastes better. In China, IKEA cut its prices to accommodate
customer income levels better. IKEA tests the waters first and learns in smaller markets before
entering big markets. For example, IKEA perfected its retailing model in German-speaking
Switzerland before entering Germany.56
Chinese OFDI: A General Outlook
There have been a lot of discussions, especially after China’s entry
into the WTO, about the continuous increase of outward foreign
direct investments (OFDIs) from China into every area of the globe, a
phenomenon that has been defined as “China’s going-out strategy.”
According to the Chinese Ministry of Commerce (MOFCOM,
online, 2015), in 2014 China’s outbound FDI flows attained the
absolute high of US $ 102.9 billion, up by 14.1% year-on-year, and
placing China among the world’s three largest source of FDIs, after
USA and Japan and with a global share of 7.6%.Chinese FDIs, which
have been pouring into the different sectors and countries more or
less copiously, have not always been welcomed in the same positive
way. This is due to a complex series of reasons.
First of all the typology of the sectors these investments have
targeted, which in some cases have attracted worried that, behind
them, there was a clear political strategy of the Chinese government
to take control in sensitive sectors. This has been, for example, the
case of some tentative acquisitions by China blocked in recent years,
targeting strategic materials and critical infrastructures. This has
been, for instance, the case of the United States where, over the past
10 years, Chinese companies have been seen by block Congress a series of acquisitions. There are a few examples that can be mentioned
here – with the famous UNOCAL in the energy sector that constitute
one of the best-known cases. The US showed caution in this sense.
Among other countries that have proved to be suspicious of Chinese
FDIs in strategic sectors there has been Australia, with the famous
case of Lynas, a company active in the REEs (rare-earth elements) and
which acquisition by Chinalco has been vetoed on the same grounds.
On the other hand, Europe, and especially the EU, has only recently begun to examine this complex issue, and the interest shown
in debates is certainly related to the recent increase in Chinese
investments, traditionally cautious in entering the EU market; an
upward trend, this, that had continued through the global financial
crisis and sovereign debt crisis, and it is still ongoing.
In order to analyze the importance and characteristics of Chinese
FDIs in Europe, it will be useful is to compare them with the US market, given that two phenomena seem to be connected, when not
influencing each other, since 2008.
As shown in the chart, after a different start in terms of amount
and timeframe, the two flows have taken two different directions,
with Europe which saw an amount of incoming FDI almost double
of the one directed to the US in 2011–2012. This trend was due,
according to the analysts, the numerous business opportunities arising from the sovereign debt crisis in the euro zone and that opened
interesting opportunities to Chinese shoppers.
Chinese OFDI in Europe
An important question here is therefore to examine the character of
the Chinese FDIs in Europe over the years, from their modest start
to their present surge, and to determine if there is a grand strategy
of the Chinese government to occupy strategic locations in Europe
or if this renovated interest from the Asian giant is purely dictated
by commercial motivations, and pursued independently by Chinese
companies. And in order to answer this question, it’s important, first
of all, to quantify this presence, and gauge how it has been changing over the years.
As a matter of fact, Chinese investments in Europe are a recent
phenomenon. They were not substantial until 2004, amounting at
less than US $1 billion annually. The surge started in 2008, and in
2009 FDIs reached in flows US $ 3 billion, before tripling in 2010,
reaching the level of more than $10 billion. A better idea of their
consistence can be obtained by looking at them in terms of stock.
ClosIng Case China’s Going Out Strategy
Cavusgil, S. T., Knight, G., & Riesenberger, J. (2016). International business : The new realities, global edition. Retrieved from http://ebookcentral.proquest.com
Created from griffith on 2020-07-12 18:36:54.
Copyright © 2016. Pearson Education Limited. All rights reserved.
In five years (2009–2014) the committed amount was of US $ 55
billion, and this trend doesn’t seem destined to dwindle any time
soon. The latest data give incoming FDIs from China reaching US
$18 billion in 2014 in terms of flow, surpassing the last record of
US $12 billion in 2012.
