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Globalization Strategies of Chinese Companies (Management Project)

SUMMARY

Globalization has been an established term academically for two decades; research within this field has expanded from globalization of markets to globalization of culture, trade, finance, of almost anything, in accordance with the increasing pace of globalization in today’s ever-more interconnected world. Previous global strategy research has focused on companies based in developed economies, due to their dominant positions internationally.

Current studies of transnational companies based in developing countries are few in numbers and not strategyrelated in nature. This paper aims to fill this particular academic void by focusing on the global corporate strategies of the two largest telecommunications equipment companies based in China – Huawei and ZTE.

The high level of globalization of the underlying market is an essential precursor for the existence of transnational companies implementing truly global strategies. An assessment of the global telecom equipment market using Yip’s 19 globalization forces was conducted within the framework of this study. The result demonstrated a considerable amount of pressure for globalization in 14 of the forces, indicating the telecom equipment market and industry to be globalized to a large extent and degree.

The global characteristics of the entire industry have facilitated the international expansion of Huawei and ZTE. Both have been pioneers among Chinese enterprises in terms of internationalization of sales and operations. As a matter of fact, these two Chinese companies’ international presence does no longer represent mere internationalization; it is rather part of a coherent global strategy in order to achieve global corporate competitiveness.

METHODOLOGY

Figure 3: Flow chart of the research process and structure

Figure 3: Flow chart of the research process and structure.

Based on the empirical results and conclusions derived in the thesis, a case study is conducted on the current operations and strategies of Invest in Sweden Agency (ISA), commenting on its effectiveness and readiness to cope with the demands and realities of globally expanding Chinese companies. The case study is meant to serve as an example of the practical relevance and applicability of knowledge and insight in Chinese companies’ global strategies and ambitions. A flow chart of the research process and structure is provided in Figure 3.

THEORY

Figure 4: Research directions in internationalization process of global R&D operation (von Zedtwitz, 2005a, p 3).

Figure 4: Research directions in internationalization process of global R&D operation (von Zedtwitz, 2005a, p 3).

In a research paper, von Zedtwitz (2005a) examined the internationalization process of R&D operations from developing countries, focusing specifically on China. The author identified four types of R&D internationalization research (Figure 4), where the area of this particular study is the most novel and least explored. Until recently, most of previous research conducted in the internationalization process has focused on developed and advanced countries (Type 1).

Due to the rapid pace of technological advancement and globalization trends, research about internationalization of R&D activities from developed countries to developing countries has also emerged and matured (Type 2). There is though a lack of research on internationalization of companies from developing countries, towards either developed countries or other developing countries (Type 3 and 4).

Figure 5: The International Management Strategy Matrix (Rugman & Hodgetts, 2001, p 335).

Figure 5: The International Management Strategy Matrix (Rugman & Hodgetts, 2001, p 335).

One of the major strategic tools used by multinational enterprises in their international efforts is an integration/responsiveness framework that helps the corporate decision-makers address the benefits of economic integration with those of national responsiveness (Bartlett & Ghoshal, 1998). Rugman and Hodgetts (2001) have adapted this tool to create the International Management Strategy Matrix (Figure 5). The matrix provides an easy-tounderstand platform that can be used to illustrate the overall corporate strategy of a company with global aspirations.

EMPIRICAL RESEARCH

Figure 6: Global telecom market revenue 1991-2003, as divided in Equipment and Services. The figure for 2002 is estimated, 2003’s figure was a forecast at the time.

Figure 6: Global telecom market revenue 1991-2003, as divided in Equipment and Services. The figure for 2002 is estimated, 2003’s figure was a forecast at the time.

The global telecommunications equipment market is a multi-billion dollar industry, which has enjoyed a steady growth fore more than 15 years (Figure 6). The increase has been accompanied by an equally consistent expansion in the telecommunications services sector. This market growth is mainly driven by “newly unleashed demand, technological advances, declining prices and privatization/liberalization movements” (U.S. Commerce Department, 1997).

Figure 7: Largest mobile operators in the world, ranked by number of subscribers

Figure 7: Largest mobile operators in the world, ranked by number of subscribers.

The customers of the large international telecom equipment vendors are the major telecom operators and service providers around the world (Figure 7). This fact is pointed out in several of the major telecom equipment vendors’ annual reports; “we derive most of our business from large, multi-year network build-out agreements with a limited number of significant customers” (Ericsson Annual Report 2004, 2005a, p 109); Nortel states that “the top 20 global wireless service providers collectively account for a majority of all wireless subscribers around the world” (Nortel Annual Report 2004, p 8).

