Com­pa­nies need to think glob­ally ear­lier, says aca­demic

China Daily (Canada) - - EXPATS - By CE­CILY LIU

ce­cily.liu@mail.chi­nadai­lyuk. com

Chi­nese busi­nesses should start plan­ning the path to glob­al­iza­tion as they de­velop their busi­ness model to make use of mar­ket di­ver­si­fi­ca­tion and global per­spec­tive, said a pro­fes­sor and en­tre­pre­neur in res­i­dence at the Judge Busi­ness School at the Univer­sity of Cam­bridge.

The in­ter­na­tional ex­pan­sion of a wave of such medi­um­size Chi­nese firms may be the next trend con­nect­ing Chi­nese in­vest­ment with global mar­kets, as well as help­ing Chi­nese firms to move up the value chain, Alan Bar­rell said.

The largest Chi­nese firms are al­ready be­com­ing lead­ers in their fields in­ter­na­tion­ally, but China it­self needs more such firms, said Bar­rell, who is heav­ily in­volved in lead­er­ship, man­age­ment and en­tre­pre­neur­ial ed­u­ca­tion in China and at Cam­bridge with Chi­nese vis­it­ing groups.

Com­pa­nies that Bar­rell con­sid­ers to be in­dus­try lead­ers in­clude the Chi­nese telecom­mu­ni­ca­tions firm Huawei and the elec­tron­ics prod­uct firm Len­ovo, both of which have a global sales pres­ence.

Bar­rell said th­ese com­pa­nies rep­re­sent the old model of Chi­nese firms’ in­ter­na­tional ex­pan­sion, which fol­lows the strat­egy of look­ing for in­ter­na­tional mar­kets only af­ter they are big enough to sat­u­rate the do­mes­tic mar­ket.

This model is not as ef­fec­tive now that glob­al­iza­tion means that for­eign firms can en­ter China and pose strong al­ter­na­tives to th­ese medium-sized firms if they are not com­pet­i­tive enough, he said, adding that one im­por­tant el­e­ment of stay­ing com­pet­i­tive is in­ter­na­tion­al­iza­tion.

“Many mid­size firms, es­pe­cially in the health­care, com­mu­ni­ca­tion and tech­nol­ogy sec­tors, can ex­pand by go­ing in­ter­na­tional. Even though there is ex­cess ca­pac­ity in China, there are still needs in dif­fer­ent coun­tries, and they can cre­ate dif­fer­ent prod­ucts for dif­fer­ent coun­tries.”

An­other key rea­son for Chi­nese firms to in­ter­na­tion­al­ize is the avail­abil­ity of in­no­va­tion and cre­ativ­ity in many ma­ture mar­kets such as the United King­dom, which Chi­nese firms can ac­cess if they are in those mar­kets. In the process, they can fa­cil­i­tate China’s struc­tural trans­for­ma­tion into a high­er­value and more ser­vice-based econ­omy.

Bar­rell said Chi­nese busi­ness lead­ers of­ten ask him where China should go next. “I say in­no­va­tion. In­no­va­tion is what will take China for­ward in the next 20 years. China needs more of its own brands, and I see China emerg­ing into a new age of in­ven­tive­ness and cre­ativ­ity.”

In Bar­rell’s view, this in­no­va­tion is be­ing demon­strated not only by world-lead­ing Chi­nese firms like Huawei, but also by new startup firms in China that bring much needed vi­tal­ity to the econ­omy.

Huawei, started in Shen­zhen in 1987, mainly as an orig­i­nal equip­ment man­u­fac­turer for Western com­pa­nies, worked hard to de­velop its own brand. The com­pany now sells prod­ucts and ser­vices in more than 140 coun­tries, and in 2012 it over­took Eric­s­son to be­come the largest tele­com equip­ment man­u­fac­turer in the world.

Core to its strat­egy is ded­i­ca­tion to re­search and de­vel­op­ment, with a com­mit­ment to rein­vest 10 per­cent of an­nual rev­enue in R&D and to lo­cal­ize R&D work glob­ally so that it can ac­cess the best tal­ent and ex­per­tise of each coun­try and re­gion it is in.

“Huawei has stud­ied the fu­ture needs of the telecom­mu­ni­ca­tions in­dus­try,” Bar­rell said. To­day Huawei serves 45 of the world’s 50 largest tele­com op­er­a­tors.

