Globalization of Chinese Multinational Corporations:The Roles of Language and Cultural Development

Yong Cao, Ph.D.

Edward Forrest, Ph.D.University of Alaska Anchorage

China’s NonBond Investment ($ billions)Increasing trend in foreign direct investment and firm acquisition

2004.5 2005 2005.5 2006 2006.5 2007 2007.5 2008 2008.5 2009 2009.50

10

20

30

40

50

60

Sources: Ministry of Commerce of People’s Republic of China, 2008 Statistical Bulletin of China’s Outward Foreign Direct Investment, hzs2.mofcom.gov.cn/accessory/200909/1253869308655.pdf

“China’s Overseas Investment up 6.5pc,” The Daily Star, January 17, 2010, at http://www.thedailystar.net/newDesign/newsdetails.php?nid=122171 (February 21, 2010);

Large scale in Africa, South Africa, West Asia and other emerging marketsRelatively small scale in the United States

Table 1. Important Cases of Chinese Multinational Corporations in Overseas Investments and Operations

Party involvedAcquisition Result Goal Gatekeeper’s Role Related Study

TCL–Thompson, France 2003

Successful acquisition but failed in operation

access to knowledge and technologyBuild imageAccess to the market

Significant loss after the acquisition

Khanna 2007; McWilliams & Ramstad 2006

CNOOC in China and UNOCAL in USA in 2005

Failed acquisition CNOOCs $18 billion bid for UnocalAccess to oil and gas reserves in Asia, Africa, and Latin America.Resources-seekingOwnership assets, technology, and distribution/logistics.

Opposition from CFUIS Cassehnan 2007; Holt, 2006; Kim 2007; Nanto et al., 2005. Petrusic. 2006; Pottinger et al., 2005; Schortgen 2006.

Haier in China – Maytag in USA in 2005

Failed acquisition Haier's USD 1.2 billion bid for MaytagAccess to the North American marketBuild imagesBe leader in global household appliances market

Opposition from local community, the city, labor union, suppliers, and distributors

Wu 2005;Yang et al. 2009.

LENOVO in China and IBM'S PC Division in USA in 2005

Successful acquisition but difficult in operation

$1.75 billion bid for IBM's PC division and acquired the "Thinkpad' brand.access to technology,Build corporate imageSecure supplier networks, and knowledge acquisition

The US Congress and CFIUS investigate the bid and approve the acquisition

Dickie & Lau 2004. Liu, 2007; Shapinker 2004

Ivestment for resources swap in Africa

Successful • Secure raw material supply ChanFishel and Lawson (2007)

Huawei/Bain Capital and 3COM in USA in 2008

Failed acquisition USD 2.2 billion bid for 3Com, in which Huawei took a 15% minority stake.Access to technology, knowledge acquisitionAccess to the market

Opposition from the US Congress and CFIUS

Waten & Politi 2008;Weisman 2008

Chinalco in China and Rio-Tinto in Australia in 2009

Failed acquisition Increase its stake from 9% to 18% by investing USD 19.5 billion in Rio-TintoSecure massive global mining operations and iron ore reserves.Ownership of iron ores.

Chinalco suffered from worldwide negative publicityLimited experience in handling overseas investmentOpposition from shareholders, Australian regulators National security concern

Anderlini 2009; Barboza & Wines 2009; Bream & MacNamara, 2009; Oster & Carew 2009; Yao 2009

Additional Cases• China Mobile attempted to purchase Millicom, failed at the

last stage in 2006 due to price disagreements and concerns of job insecurity of management.

• Huawei’s failed bid for British telecom equipment maker Marconi.

• Wanxiang Group, purchased Chicago-based Universal Automotive Industry, but UAI went bankrupt in 2005.

• Ssangyong Motor had a legal battle with Shanghai Automotive Industry Corporation after it was purchased in January 2005.

Additional Cases (continued)• TCL acquired RCA in the late 1990s and German Schneider

and French Thomson in 2003. After the purchase, the firm suffered huge losses - 90 million euros in 2005 and 230 million euros in 2006, TCL also formed a joint venture with Alcatel to manufacture mobile phones in May 2002, but decided to liquidate it in nine months.

• Lenovo acquired IBM's PC division for US$1.25 billion deal in December 2004. The merger brought some difficulty for the firm due to increasing difficulty in its operations (Kim 2009).

Failed Reason• Failed acquisition in USA, Europe, if it is successful in

acquisition, but failed in operation in these geographic region.• The objections of from the key stakeholders, such as law

makers, local community, consumers, management team and other interest groups.

• Lack of experience to handle the cases due to language and culture barriers– Being a foreignness for the Chinese firms is hard to win the support from the

stakeholders due to their limited visibility at the global level (Anwar, 2009; Tariq & Anwar, 2009).

– Limited understanding local cultures, national markets, and regulatory procedures

– Lack knowledge and operation skills in overseas, particularly in the United States.

– Lack of social capital to work with the local government and the legislature.– Lack of lobbying experience and networks (Crooks, 2009), which is critical to

communicate with various stakeholders who participate in the market.– Incompatibility between Chinese business culture and the western

business culture: the current networking and guanxi related networks carry limited clout outside of China because of cultural barriers, negative publicity, and regulatory hurdles (Chua, Morris & Ingram, 2009).

