Foreign Direct Investment of Multinationals from Mainland China

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Introduction

Change in the competitive domains of several firms, technological advances, improved cross-border labor, and Foreign direct investments are the leading forces that are responsible for the contemporary internationalization of various enterprises. Mainland China has got a substantial number of multinational corporations that are rapidly growing. Some examples of the corporations include Huawei, DJI Innovations, Haier, electric car-maker NIO, Lenovo and Datang Telecom, China Petroleum & Chemical Corp. Sinopec. These companies have got modern and historical patterns in which they have been able to succeed as multinationals. There are several factors that have contributed to the success of Multinational companies as well as the move to FDI. The companies have been having peculiarities in their management and organization (yan Zhang and Van Den Bulcke, 2018). In addition, the success of the company has also been contributed by government involvement. Therefore, the existence of various significant cash reserves, government support, and unique organizational and managerial structures is responsible for the current state of the corporations.

Moving Towards Foreign Direct Investment (FDI)

Lenovo

Currently Lenovo Group Limited, a Chinese company headquartered in Beijing has recognized as a multinational technology corporation that has its products in more than 160 nations. The company made a move towards FDI in 1990 when it contracted with International Business Machines (IBM) a company headquartered in Endicott, New York, United States (Bakis, 2018). To accomplish the contract, Lenovo was responsible for the creation of a plug-in card that could be able to process Chinese characters, Mandarin for IBM computers. With the completion of the contract, the company began manufacturing more computers for the Chinese market. Later in 2002, as a strategy for global expansion, the company acquired its name Lenovo.

Later in 2005, the company genuinely made its movement into Foreign Direct Investment (FDI) where at a cost of $1.25 billion, it acquired IBMs PC operations. The acquisition of IBM made Lenovo the third-largest computer manufacturer in the world when the comparison was made per the units sold. Through the utilization of the theory of FDI theory of Internalisation, Lenovo 2008 decided to focus on the production of PCs after it dropped its tablet and cellular segment at $100 million (Boiano, 2020). Through its operations in Morrisville, North Carolina, the company enter the US market. It was until 2012-2014 that the company engaged aggressively in internationalization where its operations were then set in India, Russia, and United Kingdom.

Lenovos recent history is dotted with partnerships, mergers, and acquisitions with various brands internationally. In 2011, the company formed a joint venture with Japan-based electronics company NEC, leading to the formation of the Lenovo-NEC which majorly operates in the Netherlands. Lenovo later in the same year decided to expand into Germany through the acquisition of Medion, a technology brand based in Europe. In preparation for the 2014 world cup, the company 2012 acquired an electronic firm that is based in Brazil known as Commerce of Electronic Components (CCE) (Zwanenburg and Farhoomand, 2018). Two years later, Google Motorola Mobility brand was acquired by the company. Currently, the successful acquisitions and mergers have led to the expansion of Lenovo corporation to more than 60 economies hence making it the third-largest producer of computers worldwide.

China Petroleum & Chemical Corp. Sinopec

In comparison to Lenovo corporation, Sinopec, China petroleum & Chemical corporation began its FDI in 2003 through a joint venture. The company invested in a Sudan-based operating firm Petrodar where it received 47 percent of the shares (Obi, 2019). There are also some other joint ventures that due to the theory of internalization the company engaged in, some of the regions where the company engaged through direct purchases and joint ventures include, Shanghai, Africa, and New York. While still considering FDI as a way for its advancement, the companys decision was affected by several factors. Some of these include; the shortage of energy that was triggered by the high number of production companies that scenario affected Sinopec negatively. The lack of funding and oil reserves in the 1990s and 2000s forced the government to attract foreign funding through Sinopec and other large oil giants within the region (Toirov, 2021). The fact that the company was among those that helped China out of energy deficiency, served as a significant driving force for Sinopec.

Considering the power of Internalisation theory, it is evident that the company was able to reform in the early 21^st century. Due to the reorganization of the companys internal operations to adopt a vertical integration, Sinopec was, therefore, able to extract crude oil and process it to final products. This adoption was advantageous to the company in several aspects as outlined by the FDI model of Production Cycle Theory of Vernon (Grieco, 2021). The company was in a position of standardizing its products that were derived from the oil. In addition, the company was able to identify and remove the non profitable activities that were initially conducted within the production process. The extraction and refining process of the industries enable it to expand and become one of the major recognized companies globally.

