Will Chinese Companies Conquer the World? Maybe, but maybe not…

Dr. Jean-Marc F. Blanchard's picture

For diverse reasons, Chinese companies have long been underestimated. Drawing upon his theory of the multinational enterprise based in transaction cost economics, Professor Jean-Francois Hennart argued, however, at the recent 10th annual China Goes Global meeting that such presumptions were ill-advised. In his view, the allure of the China market gave the Chinese government (and Chinese firms) tremendous power to extract bargains from foreign multinational corporations (MNCs)while their lock over the China market gave Chinese firms immense cash generation capabilities (beyond their access to preferential financing) that they could use to buy needed strategic assets. Over time, it would seem, then, that Chinese firms will be in an increasingly strong position while foreign firms will be in an increasingly weaker position. It is hard to dispute such logic, yet the future is far from predestined as Professor Hennart undoubtedly would agree. First, other markets may arise while the Chinese market itself has lost some attractiveness due to its slower growth rate. Second, the European Union and US are working to conclude bilateral investment treaties (BITs) with China. While many hurdles remain, these BITs and other agreements have the potential to shift the balance in favor of non-Chinese MNCs. Third, over time Chinese firms overseas may lobby the Chinese government to open the China market to ensure they have continued access abroad. Fourth, the China market consists of many markets and provincial and local governments in China that have their own bargaining capabilities and interests vis-à-vis foreign business that do not necessarily disadvantage the latter. Finally, Chinese firms are becoming larger, but it remains to be seen if they will be become world class. This is not meant to dismiss the fact that they will striding bigger on the global stage, but it is far too early to proclaim their victory.