An Analysis of Business Strategies in the Asia Pacific Region

This report delves into the competitive capabilities of multinational companies (MNCs) originating from mainland China, examining their activities in both developed and developing economies. It explores the impact of globalization on MNCs, highlighting the rise of Chinese firms in global rankings and their pursuit of competitive advantages in foreign markets. The report discusses traditional competitive capabilities, including state ownership and low labor costs, and analyzes international business theories like Dunning's O-L-I framework (Ownership, Location, Internalization) and Mathew's L-L-L framework (Linkage, Leverage, Learning). Case studies of Huawei (using the L-L-L framework) and Toyota (using the O-L-I framework) are presented to illustrate the strategic differences between Chinese and Japanese companies. The report examines Huawei's expansion through linkages, leverages, and learning, and Toyota's advantages in ownership, location, and internationalization. The activities of Chinese MNCs in foreign states are analyzed, offering insights into their strategies and competitive advantages in the global market.

Running head: ASIA PACIFIC BUSINESS
Asia Pacific Business
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Table of Contents
1. Introduction............................................................................................................................2
2. Discussion..............................................................................................................................2
2.1. Traditional competitive capabilities of Chinese multinationals......................................2
2.2. International Business Theories and Frameworks..........................................................3
Dunning O-L-I Framework................................................................................................3
Mathew’s L-L-L Framework.............................................................................................4
2.3. Difference between China companies strategy and that of Japan...................................5
Chinese Firm example using L-L-L Framework...............................................................5
Japanese Firm example using O-L-I Framework...............................................................6
2.4. Activities of Chinese multinational companies in the Foreign States.............................8
3. Conclusion............................................................................................................................10
4. References:...........................................................................................................................11

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Question 1: What do the activities of multinationals from mainland China in host
developed and developing economies reveal about their competitive capabilities?
1. Introduction
The era of globalisation is making the entire world a single market. With the increase
in this process, the global ranking of the multinational companies have uncovered some
noteworthy shifts that impact the competitiveness of the firms. Very recently, many Chinese
companies have been exposed to international borders and have successfully positioned
themselves among some of the global top-tier companies (Brooks and Wohlforth 2016).
These companies belong to a range of industries including automobiles, steel producers etc.
However, the modern advancement in the field of science and technology and the trends that
are compelling the global businesses to develop diverse and competitive strategies to operate
in the current market environment are provoking the Chinese multinationals to search for new
techniques for accomplishing some unique competitive advantage in the foreign markets.
This is due to the highly increasing intensity in between the many multinational and the local
firms of China. This further has increased the need for improving and comprehending the
current trends in the local Chinese market in order to become more competitive. This paper
shall elaborate on presenting an essay on discussing about what do the activities of
multinational companies from the mainland China in the host developed and developing
economies reveal regarding their competitive capabilities.
2. Discussion
2.1. Traditional competitive capabilities of Chinese multinationals
One of the most significant competitive capabilities of multi-national companies in
China is that they are owned by the state. It is the Chinese government that used to own and

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control a major part of the multinational firms. This used to make the firms enjoy a
competitive advantage for their resource input. As per the data by Kwiatkowski and
Augustynowicz (2015), in 2009, about 67% of the Fortune 500 companies were controlled by
the government. These companies used to get preferential treatment in terms of access to
loans, state contracts etc. in both the local and global market. With the same, high level of
criticism regarding the ownership and management of these companies incited different
structural and regulatory transformations in these companies. One of the most significant to
consider in this scenario is that of “corporatization” (Chamberlain and Anseeuw 2018). For
adding up to the multinational companies, the local Chinese firms censured the special
treatment that these companies used to get and this lead to corporatisation of some of the
companies. This further resulted in the creation of barrier in between the management and
ownership of the company.
Furthermore, it is also to mention that China is considered to be a great business
market for its low labour costs and this is yet another great advantage that is enjoyed by many
Chinese multinational corporations. China is widely known for its vast population, the most
populated country in the world and therefore, there is a high number of labour in this market
(Liang, Li and Ma 2014). This further mores the labour cost low, especially for the
production and agrarian companies. For this reason, a range of global firms outsource a
portion of their manufactured or processed products in China. With the same, the country also
has the advantage of outsourcing huge numbers of their operation to the nations of origin,
without even facing any type of strict regulatory measures.

