Chinese multinationals coming to center stage

Dan Steinbock
As global R&D hubs broaden in China and the role of its multinationals spreads worldwide, Chinese companies will begin to compete for global leadership.
Dan Steinbock

ONLY a decade ago, Chinese companies accounted for barely 1 percent of the world’s largest companies and multinationals. Today, their share has grown by more than tenfold.

After mid-November, Alibaba again won the highest e-commerce sales day in history on China’s Singles’ Day beating last year’s record by almost 40 percent — hitting some US$25.4 billion.

In the United States, the 2016 combined Black Friday and Cyber Monday sales amounted to US$6.5 billion, while Amazon’s 2017 Prime Day sales rose to US$600 million to US$1 billion range. Even combined, all of these revenues account for less than one-third of Alibaba’s Singles’ Day sales.

In one decade, Chinese companies have captured a significant chunk of global competition, thanks to Chinese infrastructure development, savings, rising middle-class and increasingly global sales.

The British multinationals were at the peak of their power in 1914, when they controlled half of the world’s stock of outward foreign direct investment (FDI).

After World War II, US multinationals were positioned to take advantage of post-war reconstruction, transfer of new technologies, and leverage of management capabilities. Their power peaked in the late 1960s, when they dominated half of the world FDI.

After postwar reconstruction, European multinationals resurfaced. Coming from a continent of diverse economies, their expansion was driven by responsive national strategies, from Unilever to Philips and Ericsson. By the 1960s, British, French and German multinationals began to challenge US multinationals.

Starting in the late 1960s, Japanese challengers began to capture increasing market share from cars to consumer electronics, across industries. They benefited from falling trade barriers, improved transport and communications, and increasingly homogeneous markets.

Coming from a unified island-nation, Japanese multinationals — from Matsushita and Toyota to Sony — excelled in global scale efficiencies. The peak of their power occurred in 1990, when they controlled about a tenth of the stock of foreign investment worldwide.

Since the 1980s, globalization has contributed to the rise of large emerging economies. Unlike corporate giants from advanced economies, aspiring Chinese companies have had to cope with competition that is increasingly global, capital-intensive, and innovative.

Cost advantages

From Haier and Lenovo to Huawei and Tencent —­­ not to speak about the Chinese giants in banking and insurance, construction, utility, automotive, oil and engineering — the pioneering Chinese corporate behemoths often benefit from cost advantages.

Before the global crisis, advanced economies — US (16 percent), Europe (49 percent) and Japan (4 percent) — accounted for more than two-thirds of all outward FDI worldwide.

In contrast, China’s share was barely 1 percent. Today, advanced economies — US (21 percent), EU (32 percent), Japan (10 percent) — continue to dominate almost two thirds of total outward FDI. However, the share of China has grown more than tenfold to 13 percent of the total. That’s a dramatic increase in just a decade.

The same goes for the rankings of the world’s largest companies, as measured by market value.

This, however, is just the beginning.

As global R&D hubs broaden in China and the role of its multinationals spreads worldwide, Chinese companies will begin to compete for global leadership, while paving way for the rise of other corporate giants from large emerging economies.

Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see Shanghai Daily condensed the article.

Special Reports