Chinese enterprises have played a major role in the last 40 years of reform and opening-up. Since early forays abroad in the 1980s, Chinese companies have expanded across the world in many sectors and now make up 120 of the Fortune Global 500. Today, globalization remains imperative for their continued growth. However, changing circumstances at home and abroad call for new means and modalities to achieve this.

The reform era has seen several phases in the internationalization of Chinese enterprises. The years from 1978 to 1990 were a preparatory stage, when Chinese firms modernized and drew lessons from abroad. Growing foreign investment in China gave a window to the global economy, but overall, awareness and implementation of global operations remained relatively low.

The “go global” movement began in earnest in the 1990s, as Chinese firms began to venture overseas, encouraged by supportive policies. Chinese outbound investment grew gradually to average $2.3 billion per year over the 1990s. However, direct exports remained the primary mode of globalization.

WTO entry in 2001 opened new doors for Chinese firms to integrate into global markets. With growing overseas investment and operations, they accumulated experience, expertise and technology, as well as deepened their understanding of international management practices.

The scale and range of Chinese firms’ overseas activities increased after the global financial crisis. They sought new pathways to globalization, moving from exports, foreign contracted projects and labor cooperation to greenfield investments and outbound M&A to build capabilities and gain footholds in new markets. Landmark examples include TCL’s acquisition of Schneider (2002), Lenovo’s purchase of IBM’s PC business (2005) and Geely’s takeover of Volvo (2010). By 2015, the go-global movement had gained such momentum that China became a net exporter of capital for the first time.

Chinese firms have grown up fast over last four decades. However, the domestic and external landscape has also changed, presenting new challenges as they strive forwards.

At home, China is no longer the labor-abundant, low-income country that made it the factory of the world. First-tier cities increasingly resemble those in advanced economies. Wages and environmental demands have risen; cost-competitiveness and domestic growth potential have diminished. Chinese firms have no choice but to continue their quest to go-global, allocating resources overseas and climbing the global value chain through upgrading and innovation.

Abroad, all multinationals face pushback against globalization. With rising trade tensions and protectionism, the WTO has downgraded its 2019 outlook for global trade growth to 3.7 percent. Scrutiny of foreign investment has increased. These headwinds are more pronounced for Chinese firms given the growing specter of mistrust and geopolitics in economic policy. Huawei’s case is emblematic of this.

At the firm level, despite remarkable progress, many Chinese companies still face crucial tests to overcome if they are to graduate to the top class of multinationals. This includes filling gaps for international talent, adapting to different cultures, strengthening risk management and shifting from an emphasis on product to brand globalization.

Prospects for Chinese firms in the next 40 years will hinge on their ability to overcome this tripartite of domestic, international and firm-level challenges. Fortunately, these issues are joined by a common thread that offers a solution: international cooperation.

Conditions are ripe for this collaborative mode of globalization. The Belt and Road Initiative has set the stage and there is a growing cast of actors eager to work with Chinese firms.

In addition to working with host countries, partnerships with third countries will be key to unlocking new growth opportunities. For example, under the China-Japan agreement on business cooperation in third countries signed last year, firms from both nations will be able to combine forces in regions such as Southeast Asia rather than being pitted against each other. This shift from competition to cooperation will benefit bilateral ties as well as the companies themselves.

Similarly, American and European multinational corporations, with their advanced capabilities and extensive global experience, can make ideal strategic partners for Chinese firms. Companies such as GE have set up dedicated teams to pursue international cooperation under the BRI, working with Chinese peers on EPC (engineering-procurement-construction) projects around the world. Such partnerships allow Chinese companies to create synergies, optimize resources and navigate economic and political risk. These relationships can also help young Chinese firms absorb lessons and avoid mistakes in the process of globalization.

Not all partnerships make a happy marriage, and it is vital that companies chose alliances that align complementary strengths with long-term strategy. National and multilateral agencies can help with matchmaking and facilitation, such as China International Development Cooperation Agency. Working with organizations such as the World Bank and the Asian Infrastructure Investment Bank can support long-term success by helping partnerships access resources while strengthening risk management and sustainability.

By nurturing international partnerships, Chinese firms can elevate themselves while also helping to shape a more inclusive model of globalization – one that reduces risks and shares benefits among all. This will boost support for transnational integration and ensure that Chinese enterprises can continue to be a vehicle for China’s reform and development over the next 40 years and beyond.

The author is president of Center for China and Globalization, a Beijing-based non-governmental think tank. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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