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2.2. International Business Theories and Frameworks
Dunning O-L-I Framework
It is also known as eclectric paradigm and is a theory in economic. This O-L-I
framework is an approach for studying FDI (Foreign Direct Investment) and was developed
by John Dunning (Saleh et al. 2017). OLI stands for Ownership, Location and Internalization,
which are considered to be the three main sources of advantage that underline the decision of
a local or domestic company for becoming a multinational corporation. Firstly, the ownership
advantages are used for addressing the question of why not all firms go to international
borders and suggests that any successful multinational enterprise has some company-specific
advantages that help it to beat the associated costs for operation in the foreign nation.
Secondly, the location advantages are focused on addressing the question of where do
multinational enterprises choose to locate themselves. Thirdly, the internalisation advantages
is focused on the question of how a local firm chooses to operate in abroad while monitoring
cost of wholly-owned subsidiary and trading off the savings in the process of transactions,
against the benefits of other modes of entry into the international borders including licensing,
joint ventures etc.
Mathew’s L-L-L Framework
LLL stands for Linkage, Leverage and Learning. It was proposed by Mathews and the
framework is closely linked to some company-specific advantages of the developing country
multinational companies (Mathews 2017). Unlike the OLI framework, in the LLL
framework, the global expansion of the emerging nation multinational companies are driven
by linkage, leverage and learning. As per this framework, for the multinational companies,
the quickest and the best way of attaining the global opportunities and tapping into the global
resources is getting linked with the companies first, particularly the ones that are well

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established western multinational enterprises, by means of different types of collaborative
partnerships. Secondly, for leveraging the links for overcoming the resource related barriers
for the International Business (IB) engagement. Finally, to building up organisational
learning process by means of repeated application of leverage and linkage. This could explain
the accelerated internationalisation of both the new and late comer multinational enterprises
from the Asia Pacific.
2.3. Difference between China companies strategy and that of Japan
Chinese Firm example using L-L-L Framework
The Case of Huawei Mobile
a) Extension of Linkages
Huawei from China during its international expansion process has built as much on its
extensive inward linkages as on the outward linkages. It can be argued that the company
leveraged more of the inward linkages compared to the other for its internationalisation. For
instance, when the company was founded in the year 1987 as a mere distributor of phone
switches in an apartment in Nanyou, Shenzhen, China, the country used to rely cent per cent
on the imports for its telecom equipment. Already the major international telecommunication
companies like Nokia, Ericsson and Motorola were present in the domestic market of China
at those times. The notable presence of the foreign multinational enterprises gave Huawei
with a great initial access to the market knowledge and the foreign technologies by means of
their cooperative and competitive relationships with the foreign multinational companies in
the country. By the year 2002, the company was successful at overtaking the Shanghai Bell
as dominant player in the Chinese domestic market and it effectively entered into the markets
of United States and Europe (Li and Cheong 2017). Since then, the company established
itself as an international player in the field of telecommunication equipment manufacturer

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through its Greenfield sales and developments. It leveraged its inward linkages for its
international expansion.
b) Extension of Leverages
Leverage in LLL refers to the effort of the multinational companies to overcome barriers
of transferability and imitability for accessing the foreign resources by means of IB extension
(Dau 2018). Huawei made use of Huawei-3Com JV as its new route for entering into the
international market, particularly the markets in the developed countries. In the year 2006, the
company sold 49percent of its JV’s ownership to 3Com and after that, it went into partnership
with some private equity Bain capital for taking over 3Com in the year 2007 (Griffin 2015).
However, it failed to pass through the national security reviews from the part of the
Committee on the FD in the USA in the year 2008. It also joined with Vodafone and supplied
mobile phones in Europe since the year 2006. In 2009, Vodafone, together with Huawei
made strategic alliance and extended the service orders of Huawei from Vodafone in
Romania, Greece, Turkey, Spain and Hungary. In 2005, it also built strategic alliances with
Intel in the WiMax technology and in 2009, with Google-backed Open Handset Alliance for
launching Android phone (Tchao, Diawuo and Ofosu 2017).
c) Extension to Learning
In case of Huawei, it is to mention that the years of learning for surviving in the highly
competitive environment of China has played an significant role in the process of shaping the
strategy and character of the company during its process of internationalisation. During this
process, the Huawei laid high emphasis on learning by means of competing with the other
foreign companies through some advanced technologies, super service and reliable quality.
According to Lu et al. (2014), learning of these firms like Huawei in China played a strong
role in their home country networks that they developed before their inward FDI.

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Japanese Firm example using O-L-I Framework
The Case of Toyota Motors
OLI Framework
a) Ownership Advantages
According to the president of Toyota, Chen Zhixin, the success of the company is
basically linked to two main factors- a) Toyota Production System and b) Its Customer-
centric approach. It is to mention that process of production is an utmost important part of
any manufacturing company as it can have a direct impact on the profitability of the firm.
Therefore, improving the production system’s effectiveness is the main aim of all the
automobile manufacturing companies (May et al. 2015). The main work of its production
system is to produce large economic scale with high effectiveness and highly standardised
and is referred to as a lean manufacturing model that can avoid the waste during the process
of production. It helps in keeping the cost of production low. When these end products enter
into the market, they achieve more competitive advantages. Furthermore, the company spent
more than 730 billion of dollars for establishing new R&D laboratories and developing its
prevailing R&D centres in the year 2011 (Hassanzadeh et al. 2014). On the basis of
outstanding corporate culture that is customer-centric, the company has been successful in
building an effective R&D system for getting more relevant data and information regarding
their customers called “Continuous Improvement”.
b) Location Advantages
There are at present four main international markets where Toyota operates and they are
China, United Kingdom, Europe and North America. Depending on global segmentation
strategy, the company can get obvious advantages- using the large market and the advanced

