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The internationalization of Chinese food companies

Updated: 2012-08-10 10:04
By Marcos Fava Neves ( chinadaily.com.cn)

In the last world's food and agribusiness congress, organized by the International Food and Agribusiness Management Association, held last June in Shanghai, one of the debates that I coordinated was about the capacity of Chinese food companies to become international companies.

The objective of this article is to share with China Daily readers my summary of the discussions. The article addresses:

a) Why Chinese food companies are not internationalized based on a strategy to supply food from China to the world;

b) The difficulties faced by Chinese investments abroad and finally;

c) The internationalization opportunities for Chinese companies.

First of all, it must be recognized that China has several brands becoming international and with this strategy, learning the complexity of the international operations. These are companies with strong domestic market, mostly engineering led companies with the ability to invest in key assets, maintaining their core business with a global leadership team and global structures and strategies.

Why this internationalization is not observed in Chinese food companies? These internationalization processes led by these companies are not happening at the same level with food companies. Any of 25 world's largest food transnational companies is Chinese.

The arguments are that the food industry doesn't share the same advantages of equipment companies and still struggle with low investments in R&D, issues regarding food safety and quality, no recognized large brands outside, lack of reputation and difficulties in marketing, due to a perception of branded as low value.

Although Chinese Government can subsidize this strategy, since money is not an issue to China, there are other facts that make it difficult for Chinese companies to become global food players originating food in China for the world: the lack of water, soil, uneven development of infra-structure, production yields, structure of the rural society, lack of agribusiness talents for large scale operations and the huge internal market to consume the local production.

But this doesn't mean that Chinese food companies can't be global companies. It is a question of time for Chinese companies to become global, but mostly originating food in other parts of the world, and marketing over the globe.

What are the difficulties faced by Chinese international investments? Till this moment, the major difficulties for Chinese agri and food business foreign direct investments are about:

a) The management style and global mind set, considering language and culture;

b) A local community perception where Chinese investments may be seen as a new colonialism;

c) Difficulties for Chinese food companies to understand the local institutional environments;

d) Protectionism in some markets close the opportunity for Chinese investments;

e) Chinese insurance system doesn't offer enough protection to face the risks of international investments;

f) Tax policies in China also do not stimulate these international investments;

g) Some countries see it as a labor export strategy for China and do not accept it;

h) Problems in information and communication;

i) Lack of cooperation among Chinese companies.

Although these restrictions exist, there is opportunity for Chinese food companies to move from internal to global, since several parts of the world face an abundance of natural resources to expand food production but faces lack of capital to do this. This is where Chinese food companies may come and become international food producers and traders, and also supplying Chinese food markets.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org) and international speaker. Author of 25 books published in 8 countries. The event was sponsored by Novus International.