How going global can go well for firms

Enterprises can take steps to enhance their ‘soft power,’ which will allow them to better compete in overseas markets, reports Li Jiabao in Hefei

China’s overseas business is still at its beginning stages, and more effort has been urged to strengthen the enterprises’ “soft power” abroad amid the boom of going global.

“Chinese enterprises’ going global for overseas investment and project contracting is still in its infancy,” Xia Keliang, deputy director of the International Department of China Tiesiju Civil Engineering Group Co Ltd, told China Daily in an exclusive interview.

But, he said, “we are well-developed in ‘solid power,’ such as technology or labor costs.”

Xia added: “As cost advantages are ebbing, we need to enhance our performance on ‘soft power,’ such as green operation, local laws, cultures, corporate social responsibilities and labor standards. There is a long way to go.”

Xia’s group is a leading State- owned construction enterprise in China, and overseas business makes up about onethird of the company’s total business value.

The company’s projectcontracting business — including railways, highways, residential housing, and water and power facilities — extends from Angola, Ethiopia and Mauritania in Africa to Venezuela and Ecuador in South America.

Xia estimated that as the global economy undergoes recovery and restructuring, the global construction industry will boom, with an estimated annual growth of about 70 percent before 2020.

The emerging continent of Africa will account for a major share of the increase owing to growing demand for energy exploitation, upgraded transportation networks and better infrastructure facilities.

With the support of the Chinese government and growing business opportunities, an increasing number of Chinese enterprises have gone into overseas business since 2008.

Xia said Chinese enterprises enjoy some advantages — high technology and good management after decades of development; competitive resource costs; and capital leverage supported by the huge foreign exchange reserve — and that these advantages will remain for quite a while.

But they also face challenges from an intensified global market and rising costs.

The price of resources, such as iron, steel, oil and cement, rose markedly in recent years, while labor costs kept increasing, driving up operating costs.

“Faced with China’s higher global profile, some countries talk of a ‘Chinese threat’ and set up barriers to China’s bidding on overseas business, which hurt the development of our overseas businesses,” Xia said, while noting that unstable conditions in some regions also stacked the odds.

Xia said his company’s projects in Angola were robbed by armed gunmen many times, which not only jeopardized the project’s progress but also raised concerns over employees’ safety.

The company’s turnover in the African market reached about $300 million in November, compared with $583 million in 2012.

Xia added that an even bigger pressure came from inside the Chinese enterprises.

“Many Chinese enterprises took on overseas business as a temporary plan and then ran into difficulty in merging their management system with that of the local cultures,” he said.

“We know how to train local labor forces, as we started our overseas business a long time ago, but in many projects, we are not clear about the regulations of the host countries. This will increase the costs for Chinese enterprises,” Xia said.

He said that the company’s Chinese workers in African projects dropped from 80 percent in 2008 to about 50 percent this year.

One reason for this, he said, is because the company has trained many local workers.

“In addition, the prospect of working on overseas projects is losing its luster as wages rise at home. China’s labor advantage is reducing amid declining labor supply.”

Now, labor agencies help the company get Vietnamese and North Korean workers for overseas projects, he said.

The upgrading of global construction chains also has posed challenges for Chinese businesses.

“Compared with Western companies, we are less advantageous in the design and planning work during the early stages of project contracting,” Xia said, calling it a growing problem that challenges the company’s control of overall project costs.

“We plan to merge some design institutions as a next step,” he said.

There are several things the Chinese government can do to assist Chinese enterprises in truly going global, he said. For one thing, enterprises should be legalized in host countries and employees localized, setting the foundation for more project bids in the future and changing the perception in many countries that Chinese companies come for quick money rather than long-term development. “What’s more, Chinese enterprises have acquired valuable assets in host countries,” he said, citing 400 million yuan ($65.9 million) in assets in Angola. “It will be a loss if we have to sell them in the future. The government should improve its strict control over overseas spending and introduce localized management of overseas assets, which will boost the economic development of host countries as well as broaden the prospect of China’s overseas business,” Xia said. estimated annual growth of the global construction industry

before 2020

Private vs SOEs

Private enterprises and SOEs have been competing in different areas during the global boom, Xia said.

State-owned enterprises usually outdo private businesses on big projects and are better in supportive areas. Private enterprises excel in chasing short-term profits and take different risks, he said.

“A real headache is that their offers in many projects are really low, but the risks are very high, and their risk resistance is weak. In some less- developed markets, private businesses are somewhat of a spoiler,” Xia said.

Wei Jianguo, vice- chairman of the China Center of International Economic Exchanges and a guest economist of China Daily, said that “now is the best time for China’s private enterprises to go abroad for overseas investment”.

During the nation’s highest-level economic meeting, the Central Economic Work Conference that was held from Dec 10 to 13, China vowed to enhance guidance and services for going global, provide necessary data and streamline the procedures for outward investment.

As the government shifts approvals toward a management mechanism of supervision and services, outward direct investment by individuals will see a rapid increase, said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank of the Ministry of Commerce.

Ge Min, a deputy director at the AllChina Federation of Industry and Commerce, said that private enterprises, which account for half of China’s total investors abroad, will accelerate their overseas spending.

From January to November, Chinese companies achieved an accumulated realized turnover on project contracting of $109.69 billion, up 7.1 percent from a year earlier, and the value of newly signed contracts was $143.07 billion, up 11.1 percent year-on-year, according to the ministry.

In the same period, non-financial outward investment rose 28.3 percent yearon-year to $80.24 billion, according to the ministry. Contact the writer at lijiabao@ chinadaily.com.cn