Download The Analysis Toward International Business Done by Chinese Firms

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The Analysis Toward International Business Done by Chinese Firms
XU Xinyu
Shandong Institute of Business and Technology, P.R. China, 264003
[email protected]
Abstract: This paper tries to reveal the significance of international business carried out by Chinese
firms, which implies the needs of obtaining maximum, rapid profits and a long term development by
doing so. Then it analyzes the current multi environment of operating international business, in which
information technologies and innovations play an important role. It also discusses the main problems
and challenges that Chinese firms are faced with and the measures being taken, mainly in terms of
insufficient fund supply, less advanced technology, the lack of investment strategies as a whole and low
ability in resource distribution. Finally, it points out that giving much importance to advanced
technologies and the industry or business line with maximum advantages is one of the most fundamental
factors in accelerating the speed of the development of national economy. And it is necessary to
establish an effective system within Firm Group, in which multi business operations are suggested to be
integrated with the core business specialized in maximum advantage.
Keywords: Specialization, Multi business operation, Comparative advantages, Globalization
1 Introduction
The main difference between traditional domestic and international business lies in the fact whether the
firms directly engage in the cross-country operations in terms of commodity trade, labor service,
resource and technologies. Currently, the world economy has become a big system with all the factors
connected, depended on each other cross countries. In order to gain increasing profits, international
firms might integrate its own capital, technologies, and market distribution channels with human and
natural resources, market scale at home and abroad. Moreover, the firms pay much importance to
internationalization and standardization with regard to their production, process of trade and information
transmission. After China entered WTO, it is certain that Chinese firms will be involved in the
globalization from all perspectives and at a high level. How to face the challenges from the globalization
is a big task that Chinese firms might face. Therefore, this paper tries to discuss the international
business of Chinese firms from the aspects of its necessity, business environment, current problems and
measures to be taken.
2 The Necessity of Doing Business Cross-country
2.1 Doing business cross country is to adapt to the needs of distribution in international
specialization
It is well known that economy globalization greatly promotes the development of international
distribution and cooperation in specialization, which benefits the economy blending of different
countries. Thus, firms in China might gain profits based on their comparative advantages only after they
are involved in the international system of specialization distribution. For example, although China has
extensive land and rich resources, the rate of resources per capita is rather low, which leads the firms to
fight intensely with each other for the limit energy and materials. If all these stuff can be imported from
the abroad or a new business in overseas market can be set up, the situation must be totally improved. In
addition, the firms can enlarge their profits through increasing production scale by exporting which is
feasible by making good use of richer and lower labor in China.
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2.2 Doing business cross country benefits the firms in terms of their improvement of their
product mix, industries, and firm personnel organizations
In order to compete with other international firms, Chinese firms have to improve its products, no matter
which is related to product functions or other elements. Further, they may focus on their advantages by
using much more resources and transfer their less advanced product lines to other countries if they want
to remain their leading status in the international market. If cross country firms in group in China can be
developed in this way, it is no doubt that it will facilitate the adjustment of industry structure of region
and country. Moreover, through setting up joint ventures by investment or other forms of cooperation,
firms in group are established, which will better the structure of firm personnel organization.
2.3 Doing business cross country will be helpful for the firm in breaking through the trade
barriers in order to extend its production scale
The sharp competition of international trade intensifies trade protectionism, which in turn changes the
main techniques of scrambling for market share from commodity export into technology and capital
output, and from import and export trade into direct investment overseas. Under this circumstance, the
Chinese firms set up their production bases abroad and selling locally so as to exclude the impact of the
non-tariff barriers from the location decision. And through inter-exchange among the firms in group, a
huge amount of raw materials, components and parts, semi finished products are exported through this
channel. This might advance the current export situation by increasing the export amount, expanding
and occupying the share of international sales market.
2.4 Doing business cross country contributes to the rapid growth of national economy and the low
rate of unemployment
On the whole, doing business cross country to some extend facilitates the firms to reduce and avoid risks
by getting away of trade barriers. It can also enhance the ability of firms to undertake the international
business with the strategies like multi-production, multi-country trade, and multi-aims. It is only because
of such multi-operations that the whole advantages within a Firm Group will be fully taken so as to
realize Group’s profits at most, remain its market share stable, and extend its product life cycle. It helps
to solve the problem of unemployment as well. For example, in China, there are approximately 0.1
billion small and medium size firms which provide 75% chances of employment, which significantly
relieves the burden of government on this issue. And the export amount of these firms is great, which
promotes the improvement of international balance of payment and GDP.
