Chinese companies embark on an international journey

Chinese enterprises have entered a breakthrough period of expanding their business overseas, yet companies should pay more attention to organizational strategy, management capability, human resources risk prevention and HR-related compliance adaption to better achieve success overseas, said a recent report.

The report, sponsored by global human capital management firm ADP, said that thanks to supportive policies, capital strengths, rising market demand and increasing enterprise competitiveness, Chinese enterprises are accelerating their pace of going global.

China's investments overseas have been growing steadily amid the backdrop of the pandemic. Data from the National Development and Reform Commission showed that in 2021, China's outbound direct investment, or ODI, surged 9.2 percent year-on-year to $145.2 billion, higher than the level before the pandemic. In 2019, China's ODI totaled $136.9 billion.

Last year's report from the Academy of China Council for the Promotion of International Trade showed that between 2017 and 2021 China has ranked third in ODI for five consecutive years.

"Despite the impacts brought by the pandemic and the intricate and complex international situation, Chinese enterprises' enthusiasm for expanding business overseas has been rising. In addition, they have demonstrated strong resilience in facing these mounting challenges. The globalization of Chinese enterprises has entered a 'great navigation' era," said Jessica Zhang, senior vice-president of ADP Asia-Pacific.

Speaking of the reason behind the success, Zhang noted that in recent years, China has carried out a series of policies, such as the Belt and Road Initiative, the "dual circulation" vision, and the "go global" policy, which have facilitated companies' globalization process and created a healthy, sustainable international trade environment.

In addition, she noted that Chinese enterprises have been actively investing overseas and the country's ODI structure has been constantly optimizing, covering 18 main categories of the national economy, including agriculture, forestry, energy, manufacturing and services.

"Globalization has become a main breakthrough point of enterprises increasing their global market share, accelerating upgrade and transformation, and consolidating the 'external circulation'. Meanwhile, after years of development, Chinese enterprises have formed a relatively complete globalization system. Their quality, techniques, capital, business models, brand images and operations are maturing," Zhang said.

In terms of the key driving force of going global, according to the 2022 survey sponsored by ADP, over 80 percent of enterprises said that their key driving force was to explore markets, expand business and seek high-speed growth.

Another 73 percent of the interviewed companies said that linking the world, diversifying their operations and upgrading transformation are the core driving forces. More than half of the interviewed companies going overseas do so to absorb overseas resources and experience, and acquire leading technologies and top talent, which support their cutting-edge innovations.

For example, OneConnect Financial Technology Co Ltd, a Shenzhen, Guangdong province-based fintech company, offers technology as a service for financial institutions across 20 countries and regions worldwide, mainly in the Asia-Pacific region. Speaking of the reason why OneConnect goes global, the spokesperson of the company said that the company expects to bring Chinese wisdom to empower the digital transformation of overseas financial institutions, quickly bridge the local financial services gap and raise the penetration rate of inclusive finance.

"Using technologies such as artificial intelligence, blockchain and big data analytics, we bring one-stop digital banking solutions to help overseas financial institutions increase efficiency and risk management capability, and lower costs. Working with local enterprises, we are also building financial ecosystems overseas," said the spokesperson.

For Shanghai-based B2B cross-border financial services provider XTransfer, its key driving force for going global is to offer better financial services to micro, small and medium-sized foreign trade enterprises.

So far, the company has established a global B2B cross-border payment network serving more than 300,000 domestic MSMEs.

When asked about the challenges that Chinese companies have encountered during the globalization process, Zhang from ADP said that enterprises face challenges in talent recruitment, culture shock, compliance supervision, localized operations and global management, and salary and welfare.

"As Chinese enterprises accelerate their globalization process, one of their key focuses is how to attract, acquire and manage the distributed international workforce," Zhang said.

OneConnect said that a major challenge for the company during its globalization process is to establish a strong overseas talent pool.

The key is to build a local talent team, as they own local commercial resources, are more familiar with the local market and are able to offer customers the most suitable products, said the spokesperson of OneConnect.

Zhang also noted that compliance supervision has also become a core challenge for Chinese companies expanding business overseas.

"Sufficient understanding of local laws and regulations helps enterprises better operate their businesses overseas," Zhang said.

Bill Deng, founder and CEO of XTransfer, said that the key is to comply with the different compliance requirements of overseas countries and regions.

"Each country and region has different compliance requirements and they have varied protection degrees on data privacy. Based on local requirements, overseas business should be equipped with an appropriate risk management system," he said.

"It is worth mentioning that although there are differences in compliance requirements in each country and region, the current anti-money laundering risk management and supervision frameworks around the world have a high degree of commonality. With our experience and expertise in B2B cross-border trade, we are able to establish a one-stop anti-money laundering strategy and system that conforms to the requirements of different countries and regions," Deng added.

Zhang said: "From our experience of serving more than 1 million clients in 140 markets, we found that companies achieve operational transformation when they expand from a single market to multiple markets. Before succeeding in multiple markets, however, companies need to make many changes, in terms of organizational strategy, management capability, HR risk prevention and HR-related compliance adoption."

"These are the aspects Chinese companies should pay attention to," she added.

John Williams, China managing director at International SOS, one of the world's leading names in health and security risk management, said: "During their globalization process, Chinese enterprises should keep in mind the laws and regulations of different countries and regions. They may also turn to experts for advice."

He added, "In terms of geopolitical issues, it is suggested that Chinese enterprises establish a strong, sustainable risk management and corresponding mechanism to cope with crises in different countries and regions."

Zhang Yingyan, senior manager of travel risk at International SOS, added that Chinese enterprises going global should establish an information collection network so that employers and employees overseas can get access to information related to safety, health and company decisions in a timely manner.