Overseas Investment Strategy

Author: Yang Dixin
Editor-in-Chief: Bi Keyi
Publisher:
Publish Date: 1999-07-01
Features: Today, with China's economic openness already surpassing that of many developed countries, China has entered a high tide of overseas direct investment. This tide not only reflects the economic development characteristics of newly industrialized countries at their respective stages of development but also embodies the features of China's current economic growth and the new trends in the international economy. First, over the past two decades, economic reforms have enabled the rapid accumulation and optimization of social capital, giving rise to a new generation of modern enterprises. Driven by motives such as sharing the benefits of global economic development, mitigating risks, and exploiting market inefficiencies, Chinese enterprises have begun to engage in overseas investment, which has gradually grown. Second, around the early 1990s, political upheavals in some countries ended the long Cold War era and strengthened international economic cooperation. Pursuing economic development has become the primary strategic goal of countries worldwide, greatly accelerating the processes of economic globalization and regional integration. This has weakened the rationale and feasibility of companies developing solely within their domestic markets, forcing them to confront international competition and regard overseas investment and international growth as their path to survival. Recently, large multinational corporations from the West have abandoned their long-standing hesitation and are actively entering China, employing various strategies (such as acquiring Chinese brands, dumping, and mergers) to dominate this global largest emerging market. To enhance the quality of foreign investment and align with its entry into the World Trade Organization, the Chinese government cannot adopt a comprehensive suppression policy. Therefore, the development of overseas investment and outward-oriented strategies by Chinese enterprises is an effective response to this competition. However, it should also be noted that Chinese enterprises' overseas investments currently suffer from issues such as low management levels, poor efficiency, severe asset leakage, and weak driving effects. This indicates that many Chinese enterprises are still ill-prepared for overseas direct investment. This lack of preparation is mainly because their overseas investments are largely driven by external forces rather than their own managerial and project implementation readiness. To fundamentally change this situation, in addition to the government strengthening and improving its regulation of overseas investments, a crucial aspect is for enterprises to rapidly enhance their management capabilities in overseas investment, particularly in strategic management. Overseas investment is a major strategic initiative that affects the entire enterprise, and overseas investment strategy is the cornerstone of the company's overall international strategy. As the high tide of China's overseas investment has arrived, how to improve the strategic management of overseas investment and promote its healthy development and the growth of Chinese multinational corporations has become a critical issue for both academia and the business community. To this end, this book is written as an effort by the author and is dedicated to readers in academia and corporate strategic decision-making. During the writing and publication of this book, Ms. Du Yujuan provided full support, Editor Huang Yuan offered significant assistance, and Comrades Zhu Weiwei and Li Longbo devoted considerable effort to the collection and organization of materials for Chapters 2 and 3. Their contributions are sincerely appreciated. In 1985, Zhongnan University of Economics and Management became the first institution in China to establish an International Investment major, and the author has been involved in teaching and research in this field since then. With the passage of over a decade, the situation has undergone significant changes. This book is published in of this milestone. Yang Dixin June 1998
Excerpt:
I. Overseas Investment and Corporate International Growth
From the perspective of corporate international growth, overseas direct investment is the fundamental pathway. The international growth of a company is synonymous with its internationalization process, and the development of this process is evident in the following aspects: , overseas business models. Overseas business models typically include export agent, management contracts, foreign licensing, exclusive authorization, and overseas subsidiaries. The deeper a company's internationalization, the more it adopts models requiring greater human, material, and financial investments overseas. Research shows that the typical initial international growth model of a company is export → overseas non-equity operations → overseas investment operations, with overseas direct investment representing the advanced stage of corporate international growth. Second, overseas business content. Overseas business content mainly includes goods, services, technology, and systems. As a company's internationalization deepens, its overseas business content becomes more profound and diversified. This deepening and diversification primarily occurs at two levels: expanding or entering new product lines within existing product portfolios and broadening the entire product concept to include "software" such as services, technology, trade secrets, or their combinations. Over time, these hardware and software will be integrated into projects or systems, i.e., managed through overseas investment projects. Third, overseas business locations. Overseas business operations typically follow a process of starting close to the home country—politically, culturally, and geographically—and gradually expanding to more distant regions as business activities grow. Fourth, organizational functional changes. As a company's internationalization progresses, its organizational functions will change accordingly to adapt to and support increasingly deeper international business. In terms of human resources, planners and implementers must possess relevant international business experience, an understanding of the relevant countries, and at least basic language skills, especially for those working in joint ventures. Of course, international business also cultivates the international business capabilities of personnel. In terms of organization, as international business expands and diversifies, the organizational structure managing these operations must also adapt, with companies employing both formal and informal arrangements to address the complexities of internationalization. In terms of finance, the growth of international business requires sufficient financial resources to support these activities. The nature and scope of the financial activities that underpin international business also indicate the level of internationalization. As a company's international growth progresses, its sources of funding (including local and international sources) become increasingly diverse, and financing techniques also become more complex.