Global Learning Strategy for Chinese

MNCs: Practice Makes Perfect

Presented byDr. David Ming Liu, BBS, MBA, DBA

College of Business, George Fox UniversityAt

College of Economics and Management, Hainan University, Hainan, PR China

9.28.2016

OverviewI. Internationalization and L.E.A.D. Strategies for MNCsII. Chinese Outward FDIIII. Complex and Dynamic Global Environment:

P.E.S.T.L.E.E.G. Factors, Industrial Factors, and Firm Behavior

IV. My Research on Lenovo and Acer & Organizational Learning Conceptual Lens

V. Three Examples: China Ocean Oil, Huawei,WanxiangVI. Cross Border Merging and Acquisitions (CBMA)

CapabilitiesVII. SummaryVIII.Q&A

I. Internationalization of MNC and L.E.A.D. Strategy

• MNCs Internationalization - Dunning (1979) Eclectic O-L-I Framework to explain entry modes

• Dunning’s O-L-I Eclectic Paradigm puts joint venture under FDI in consideration of transaction economics

• Others going into more details on entry modes as per

http://www.slideshare.net/angelicajiggleagacita/stra-ma

L.E.A.D. Strategy (Liu,2011)

Licensing and FranchisingExport and ImportAlliance – Joint VentureDirect Foreign Investment: including Merging and Acquisitions (M&A) and Greenfield Investment

New Global Trend: Reverse Cross Border

M&A (CBMA) from Emerging Economies • Traditionally global cross-border M&As are

from developed countries to developing economies.

• Now, as BRICS (Brazil, Russia, India, China, South Africa) countries gaining more economic power, these latecomers have been aggressively acquiring companies from the western developed countries.

• Examples: Tata – Jaguar car; Lenovo buying IBM Thinkpad

II. China’s Outward FDI

Growing Values in outward FDI (Li, 2013)1990 to 1999 $2.32 billion per year2000 to 2006 $6.56 billion per year2007 to 2011 $53.2 billion per yearIn 2011, only 0.9% Chinese GDP total, par with western countries in 1980s while world average is 2.5%. UK has 4.4%, France 3.2%, US 2%, Japan 2%, Germany 1.5%Also in 2011, China counts 3.8% of world’s FDI but with 29.8% foreign reserves, 19.3% population, 9.3% world export and 8.8% import

Chinese FDI Worldwide

By 2012, China invested in 141 countries with 4425 owned companies (Li, 2013)China has an FDI surplus from inward FDI according to http://chinaoutlook.com/is-china-buying-the-world/

Success vs Failure?• Chinalco: Rio Tinto• TCL: Thomson• Lenovo: Motorola• BENQ: Siemens mobile• ShanghaiAuto:Ssangyong• China National Offshore

oil: Unocal• Sany: Oregon Butter

Creek Wind Power• Li-Ning: $60 million loss

in Oregon, USA

• Alibaba: worldwide• Shineway: Smithfield• Acer: Gateway et al• Lenovo: Thinkpad?• Haier: GE Appliance• Wanda: AMC• Huawei: in developing

economies• China National

Offshore Oil: Nexen Canada

Unclear Results?• Geely with Volvo at $2.2 billion

• Alibaba with Groupon at 5.6% share

• Hainan Air with Ingram Micro at $6 billion

• Fosun with Ironshore at $5.76 billion

• Haier with GE Appliance at $5.58 billion

• Hanergy with Alta Devices, MiaSole. Global Solar Energy becoming #1 in the solar field

Global Strategy Matters!

