Enterprises’ internationalization experience： take Sinochem as an example

张爽

Abstract：Past few decades have witnessed the internationalization process of Chinese enterprises， from fumble in 1980s to rapid development after 2002. Successful operations in foreign markets rely on a series of decisions including foreign market selection， strategic planning， and entry mode. Opportunities and risks are coexistent in foreign business.

Key words： MNE， foreign markets， opportunities and risks.

1. Introduction

Multinational enterprises （MNEs） are characterized by huge annual revenue， oligopolistic position， numerous affiliates， and spatial aggregation. There are four levels of international market entry. At the beginning， firms operated in domestic market and did not involve export activities. Then， firms started to export via an independent representative or agent from geographically and culturally close countries and gradually moved to more distant ones. Next， firms established their overseas subsidiaries for sales. Finally， firms turned to the installation of overseas manufacturing units. Internationalization is a process of learning . This paper studied the case of Sinochem Group about its internationalization experience with the respect of foreign market selection， strategic planning， entry mode， and opportunities and risks. Sinochem Group is a Chinese state-owned MNE， which is engaged in businesses including energy， agriculture， chemical， real estate， and financial services.

2. Foreign market selection

Foreign market selection decides where a MNE invested and operated for the purpose of considerable revenues. Almost every foreign market has its distinct characteristics. Right decisions on foreign market selection promise the potential success in exploiting the host markets and customers， which are expected to bring further profits to home company. Many factors should be taken into account for selecting target market. Annushkina and Colonel （2013） investigated 497 Russian MNEs and argued that geographical proximity and being a tax haven can attract a MNE into the host market. However， similarity in the economic development level does not show significant influence on a MNEs foreign market selection decisions.

Some countries emerged as the most attractive destinations for inward FDI， outsourcing and offshoring， for instance， India and China. Country attractiveness refers to the comparative advantages of one country over cultural， economic， and political environment. Specifically， many detailed criteria should be measured to assess a host countrys attractiveness. Criterion for costs involves labor， infrastructure and corporate taxes. Risk profile criterion considers disruptive events， regulatory risk， macroeconomic status， and intellectual property right. Environment criterion refers to government support， business environment， and accessibility. Criterion for market potential measures the attractiveness of local market， access to nearby markets， and impact on the existing brand perception. Criterion for infrastructure quality contains information technology， real estate， transportation and power.

Sinochem mainly focused on Asia and Oceania， then Europe and North America. Its foreign market selection decisions were based on natural resources， advanced technology and adequate capital. Under the guidance of ‘Going out strategy， Sinochem started upstream operations of petroleum through the global exploration and development of oil and gas in 2003.

3. Strategic plan and entry mode

Strategic plan is formulated to achieve the goals of the entire organization， which is a decision-making process guided by strategic prospect and organization mission. It specifies the interventions to be implemented and the objectives to be achieved for identified needs. Albright （2004） suggested that environmental scanning is an effective method to work out strategic plans. It refers to the collection and usage of external information that may potentially influence corporate decision-making process especially for the future.

Sinochems overall strategic plan was building a complete industrial chain based on its core business， in which the resource control， technology R&D， marketing management and financial service supported each other. The company dedicated to continuously consolidating and enhancing its dominant position in international oil trade.

On the way to internationalization， many a market entry mode can be used by MNEs. The choice of entry mode is affected by foreign markets entry motivation and corporate objectives. The relevant factors mainly include ownership advantages， internalization and transaction costs， strategic behavior and bargaining power. In addition to market selection and entry mode decisions， a firm intending to internationalize should also consider the timing of entering a foreign market.

As an emerging MNE， Sinochem choose acquisition as its major market entry mode. Acquisition entry mode featured rapid expansion， control over foreign operations and own technology， and access to targets local knowledge. In 2002， Sinochem signed an agreement of the wholly-owned acquisition of Atlantis Company， which marked its first overseas oilfield. During the next few years， it continued to expand globally through FDI and M&A.

4. Opportunities and risks in foreign markets

Operating in foreign markets presents MNEs with both opportunities and risks. Generally， a tremendous opportunity for firms operating in emerging markets lies in the fast-growth wealth and economies of scale. Along with opportunities， MNEs may face challenges from underdeveloped institutional environment， widespread corruption and bribery， lack of public transparency， and political turbulence[6]. Traditional views about internationalization motives focus on resource-based and capital-based. Opportunities in foreign markets firstly consist in the multiplicity and diversity of resources[7]. The rationale for the existence of MNEs was to utilize tangible and intangible resources across national borders to provide goods and services with value.

Under the circumstances of the coexistence of opportunities and risks， Chinese firms should attach great importance to identifying and avoiding operation risks in host countries. Challenges and risks arose from both internal management and external environment. MNEs faced managerial risks due to cultural conflicts between eastern and western countries. Corporate culture was difficult to be widely accepted by foreign employees， which usually caused low work efficiency and low job satisfaction. Externally， MNEs faced intense competition in foreign markets which threatened to erode their market share and reduce their profit margins. Additionally， conducting business abroad was also faced with political risks such as warfare， policy fluctuation， terrorist attack and government credit.

Duanmu， in 2014， studied the expropriation risk for state-owned MNEs. He argued that MNEs may counter the monopoly power from host country by leveraging the political influence of their home government. Especially， firms should keep alert to creeping expropriation. Host country has not publicly announced the direct requisition of physical property of the enterprise， but a variety of measures and policy changes discouraged foreign investors to effectively use， control， and dispose their property. Actually， the rights of foreign investors as a shareholder have been greatly limited even deprived[8].

5. Conclusion

Benefits from foreign markets have gradually become an important impetus of economic growth as more and more Chinese enterprises went abroad and became increasingly experienced. When firms intended to enter foreign markets， managers should make market selection decisions based on external environmental analysis such as economic growth， cultural features， and political health. Specific entry modes with diverse pros and cons served different corporate goals， such as export， green filed， acquisition， licensing and contract manufacture. Operating in foreign markets presented both opportunities and risks to home firms， including the availability of resource and capital， access to advanced technology， and also cultural conflicts， various trade barriers， political risk， and profitability challenge. Sufficient market experience will promise a bright future for multinational corporations.

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