Business / Economy

Companies going overseas turning to widening world of opportunities

By Yu Ran and Shi Jing (China Daily) Updated: 2014-03-07 08:17

The company, leading global supplier of nonferrous alloys, only moved a few minor production lines to Vietnam.

"We still have eight factories in China that act as OEMs for well-known brands. Our factory in Vietnam can be a backup production base for our company to expand the market," said Zheng Xiaofeng, a senior manager.

Powerway Group doesn't have any long-term plans for a significant expansion in Vietnam.

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"Vietnam will only be a temporary stop for our enterprise to expand around the world. We will continuously focus on building our brand and improving our product design in China to attract more overseas clients," said Zheng.

In 2012, the National Development and Reform Commission and 12 other government agencies issued a statement on policies that encourage and support private companies to invest in the overseas market.

"Such private investor-friendly policies have made more and more private investors actively participate in overseas investments," said Jessie Tang, a merger and acquisitions partner at the Jones Day law firm in Beijing.

"The rising labor cost indeed drives some private enterprises overseas. For instance, in the manufacturing industry, given the rising costs of production elements such as labor, energy and raw materials, Chinese companies are gradually losing their cost advantages to many other emerging countries such as Vietnam, Pakistan and Cambodia.

"This partly causes domestic manufacturers to outsource their plants," she said.

Tang said there are other reasons to go abroad: seeking new markets, building international brand names, gaining advanced technology and becoming more competitive.

Many Chinese private companies have reached the stage of development where "going out" is a necessary and effective way to upgrade and transform their businesses. This is usually done in the form of obtaining advanced technology and seeking foreign target market, said Tang.

For instance, in July 2012, the Zhejiang-based China Youngman Automobile Group Co Ltd bought a 74.9 percent stake in German bus maker Biseon Bus GmbH. The motive for Youngman was to upgrade its production to world-class standards.

"It appears that Chinese manufacturing companies accounted for a significant number of outbound M&A deals in China during the past few years," Tang said.