"Four Questions" For Chinese Enterprises To Build Factories Overseas

Since 2002, China's foreign direct investment has been growing rapidly for eight consecutive years. Green Field Investment, also plated into new investment, is an important form of overseas direct investment of Chinese enterprises.

Faced with a very different and complicated market in China, it is an urgent problem for Chinese enterprises wishing to expand overseas through greenbelt investment.

Over the past 30 years, Chinese enterprises have gone abroad to enter the international market, mainly through trade.

However, in recent years, direct exports have been restricted by more and more anti-dumping and technical barriers, green barriers and other tariff and non-tariff barriers.

Under such an international market environment, Chinese enterprises are going to organize production in the local market on the basis of their own advantages in production and manufacturing, and the establishment of overseas production bases, sales channels and brands through greenbelt investment and mergers and acquisitions has become an inevitable choice.

Green investment has always played a very important role, because it is conducive to Chinese enterprises to choose the scale of production and investment location in line with the global strategic objectives, to a large extent, to grasp risks and grasp the initiative in all aspects of project construction.

For example, in profit distribution and marketing strategy, internal adjustments can be made according to their needs.

However, there are two ways to invest in green land, including sole proprietorship and joint venture, which require a lot of preparatory work.

Chinese enterprises lacking experience in overseas investment often face a series of problems, such as disputes over land rights, labor and environment disputes, and financing difficulties.

As a matter of fact, the following four questions are really clear: how can Chinese enterprises set up factories overseas?

First question: why enter the overseas market?

The function orientation or investment motivation of Chinese enterprises' overseas market entry is different. The way of investment in overseas market will also be very different. There are four motives in common overseas market entry.

The first is resource seeking, seeking overseas scarce resources, such as iron ore, oil and gas resources, coal mines and copper mines.

For example, Aluminium Corp invested overseas for $14 billion to acquire Rio Tinto's 9% stake.

Chinese enterprises that enter the overseas market for this purpose tend to maintain the stability of their raw material sources or make full use of the resources and processing advantages of raw material producing countries.

The second is efficiency seeking. With the rise of the global integrated production system, we can maximize the economic efficiency through the global optimal allocation of all aspects of the value chain, thereby enhancing our competitive advantage.

For example, Hisense Group acquired the plant of South Korea Daewoo Group in South Africa, purchased advanced production equipment, built a production line, and greatly enhanced production capacity.

The third is market seeking behavior, which aims to occupy and expand overseas markets. Entry into overseas markets can also avoid import and export control, technical standards, security policies and other tariff and non-tariff barriers, helping to better develop and occupy new international markets.

For example, TCL group bought the only German TV maker Schneider electric company, mainly to enter the European TV and household appliances market.

The fourth is strategic capital seeking.

Only when we have a clear understanding of the function orientation and investment motivation of overseas market entry, can we reasonably choose the investment way of overseas market entry.

For example, in the process of entering the overseas market, Haier first chose export sales, accumulated marketing experience, then entered the most stringent American market to invest and build factories and create brands, and finally pferred to the European market to benefit.

In addition, Haier has sold products to Iraq, Egypt and Libya through the establishment of joint venture factories in Jordan to avoid various tariffs and barriers.

Second question:

After clarified the functional orientation of overseas markets, enterprises need to determine whether there are real opportunities in overseas markets. This requires a comprehensive study and assessment of the macro investment environment, industrial policies, market status and future needs, risks and benefits.

The opportunity judgment and argumentation of the system is a key step for the success or failure of the investment decision of the overseas market.

Research on macro investment environment {page_break}

First, we should study the political environment of the host country and its own country, including the history of political relations between the two countries, whether there is any possibility of political friction between the two countries, whether there are differences between the leaders of the two countries on important international issues, the trade and economic exchanges between the host countries and the industries that are encouraged and restricted, and the views of host countries on China's investment.

For example, HUAWEI has been listed in the "blacklist" issued by the India government because of certain political factors, and its products are "recommended not to be used".

Second, we should study the macroeconomic and cultural environment of the host country, including the GDP, population, social culture and foreign direct investment growth trend of the host country. The stable growth of macroeconomic environment is one of the guarantee of investment income. Detailed macro cultural background research is the basis for the enterprise's established management system.

For example, in Islamic countries such as Pakistan and Bangladesh, factories must set aside time for their workers to worship.

Third, we must study the financial environment of the host country.

Fourth, it is necessary to study the logistics facilities and scale of the host country, which determines the pportation cycle and cost of the product, and the layout design of the network layout.

The key is to compare the freight volume and freight turnover volume of roads, railways, waterways, aviation and pipelines, and understand the overall development level of logistics facilities and the plan for future logistics facilities.

Fifth, we should study the main laws, policies and enforcement efforts, focusing on investment law, labor law, enterprise law and land law.