III. What Factors Affect Firm’s Global

Strategy?• Macro – PESTLEEG Factors

Framework ( Liu, 2011)

• Industry – Porter’s Five Forces

• Firm- Barney’s VRIO Resources

3–19

The External Environment

• The General Environment – PESTLEEG Factorso The set of broad dimensions and forces in an organization’s surroundings

that create its overall context.o Political dimensiono Economic dimensiono Social Cultural dimensiono Technological dimensiono Legal dimensiono Ethical dimensiono Environmental dimensiono Geographical dimension

3–20

Industry Level Factors

Firm Level Factors

The Biggest Challenge in Cross Broder M&A

Social Cultural Difference is the biggest challenge for Chinese MNCs going global

Hofstede’s Five National Cultural

Dimensions

IV: Global Learning Theory (Liu, 2010,

2014)

Strategy Contrast• Acer using “snake

eating frog” strategy by acquiring smaller companies and obtaining international experience from previous failures and success in incremental M&A deals.

• Lenovo using “snake devouring elephant’ strategy, acquiring IBM PC Division which was three times bigger than them without prior global experience in M&A.

My Research Findings (Liu, 2010)

Two Mega Case Studies on Lenovo and Acer from 2001 to 2008: COMPANY REVENUE NET INCOMELenovo $14.9 Billion $-226 MillionAcer $16.6 Billion $428 Million

(from 2005 to 2008 after Thinkpad and Gateway M&A)LENOVO $58.5 Billion $441 MillionACER $51.2 Billion $1,211 Million

Some of My Findings• Organizational Learning is a form of

dynamic capability, which “emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external skills, resources, and functional competencies to match the requirements of a changing environment” (Teece et. Al, 1997:p.515).

• Global learning must be done globally in an incremental manner.

Key Learnings (Liu, 2010)

• The Importance of Ex Ante M&A Capabilities Readiness

• The Urgency to have the right Post Ante Integration M&A Capabilities

• Global Organizational Learning as the Central Theme for successful Cross Border M&A

• Practice Makes Perfect

• State-owned Enterprises (SOEs) and Private-owned Enterprises (POEs) Differ in Global M&A: Haste vs. Prudence; Political ambition vs. Shareholder values

V. Three Examples to Verify My

Global Learning Theory

China National Offshore Oil (CNOOC) Global Trajectory

Ranking #32 among world’s Top 50 Oil Companies(www.coonc.com.cn)1. In 1993, Acquired 32.6% of Indonesian ARCO at $16 million2. In 2002, Bought Spanish Repsol –YPE at $580 million3. In 2005, Failed in buying Apex Indo for $10 million4. In 2005, Failed in acquiring Unocal for $18.5 billion 5. In 2006, Failed in acquiring STU of TNK-BP in Russia6. In 2008, Obtained Norway Awilco Offshore Drilling for $3.66 billion7. In 2013, Acquired Candian Nexen successfully for $15.1 billion, made the largest overseas CBMA in Chinese MNCs history.

Huawei’ s Global Journey

Ranking as #1 telecommunications equipment manufacturing in the world overtaking Ericsson in 2012 with sales revenue around $60.839 billion in 2015 and profit $5.685 billion (www.wikipedia.com)

1. In 1996, it began to export to emerging market2. In 1999, got the first big order in Vietnam and Germany in

2001, reaching $100 million in 2000, and $550 million in 2002

3. In 2002, it set up FutureWei in Dallas, TX in US and acquired OptiMight Communications

4. In 2003, to set up a joint venture with 3Com with 51% controlling share; Big technology transfer but sued by Sysco over IPR. Settled in 2004. It learned from mistakes and began to pay attention to R&D.

5. In 2004, big order from Telfort for Euro 200 million and it supplied all GSM equipment for Athens Olympics6. In 2005, big order from Vodafone7. In 2006, it entered in Japan

BUT Huawei failed in US many times!8. In 2010, it failed in Sprint acquisition due to US government’s CFIUS concern for “national security”. Negative report on Huawei and ZTE by House Intelligence Committee and this had a negative impact for Huawei in Canada and Australia even. Australia rejected Huawei’s $36 billion investment.

Huawei must learn from its mistakes in lack of open communications with US government and business communities.

