Emerging Multinational Companies from China

By Richard Hoffmann, ECOVIS Beijing

When asking people in Germany to name multinational companies (MNCs) from Asia, the first examples that come to mind are numerous Japanese companies such as Toyota, Honda, Sony, Toshiba, Panasonic, Nintendo, etc. These Japanese MNCs are  well-known worldwide since they all produce products for end-consumers. Many people also think of MNCs from South Korea such as the huge conglomerates Samsung, Hyundai, and LG. Taiwanese MNCs, though to a lesser extent, are also mentioned in relation to the country’s famous high-tech and IT sectors. Examples include Asus, Acer, and HTC. Large suppliers such as Foxconn are also based in Taiwan but are not as well-known since they primarily supply the B2B markets. Japanese MNCs are older than MNCs from South Korea and Taiwan.

However, MNCs from all three nations are major competitors of those “old” MNCs which have their origins in the industrial revolution of the late 19th century and first half of the 20th century and are based in comparatively developed countries. We just have to look at the rapid success and increased competitiveness of South Korea’s Hyundai in the automotive sector or Taiwan’s HTC in the smartphone industry.

At the moment, China is home to less well-known MNCs than the other nations mentioned above. Of course, there are people who name Lenovo or Huawei as renowned global players but the level of awareness for Chinese MNCs is low compared to MNCs from Japan, South Korea or Taiwan. This has various reasons including the following points:

• The majority of products exported from China (more than 50%) is produced by foreign invested companies and not by Chinese enterprises themselves. The goal of every company is the maximization of profits – a process which entails the reduction of total costs. China has historically had comparatively low wages and  many companies therefore invested in China leading to this high proportion of exports from foreign invested companies.
• China’s MNCs operate within industries in which there is high competition from “old” MNCs. There is, for example, an overlap of some core industries of Germany and China. More people in Europe are familiar with Volkswagen rather than Geely or with Bosch and Siemens rather than Haier. Many Chinese MNCs are also in the B2B sector, therefore less prominent among the general public but more so among those experts within the respective industries.
• Chinese companies started to internationalize later than MNCs from South Korea or Taiwan. This process of internationalization of Chinese companies has just begun and is far from over. In our recent article about Chinese OFDI we saw that Chinese OFDI was almost nonexistent until the beginning of the 21st century and experienced a boom during the financial crisis of 2007/2008.

MNCs from Asia can be grouped into three separate cycles or waves. The first wave includes the Japanese MNCs. In the second wave there are South Korean and Taiwanese MNCs. The third and last wave includes those relatively new Emerging Multinational Companies (EMNCs) from China.

Source: Bruche, Gert (2013): Chinese Emerging Multinationals. Lecture at Berlin School of Economics and Law

The reasons for these three cycles lie, amongst others, in economic policies. South Korea, Taiwan but also Hong Kong and Singapore form the group of so called Asian Tigers. Japan is left out of this group because it emerged earlier than the other four nations and the term was coined later on after the Japanese economy had already developed. However, in another such paradigm, the so-called flying geese paradigm as coined by the Japanese author Kaname Akamatsu, Japan is seen as the lead goose followed by the four Asian Tigers. In this paradigm the Asian Tigers are followed by the main ASEAN countries Indonesia, Thailand as well as Malaysia and finally by other fast developing nations in the region: China, Vietnam, Philippines etc.

The four Asian Tigers  became renowned for their economic development (as often compared to the growth of powerful tigers) and their rapid industrialization between the early 1960s and 1990s. All four have developed into advanced and high-income economies specializing in areas of their respective competitive advantages. In comparison to the manufacturing centers Taiwan and South Korea, Hong Kong and Singapore became world-leading international financial centers. Several policies led to this rapid success of all four nations, for instance the promotion of exports in particular in South Korea and Taiwan.

China has always avoided a current account deficit and significant sovereign debt, just as the Asian Tigers have. Chinese exports were viewed as necessary because exporting was  an important way to pay for imports and so China adopted selective measures of export promotion, just as South Korea and Taiwan had exemplified before. The Chinese EMNCs, although currently less well-known, are well positioned to forge waves of economic growth in decades to come.

With contributions by Markus Mönch (ECOVIS Beijing)

	Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com