Chinese investors, in particular, have taken the opportunity to
enter the capital of companies short of cash, but able to guarantee
stable returns over the long-term, as it is normally the case with infrastructure and public services. In terms of geographic presence, four
countries have been consistently present over the years as preferred
target countries – namely UK, Italy, Netherlands, and Germany –
even though this has been somehow changing more recently.
From the individual sectors, it is easy to notice that energy
seemed to be one of favorite targets, with US $17billion in stock
between 2000 and 2014. This should not come as a surprise, considering that natural resources have always represented one of the
primary objectives of Chinese investment abroad. In Europe, Chinese
companies have spent about 5 billion euro for companies of the oil
and gas, including upstream and exploration JVs (as in the case of
Sinopec-Talisman), refineries (PetroChina-INEOS) and projects with a
broader scope (Sinopec-Emerald Energy).
It is, however, in sectors like food, real estate, manufacturing and public utilities where this penetration has been more
intense in the last three years, and this is one of the main differences with the policy of Chinese acquisitions in the United
States. The motivations of Chinese FDIs here have been not of a
resource seeker, but more in terms of acquisition of technologies
to modernize Chinese domestic enterprises and to advance in the
global value chain. In this sense, the economic crisis in Europe has
given to the Chinese companies a precious opportunity to acquire
know-how and technology indispensable for their future. There
are a few examples in this sense, like in the sector of mechanical
engineering, especially automotive that, with US $7.7billionin the
period 2000–2014, is the second most popular sector for OFDI
from China. Other sectors that have attracted Chinese interest
are transports and infrastructure -as in the case of participation
announced by the sovereign fund Chinese, CIC into Heathrow
Airport in November 2012.
The EU’s position on Chinese investments
Over the last decade the EU has generally welcomed Chinese investments, and cases of regulatory vetoes to acquisitions are unheard
of. It is also true, however, that the EU lacks a coherent policy and,
instead of a regulatory framework at the Commission’s level, there
is a fragmentary approach where each member state decides on its
own. Moreover, and partly due to this reason, not all countries have
benefited from Chinese money in the same way. As a matter of fact,
the countries that more have implemented a transparent legislation,
such as Germany, Sweden and the United Kingdom, have also been
more successful into attracting foreign capitals – and China is only one
country among many.
However, this enhanced interest and growing Chinese presence
has reignited the debate, at European level, over FDIs, even though it
has generally been more in the sense of devising and implementing
a more consistent policy of attracting Asian investments in Europe
than to restrict them, as it has been the case in other extra-EU
countries.
According a general view, the Chinese approach in Europe
seems driven primarily by the search of commercial gains, and therefore not threatening at a strategic level. Moreover, it is generally left
to the initiative of individual companies, and not politically directed
by the Chinese government. This was also noted in the case of public enterprises in China, which have shown a clear tendency to act
according to the logic of profit.
Scenarios
The latest data, mentioned above, showed that Chinese FDIs has
kept flowing to the EU even though the economic and financial
situation of the EU is now better. They have been changing characters, however, and, in the latest data, there has been an increase in
Greenfield investments with significant capital expenditure, such as
food plants in France and machinery production in Germany, and targeting small and medium enterprises, generally left outside this kind
of acquisitions. Finally, it’s important to point out that, despite this
upward trend, the economic importance of Chinese investment in
the EU is still somehow limited (about 2% of the European total), and
430 Part 4 • EntEring and Working in intErnational MarkEts
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
EU
USA
2011 2012
2000
4000
6000
8000
10000
12000
14000
Chinese FDIs to USA and the EU (in US $ million)
(Source: Author’s elaboration on: ICE, 2013; Rhodium Group 2013; MOFCOM 2013)
Cavusgil, S. T., Knight, G., & Riesenberger, J. (2016). International business : The new realities, global edition. Retrieved from http://ebookcentral.proquest.com
Created from griffith on 2020-07-12 18:36:54.
Copyright © 2016. Pearson Education Limited. All rights reserved.