Additionally, the compared engaged in several acquisitions that contributed to its current position as the largest oil refiner in the Asia based on its annual processed volume. Based on volume refined, the company produces 60 percent more refined products higher than PetroChina. The company has been acquiring several assets of renowned companies such as Shengli petroleum. The major reasons for this acquisition in 2006 was to ensure that Sinopec becomes stable in its crude inputs and its initial utilization rate raised. In 2013, the company acquired 33 percent of an oil and Business in Egypt recognized as Apache Corporation. With the acquisition of other companies, active internalisation and the help from the government, the company currently has got a market cap of $80.8B with its major functions based on exploring, developing and producing natural gas and crude oil. Out of its activities, the company has been able to invest in various segments of productions.

The existing differences among the firms are better explained through various incentives given by the government of China. Most of the shares in Sinopec and Lenovo company are owned by the government, this is convincing with the fact that several activities that occurs within the companies are driven by the government of China. Since the foundations of Sinopec company for instance, there has been various financial support offered by the government to ensure its stability and its ability to meet the energy demands of the nation. Due to the situation of energy demand, they government was so committed to the growth of Sinopec to the extent that it occurred that Lenovo corporation was ignored.

Strategy of multinationalization

Generally, China values facilitating its multinational companies (MNCs) like Lenovo to be successful as renowned corporation world wide. There have been several steps that the federal government of China has been doing to enable the success of it MNCs. The nation has modified most of its MNCs internal policies such as export policy and procedures to be easy and simple for faster justification of various products. The Chinese government has been using a skillful form of investment policy especially during the time or the period when it was perceived to be region or market with high risk for investors. The policy that enabled various foreign firms to be able to benefits in a specials way, led to influx of investment firms in the region. The more the foreign companies invested the higher the rate of expansion of various Chinese firms within the nation and globally.

The success of the Chinese MNCs was also significantly contributed by the type of relational advantages that the companies had on the global market. The framework of ownership, location, and internalization (OLI) served the two companies Lenovo and Sinopec, well during the time of their entry into the world of commerce. The success of the emerging companies during the 19^th and the 20^th century was based on the low-cost inputs, technological adaptations, the style of management that exist in the host nations, and the ethnic connections that the companies had with the companies. The model framework of OLI could not serve as effective in the developed nation as compared to the linkage, leverage, and learning (LLL) (Chen, Li, and Fan, 2021). This is because the success of the OLI framework depends on the changes and opportunities that are offered by the host nations. LLL is a better strategy as it is based on the companys technological exposure, the adoption of the current styles or strategies in management, and the learning levels of the companys administration. The LLL framework, therefore, has proved to be an appropriate and reliable model as Lenovo and Sinopec corporations have been relying on it throughout their success journey.

Additionally, consideration of the research and development innovation by the two companies is an action that supports the LLL framework. The two corporations have been ensuring that their novel production process is evidence-based especially if the products are new. The products are usually tested for safety and workability before being released into the market. Therefore, R&D serves a greater purpose in explaining the utilization of the LLL framework.

Lenovo corporation is a perfect example of a company that is said to have undergone development through the LLL framework. The company management has been able to ensure that they are up to date with the current techniques that are acquired such as in the human resource practice, the marketing field, and technology as well. Lenovo Corporation acquired several firms while they were at minimal market share. Through learning about the strategic concerns and ensuring they are adopted and utilised accordingly, the acquired companies were able to improve significantly. The acquired firms were able to learn how they could capture global opportunities in the quickest and the best way through observing how Lenovo utilizes the LLL framework. Lenovo company was able to Link up with other firms, the western Multinational established enterprises. The company did this through various forms of ensuring there exist partnership, Lenovo would then leverage the existing linkage to be able to overcome the existing resource barrier. Through repeated linkage and leveraging, the company could be able to accelerate the internationalization of the company.

Shortcomings

Some of the disadvantages that Chinese MNEs may face are the need to upgrade the level of competitiveness to be able to face that of international levels. This duration of adopting the international trends may take long time due to the difficulties in internationalization presented by the incremental internationalization model. Most firms that are unable to cope up with the competitive nature of the international environment are likely to revert back to their initial status.

Management and Organisation

Most of the MNEs in China prefer the organisation system in their sub companies as well as in the main corporation to have simple and flexible organisation structure. The existence of the simple organisation will always ensure that the company is managed easily, and any occurrence of a problem or error can be identified and managed. The simple structure is also a way to ensure that their will be easy in ending or deleting of various sub companies. Lastly the flexibility will enable the adaptation of the company and its branches to any internal and outside changes that may occur. This is why most of the management consider decentralization, especially in the current FDI technological environment.