Industrial policy research

Industrial policy research is based on the macro investment environment, targeted to conduct an all-round analysis and research of the industry.

We should study the industry access policy, including the host country's restrictions on the industry certification standards, investment threshold and production qualification requirements.

We should study the industry market management policies, including the recall system of the host country, the quality inspection system, the scrapping system and the tax system.

Environmental protection conditions for factories should be studied, including atmospheric environment standards, water environmental standards, noise control standards, solid waste and chemical emissions standards, ecological and other environmental standards.

We should also study special regulations in the industry, including some hidden rules in the industry and regional policy bias.

Many countries allow Chinese enterprises to build factories in essence to cultivate their own industrial capacity and have more policy bias towards investment.

Market status and future needs

The study of market status and future demand determines the way in which enterprises participate in local competition.

First, we should study the development process of local market and understand what stages of development the product will go through after entering the market.

Second, we should study the market capacity, including product sales and growth trends in recent years, and the judgement of potential consumer needs, so as to confirm whether the market is saturated.

Third, we must study the degree of competition in the industry and understand the main competitors and potential competitors.

Fourth, we need to study users' demand for products, including market segmentation and user characteristics, evaluation of existing products and demand preferences.

Fifth, we need to estimate the future demand through industry expert prediction method and historical data fitting method, and analyze the characteristics of future demand.

Analysis model of future demand characteristics

Risk and return judgement

Risks include risks brought about by policy changes, shortage of skilled personnel and risks brought about by unstable regimes. Income should be concerned about direct gains, such as possible gains and cost savings, and attention should also be paid to indirect gains, including improving consumer confidence and accelerating market reaction speed.

Through risk and income analysis, we can comprehensively predict whether to enter an overseas market.

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Third question: what strategies should be adopted to enter the world?

Because Chinese enterprises with overseas investment and construction are generally overseas production and overseas sales, strategic design needs to focus on overseas market supply chain system construction and overseas market sales system construction.

The construction of an overseas market supply chain system mainly solves two problems: what raw materials or parts can be purchased locally? What are the local raw materials or parts producers? For example, the textile enterprises that invest in factories in Vietnam often encounter the problem of supply chain, and many raw materials need to be pported from China.

Textile enterprises in Vietnam sometimes encounter buyers asking for a zipper temporarily, so they need to buy Zippers from China and then pport them, so production in Vietnam has to stop first.

Analysis elements of overseas market supply chain system construction

Overseas marketing is different from product export. It needs enterprises to truly enter the overseas market and establish their own distribution mechanism, channels and brands.

If Chinese enterprises want to have international competitiveness, they should gradually establish a marketing channel network including common customers, overseas distributors and partners in the process of overseas marketing, and establish a reasonable and efficient sales chain system.

Only by selling overseas products quickly and smoothly can we truly create international brands and gain profits from sustainable development.

The overseas sales chain system can be built on its own. For example, Hai Xin invested $10 million in building a factory in South Africa. At the same time, it invested 3 million 745 thousand US dollars to build 6 large chain stores in the region, supplemented by advertising costs of about $300 thousand a year, and finally won 15% of the TV market in South Africa.

It can also choose to buy and sell local sales channels, such as Wanxiang company acquired the US Scheler company after gaining overseas sales channels, and acquired another 8 overseas companies, which successfully expanded its channels.

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Analysis elements of overseas market sales chain system construction

Fourth question: how to design the overseas factory building plan?

The choice of overseas factories is critical.

First of all, we need to "select points", focusing on location advantages, namely, regionally based on natural resources, traffic conditions, national economic development planning and industrial layout.

In order to make a comparison of schemes, we should generally compare and evaluate several selected regions, and evaluate the selected areas from six aspects, such as policy, human resources, land resources, pportation resources, raw material resources and radiation areas.

Next, we must "address" and select the specific factory address.

By analyzing and comparing the site, the most suitable site is selected.

Evaluation elements for regional selection of Chinese enterprises overseas construction

After setting up the factory address, we need to further develop the plant plan.

According to the characteristics of market demand, formulate product plan for developing overseas market.

According to market capacity and future planning of enterprises, formulate overseas capacity plan.

According to the capacity plan, the land area and the number of workers are needed.

According to capacity, land and personnel plan, set up a phased investment scale plan.

Calculate the investment recovery period according to the calculation of capacity and cost.

Finally, the general plan of investment planning is designed.

Chinese enterprises who invest overseas to build factories must fully recognize the risks of investment. We should make adequate market investigation before setting up factories, carry out comprehensive analysis and Research on the local political, economic and cultural environment, investment environment, foreign exchange policies, laws and regulations, market demand and potential, labor costs, purchasing power, and resource advantages, and carry out corresponding fieldwork, do a good job of feasibility demonstration, carefully choose the plant area and make a good factory building plan.