Huang Mengfu, chairman of All-China Federation of Industry &Commerce (AFIC), has encouraged private companies to invest overseas in a symposium recently held in Ningbo, a coastal city in southeast China.
The following is his interview with the China Business Times.
Reporter: China’s private companies have developed rapidly in recent years, but they are still quite small firms, can they invest overseas and compete in the international market?
Huang: Yes, I think it’s time for them to invest overseas.
First, the policy environment for private companies has greatly improved. At the beginning of China’s reform and opening-up, they mainly provided goods for state-owned foreign trade companies. At that time, private companies were not awarded foreign trade management qualifications even after they expanded their production capacity and improved product quality.
In 1999, the government enacted regulations allowing some private companies to export and import directly. The regulation was further revised in 2001 to encourage international market expansion. According to incomplete custom figures, the direct export volume of private companies in 2001 reached US$5.31 billion, while export in 2002 jumped 159.5 percent to US$13.78 billion. In the first half year of 2003, the direct export volume of private companies reached US$12.83 billion, up 168.1 percent. The total export volume of private companies exceeded that of collective-owned enterprises, and has kept rising. Meanwhile, more and more private companies have begun to invest, finance overseas or contract foreign projects.
Secondly, private companies now are capable of competing in the international market. Statistics show that there were only 90,581 private enterprises with 1.64 million employees and registered capital of 8.4 billion yuan (US$1.01 billion) in 1989. In 2002, the number of private enterprises rose to 2.43 million, with employees at 34.9 million and registered capital at 2.47 trillion yuan (US$298.4 billion).The contributing ratio of private company to gross domestic products (GDP) rose from 0.57 percent in 1989 to 22.76 percent in 2002.
Reporter: What are the advantages and disadvantages for private company’s investing overseas?
Huang: The production capacity, technology, R&D and quality control, as well as the employee quality of private companies has greatly improved in the past 20 years. Especially in Zhejiang Province, the manufacturing product export of private enterprises accounts for 91 percent of the total.
Private companies have a flexible system, whether in ownership, organizing or management mechanisms, which can well suit the competition in the international market. Meanwhile, a few private companies have set up modern management systems and perfected their company governance. Some of them are exploring the international market.
As for the disadvantages, private companies are quite small. Their equipment, technology, management and innovative ability are comparatively backward. Their labor-intensive products as well as the lack of international talent put them in a disadvantageous situation in the international competition marketplace.
Reporter: How to enhance their international competitive strength?
Huang: The advantages are embodied in three factors: cost advantage, unique products and brand image. Currently, Chinese products are well known for their low cost. It is an important task for private companies to increase and keep their competitive power.
Reporter: Any suggestions?
Huang: I have five points for discussion.
First, private companies should make an appropriate strategy, investigate the international market environment and know the competition of the industry. In order to win the market, they should make full use of their comparative advantage and consider global resource allocation.
Second, the precondition of private company’s international expansion is to improve their management and introduce a modern enterprise system. They should strengthen company governance, set up scientific decision-making and risk-resisting mechanism. Private companies should also recruit more management, marketing and technological talent.
Third, hi-tech and innovation are key to an enterprise’s competitive strength, for the cost and uniqueness advantage will diminish following changes in market environment. Therefore, private companies should innovate continuously, introduce advanced technology, improve their R&D manufacturing, design through cooperation, and accordingly keep their advantages.
Fourth, Private companies should put forward their brands. To create an international renowned brand is a quite difficult thing. Many private companies provide OEM for foreign enterprises in their startup, and try to learn overseas advanced technology and management. In order to create a well-known brand, enterprises should be honest and continuously improve the quality of products and services.
Fifth, information technology, which changes the way of traditional transactions and relocates resources worldwide, has lashed together traditional concepts and management. It can lower the cost, improve efficiency and satisfy personalized needs quickly. Therefore, the adoption of information technology is vital for their international competition.
(China.org.cn by Tang Fuchun, September 8, 2003)