Several Multinational companies in China have adopted very unique ways of organizing and managing their firms. For instance, having realized that employees serve a soul purpose in a company, various company management has resolved to treat their workers as families. The companies are ensuring that the welfare of the employees is their concern and hence they offer various services such as providing or setting up schools. This kind of initiation acts motivating factor and also increases the expectations of the employees to be able to stay loyal to the company while expecting more to come. Various managements of the MNEs do ensure that chief executive officers of small sub-companies are constantly learning leadership skills, especially from firms that are located within the host nations. Such kinds of interactions or relationships will ensure that the CEOs are well conversant with the existing cultural values and norms of that nation. The management of various MNEs like Lenovo corporation prefers to hire expatriates for the development of the sub-companies by ensuring that the hired individuals are able to transfer values and expertise from the domestic companies.

Role of government in stimulating inward FDI

China is recognized to be top in outward Foreign Direct Investment, this is because of the existence of high incentives that are always issued by the federal government of China. The incentives are usually given in the form of Outward foreign direct investment (OFDI) loans. The presence of high reserves in China as compared to any other Asian state, enable the nation to be able to issue OFDI loans in greater capacities hence facilitating FDI (Yang, 2020). In as much as the loans are beneficial to the companies, it also serves as a price-controlling factor for the corporations. In addition, the government of China is also able to stimulate its MNEs through various ways such as initiating supportive policies, the government also ensures various companies have effective strategic planning and appropriate financial assistance.

The Chinese government facilitates and encourages various MNEs such as Sinopec to be able consider diversifying its production. The government of China encourages continuous investments apart from the main strategy of gaining flow of income. Companies are encouraged to consider investing in opportunities such as transportation and other forms of foreign trading. Through this, the companies would be able to ensure that there is a continuous investment and will be as well able to compete favorably. Additionally, the government of China is geared toward making the nation an innovative place by 2030, and to do this it has to ensure that most of its MNEs are in the FDI (Feng et al., 2019). Facilitating this will ensure there is uniform growth within the economy of China. The government will also facilitate this act through the development of international corporations. This will be achieved through the utilization of the economic and technological relationship hence leading to the creation of mutual benefits between Chinese corporations and other foreign companies. Therefore 2030s goal also serves as a special facilitator of FDI through the role of the government in strengthening globalization.

Conclusion

The government of China is recognized as the primary contributor towards FDI of its MNEs. The government has facilitated the act through various ways, including as a part of its 2030 plan to ensure there is continuous and uniform innovation. In addition, the government has also ensured that it will stimulate FDI through encouraging diversification of the companies in various sectors. Additionally, the two companies; Lenovo and Sinopec have also been successful because of the existence of the unique ways that can be explained through LLL framework. Through linkage, leverage, and learning, the two companies were able to thrive as compared to those that adopt the OLI strategy. The companies utilization of the high adaptability and fast learning were significantly responsible for the success of the firms in FDI. Lastly, Lenovo and Sinopec were also able to become multinational corporations through unique management and organisation styles. The companies may also face some challenges that include, delayed internationalization process and the inability to cope with the competitive nature of the international market.

Reference List

Bakis, H., (2018) Telecommunications and the global firm. In Industrial change in advanced economies (pp. 130-160). Routledge.

Boiano, E., (2020) Lenovo: a big step toward the future of technology. Web.

Chen, L., Li, Y. and Fan, D., (2021) Who are the most inclined to learn? Evidence from Chinese multinationals internationalization in the European Union. Asia Pacific Journal of Management, 38(1), pp.231-257. Web.

Feng, T.T.et al., (2019) Synergies of sustainable development goals between China and countries along the Belt and Road initiative. Current Opinion in Environmental Sustainability, 39, pp.167-186. Web.

Grieco, J.M., (2021) Foreign investment and development: Theories and evidence. Investing in Development: New Roles for Private Capital?, pp.35-60.

Obi, C., (2019) China, Oil, and Africa. Insight Turkey, 21(1), pp.10-24. Web.

Toirov, J.D.U., (2021) Peculiarities of Chinese transnational companies (On the example of Sinopec). Asian Journal of Multidimensional Research, 10(9), pp.319-323.

yan Zhang, H. and Van Den Bulcke, D., (2018) International management strategies of Chinese multinational firms. Management Issues in China: Volume II (pp. 141-164). Routledge.

Yang, X., (2020) Financing Methods, Financing Constraints and Outward Foreign Direct InvestmentEvidence from Chinese A-share Listed Companies. World Scientific Research Journal, 6(5), pp.319-331.

Zwanenburg, S.P. and Farhoomand, A., (2018) Lenovo: Being on Top in a Declining Industry. Communications of the Association for Information Systems, 42(1), p.17.

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