Direct investment a better way to go global

• Source: Global Times
• [22:36 July 02 2009]
• Comments

Illustration: Liu Rui

By Chen Xuegen

For some Chinese people, the ongoing financial crisis is a time of opportunities rather than crisis. Recently there have been several reports of Chinese enterprises going abroad for bargain hunting.

However, according to a recent report by the Chinanews website, in 2008 the total amount of foreign purchases rose to $20.5 billion, from $200 million in 2002, and the total loss incurred by these enterprises was about 200 billion yuan ($29.4 billion). Fifty percent of China’s total foreign investment in 2008 was spent on foreign purchases. Such purchases have so far demonstrated little success, so why do Chinese enterprises choose this way to go global?

The rapid development of Chinese enterprises calls for going global. Before the financial crisis, most of the foreign enterprises were running well, leaving Chinese enterprises few opportunities for mergers and acquisitions.

However, after the sudden onset of the financial crisis, there was bound to be a reconfiguration of resources. Newly emerging enterprises would take the place of the ones in trouble, giving Chinese enterprises an opportunity to bargain hunt and go global. As these enterprises kept expanding, foreign purchases offered them the best and most practical way to become global leaders in their respective industries.

Compared to other methods, foreign purchase allows enterprises to make full use of their current production facilities, their experience in administration and their marketing networks while allowing them to adopt an already mature brand image. It also makes it easy for such enterprises to enter new markets, which is the main reason why Chinese enterprises favor foreign purchase.