3 The Business Environment of International Firms of China
With the rapid development of globalization, international firms compete with each other in cost, quality,
flexibility and customer response speed in order to cover market share as much as possible. This makes
the international environment of doing business change a lot as the follows:
3.1 The accelerating speed of technology innovation
Due to the growth of economy globalization, knowledge economy and information industry, technology
sector plays a crucial role in deciding whether the international firm has the competitive advantages. So,
focusing on technology innovation and creation has become one of main strategies that the international
firms employ when they invest abroad. For example, the number of patents approved by the USA for
American overseas firms accounts of the total for 5.3%, 10.2% and 12.3% in 1990, 1990 and 2000,
while during the same period, the number of patents for overseas companies of Japan accounts of the
total for 1.4%, 3% and 4.7%, and those of Europe accounts for16.4%, 35.2% and 36.7%. This means
that international firms give much importance to the technology innovation undertaken abroad.
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3.2 The strengthened application of information technology
Telecommunication transfer is speeded up because of fast development of information technology.
Further, the technology of satellite, wave guide fiber and the Internet are widely used. All these
advanced technologies raise the production efficiency and the quality of service, by which product
design and the management in terms of production, marketing and finance are closed connected so as to
low the cost and increase effectiveness. According to the statistic, computer-assisted design and
manufacture can decline the rate of errors in handmade design and manufacture from 5% to 1%, while
its efficiency rises to six to eightfold. Moreover, information technology changes the structure of
original personnel organization, which weakens the previous vertical information transfer while
reinforces the horizon connections. In this way, the changed personnel organization becomes more
flexible and efficient. A case in this point is that the number of management levels in General Electric
Company in the USA is decreased to only 6 from the previous 24. And the amount of departments and
managers is also reduced to 12 and 1000 from the original 60 and 2100.
3.3 The promotion of the strategy of global standardization
Economy globalization exerts great impacts on international business environment, which is shown by
the fact that the single market of each country is substituted by the global unified market. Since 1990,
international firms give much importance to the similarity within the world market, which is
demonstrated by their undertaking global standardization in terms of product design, manufacture, sales,
logistics and information transmission. In doing so, it can not only enable international firms to cut
down the cost and gain the attractive benefits, and also raise the quality of products so as to enhance
their competition in the global market. Nowadays, through frequent global business campaigns,
international travels, television broadcasting, and the Internet surfing, products are greatly exhibited
with great degree of exposure. Thus, on the other hand, with the total increasing consumption, there is
less difference among the preference of customers in different countries, which motivates international
firms to adopt the strategy of combination and integration all the marketing elements.
3.4 The emphasis of the core business of international firms
After 1990, the emphasis of the core business has been one of the main trends in the business world and
proved to be the primary strategy employed by international firms. Of course, that does not mean that
the firms abandon the multi business operations. In fact, the reason of doing so is that they aim to keep
their leading competition status and at the same time extend the core business to its sub-operations. Here,
the basic principle of undertaking international business is that the firms attach importance to the most
attractive industry and line with the maximum advantages, on the other hand highlight the nurture,
maintenance and development of the competitive power of core technology.
4 The Main Problems that Chinese Firms Face
Chinese firms have made great progress in the performances by engaging in international business,
which significantly contributes to the development of national economy. However, due to the fact that
Chinese firms undertake international business within a shorter time if compared with those in
developed countries, several problems obviously exist as the below:
4.1 Insufficient funds and difficulty in capital raising which make firms low ability in fighting
against risks and grasping opportunities
Fund shortage is one of the most difficulties that Chinese firms, especially some small and medium size
firms, are faced with currently. The level of credit standing of some firms is relatively low which makes
it hard for them to raise money. If the funds cannot be continuously provided, it will definitely damage
the normal running of their international business. Further, it might cause business to break down in
such situations. For fear of such results, normally these firms do not set out a long term goal, which
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makes them difficult to grab the opportunities occurred and increase the covering rate of market share.
In all, the support for the firms is not strong enough which is harmful especially when they resist risks
and meet opportunities.
4.2 The ability of technology innovation and the added value to the products are both low
With the increasing export of Chinese various products in great amount and market scale, the ability of
technology innovation of Chinese firms (especially that of small and medium size firms) is commonly
low and the added value to the products are not promising. In the super markets and chain stores abroad,
it is easy to find products made in China around. However, on the whole, the quality of these products is
at a lower level and price, which can not satisfy the diverse needs of overseas markets. Recent years, the
price of export goods is continuously going down in spite of its increasing quantity. It is because some
firms are short of sufficient fund supply, professionals, and advanced technology innovations that
prevent them from going further in the process of internationalization.
