Top 2 Challenges Faced by Chinese Companies in Expanding Globally

China has emerged as an economic superpower in the recent past. Having focused on a large domestic population in their initial years, Chinese enterprises are now looking at overseas expansions to fuel their next wave of growth and establish themselves in the global economy. These expansions have been directed both towards the developed and the developing world, based on the requirements of the enterprises.

Overseas expansion, especially westward, brings with it significant challenges. The following are 2 of the most significant and difficult challenges which, according to me, Chinese enterprises will have to face on a macro level in their effort of expanding overseas.

Leadership Development – Hiring and developing manpower for managing the overseas operations of Chinese enterprises is one of the biggest problems these enterprises face. According to a McKinsey survey conducted during the 2008 Boao Forum, nearly 88% of the Chinese firms believed that shortage of right talent is the leading cause of failures in their overseas investments. Enterprises have 2 options here -producing domestic talent and placing them overseas or hiring international talent with multinational experience.

In the first case, enterprises need to work closely with leading Universities to generate talent which is a good fit for and capable of managing international operations of the business. The working of the firm in China and overseas would be very different due to political, legal, cultural and regulatory issues. This has to be clearly taught to Chinese students who are being trained.

In the second case, Chinese enterprises will need to contend with their image (which is discussed below) and uncertainties in the minds of potential recruits. These uncertainties revolve around issues like salary levels, human resource policies, employee morale levels, working environment and so on.

International Image & Acceptance – This is a problem which companies from developing countries have to face when trying to enter a country more developed than it. Since the working environment and processes in the developing world differ significantly from the conditions in the developed countries, this gap tends to create an uncertainty and image about the professionalism of companies coming from developing countries, which affects their acceptance in the developed world. Other than business factors, political factors also play a role. The image of the Chinese Government in the world tends to get associated with Chinese enterprises as well. This again affects the way these enterprises are perceived. Also there is a factor of anxiety and arrogance which plays a role. Companies and Governments of the developed world tend to dissuade enterprises from developing countries to enter their countries in order to protect their interests. Also they develop the fear and arrogance which is associated with an underdog growing to beat a favorite.