Most Chinese companies put off going global because they believe the overseas market lacks professionals with cross-cultural and managerial know-how.
That's according to "China Going Global: What it Takes to Succeed in the Global Market", a report by management consulting firm McKinsey & Co in partnership with the China Council for the Promotion of International Trade and Peking University.
The study interviewed 30 leading Chinese companies about their global activities.
"(In China) the need for globalization comes very rapidly," said Gordon Orr, director of McKinsey's Shanghai office and co-author of the study.
The faster rate of outbound acquisitions from China speaks volumes. From 2005 to September 2007, 160 Chinese companies have made headlines acquiring 300 foreign firms worth a total $71 billion.
According to the McKinsey study, four factors are encouraging local companies to go global: access to natural resources, high revenue growth, access to intellectual property, and getting a competitive edge in key areas including sourcing and research and development.
But going global means more than just exporting goods to overseas markets - it's measured by the number of employees, proportion of sales and value of corporate assets in foreign markets.
"Only 50 percent of the Chinese companies interviewed aspire to become true multinationals," the study found. That contrasts with the 79 percent and 63 percent of Indian and Latin American companies tracked in parallel surveys.
There's a number of reasons for the reluctance, but "talent is often quoted as the No 1 bottleneck", the report said.
About 75 percent of the executives surveyed said their globalization efforts are hindered by the lack of suitable people with cross-cultural understanding and managerial know-how. Meanwhile, 50 percent of respondents said they had not been successful in recruiting local professionals in their target international markets.
The other major barriers to global expansion are also related to the perceived lack of skilled professionals in overseas markets. About 56 percent of the Chinese executives surveyed said they had yet to develop the necessary expertise to integrate newly acquired companies.
"Without the right people to negotiate Chinese-Western partnerships, complications arise from cultural conflicts," said Orr.
"Post-merger integration is difficult, and companies often underestimate the risks in operation, environment, and turnover prior to the deal."
Chinese companies need to focus on establishing a clear strategy and obtaining the right international-caliber talent, the report said.
There are few Chinese companies that have done a good job going global, but personal computer maker Lenovo is one of them, said Orr.
Since December 2005, when he was appointed chief executive officer of Lenovo, Bill Amelio has expanded the firm's global management team by bringing in additional executives with global experience like chief operating officer Gerry Smith and chief strategy officer Cuong Do.
"The companies surveyed all agreed talent is the big challenge they face when they start to go global, but they don't realize it is not only about the manager or senior executive of an international business, it is about having capable senior colleagues," said Orr.
"They must realize that they cannot globalize unless they globalize the majority of the top management team."
(China Daily December 28, 2007)
