Closer understanding of external markets crucial for success of cross-border deals

Globalization has been the motivating factor for the overseas moves of Chinese enterprises. The financial crisis that has weakened businesses in the US and Europe has also improved the prospects of Chinese companies.

Taking a closer look at the number of overseas investments and projects, it is fair to assume that State-owned enterprises account for the lion's share of the deals so far. Most of these activities have been resource-driven and in Asia, Australia, Latin America and Africa. These activities, however, faced considerable opposition in other markets such as Europe and the US.

Most State-owned enterprises are monopolies or leaders of a domestic industry, and often protected by favorable government policies such as priority financing in the public market. Why is this "national team" favored in the home country now being boycotted in the West?

I have read a lot of emotional articles on this issue in Chinese newspapers. Some people believe that some foreigners are intentionally demonizing Chinese national enterprises.

Though it happens often that people in any country may politicize issues for economic purposes, I think emotional responses will only widen the gap and not be of any help to the Chinese enterprises.

In fact, a huge hiatus exists between Chinese and Western cultural and political grounds, so much so that enterprises that grew up in them often carry their respective cultural genes. Chinese State-owned enterprises display lots of characteristics that are often in conflict with those in the Western world, such as government-ownership, lack of transparency and special political relationship with the government.

In Western societies that value market and private ownership, state-owned enterprises are very few and face lots of restrictions. As a result, the opposition that Chinese State-owned enterprises meet becomes justifiable when they try to break into Western markets. The State-owned enterprises, as a major player in China's going-out process, therefore now see its hands tied in the European and US markets.

Relatively speaking, China's private companies have more similarities with companies from the US and Europe. So I think China's private companies are more suited to dealing with overseas expansion. Though Chinese private companies' overseas activities are smaller in scale when compared with their State-owned counterparts, they have a more creative and diversified approach toward mergers and acquisitions, international financing, contracting projects, brand sharing, and setting up overseas factories.

At the same time, private companies also face challenges while operating in other countries, but not fundamental divergences such as ideology and property rights structure. They face challenges such as cultural learning curve, laws of other countries, how to adopt internationally acceptable corporate governance, how to hire more talent with cross-cultural backgrounds, and in general, how to get localized. However, most of these are technical problems that can be solved by learning and practice.

There is no doubt that private companies in China are working hard to bridge these gaps. Huawei, often misunderstood by many as a State-backed company, is winning market share abroad through its products and services. Ren Zhengfei, founder and chairman of Huawei, had recently said that the company is now looking at ways to better balance its relationships in the overseas markets. For this, Huawei will not only focus on customers in various countries, but also forge closer links with the host nations through various community outreach programs.

Another group of private enterprises in China are those that have been set up by entrepreneurs who have overseas education experience. With investor mixing, market positioning, management teams and the way they operate, these companies are global players from the very beginning.

Infinova, a Chinese company set up in 1993 by Liu Zhaohuai, and an integrated surveillance system manufacturer based in New Jersey, US, and Shenzhen, China, completed the acquisition of a Canada-listed company in August.

Liu holds a PhD in physics from the University of Utah. When Liu talked about the biggest challenges of international M&A, he simply said "integration". Entrepreneurs like Liu realized clearly that during their transition to the global stage, it was important to be more responsible for their employees and clients globally, and shoulder more social responsibilities both in China and other countries.

Many entrepreneurs from China and their employees are scripting success stories on the international stage every day. It is these stories that will form the unique path of Chinese companies' overseas exploration and expansion, and something that will lead them to integrate better with the rest of the world.

The author is a business professor at Soochow University in Jiangsu province. The views expressed here are not necessarily those of China Daily. Contact the writer at jielindong@gmail.com