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Chinese firms going global

16 May 2018

The article at a glance

Chinese firms are becoming more global as they debate whether to become public companies, says Professor David De Cremer of Cambridge Judge …

Chinese firms are becoming more global as they debate whether to become public companies, says Professor David De Cremer of Cambridge Judge Business School.

Companies that go public in the US can create plenty of attention, with the CEO ringing the opening bell on the New York Stock Exchange or Nasdaq. The same has been true in China, where internet giant Tencent went public in 2004 and e-commerce company Alibaba followed suit a decade later.

Yet some other highly publicised IPOs in China have turned into duds, so Chinese companies are now realising that going public may not be the “holy grail” after all, according to a recent article “On the joy of not being a listed company“, by Professor David De Cremer of Cambridge Judge Business School in the World Financial Review.

“Public status may not always facilitate (but rather complicate) decision-making within the company when it comes down to innovation, vision and purpose,” the article says. While Tencent and Alibaba were profitable when they went public, the unprofitability of some smaller listed firms is making Chinese companies think twice whether they need to rush to go public.

David De Cremer.
Professor David De Cremer

Another recent article by David outlines how Chinese companies increasingly see the need to expand globally: although the domestic market is huge at 1.4 billion people, the Chinese market has become more competitive and Chinese consumers have become more demanding as the country shifts from a manufacturing to a service-oriented economy.

“By meeting the higher demands of their local customers, Chinese companies feel that they are now better placed to expand internationally as they have the focus and skill to appeal to a broader and more global audience,” says the article “Lessons from Huawei: when Chinese companies go global” in the London Business School Review.

Both articles focus in depth on Chinese telecoms company Huawei, a private company owned largely by its 180,000 global employees that serves more than three billion customers.

David De Cremer, KPMG Professor of Management Studies at Cambridge Judge, discusses some of the issues facing Chinese firms as they become more global and debate whether to become public companies:

Leadership and motivation remain constants, public company or not. The key organisational challenges are the same for public and private companies alike: keeping employees motivated through inspirational leadership. Leaders of public companies also must be sure that they don’t take their eye off day-to-day management issues as they focus on external shareholders.

Rising costs of production are also driving global expansion of Chinese firms. Labour and production costs have increased quickly along with average disposable income, so expanding abroad can boost sales and thus decrease costs per unit.

Despite a few success stories like Huawei in telecoms and Lenovo in computers, there are few global household names among Chinese companies. There’s still a learning curve going on and the key is to instil a global mindset – and this means empowering people to think and act globally rather than imposing a top-down plan for global expansion. Owing to the huge domestic market, most Chinese companies don’t have much experience dealing with other cultures – but that will change very rapidly.

Chinese global companies pursue a marriage between the individual and the collective dream. Many Chinese companies have an intrinsic motivation to become the pride of the nation and thus perceive globalisation as a collective effort, but realise that to be successful they need to embrace the individual dream of pursuing liberal values that allow for creativity, vitality and proactivity.