Overseas Investment of Chinese Enterprises: Discovery and discussion based on site research

International Trade and Investment Program (FY2011-FY2015)
Study of the Creation of the Japanese Economy and Trade and Direct Investment Project

This report summarizes the findings of a 2012 survey on the overseas investment activities and operations of 47 Chinese enterprises in six industries. These 47 enterprises generated an average of 40.9 billion yuan in overseas sales, which represents roughly 28.5% of their overall sales. The surveyed enterprises have been engaging in overseas investment activities for an average of 8.6 years.

One focal point of our survey relates to the degree to which the sampled enterprises have established overseas networks. Results of the survey indicate that, on average, the enterprises have established 40 overseas networks (max=380). Most overseas networks are distributed in developing countries, and 83% of the networks geared toward research and design are located in Western Europe, North America, Japan, and South Korea. The enterprises' overseas networks are comprised of entities from 17 countries on average. The main mechanism through which Chinese firms relate to overseas enterprises is shareholding, and, as such, the contract model is becoming increasingly important. The main method for establishing networks is through greenfield investments. However, mergers and acquisitions (M&A) have also grown in importance, particularly among large enterprises. Most targets for takeovers are in the developed countries and regions.

To date, overseas investments have yielded positive results. Most surveyed enterprises have indicated that increases in overseas investments have generated increases in overseas sales income, market share, and research and development (R&D) capacity. Some enterprises have also reported that they have been able to lower costs associated with overseas production as a result. Given these benefits, all surveyed enterprises plan to increase their overseas investments.

Results of the survey illustrate the goals of Chinese enterprises. Survey respondents explained that their expansion into overseas markets was largely motivated by the desire to gain technological capabilities. Enterprises in the energy and materials industries attached particular importance to access to resources. We found that although most enterprises are at the initial stage of transnational operations, a few are at the stage of preliminary internationalization and globalization.

There are many modes through which an enterprise can develop its overseas operations. Regardless of the mode employed, however, all enterprises expressed the importance of increasing their market competitiveness and promoting their transnational operations through the integration of the global value chain.

In addition to the findings generated from the survey, we also developed an analytical model to explore the relationship between overseas operations income and strength, overseas development strategy, and overseas experiences among Chinese enterprises. Through this model, we reveal positive relationships between overseas operation income and the three outcome variables outlined above.