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technology present in the industrialised nations for keeping it competitive advantages
sustainable in the market by means of improving its core competencies. The main objective is
to enhance the R&D activities. Furthermore, as compared to the industrialised markets, the
developing nations have some unique conditions in terms of cheap labour forces, high
potential market and high amount of natural resources. Also, the population of these countries
are also high and it is of a great benefit for the car industry. Therefore, the company can
reduce the costs of production for achieving the pricing advantage in the markets.
c) Internationalisation Advantages
Toyota , being an automobile manufacturing company, needs a variety of components for
assembling together, especially for its international or cross-national firms that face more
complicated outsourcing environment along with significant challenges from the CAGE
distance (Begin 2014). Therefore, quality control significantly influences the performance of
the company. It is to mention that Toyota cannot manage to hold its advantages among its
competitors if the process of production is contracted to the third party. For this reason, the
best way for having absolute rights for filtering and controlling the international suppliers for
strictly controlling the supply quality. There are many first-tier suppliers who are engaged in
the R&D activities of Toyota and the main aim here is to attempt to form invisible alliance
with the suppliers for pursuing the common goals of quality control for improving the final
products’ performance.
2.4. Activities of Chinese multinational companies in the Foreign States
The key activities that make the key characteristic of the Chinese multinational
companies operating in the foreign states is their potential of contending on the different
factors beyond cost. Considering the prices of a service or a product are important for the
organisation while internationalising. Majority of the customers are always price conscious

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and they tend to choose or go for the items and services that are of reasonable prices.
According to Froud et al. (2014), “it is becoming increasingly hard for Chinese companies to
compete on cost due to the rise of labour and manufacturing costs, China was one of the
main manufacturing hubs that offered cheap labour in the production process”. Research
studies suggest that traditionally, there were many countries that used to offer low labour cost
and low production cost including Brazil, Russia and Poland. But, in recent years, the
expenses of manufacturing in all the countries around the world have increased and have
made the cost of setting up production facilities expensive. Hike in the production cost has
made it quite unimaginable for the foreign multinational companies for contending on the
cost in the increase of outsourcing the setups of manufacturing to their country of origin
(Danmola, Olateju and Aminu 2017).
Furthermore, it is also to mention that the modern customers are way more
knowledgeable than before and they are constantly trying to change their buying decision
based on the factors other than just price considerations. Accentuation on the high quality
items as well as better innovation is some vital inclinations that customers worldwide require
today (Harram and Fozia 2015). Improving culturally diverse management in the countries
where the multinational enterprises build their essence is an activity that is basically done by
majority of the Chinese companies. The strategy of mergers and acquisition is also a great
business strategy adopted by many Chinese multinational companies that has earned great
competitive advantage for them in the foreign markets. Ghauri and Hassan (2014) too in this
context have claimed that the “Chinese multinationals are known globally for the massive
mergers and acquisitions that they make and these mergers are significant since they help
breach the cultural barriers in host countries while also forming strategic partnerships”.
Getting converged with other different companies in the international setting would fuse the
important qualities that every firm has and this would also dispose the cultural obstacles that

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any remote company might face. However, in any case, for the successful mergers and
acquisitions, the multinational enterprises of China need to guarantee transparency in their
organisational operations.
3. Conclusion
Hence, from the above analysis it is to conclude that Chinese multinational enterprises
use some notable strategies and methodologies for gaining competitive edge in the foreign
business markets. In earlier days, it used to be easier for these firms for getting the
competitive advantage by means of having government support, access to funds, low labour
costs etc. In recent years, things are not that easy. For entering into the international markets
more effectively and having competitive advantage there, firms need to make use of several
strategies including mergers and acquisitions, FDI, Greenfield sales and development etc.
There have been significant transformations in the current dynamics of the domestic nation
and that of the international borders and this is making it very important for the companies to
make use of such strategies while revising their business models to earn significant
competitive edge.

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Chamberlain, W.O. and Anseeuw, W., 2018. Inclusive businesses and land Reform:
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Danmola, R.A., Olateju, A.O. and Aminu, A.W., 2017. The impact of foreign direct
investment on the Nigeria Manufacturing Sector: A Time series Analysis. European
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Dau, L.A., 2018. Contextualizing international learning: The moderating effects of mode of
entry & subsidiary networks on the relationship between reforms & profitability. Journal of
World Business, 53(3), pp.403-414.
Froud, J., Johal, S., Leaver, A. and Williams, K., 2014. Financialization across the Pacific:
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Ghauri, P. and Hassan, I., 2014. Evaluating companies for mergers and acquisitions. Emerald
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Harram, A. and Fozia, M., 2015. Customer Oriented marketing capabilities and firm
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