China’s Outbound Investment: Time to Prosper?

China’s direct outbound investment in 2007 amounted to USD26.51 billion, representing a 25.3% increase than that of 2006. By the end of 2007, over 7000 Chinese companies have established their overseas presence covering 173 countries or regions across the globe.

The statistics jointly published by the Ministry of Commerce, National Statistics Administration, and State Administration for Foreign Exchange indicated that more privately-owned enterprises in China are investing overseas, and major invested countries and regions include Hong Kong, the United States, Russia, Vietnam, Japan, the United Arab Emirates, German, Australia and Singapore.

In spite of the perceived boom, it is reported that among the acquisitions Chinese companies have had in German during the past five years, only about 20% of the acquired companies were operated relatively well and stably.

As commented by an official from the Development and Research Center of the State Council, the major issues of Chinese companies’ outbound investment are (i) lack of strategic long-term vision, (ii) insufficiency of feasibility studies, (iii) incapability in cross-border integration, (iv) more as high-risk investment by the government, and (v) insufficient participation by mega privately-owned enterprises.

As some of those international business consultants have pointed out, the primary issue for Chinese companies’ outbound investment is their lack of capabilities in cross-cultural integration, which is a vital after-acquisition process to allow Chinese companies to achieve real success of overseas acquisitions.