Global Learning Strategy for Chinese Multinational Companies (MNCs): Practice Makes Perfect by Dr. David Ming Liu of George Fox University at College of Economics and Management of Hainan University in PR China

1. Global Learning Strategy for
Chinese MNCs:
Practice Makes Perfect
Presented by
Dr. David Ming Liu, BBS, MBA, DBA
College of Business, George Fox University
At
College of Economics and Management,
Hainan University, Hainan, PR China
9.28.2016

2. Overview
I. Internationalization and L.E.A.D. Strategies for MNCs
II. Chinese Outward FDI
III. 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,Wanxiang
VI. Cross Border Merging and Acquisitions (CBMA)
Capabilities
VII. Summary
VIII.Q&A

3. I. Internationalization of MNC
and L.E.A.D. Strategy
• MNCs Internationalization - Dunning (1979) Eclectic O-
L-I Framework to explain entry modes

4. • 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/angelicajiggle
agacita/stra-ma

6. L.E.A.D. Strategy (Liu,2011)
Licensing and Franchising
Export and Import
Alliance – Joint Venture
Direct Foreign Investment:
including Merging and
Acquisitions (M&A) and
Greenfield Investment

7. 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

8. II. China’s Outward FDI

9. Growing Values in outward FDI (Li, 2013)
1990 to 1999 $2.32 billion per year
2000 to 2006 $6.56 billion per year
2007 to 2011 $53.2 billion per year
In 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

10. 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/

14. 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

15. 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

16. Global Strategy Matters!

17. III. What Factors Affect
Firm’s Global Strategy?
• Macro – PESTLEEG Factors
Framework ( Liu, 2011)
• Industry – Porter’s Five Forces
• Firm- Barney’s VRIO Resources

19. 3–19

20. The External Environment
• The General Environment – PESTLEEG Factors
o The set of broad dimensions and forces in an organization’s surroundings that create
its overall context.
o Political dimension
o Economic dimension
o Social Cultural dimension
o Technological dimension
o Legal dimension
o Ethical dimension
o Environmental dimension
o Geographical dimension
3–20

21. Industry Level Factors

22. Firm Level Factors

24. The Biggest Challenge in
Cross Broder M&A
Social Cultural Difference is
the biggest challenge for
Chinese MNCs going global

25. Hofstede’s Five National
Cultural Dimensions

26. IV: Global Learning
Theory (Liu, 2010, 2014)

27. 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.

28. My Research Findings
(Liu, 2010)
Two Mega Case Studies on Lenovo and Acer
from 2001 to 2008:
COMPANY REVENUE NET INCOME
Lenovo $14.9 Billion $-226 Million
Acer $16.6 Billion $428 Million
(from 2005 to 2008 after Thinkpad and Gateway M&A)
LENOVO $58.5 Billion $441 Million
ACER $51.2 Billion $1,211 Million

29. 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.

32. 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

33. V. Three Examples to Verify My
Global Learning Theory

34. 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 million
2. In 2002, Bought Spanish Repsol –YPE at $580 million
3. In 2005, Failed in buying Apex Indo for $10 million
4. In 2005, Failed in acquiring Unocal for $18.5 billion
5. In 2006, Failed in acquiring STU of TNK-BP in Russia
6. In 2008, Obtained Norway Awilco Offshore Drilling for $3.66
billion
7. In 2013, Acquired Candian Nexen successfully for $15.1
billion, made the largest overseas CBMA in Chinese MNCs
history.

35. 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 market
2. 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.

36. 5. In 2004, big order from Telfort for Euro 200 million and it supplied
all GSM equipment for Athens Olympics
6. In 2005, big order from Vodafone
7. 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.

37. 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 $20K
3. In 1997, getting the first order from GM
4. In 1999, conducting its first M&A of LSB for $420K
5. In 2000, becoming Ford official supplier
6. In 2001, acquiring LT for production facility
7. 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% share
9. In 2005, it acquired 60% of Powers and Sons LLC

38. 10. In 2006, bought majority share of Neapco LLC
11. In 2007, acquired 30% of AI with $25 million
12, In 2008, bought Automotive Components Holdings and
became tier one supplier to Ford
13, In 2009, it bought DriveSol Worldwide
14, In 2009, it invested in Vista Pro Automotives
15, in 2009, it bought A123 Systems for $260 million
16, 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)

39. Wanxiang CEO Lu On its Success (Li, 2013)

40. 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

41. 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)

42. 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

43. 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

45. 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

46. VII: Q&A