Global expansion: Too fast?

Going international takes pain and patience, says CEIBS dean

The past few years have seen an extraordinary crusade for Chinese companies into overseas market. Newspapers are filled with stories about how Chinese firms built their global presences by buying up foreign firms, patents and brands. The government has also encouraged this endeavor. But Hellmut Schutte, dean and vice-president of China Europe International Business School, raises a question: Is it happening too fast? Why not stop for a while and rethink things?

The core argument of the professor of international management, who has lived in Asia for many years, is that too few Chinese firms have thought of "comparative advantage", an indispensable component for international competition, before they buy a foreign firm.

"So long as you do not give your customers a reason why they should buy your products and services, you will not be successful," said Schutte.

People in favor of rapid overseas expansion might rebuke that buying foreign firms just serves as the most convenient way to acquire advanced technologies and recognized brands, elements that constitute the "comparative advantages". But, Schutte argued, if advanced technologies is the goal, why not buy machineries or bring in engineers, a much more easy option? If branding is the goal, do you have the ability to manage the brand after buying it? Can you manage the foreign managers who manage the brands?

When you acquire a company, Schutte argued, you generally pay a premium, which means your investment is higher than before. So, if you want to have a return, you have to be better than before. But the question is, what can assure you that you would be better at managing the company, which had been in trouble before you bought it?

"I know it is quite tempting to buy up European companies now because the price is low. But at the very end you have to be able to manage them better than beforehand. You have to get something attractive to offer to that market," he said in an interview with China Daily.

He noted that very few foreign companies come to China and conclude a deal within a few weeks. On the contrary, they do a lot of work: hiring local senior managers, paying consultants and so on.

"If you look at successful foreign companies in the Chinese market, few have a short history. Bosch, Siemens they have all been here for more than 100 years. What do we expect from Chinese companies launched maybe 15 years ago and started going abroad five years ago?" he asked.

If you really want to enter the United States or France, Schutte said, why not bring in some Americans and French to work for you? Why not send a few people out there? "It does not have to be a chairman for one week, but junior members for one year," he said.

In this respect, Chinese companies should really learn from Huawei Technologies Co Ltd, a case in Schutte's eyes, that is heading in the right direction for internationalization.

"It (Huawei) has built up its experience and competitiveness around the world very slowly and solidly, one step after another. They have done a good job in learning about other markets. They have developed a comparative advantage there and they have really good products," he said.