Studies On The Strategic Positioning And Risk Control Of China Central Enterprises

Globalization is one of the major trends in world economic development. It isaccelerating economic growth, technological advancement and international capitalflows. As a result, countries have become more interdependent economically and theefficiency of resource allocations is bolstered on a global scale. Internationally,multinational companies are key actors of economic globalization and a major source ofForeign Direct Investment (FDI). In China, China Central Enterprises (CCEs), the pillarof the national economy, and in particular, of the state-owned economy, have played aleading role in international business. They have pushed ahead with the strategy of“Going Global” under the guidance of the State-owned Assets Supervision andAdministration Commission (SASAC), which was established in2003. Since then, theyhave made substantial progress in terms of growing overseas assets, business revenues,profits and so forth. However, CCEs have also faced a host of challenges and a risingdegree of risks. This paper explores the possibility of setting up a system of strategicpositioning and risk control of CCEs’ FDI in order to boost competitiveness. Such asystem would greatly benefit from the analysis of relevant theories and past experienceof advanced countries.Chapter I defines the scope and purpose of the study. It covers the literature reviewof undergoing research on CCEs’ strategic positioning, the current situation in terms ofrisk control and foreign studies on the internationalization of Chinese companies.Combining theories with real life cases, both domestic and foreign, this chapterthoroughly analyses various issues faced by CCEs through comparative analysis,technical analysis and case studies, and offers suggestions. Chapter I also introduces thestructure of this paper and outlines the scope for future improvement.Chapter II presents a detailed review and analysis of macro and micro theories ofFDI and the FDI theory of developing countries. Macro theories of FDI include theInternational Investment Benefit Distribution Model, The Theory of the MarginalIndustry Expansion, The Theory of Capitalization Rate, The Theory of InvestmentCycle and The Theory of Competitive Advantage; Micro theories of FDI include TheTheory of Monopolistic Advantages, The Theory of Internationalization, The Theory of Product Life Cycle, The Eclectic Theory of International Production, The Theory ofStrategic Foreign Direct Investment. FDI theories of developing countries include TheTheory of Small-scaled Technology, The Theory of Localized Technological Change,The Theory of Technological Innovation and Industry Upgrade, The Dynamic Theory ofComparative Advantage and The Theory of Motivation Factors Combination. Chapter IIanalyzes the functions as well as the limitations of the above-mentioned theories in anattempt to provide guidance to CCEs’ international operations.Chapter III deals with the internationalization experience of companies in the U.S,Japan and Europe. It gives a brief introduction to the FDI of multinational companies insuch advanced economies as the U.K, France and Germany. Indeed, CCEs can learnfrom U.S companies in terms of organizational structure, human resources, modulareconomy and cross-cultural management. Japanese companies’ advantage lies in theunique form of Sogo Shosha, their management structures and decision-makingmechanisms, advanced technology, market localization and financial strategies. In turn,European companies excel at management structures, information management andcultural integration. CCEs can thus borrow from this rich experience to derivesubstantial benefits for themselves.Chapter IV studies CCEs strategic positioning. According to Michael Porter, aleading authority on competitive strategy, to survive and thrive, companies should eithercompete to be the best or compete to be unique. Chapter IV also depicts the specificnature of CCEs, notably their social, public, economic and corporate attributes. It servesto highlight the difficult strategic choices they need to make and the tough challengesthey will face in pursuing their objectives while living up to social expectations.Internationalization appears critical to their success. Studies on the strategic positioningof CCEs are based on such criteria as subject, industry, location and approach to theirinternational operations. Such criteria and the measurement thereof are used to gaugeCCEs’ level of internationalization. Chapter IV also reviews the top16CCEs in2011and retains the revenues and assets of the top8in a quantitative analysis of thestatistical weight of key factors in CCEs’ internationalization process. This statisticalanalysis provides an important index to position CCEs strategically on the global map.Chapter V is about the risk control of CCEs. It analyses the regional characteristicsof the various types of risks carried by CCEs in their internationalization process as wellas the auditing systems used in foreign countries. Among these risks, country, natural disaster, financial, operational, legal and cultural risks are the main types under study. Inparallel, risk identification, risk analysis, risk assessment and risk response are analyzedin detail. Risk response consists of external mechanisms, internal mechanisms andcorresponding policies. External mechanisms include diplomacy, lobbying, governmentsupport, government agency assistance, overseas investment legislation and investmentprotection. Internal mechanisms include “Three-Important and One-Large systems”,organizational structure regulations, business procedures and the establishment ofmulti-level auditing systems for overseas state-owned assets. This chapter gives carefulthought to the need to measure the key6risks and attempts to remedy the relativescarcity of available studies on the risk control of CCEs’ internationalization by servingas a possible guide.Chapter VI is composed of case studies. Based on the latest statistics, it gives a fullanalysis of the strategic positioning, operational patterns and risk control processes usedby the China Minmetals Corporation and the China National Petroleum Corporation.Their experience can also benefit other CCEs.Chapter VII analyses CCEs’ current international operations and suggests ways forimprovement. Indeed, today they fall short of a clear strategic positioning, a scientificinvestment mechanism, a flexible organizational structure, a coordinating platform, anindependent pool of talents, an innovative corporate culture, an intimate knowledge ofthe international market and competent global operation capabilities. Chapter VIIintroduces the internationalization experience of companies in the U.S, Japan andGermany and the guiding role of foreign investment theory to CCEs. It argues that theChinese government should endeavour to improve the external environment, providesupportive policies, auditing procedures, supervision of overseas state-owned assets,information systems as well as guiding and coordinating policies to CCEs. All CCEsshould have a clear strategic positioning, improve organizational structures, bettercooperate with their counterparts, achieve cultural integration and put sound policiesinto practice. Furthermore, CCEs’ strategic positioning and risk control systems shouldbe set up in accordance with scientific theories, the experience of companies inadvanced countries, government stewardship and their own operational capabilities.This paper concludes by recognizing that countries compete with each other on theback of their national strength. The international standing and strength of largecorporations are crucial to a country’s overall national strength. China is now the world’s second largest economy and is rising rapidly in the league table of foreigninvestment and international cooperation. CCEs are meant to be the key actors of the“Going Global” strategy, spearheading China’s economic globalization. If so, theyshould clearly position themselves strategically, boost their risk control capabilities,enhance their performance in the domestic as well as the international markets,strengthen their competitiveness and optimize resource allocations. Only then, will amajority of CCEs possibly grow into global giants in the future.