Chinese Firms Eye Greener Pasture in Western Europe

August 10, 2012 /

Ernst & Young’s latest report found unique characteristics of Chinese companies that are regionally and globally focused.

As a result of this analysis, practical strategies have been developed to help businesses focus on the right rationales for investment, modes of entry and capabilities, as well as forecasts to improve decision-making and planning for future global expansion.

32% of Chinese companies see the best opportunities in Western Europe, compared to 29% for the total respondents in Asia. 22% say the same of the US or Canada, compared with 16% for the total. In particular, Western Europe presents the best growth opportunities for Chinese companies investing overseas largely due to its relatively open environment and the undervalued assets, as the result of the Eurozone uncertainties in developed markets, according to the survey.

Chinese executives are looking to developed markets for access to technology and innovation.

“This fits with a widespread desire for firms in China and across the region to move up the value chain. Executives see product and service quality as their leading overall competitive advantage for international expansion. ”says Loletta Chow, Ernst & Young China Overseas Investment Network Global Leader.

By contrast, they are looking to rapid-growth markets for new customers.

Executives from China’s global firms are concerned about their need for more international perspective and understanding. There is a much stronger belief among global Chinese executives that it is critical to make the board more reflective of international markets.

Talent management is another top priority issue for Chinese global companies. They find it particularly challenging to recruit and retain key global talent, and to motivate employees from different cultures.

While those from Chinese regional companies worry about their ability to cope with local regulation. In particular, they identify International taxation and compliance as the key areas for improvement.

Eleanor Wu, Ernst & Young Transactions Advisory –China Overseas Investment Network leader says, “Venturing into international markets brings both significant opportunities and significant challenges. As our survey of China outbound investment shows, the business implications of growth – and the strategies to manage them – are quite different for global and regional players and need to be explored carefully.”

Although the current economic doldrums in developed markets have not led to the wave of protectionism that some analysts had feared, Chinese companies are right to keep an eye on this risk. Therefore, the report suggests that Chinese companies, especially global ones, enhance their international outlook and understanding of local markets.

Companies will also need to rethink their organizational design and operating models, and strategy for moving from investment to profitability. Chinese regional companies, on the other hand, will need to develop the capacity to meet tax and compliance requirements abroad.

 

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