Table 2. The Roles of Language for Chinese MNCs in Global Market: as a promotion as well as defensive tool

As a bridge for technique communication

As a bridge for cultural communication

As a promotion tool

As a Defensive tool

Table 2. The Roles of Language for Chinese MNCs in Global Market

•As a bridge for technique communication

•As a promotion tool

•To successfully acquire the foreign firm, need to correctly use the language to deliver the message of concepts, ideas, desires, attitudes to the key stakeholders, such as legislature, media, governmental agencies, shareholders.•To successfully operate the acquired firm, need to correctly use the language to deliver the message of concepts, ideas, desires, attitudes to the key stakeholders, such as employees, customers and suppliers. •Relatively easy to achieve because the focus is on the technique issues

Table 2. The Roles of Language for Chinese MNCs in Global Market

As a bridge for cultural communication

As a promotion tool

To win full support from key stakeholders, such as customers, media, regulators, foreign stockholders, foreign suppliers in the global market for Chinese MNCs’ perceptions, concepts, ideas, desires, attitudes, actions and plans.•Hard to achieve in a democratic society due to the different voices in the society•Hard to achieve in a diverse society

Table 2. The Roles of Language for Chinese MNCs in Global Market

As a bridge for technique communication

As a Defensive tool Fully understand the legal meanings and the obligations behind the terms, condition, and agreement and use the language appropriately to defend Chinese MNCs interests in the global market.

Table 2. The Roles of Language for Chinese MNCs in Global Market

As a bridge for cultural communication

As a Defensive tool

Defend Chinese MNCs’ interests from competitors, regulators and other potential threats to express positions, attitudes, actions and procedures in accordance of the cultural background.

Table 2. Summary of the Language Roles for Chinese MNCs in Global Market

As a bridge for technique communication

As a bridge for cultural communication

As a promotion tool

Correctly use the language to interpret the perceptions, concepts, ideas, desires, attitudes expressed by the key stakeholders, such as global customers, media, regulators, foreign stockholders, foreign suppliers in the global market.

To seek full support from key stakeholders, such as global customers, media, regulators, foreign stockholders, foreign suppliers in the global market for Chinese MNC’s perceptions, concepts, ideas, desires, attitudes to actions, and plans.

As a Defensive tool

Fully understand the legal meanings and the obligations behind the terms, condition, and agreement and use the language appropriately to defend Chinese MNC’s interests in the global market.

Defend Chinese MNC’s interests from competitors, regulators and other potential threats to express positions, attitudes, actions and procedures in accordance of the cultural background.

Chinese Language Vs. English

• Usage around the world– Limited usage of the Chinese language vs. wide

usage of the English language in global business setting

• Usage for business agreement– Two copies, one is in English, the other one is in

Chinese. Which one has more relative power in explaining the difference?

• Usage when conflicts arise, the agreement in Chinese in disadvantage– International arbitration– Global court– WTO

Table 3. The Roles of Culture for Chinese MNCs in Global Market

Market culture

Compromise own culture to fit the local culture

•Change Chinese MNCs’ own administrative culture to fit for the global market, such as customers’ needs and wants•Less resistance from foreign customers, regulators, media and other stakeholders.•If it is authentic is a question

Table 3. The Roles of Culture for Chinese MNCs in Global Market

Social culture

Compromise own culture to fit the local culture

•Change Chinese culture to fit the targeted global market in terms of beliefs and traditions, pattern of customs, and behaviors which are socially acquired and socially transmitted.•Gradually accepted by local society from being “foreignness” to “accepted localness”

Table 3. The Roles of Culture for Chinese MNCs in Global Market

Market culture

Uncompromising Stand - make the other change

•Bring Chinese MNCs’ own administrative culture to the global market.

•Potential resistance from foreign customers, regulators, media and other stakeholders.

Table 3. The Roles of Culture for Chinese MNCs in Global Market

Social culture

Uncompromising Stand - make the other change

•Bring Chinese culture to the targeted global market without the changes of beliefs and traditions, pattern of customs, and behaviors •Socially transmitted the Chinese culture to local community and be accepted by them.•Difficult to achieve

Table 3. The Roles of Culture for Chinese MNCs in Global Market

Market culture Social culture

Compromise own culture to fit the local culture

Change Chinese MNCs’ own administrative culture to fit for the global market.Less resistance from foreign customers, regulators, media and other stakeholders.

Change Chinese culture to to fit the targeted global market in terms of beliefs and traditions, pattern of customs, and behaviors which are socially acquired and socially transmitted.

Uncompromising Stand - make the other change

Bring Chinese MNCs’ own administrative culture to the global market.Potential resistance from foreign customers, regulators, media and other stakeholders.

Bring Chinese culture to the targeted global market without the changes of beliefs and traditions, pattern of customs, and behaviors which are socially acquired and socially transmitted.

Table 4. The Usage of Language and Culture for Different Geographic Regions in Global Market

Areas of constraint

Managerial Focus Level of Difficulty Required SkillsTargeted Geographic Regions

Language

As a promotion tool to bridge technique understanding

***•Technical skills•Promotion capability

As a promotion tool to bridge cultural understanding

*****•Culture•Promotion capability

As a defensive tool for technique understanding

***•Knowledge asset in regulatory system•Skills of public relations

As a defensive tool for cultural understanding

*****

•Knowledge asset in regulatory system•Knowledge asset in cultural environment

Culture

Make the other change for market culture

*****•Comparative advantage between the cultures

Asia, Emerging market, Africa, South America

Make the other change for social culture

*****Asia, Emerging market, Africa, South America

Compromise to fit local market culture

*** North America, Europe

Compromise to fit local social culture

*** North America, Europe

Conclusion

• Learning curve for Chinese MNCs• Cultural issues • Legal resistance

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