The growth of Chinese outward foreign direct investment has garnered worldwide attention. Many businesspeople, officials, and scholars are aware that a substantial proportion of this investment has gone into the energy and resources sector. Quite a few, however, do not realize that Chinese companies have invested significantly in non-resource sectors such as automobiles and auto parts, aviation, banking, biotechnology, entertainment, and even tourism.
Fewer still know that China has invested substantial amounts of money in North America, particularly the United States, which, according to Dealogic Holdings, absorbed around 15 percent of Chinese OFDI in 2012. Past marquee, multi-billion dollar Chinese investments in the US include Dalian Wanda Group's acquisition of AMC Entertainment Holdings, Sinopec's stake in Devon Energy, and Lenovo's acquisition of IBM's PC division.
The rationales for such investments have been diverse. Chinese firms have sought to gain technology, to enhance their managerial skills, to enhance the production and flow of minerals, oil, timber and foodstuffs, to bolster their product lines, and to escape sharp competition at home. More recently, they have sought to bolster their brand - their reputation for quality products or services - and thus capture a greater percentage of the value associated with the final goods that they produce. Investing abroad has facilitated this quest by putting them directly in front of the consumer.
Over the longer term, this aids them in building a distinct image, which, in turn, gives them a brand that allows them to enhance their profit margins. As the cases of Aland, a Jiangsu-based nutritional supplement company, and Ningbo Smal Electrics show, OFDI in the US has given Chinese firms a chance to learn quality control techniques and to draw upon local talent that together ultimately result in them delivering better quality goods and services.
Building a brand in the US, however, is about more than the intrinsic properties of a product or service, heavy spending on advertising during major sporting events, or hiring famous celebrity spokesmen like Yao Ming. Chinese companies operating in the US must think how they can contribute to the local community, adequately respect local laws and regulations, and bolster American growth and employment. In addition, Chinese firms managing subsidiaries or other operations in the US must undertake crisis planning. A major environmental crisis like BP's disaster in the Gulf of Mexico in 2010 or an insensitively handled shooting incident at a Chinese factory in the US (sadly a real risk in the US), could set back the brand of an individual Chinese firm or Chinese firms years if mechanisms are not in place to quickly resolve crises or to resolve the problems that flow from them.
There are many ways the Chinese government can facilitate the effort of Chinese firms to invest in the US to build brands. Obvious ones include loans and grants, the provision of general data on business environments in the US, and support for American investment facilitation initiatives such as the Bay Area Council in Shanghai. Also useful would be the organization of local training sessions by Chinese officials in the US embassy and consulates in cities such as New York, or their coordination of workshops among Chinese companies that would allow executives to share "best practices" and "war stories" and to become more informed about national, regional and local corporate social responsibility expectations.
Importantly, at home, the Chinese government should encourage and support the establishment of credible, independent certification organizations as well as supervise the authenticity of customer satisfaction ratings on leading consumer websites such as Taobao and Yihaodian. This has the advantage of pressuring Chinese firms to improve the quality of their products and services as well as demonstrating to them the value of working with certification organizations and rating websites in the US, which can help them to establish a brand in less time than it might otherwise take time to build. Not surprisingly, brand building often starts at home. In the age of the Internet and social media, it is easy for Americans to become aware of Chinese companies that have not respected their workers or the environment. Thus, the Chinese government can aid the cause of Chinese brand building by helping to upgrade the practices of Chinese firms within China.
It took Japanese and South Korean firms decades and tens of millions of dollars to build strong brand reputations in the US. Mere acquisitions or Greenfield investments, though, were not enough. Moreover, the case of Sony attests that having a high-quality product is no guarantee of a strong brand or high profit margins. Those who have stayed in the brand game have made sustained and extensive efforts to bolster product and service quality, to stay relevant to customers, to undertake earnest efforts to deal with product or service quality problems, and have given, in some cases, serious attention to being good corporate citizens. Building a brand is not just about the brand.
The author is assistant dean for International Cooperation and Exchange and executive director of the Center for the Study of Multinational Corporations, Shanghai Jiao Tong University.