Figure 17: ZTE’s key corporate financial data, compiled from data in ZTE’s annual report (2005a, p 14)

Figure 17: ZTE’s key corporate financial data, compiled from data in ZTE’s annual report (2005a, p 14).

Financially, ZTE has grown steadily in terms of sales and revenue in the recent years (Figure 17). The compound annual growth rate (CAGR) for the company’s net profit is slightly over 27% during the period from 2002 to 2004, and the annual growth rate for total revenue is at 21% (ibid, p 14).

Figure 19: Location of ZTE’s R&D centers worldwide (Ji, 2005, p 9)

Figure 19: Location of ZTE’s R&D centers worldwide (Ji, 2005, p 9).

ZTE has established 12 R&D centers (Figure 19); 7 of them are located in China and 5 overseas (3 in the United States, 1 in Sweden and 1 in South Korea). Each research center concentrates on specific areas and fields of interest, depending on the local talent and resources. The Swedish operation is dedicated to research in third generation (3G) mobile core technologies, whereas R&D centers in the United States mainly facilitate information collection and exchange (ZTE Corporation, 2005b).

ANALYSIS

Figure 21: International Management Strategy Matrix, including the positions of some of the studied multinational companies. (Rugman & Hodgetts, 2001, p 337).

Figure 21: International Management Strategy Matrix, including the positions of some of the studied multinational companies. (Rugman & Hodgetts, 2001, p 337).

Rugman and Hodgetts (2001) have conducted a study on the global strategies of some large multinational enterprises, using the International Management Strategy Matrix which incorporates ideas from the second type of global strategies (Figure 21). Several of the major telecom equipment providers (Nokia, Ericsson, and Nortel) were included in the study and the authors concluded that Nokia and Ericsson, as well as Nortel to some extent, are implementing truly global corporate strategies.

Figure 22: Proposed framework of Huawei’s and ZTE’s globalization strategies.

Figure 22: Proposed framework of Huawei’s and ZTE’s globalization strategies.

The Chinese companies’ international R&D operations are in themselves divided into research centers situated in mainland China and those established in developed countries; (1) the R&D facilities in China take advantage of the vast pool of relatively low-cost graduates and engineers in the country, and (2) the R&D facilities in developed countries act partly as listening and communication posts, partly as access nodes to the experience and know-how of locally available engineers. All these pieces form together the complex puzzle of the Total global strategy employed by both Chinese telecom equipment vendors (Figure 22).

CONCLUSIONS

This thesis aims to be one of the first exploratory studies that examine, from a purely corporate strategic point of view, the global strategies of emerging transnational companies based in a developing country. Specifically, the purpose of this study is to explore the globalization process of Chinese enterprises and the corporate global strategies these companies pursue, in order to uncover distinct qualities and insights that bear implications for partners, competitors and policy-makers in developed economies. The study has focused on the worldwide telecom equipment market and the two largest Chinese companies within that sector – Huawei and ZTE.

The existence of global corporate strategies is enabled and facilitated by truly globalized underlying markets. A comprehensive investigation of the worldwide telecom equipment market using Yip’s 19 globalization drivers demonstrated that the studied market and industry is indeed dominated by forces for globalization. In fact, it can be stipulated that the global characteristics of the telecom equipment market have strongly pushed the Chinese companies toward internationalization and globalization.

By interviewing high-ranking executives of Huawei and ZTE, as well as industry experts and professors, an overview of both companies’ global corporate strategies was pieced together. With the support of a wealth of secondary sources and industry data, Huawei and ZTE’s corporate vision, mission, globalization process and various components of their global strategies were identified and thoroughly analyzed.

Four noticeably unique qualities were uncovered after scrutinizing the globalization processes of the two companies; (1) Chinacentric: Both Huawei and ZTE rely on the large Chinese telecom equipment market and the employee structure of their international affiliates are still dominated by Chinese nationals, (2) R&D focus: Both companies invest a considerable amount of capital (more than 10% of annual revenue) and human resources (30-45% of all employees work within R&D) into research and development of new products and technologies, since the telecom equipment business is highly technology intensive.
Source: Stockholm University
Authors: Kevin W.B. Jiang

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