Top Biz News

60 national firms have global potential

By Dai Yan (China Daily)
Updated: 2006-04-05 07:03

Sixty Chinese companies are set to become global players over the next decade, according to a paper released yesterday by the IBM Institute for Business Value.

The 60 companies, 47 State owned and the rest privately owned, were selected by IBM after passing three tests relating to their global potential.

Among the firms, there are relatively well-known players such as telecom equipment maker Huawei, and oil firms CNPC and CNOOC.

There were also less well-known companies, such as Galanz, the Wanxiang Group, the Midea Group, Chery, Lifan and Ningbo Bird.

"We used three filters, company size, industry characteristics and company characteristics, to select Chinese companies.

"These were primarily in manufacturing and natural resources industries, and all had strong globalization potential," said Alan Beebe, research director at the IBM Institute for Business Value in China.

Most Chinese companies remain small by global standards. Among China's top 500 enterprises, only 290 companies met the initial filter of annual revenue over US$1 billion.

The second filter identified Chinese industries with strong globalization potential based on criteria such as industry size as a percentage of GDP, degree of industry concentration, export intensity and government support.

For instance, the result included the home appliances industry, where Chinese companies are the largest global manufacturers in 28 out of 32 product categories.

Air conditioners and refrigerators made in China accounted for 67 per cent and 34 per cent respectively of global production in 2005.

A total of 12 industries met the second filter criteria, including consumer electronics, computer products and components, telecommunications equipment, cars, steel, logistics and petrochemicals.

This narrowed the list to 124 companies, including 105 State-owned enterprises and 19 privately-owned firms.

The final filter identified companies that met additional criteria, such as a leading market position in China, over 15 per cent of revenue from either exports or foreign operations, and a strong global vision.

Chinese companies will undoubtedly accelerate their global activities in line with China's ascent as a major economic power.

IT firm Lenovo's recent purchase of IBM's personal computer division, SAIC's 50.6 per cent acquisition of South Korea's Ssangyong, CNPC's US$4.2 billion acquisition of PetroKazakhstan and Haier's unsuccessful bid for Maytag in 2005 highlighted Chinese companies' global expansion plans.

"It is primarily among these 60 companies that China's global leaders are likely to emerge, but in our view only those with a clear management vision, strategy and strong execution capabilities are likely to succeed," said Beebe.

Overcoming a lack of qualified workers and building global brands were overwhelmingly identified as the top key challenges.

Companies can recruit overseas Chinese or foreigners, but it is often difficult to integrate these experienced managers into the culture and daily operations of the parent company.

"We are still students trying to learn global management," said Tong Haibin from Shanghai Machine Tool Group.

"Our overseas workforce is sometimes qualified to be our teachers in this area. But it is very difficult for 'students' to manage 'teachers' as we go global."

The paper also said many Chinese companies consider brand ownership critical to their success overseas, but they may not fully appreciate the sustained investment required for brand building and management.

(China Daily 04/05/2006 page9)