Carving out a Niche on the World Stage

How is China’s model of internationalization progressing so far? And how far has China gone in reaching its strategic goal of going global?

By China Business Knowledge @ CUHK

In the globalization era, China insists on following the path of internationalization. How is this related to the ‘China Model’? What exactly is the ‘China Model of Globalization’? Jack Gao, Adjunct Professor at CUHK Business School, shares his views with China Business Knowledge. Gao is Senior Vice President of News Corporation & CEO of News Corp China Investments.

The ‘China Model’ itself is the product of internationalization. The Chinese economy, which has long been integrated into the world economy since the ‘Made in China’ era, has greatly benefited from its evolution to the innovation era. Take the rise of Lenovo as an example. In its early stage, the company relied on courage, followed by vision and sound management. Today, it relies on creativity and innovation. This is a typical example of the development process for Chinese enterprises. In addition, Hong Kong has played an important role of helping China bridge the gap with the rest of the world by helping it develop a huge market through offering support in the shaping of its institutional system, legal system, language capabilities and financial system. The development process would have been much slower without the active role Hong Kong has played.

How is the ‘China Model of Internationalization’ progressing so far? And how far has China gone in reaching its strategic goal of ‘going global’? Have we reached the mature stage or is there still room for improvement?

The economic development in many countries has been seriously affected by the global financial crisis, but this has paradoxically opened up new opportunities for Chinese enterprises to expand overseas. China has tried a lot of different models in the process of ‘going global’, including Haier’s model of building manufacturing sites overseas, Lenovo’s model of leveraging foreign brands and Huawei’s technology-driven model. The success of these models can largely be attributed to the advancements in technology, property rights policy, service agencies, human resources, capital and foreign direct investments (FDI).

However, the proportion of China’s FDI in the United States is still very small. Besides, we don’t yet have a mature supply chain system as we are still developing our human resources, institutional system and property rights policy. We have an enormous hunger for talent, and we need to expand our global vision to fully understand local cultures and property rights before we can communicate with overseas business partners and gain their trust. To further support our globalization strategy, we need to recruit the help of local talents and to fully integrate them into our businesses.

Many people have pointed out the similarities between todays’ China and Japan in the 80s. For example, companies in Japan have learned from the best production practices in mature Western economies before developing their own giant enterprises and technologies, which led to the rise of global enterprises such as Sony and Honda. Which companies in China will have the best chance to lead the country’s globalization process?

According to Feng Lun, a famous entrepreneur and founder of Vantone Group, the keys to running an enterprise are: Learn from the experienced, rely on the wealthy giants and take the right path. For enterprises eyeing to do business overseas, the requirements for taking the right path are very high, as they need to fully understand their corporate social responsibility for the local community and business compliance requirements. The development of China has long been lagging due to inadequate fostering of entrepreneurial talent. The growth of China requires tens of thousands of talented entrepreneurs like Liu Chuanzhi and Feng Lun, as well as tens of thousands of enterprises like the ones they have created.

Which industries in China will have the best chance to succeed in the future in their quest for globalization? WeChat has revealed its ambition to become globalized and it seems to have become the first Chinese Internet software company to successfully gain momentum in developing an Internet market outside of China. In your opinion, will WeChat’s globalization campaign succeed? How do you see the development potential of the overall Internet software market of China in the next decade?

The rise of WeChat signals a 360-degree revolution in the mobile Internet industry, which will force the traditional Internet industry to reform. At the same time, it is a success story that makes the whole world recognize Chinese enterprises. Among the Top 10 global Internet enterprises today, Chinese enterprises account for a large proportion. They include Tencent, Alibaba and Baidu. The Internet software industry has a great deal of development potential. The evolutionary process from ‘made in China’ to ‘created in China’ is well on its way.

Chinese enterprises have experienced a lot of setbacks in overseas mergers and acquisitions. For example, Huawei has faced different levels of interference and blockages by governments in the United States, Australia and Canada over the past few years. What are the reasons for these hurdles? How should China create its own path of internationalization?

One of the main reasons for such obstacles is the regulatory and approval requirements for overseas mergers and acquisitions. On one hand, there are local rules and regulations. On the other hand, there is misunderstanding between China and foreign countries. This misunderstanding, which contributed to the increased costs for Chinese enterprises to go abroad, is due to the fact that there are only a few channels for China’s voices to reach and be accepted by the mainstream business community in the West. Our country and our enterprises are weak in external publicity and a lot still needs to be done.

Many people have criticized China’s lack of creativity, pointing out that the market is full of products and technologies from ‘cottage’ industries. What is your take on the future development of such culture and what changes are we going to see?

Without protection of intellectual properties, there will not be any innovation. I am not optimistic about the cottage culture, which has destroyed the innovative culture and significantly harmed the country’s creative spirit and economy. As the country grows, people are starting to develop a stronger awareness of intellectual property rights and the law is becoming more comprehensive as well. The advancement of technology is also transforming the business model to a certain extent, so we are seeing gradual improvements in the innovative environment.

Recently there has been a lot of talk within society about the amazing box-office results achieved by the latest blockbuster movie ‘Lost in Thailand’. In your opinion, what is the effect of this blockbuster on the overall media, movie and cultural industries in China? Does it signal the beginning of an era in which China will be relying more on the power of its ‘soft’ industries?

The development of the cultural industries is the next natural step after the general demands for food, clothing, housing and transportation have been fulfilled. Film is an important part of the cultural industries. ‘Lost in Thailand’ is a success story, which shows that our film industry is proving its worth in the economy by satisfying people’s non-physical needs. From the standpoint of the film industry’s development, we see that both the audience and the industry are evolving to the next level. Accordingly, the way we do things – directing the actors, using original techniques and modeling our thinking – also needs to progress to the next generation.

In your opinion, which industries have the best chance to lead the development of China’s economy in the next decade? Why?

The cultural industries and the software industry. Currently the media and cultural industries in China have just emerged, so there are not a whole lot of original creations. But the advantage is that these industries have a huge room for growth. The software industry will become extremely big in the future and the business model will also change dramatically. The development of technology will bring incremental innovations to China. The emergence of the Internet industry and e-commerce will bring us considerable incremental innovations because of the sheer scale of these industries.