The era of Chinese multinationals. Competing for global dominance
On 22 January, the Rafael del Pino Foundation organised the Master Conference "The era of Chinese multinationals. Competing for global dominance" given by Lourdes Casanova.
Lourdes Casanova is Professor of Management at the Johnson School of Business and Director of the Emerging Markets Institute, Johnson School of Business, Cornell University, formerly at INSEAD, specialising in international business with an emphasis on Latin America and emerging market multinationals. Visiting Professor at Haas School of Business, University of California at Berkeley, at Judge Business School, University of Cambridge and at the Latin American Centre, University of Oxford in 2010, at the University of Zurich, Deusto Business School and the Autonomous University of Barcelona and consultant to the Inter-American Development Bank. She taught and led executive programmes at INSEAD for senior managers of global multinationals such as Telefónica, BBVA and Cemex and the Confederaçao Brasile da Industrias (CNI). She is also an advisor to multinationals operating in Latin America.
Co-author of the book: The Political Economy of an Emerging Power: in Search of the Brazil Dream. 2014. Author of the book: 'Global Latinas: Latin America's Emerging Multiantionals' published by Palgrave Macmillan in 2009 (www.globallatinas.org), co-author of 'InnovaLatino, Fostering Innovation in Latin America', published by Ariel in 2011 (www.innovalatino.org) and has published numerous case studies, book chapters and articles in journals such as Beijing Business Review, Business and Politics and Foreign Affairs Latin America.
She is a member of the World Economic Forum's Global Agenda Council on Latin America, member of the EU/Brazil Advisory Committee, the UNCTAD Global Investment Network, the B20 ICT and Innovation Working Group in Los Cabos in 2012, evaluator of Strategic Management Journal, was responsible at INSEAD for the Goldman Sachs 10,000 Women Initiative and co-leader of the InnovaLatino research project on Innovation in Latin America, an OECD/INSEAD research project funded by Fundación Telefónica. She is a member of the Board of Directors of Documenta (www.mydocumenta.com), member of the Interdisciplinary Research Network on Family Businesses, the Nominating Committee of the World Innovation Summit (HIT Barcelona) and founding member of the Board of Directors of the Société des Amis et Mécénes du Chateau de Fontainebleau. Member of the Board of the Academia do Brasil em Cornell and522 Member of the Executive Committee of the Cornell Institute for European Studies. Cornell University.
Summary:
On 22 January 2020, the Rafael del Pino Foundation hosted a keynote lecture by Lourdes Casanova, Professor of Management and Director of the Emerging Markets Institute of the Johnson School of Business at Cornell University, entitled "The era of Chinese multinationals. Competing for global dominance". Professor Casanova began her speech by pointing out that there are two major milestones in the international expansion of Chinese companies. The first is China's entry into the World Trade Organisation in 2001. The second, and less well known, was the great financial crisis of 2008. These milestones are cornerstones in the process of Chinese companies' growth and expansion around the world. A striking fact in this process is the speed with which Chinese companies have grown. Companies always increase in size in a context of economic growth. And as China has grown at annual rates of 6%, 8% and even 10%, its companies have also increased in size at a much faster rate than those in developed countries, which, with luck, manage to exceed GDP growth levels of 3% per year. What is striking, moreover, is the anomaly of China's growth rates, as it is a huge economy, equal in size to the nominal GDP of the United States in 2004. It is in this context that Chinese companies have grown, of which there is a great deal of ignorance because many companies are state-owned. It is important for a country to have large companies because they are the ones that generate employment, that innovate, and that have sufficient resources to pull small and medium-sized companies. In this sense, China had a great opportunity to grow its companies with the financial crisis of 2008, when there were great opportunities to buy companies and expand because US companies were immersed in a serious crisis. During those two or three years, there were many sales to Chinese capital and gaps appeared in countries and industries that were clearly filled by Chinese companies. That is why the 2008 crisis is such an important milestone. Chinese companies are also growing and expanding because the country has huge foreign exchange reserves of more than a trillion dollars. With these foreign exchange reserves they bought US and other government bonds, but at a certain point they felt that they were beginning to concentrate too much risk in these assets and began to diversify their investments, among other ways by buying companies in other countries. As a result, China has been able to converge rapidly with developed nations, when they have a much harder time growing their companies, for example, Japan or South Korea. As a result, China has joined the small but select club of countries with large companies in the Fortune 500. Chinese banks are also internationalising through acquisitions, thus becoming the largest in the world. Other companies, such as insurance companies, construction and engineering firms and telecommunications companies, are doing the same. They do this because Chinese companies have the financial resources to continue their global expansion. Chinese companies are also different from other companies. They are different because, so far, they do not participate in the stock markets. 79% of the Fortune 500 companies are listed on the stock exchange. In China, by contrast, 67% of companies are public or mixed capital. This is not likely to change for the time being, due to the fact that the government wants to continue to control large companies. These companies dominate global markets, such as mobile phones, computers, air conditioning, televisions and many other products. In addition, there is the paradox that, while under government control, they participate in and win privatisation tenders of state-owned enterprises in other countries. Generally and systematically, large Chinese companies compete on price because they can, thanks to the fact that labour costs remain low and that they have to produce for a local market whose purchasing power is much lower than that of Western countries. As a result, they have technological products with the same characteristics as those of Westerners, but they are cheaper. In addition, Chinese companies are less interested in short-term profits than their American counterparts. This is because they think more in the long term, preferring to sacrifice business margins in order to continue to grow. The Chinese have also turned out to be incredible competitors. They invent different formats, they make them smaller, they can sell their products cheaper even though production costs keep rising. The secret is to have created a very efficient value chain and to invest in ports like Barcelona, or Piraeus in Greece. In doing so, they have given the Mediterranean back its character as a commercial sea, because in order to achieve such an efficient value chain, what Chinese ships do is to go through the Suez Canal and enter Europe through Piraeus to the east and Barcelona to the west. In this way, what they have achieved is to offer a finished product that they bring to your home. China, finally, is a great innovator. It is the first or second country in the world in terms of investment in R&D, in patents, in the number of researchers, in scientific publications. It is so because it perceives the need to become self-sufficient in technology, in the face of the barriers that are being put in its way, especially in the United States. What China has not yet succeeded in doing is to endow its brands with the level of power that American brands have. Chinese companies are venturing abroad, even though they are younger than Korean, Japanese or US companies, for example. They are expanding by opening branches or subsidiaries abroad, or through mergers and acquisitions. They are already investing as much in start-ups as the United States, at a time when the American giant is retreating and returning home. Even so, the US continues to invest heavily abroad, especially in China, India and Australia. China, on the other hand, is investing closer to home, in countries such as Indonesia, but also in India, but is also targeting Latin America and Africa. In regional terms, the area that receives most Chinese investment is Europe, especially through mergers and acquisitions. What motivates it is that, although it has natural resources, it does not have enough for what it needs for its vast expansion. So what it is doing is making sure that it is not going to be short of natural resources. This is what its investment in Latin America, Africa and Australia is all about. But when it goes abroad, its companies are also looking to learn and, increasingly, to diversify the risks associated with investing its huge foreign exchange reserves. What can the West do about this? First of all, recognise that China is growing the global economic pie, that it is contributing to global growth and poverty reduction. We also need to get to know Chinese companies and understand that China's combination of capitalism and communism is disruptive. The question is how do we compete with these companies?
The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.
The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.