Jack Ma of Alibaba could be a good teacher for Ren Zhengfei.

Wanxiang’s Global Path

Ranking at #8 in China’s Top 30 in Auto Industry and considered as the “evergreen tree” among POEs. Founded in 1969. Sales revenues reached RMB 80 billion yuan. (www.wanxiang.com.cn)

1. In 1984, began to sell to US as the first Chinese company selling auto parts to overseas.

2. In 1994, setting Wanxiang USA with $20K3. In 1997, getting the first order from GM4. In 1999, conducting its first M&A of LSB for $420K5. In 2000, becoming Ford official supplier6. In 2001, acquiring LT for production facility7. In 2001, bought UAI (Universal Automotive Industries)

for $2.8 million, became the first Chinese company which bought a public listed company in US.

8. In 2003, it bought Rockford Inc’s 33.5% share9. In 2005, it acquired 60% of Powers and Sons LLC

10. In 2006, bought majority share of Neapco LLC11. In 2007, acquired 30% of AI with $25 million12, In 2008, bought Automotive Components Holdings and became tier one supplier to Ford13, In 2009, it bought DriveSol Worldwide14, In 2009, it invested in Vista Pro Automotives15, in 2009, it bought A123 Systems for $260 million16, in 2014, it won the auction bid for Fisker for $149.2 million

In summary, Wanxiang always has an incremental growth strategy by learning from others. CEO Lu calling this “Three-Step Strategy” (Li, 2013)

Wanxiang CEO Lu On its Success (Li, 2013)

WanXiang Way :The Evergreen Way

• From small to large;• From easy to difficult• Take Step by Step• Gain Experience each day• Train people all the way

VI. Global Organizational Learning as KEY to success in

CBMA• Organizational learning is the way in

which an organization creates and organizes knowledge relating to their functions and culture. Organizational learning happens in all of the organization's activities, and it happens in different speeds. The goal of organizational learning is to successfully adapt to changing environments, to adjust under uncertain conditions, and to increase efficiency (Dodgson, 1993)

CBMA Dynamic Capabilities Elements• A: Organizational Learning: learn by doing;

knowledge development; knowledge transfer; absorptive capacity

• B. M&A Capabilities: prior experience; target size; top management quality; firm ownership; country of origin

• C. Managerial Dynamic Capabilities: strategic agility; relational capabilities; innovative capabilities

VII. Summary: Three Stages in Chinese Globalization Process using

Wang Guohui’s On Study

• ‘昨夜西风凋碧树，独上高楼，望尽天涯路’Stage One: Global Vision

• 衣带渐宽终不悔，为伊消得人憔悴’Stage Two: Work Hard

• ‘众里寻他千百度，回头蓦见，那人正在灯火阑珊处’• Stage Three: Learning and

Re-Evaluating ; Achieving the Goal

References• Barney, J. (1991), “Firm resources and sustained competitive

advantage”, Journal of Management, Vol. 17, No.1, pp.99-120• Dodgson, M., (1993) Organizational learning: a review of some

literatures. Organization Studies 14.3: 375-394.• Dunning, J.H. (1981), The Eclectic Theory of the MNC. London: Allen and

Unwin• Li, J.J. (2013), Cross-Border Mergers and Acquisitions by Chinese

Companies. Beijing: Ministry of Machinery Publishing• Li, P.P. (2010), “Toward a learning-based view of internationalization: the

accelerated trajectories of cross-border learning for latecomers”, Journal of International Management 16:43-59

• Liu, D. M.(2014), The Global M&A Lessons from the Chinese IT Giants Lenovo and Acer: Global Learning Strategy for Emerging Market Multinational Corporations. Berlin, Germany: Scholars’ Press

• Teece,D.J., Pisano, G., Shuen, A. (1997), “Dynamic Capabilities and Strategic Management”, Strategic Management Journal, Vol.18, No.7, pp.509-33

VII: Q&A