By Xin Zhiming (China Daily)
Updated: 2007-11-13 06:52

Edgar Hotard

As Chinese enterprises' profiles and profits rise, they are making the move overseas.

Several Chinese companies have already opted to purchase famous foreign brands, such as IBM's PC division.

But experts, such as board chairman of US-based management consulting firm Monitor Group (China) Edgar Hotard, warn that Chinese companies should prepare to face multiple challenges while expanding overseas.

One of the most important preparatory measures is enhancing strength by mapping out corporate strategies according to the needs and conditions of overseas operations, Hotard told China Daily in an exclusive interview.

"It (overseas expansion) is good for Chinese enterprises and China in general, and it's also good for the world economy and countries of the world," he said.

"The more we can integrate economically around the world, the better off we are as a world: That's our basic belief."

But according to Hotard, reaping the benefits of overseas expansion is often easier said than done, he said.

"One of the challenges is the political issues that sometimes arise."

Another challenge for Chinese enterprises is figuring out the best corporate development strategies to strengthen their operations.

"When you globalize, you must be very careful about what your strategy is, and while you are globalizing, how do you go about it," Hotard said.

According to him, it sometimes takes time to explore all the possibilities in order to find the best mode of development.

Today, there are several Chinese firms that have globalized successfully, such as China's largest telecommunications network provider Huawei, that serve as good models, Hotard said.

Huawei opted not to "go to the big market against big competition", he explained. Instead, its strategy involved first entering small- and medium-sized markets, operating in an international environment and acquiring management skills.

After the company grew, both in terms of capital strength and management expertise, it began to go into bigger markets.

Hotard said leading domestic electric home appliance maker Haier was another company that had taken an exemplary approach.

When it entered US markets, the firm explored some segmented markets and decided against jumping into the fray of hotter fields in which the competition was fiercer.

"It looked at how to build a (local) distribution system, because that is critical for its white goods, whether they want to sell them in Europe or the US," Hotard said.

Rather than shipping their refrigerators or washing machines directly to Western markets, the company came up with two products: a wine cooler and a dormitory refrigerator. Both were manufactured to operate quietly, which made them popular among US consumers fed up with the noise these products traditionally produced.

During this process, Haier learned how to build its own distribution system in the United States, Hotard said.

"I think it's really critical that companies understood what they are trying to accomplish and make specific strategies," he said.

Hotard praised young Chinese entrepreneurs for their propensity for innovation, intelligence and their abilities to form teams.

Many Chinese enterprises have devoted a lot of thought to their strategies, he said.

"I tell my US friends: You'd better watch out! By the time you guys realize, you'd better think about competition from China. It's not low-cost manufacturing only."

Hotard said he believed that the ability to innovate is more important than technology to corporate development.

"People don't think about innovation that way, but they always want to think about high technology or something," he said.

He added that companies should focus on their core business when developing their strategy.

"I've seen far more companies in trouble because they try to diversify than I've seen companies in trouble because they focus on core business," he said.

"(A) company shouldn't be a mutual fund."

(China Daily 11/13/2007 page14)