4.3 Lacking the notion of effective strategies of investment
Some Chinese firms do not have clear goals to investment, which leads them to set up projects blindly
and repeated construction. There are many unreasonable international business operations. For example,
some of firms aim to get the preferential treatments from China by moving the old and out of date home
equipments into the outside. Even a few want to transfer the home property to the foreign country for
personal purpose. And some market investigation is not carefully looked into and is done without
explicit purpose. In addition, some firms make promise with others about projects that they do not have
the ability to carry out, which leaves their partners bad impressions.
4.4 The ability of globally distributing resources to be enhanced
Distributing resources globally and efficiently, in which many Chinese firms are weak, is one of the
most important strategies and techniques adopted by international business firms. With the accelerating
globalization, making good use of resources with advantages at utmost is one of important means of
keeping international firms advanced when competing with others. To great extent, globally distributing
human and capital resources, effective purchasing, keeping the raw material in good quality determine
the final value of products and competition power of firms. If Chinese firms intend to be involved in
international business, they are required to improve their ability in such area.
5 Suggested Measures for International Firms of China
5.1 Establishing financing service system to reinforce the financing ability of international firms of
China
The government and commercial banks are suggested to establish relevant financial system serving for
international firms, especially for small and medium size firms as soon as possible. For example, the
foundations of development funds used for international firms are recommended to build up in order to
solve the problems of their raising money with much difficulty. Also, specialized departments in the
banks are encouraged to make loan to the international firms with much less interests than to others.
Some warranty institutions of loan towards international firms are advised to be set up under the support
of government. Moreover, these departments may establish systems for credit evaluation towards
international forms so that the information can be collected, analyzed, and shared.
5.2 Increasing resource input in innovation and enhancing the power of international firms in
product competition
International firms should increase their resources on product innovation to improve their competition
capacity. The capacity of technology innovation is the potential source for firm development and is the
key to add value to the current products with competition power. So, Chinese firms may enhance their
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cooperation with colleges, universities and research institutions so as to improve their own research
ability on technology innovations. By doing so, they might modify their product lines to add value,
exporting products with special features. Taking agricultural products for example, some products with
local features can be chosen and given much fund support to process them deeply so that a good amount
of export can be reached.
5.3 Reinforcing the management towards overseas investment by government’s undergoing a
strict examination system and fully making good use of information technology
The Chinese government should build up a strict examination system to forbid some unreasonable
investment projects, giving corresponding punishment to the illegal operations by Chinese officials. In
order to realize this goal, it is demanded that clear and open information can be easily accessed by the
supervision departments of Chinese government. Here, information technology plays an important role
on this matter. It not only makes the firms break through the limit of market and resources, frequently
undertake electronic commerce activities, optimize the structure of personnel organization, but also
enable the required information about investment become available, enhancing the cooperation among
government departments in foreign economy and trade issues, customs, inspection and quarantine. In
this way, some clear guidance and sensible decisions towards investment can be given and made.
5.4 Nurturing the quick response ability of Chinese firms in global resource distribution
International firms of China must have a clear analysis towards risks and chances to develop and
improve their ability in making a wise and quick decision. Thus, with the help of all kinds of tools
including information technology, Chinese firms are suggested to distribute resources like funds,
professionals and goods reasonably and break through different restrictions by direct or indirect
investment in order to grow healthily. If so, the firms might be able to cope with the rapid changes in the
world market and offer specified products and services with full diversity. Of course, the speed of
response ability is also crucial because the firms have to adjust their resource distribution at any time so
as to adapt to the needs of markets. Thus, flexibility in resource distribution around the world is also
desired.
6 Conclusion
With China’s entering WTO, Chinese firms are being fully involved in the world market and Chinese
home market is gradually opening to the outside world. Hence, improving and fully taking advantage of
the comparative advantages of Chinese firms under the support of Chinese government is an imperative
strategy for the development of China. For the purpose of improving the competition status of China as
a big country with much economical and political power in the world, giving great importance to the
industry or business line with maximum advantages and advanced technologies is one of the most
fundamental factors in accelerating the speed of the development of national economy. Meanwhile, for
international firms of China, it is crucial to for a Firm Group to establish an effective system which
integrates multi business operations with its focused business with maximum advantages. In this system,
efficient and effective resource distribution, technology internationalization, standardization
management and information technology application are also significantly concerned.
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