Chi­nese com­pa­nies face cul­ture shock in many coun­tries

The Pak Banker - - COMPANIES/BOSS -

Faced with slower growth at home and ris­ing la­bor costs, Chi­nese en­trepreneurs are seek­ing for­eign mar­kets as never be­fore. But as they rush abroad, they are grap­pling for the first time with un­ruly trade unions, in­de­pen­dent courts and med­dle­some jour­nal­ists. And for many, nav­i­gat­ing the un­fa­mil­iar wa­ters of mul­ti­party pol­i­tics and con­fronting the power of public opin­ion makes for heavy go­ing.

As they ven­ture into for­eign democ­ra­cies, many Chi­nese com­pa­nies ex­pe­ri­ence cul­ture shock. Hav­ing made their money in a one-party state, where po­lit­i­cal con­nec­tions are the key to a suc­cess­ful busi­ness and the rule of law is easy to side­step, they are find­ing things just aren't as sim­ple abroad.

From the United States to Asia, Chi­nese en­trepreneurs have a litany of com­plaints and have made a suc­ces­sion of costly mis­takes. Even in tiny Cam­bo­dia, where China has be­come a ma­jor in­vestor in the gar­ment in­dus­try, they can sound bit­ter. "Trade unions are all the same: They are black­hearted," com­plained He En­jia, pres­i­dent of the Textile En­ter­prise As­so­ci­a­tion of the Chi­nese Cham­ber of Com­merce in Cam­bo­dia.

"In the last two years, things changed in Cam­bo­dia," he added, ex­plain­ing that fac­tory own­ers used to be able to hire po­lice to sup­press strik­ing work­ers. "Now it's im­pos­si­ble. The in­flu­ence of the op­po­si­tion party is grow­ing, with the help of the Western media."

By some mea­sures, out­ward in­vest­ment from China out­paced for­eign in­vest­ment into the coun­try for the first time last year. But abroad, where the public of­ten de­mands greater trans­parency and courts en­force stricter en­vi­ron­men­tal and la­bor laws, it is a steep learn­ing curve for many Chi­nese com­pa­nies, ex­perts say, that mir­rors the chal­lenges for­eign com­pa­nies faced when they first en­tered China more than two decades ago.

"If you look at for­eign com­pa­nies go­ing into China, it was ex­tremely dif­fi­cult for them to ad­just," said Thilo Hane­mann, who tracks global in­vest­ment flows at the Rhodium Group, a New York-based eco­nomic ad­vi­sory firm. "Chi­nese com­pa­nies are now go­ing through the same thing, but it is even more com­pli­cated for them. The reg­u­la­tory en­vi­ron­ment they grew up in is so vastly dif­fer­ent than in mar­kets over­seas."

The flow of cap­i­tal out of China had be­gun to make it ex­pen­sive for the coun­try's cen­tral bank to main­tain the yuan's value against the dol­lar. Last week's sur­prise de­val­u­a­tion will push up the price of for­eign in­vest­ment for Chi­nese com­pa­nies, but - if in­vestors think the cur­rency will weaken fur­ther over time - could en­cour­age some to in­vest abroad now be­fore the ex­change rate falls fur­ther.

Some of the first ma­jor movers were state-owned com­pa­nies, ex­tract­ing the raw ma­te­ri­als, such as oil and iron ore, that China needed to fuel its boom­ing econ­omy. Con­struc­tion com­pa­nies have also fol­lowed gov­ern­ment money abroad, as China builds roads, dams and other in­fra­struc­ture from Asia to Africa.

But, as rules gov­ern­ing out­ward in­vest­ment have been lib­er­al­ized, pri­vate com­pa­nies, from gar­ment man­u­fac­tur­ers chas­ing lower wages in South­east Asia to IT com­pa­nies chas­ing new mar­kets, are also mov­ing abroad.

Of­fi­cial fig­ures show out­bound di­rect in­vest­ment from the coun­try rose 14 per­cent last year to $103 bil­lion, and the gov­ern­ment says that if out­bound in­vest­ment through third par­ties is in­cluded, it would ex­ceed for­eign di­rect in­vest­ment for the first time. That would be a ma­jor mile­stone for China, even if the fig­ures are not ex­actly re­li­able. In any case, Rhodium's Hane­mann said the hasty ex­pan­sion abroad should not be seen as a sign that China is about to take on the world.

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