In the economic development of China, the role of companies that are foreign-owned, or largely owned by non-Chinese investors, should not be underestimated. These companies have brought capital, technologies, expertise, and—most valuable of all—exposure to managerial practices from around the world. As we saw in chapter 2, their importance to the Chinese economy, as exporters and producers, has been directly linked to the government’s openness.
Foreign companies generally occupy the same quadrants on the product market freedom matrix as the Chinese private companies they compete against, but in many ways, they remain distinctly separate. Whereas many private Chinese companies concentrate on producing and selling less expensive goods in the lower tiers of their markets, and some are beginning to develop medium- to high-end products in higher-tier markets, the foreign companies tend to concentrate their efforts solely at the high end. Foreign and nonmainland companies, especially those from Hong Kong and Taiwan, also tend to be externally oriented, hence the large share of exports from this group. (The Chinese government considers companies from Hong Kong and Taiwan “foreign” from the standpoint of investment regulations and corporate identity.)
In terms of their impact on China’s business environment, the most important foreign companies are the large multinationals that have arrived from America, Europe, lapan, and other countries to manufacture and source goods for sale elsewhere or to sell to China’s markets. Some are resource companies, such as BHP Billiton and Rio Tinto from Australia and Vale from Brazil, which supply metals and other raw materials to the Chinese manufacturing sectors. Other foreign companies have played a key role in shaping the competitive landscape in a host of major industries—automotive, chemicals, consumer goods, electronics, financial services, information technology, logistics, pharmaceuticals, and retailing among them.
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However, nowhere have foreign companies had the field to themselves. Wherever they have entered, Chinese companies have sprung up to compete against them. And though foreign companies will continue to play a major role in the Chinese economy, they are certain to see their currently high shares of industrial output and exports drop over time.
Until now, most outside companies have concentrated on either low- cost manufacturing for export or on production for marketing within China. Relatively few arrived with plans for integrated operations, seeking to combine both. In the automotive industry, for example, of all the Sino-foreign joint ventures established, only Honda and Shanghai GM export cars; every other company is focused on developing their market within China. One major story of the next decade, and of this book, is the coming change in this dynamic as companies are forced to produce and market in China for both domestic and foreign customers.