An­other highly in­no­va­tive Chi­nese firm is Alibaba, an e-commerce com­pany founded in Hangzhou in 1999. Ini­tially a busi­ness-to-busi­ness por­tal to con­nect Chi­nese man­u­fac­tur­ers with over­seas buy­ers, Alibaba has since grown into the main e-commerce com­pany in China. It made a name for it­self last year when it listed on the New York Stock Ex­change as the largest global IPO ever, at $25 bil­lion.

Bar­rell said what dis­tin­guishes Alibaba from other e-commerce firms is the com­pany’s abil­ity to ven­ture into other fields, such as lend­ing to small and medium-sized firms.

Alibaba’s fi­nan­cial arm, known as Ant Fi­nan­cial, makes small loans, un­der 1 mil­lion yuan ($154,000) to credit-starved com­pa­nies left out by China’s bank­ing sys­tem, which of­ten fa­vors big­ger com­pa­nies and State-owned en­ter­prises.

Many of the small busi­nesses re­ceiv­ing credit from Ant Fi­nan­cial are al­ready Alibaba cus­tomers, so Alibaba can judge their credit history by us­ing cus­tomer data, in­clud­ing their shop­ping history, util­ity bills, work and home ad­dresses and con­tact in­for­ma­tion.

Such a busi­ness model is con­sid­ered highly in­no­va­tive, as it al­lows a cer­tain seg­ment of the Chi­nese pop­u­la­tion with­out a credit history to fi­nanc­ing. More re­cently, Ant Fi­nan­cial opened a cloud­based lend­ing bank, Mybank, which of­fers loans of up to 5 mil­lion yuan. That busi­ness model, Bar­rell said, helps smaller com­pa­nies grow.

When big com­pa­nies down­size dur­ing a re­ces­sion, the cre­ation of small firms plays a big role in the re­cov­ery, he said. But in China, banks gen­er­ally do not lend to young firms, making al­ter­na­tive lend­ing sources such as Ant Fi­nan­cial very im­por­tant.

An­other key source of in­no­va­tion emerg­ing in China is small busi­nesses run by young grad­u­ates, Bar­rell said. One ex­am­ple of a busi­ness that im­pressed him is a firm called Ufenqi, which gives loans to stu­dents to buy elec­tronic goods, he said.

It has a pool of in­vestors who pro­vide peer-to-peer loans, with Ufenqi re­ceiv­ing a com­mis­sion. The com­pany, founded last year, has re­ceived tens of mil­lions of yuan in in­vest­ment, in­clud­ing funds from Xu Xiaop­ing, one of China’s fore­most an­gel in­vestors and founder of ZhenFund.

Ufenqi’s staff does rig­or­ous checks on the stu­dents to as­cer­tain their abil­ity to pay back the loans, and those ap­proved can make pay­ments in in­stall­ments, which re­duces the fi­nan­cial bur­den. The firm has cus­tomers in more than 40 cities in China, in­clud­ing more than 800 col­lege cam­puses.

Bar­rell said such a model takes care of a mar­ket need in an in­no­va­tive way. Ufenqi is rep­re­sen­ta­tive of small firms es­tab­lished by China’s new gen­er­a­tion of en­trepreneurs, who take a global per­spec­tive from the very be­gin­ning.

“In China there is a spirit of ad­ven­ture in new tech­nol­ogy and new ways of do­ing things. There are many young Chi­nese peo­ple ed­u­cated over­seas, and they bring the cre­ativ­ity back to China.”

In ad­di­tion, Bar­rell said he feels Chi­nese peo­ple have a strong en­tre­pre­neur­ial spirit be­cause they as­pire to be their own bosses, and they are highly ded­i­cated and have a strong work ethic. Th­ese qual­i­ties are a strong force in push­ing for­ward China’s in­no­va­tion.

Bar­rell, who has dealt with many Chi­nese stu­dents in Cam­bridge over the years, said his in­ter­est in the Chi­nese econ­omy de­vel­oped through such con­tact which has given him a win­dow into China.

The Chi­nese gov­ern­ment should in­vest more in pro­vid­ing help to medium-size com­pa­nies, he said. Th­ese firms may not have the fi­nan­cial abil­ity to ex­pand in­ter­na­tion­ally, but their growth could ben­e­fit both the com­pa­nies and the coun­try as a whole.

“The world mar­ket is the mar­ket. If com­pa­nies like Huawei had not in­vested prop­erly when they were smaller, they could not be a world leader, and China needs to build more world lead­ers and cre­ate more brands.”

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