Analyzing Competitive Capabilities of Chinese MNCs in Asia Pacific

This essay examines the internationalization and competitive capabilities of Chinese multinational corporations (MNCs) in both developed and developing economies. It highlights the shift from low-cost labor advantages to innovation, research and development, and manufacturing efficiency. The essay discusses the supportive role of the Chinese government in providing resources and infrastructure, enabling MNCs to compete globally through differentiation and brand advantages. Examples such as PepsiCo's R&D center in Shanghai illustrate the emphasis on innovation for international growth. The analysis also covers China's manufacturing upgrades through the Thirteenth Five-Year Plan, focusing on supply-side structural reforms and cost-effective manufacturing practices. Ultimately, the essay argues that Chinese MNCs leverage government support and strategic innovations to enhance their competitive position in the international market.

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Introduction
Internationalization of the Chinese organizations is considered as important feature of this
contemporary world economy. These organizations are evolved from the local firms to the
multinational organizations. They show their strong presence in number of economies which
includes both developing and developed economies such as from the neighbouring developing
countries to the big markets of the western countries. Survey conducted by the American and
European companies ranked the Chinese organizations as the biggest competitive threat on
consistent basis. State organizations of this country get benefit from the low cost of capital and
strong relationships of the governments, but the private organizations of this country enjoy the
great flexibility from their government. This flexibility helps the companies in adopting the new
technologies and business models in quick manner (Bruche, 2009).
Privately owned organizations of China which are conducted their operations at the global are
known as Multinational organizations from the mainland China. These organizations get success
in each and every Part of the world, and this happens because of the competitive abilities of these
organizations. As these organizations, give tough competition to other organizations in both
developed and developing economies.
This essay mainly discusses the activities conducted by the multinationals from mainland China
in the developed and developing economies which reflect their competitive capabilities. This
essay is concluded with the short conclusion.
Discussion
The initiation of the 21st Century has been considered as the profitable era for the Chinese
economy, as in this era China shows the spectacular rise which reflects the two digit economic
growth in the country from last number of years. Globalization of the Chinese MNCs play most
important role in the rise of the economy of China. These organizations expand their
international activities, and these expansions are driven by number of motives such as seeking
for resources, seeking for markets. Global access of Chinese organizations and their immense
success in these markets clearly reflects the competitive abilities of these organizations. It must
be noted that, instead of the economic breakdown and the threat of the high competition, MNCs
of China flourish their business on consistent basis and grab new opportunities in the market.
Confidence of Chinese organizations mainly relies on the supportive nature and flexibility of
their governments. As 72% of the MNCs executives believe that they are able to handle the
challenges for the next three years. Almost 71% executives planned to expand their investments,
and almost 66% believe that their performance will improved in next three years (Joosten, 2015).
Competitive capabilities of these organizations mainly rely on the access of the low cost labour,
and in number of cases support given by their country. The main factor which needs to consider
here is whether innovation leads to the competitive advantage of the emerging Chinese
multinationals (Analytica, 2010). Some of these activities conducted by the Chinese MNCs
which reflect the competitive capabilities of these organizations are stated below-

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Innovation & Research and Development
There are number of evidences which stated that Chinese organizations mainly focus on boosting
their domestic innovative capabilities, especially for ensuring the success of internationalization.
As reflected by the INSEAD (Global Innovation Index 2011) put the China stands on the 29th
place, as it is deemed as the improvement in comparison of the previous years such as china
stands on 37th position in 2009 and 47th position in 2010. As stated by this practice, China beats
its straight contestants such as other BRIC countries which are graded in the 2011 report, Brazil
stands on the 47th position, India Stands on the 62th position, and Russia stands on the 56th
position (Dutta, 2011).
Social administrative region of the Hong Kong stands on the top of this rating list which means
on the 4th position. This index based on the different metrics and approaches for capturing the
richness of innovation in better manner in the society. These individuals Sub-indices clearly
show that China scores in well manner on ‘innovation output’ side, but it scores less on the
‘innovation input’ side. Innovation input includes number of factors such as institutions, human
capital and research, infrastructure, market sophistication, etc. On the other hand innovation
output includes creative output and scientific output (Filippov, 2012). The last component in this
context includes the elements of knowledge creation, impact of knowledge, and diffusion of
knowledge.
As defined by Yin & Williamson (2011), there are number of innovations which are pursued by
the Chinese firms. First innovation is defined as the cost innovation which mainly aims at
reengineering the cost structure for the purpose of offering the customers adequate quality or
similar quality or higher quality at the reasonable prices. This innovation is ambitious by the
cost-oriented innovation mind-set and also the flexible competency. Second type of innovation is
the application innovation, which means, finding innovative applications in context of existing
technologies and existing products. Third type of innovation is the business model innovation,
which defines the idea of changing one or four important components of the business model that
are customer value proposition, profit formula, key resources or knew processes. All these
adjustments are done on quick basis and at the minimum cost.
Fourth type of innovation is the process innovation, which means, there is reconfiguration of the
traditional value chain for achieving the high flexibility and agility. This type of innovation is
driven by the good enough mentality and also ensure simplification.
It must be noted that, competitive cost is the most important element of any innovation, and cost
innovation is defined as the key innovation model. Other types of models which are completely
apart from the genuine innovation are deemed as scopes in combination with “cost innovation
(Zeng and Williamson, 2007). Another observation in context of genuine innovation, maximum
MNCs of western countries adopting this innovation model and even they focus on the value.

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This can be understood with the help of example, as Jun Tu (CFO of PepsiCo) consider the
importance of innovation and R&D in the success of the organization. PepsiCo is one of the
largest food and beverage companies in the world, and products of this country are sold in almost
200 countries across the globe. In terms of this company, R&D play very important role in the
internationalization of the company. In 2012, this company opened a new R&D Centre in
Shanghai (KPMG, 2015). This centre serves the hub of new product in terms of the packaging
and innovation of equipment for the business of the company in throughout Asia. This technique
accelerates the growth of the company in different areas of the world and also provides
competitive advantage to the company over its competitors.
Manufacturing Efficiency & physical Infrastructure
In the early period of 2000s, development model of Chinese organizations grounded on the
short-salary production and this is accompanied with the more reserves and rates of investment.
The achievement of this approach raises the standards of living in drastic manner, and this result
in the Chinese government to adopt more ambitious policies for upgrading the industry of China.
Chinese MNCs holds the massive manufacturing capabilities, China stands on the first position
across the globe at 220 from the 500 big types of products. This also helps the Chinese MNCs in
ensuring the world-leading infrastructure and put this country at the position which is different
from the middle-income countries.
It is necessary to understand that, competitive advantage of Chinese MNCs dos not lie in the
low-wage mass manufacturing anymore. As per the study conducted by the Boston consulting
group, cost of production in terms of China enhance from 86 % of the US level in 2004 to almost
96 % in 2014. There are number of developed countries such as United States, Germany and
Japan which create the strategies for support their own manufacturing, and other developing
countries such as India and Brazil are trying to catch up. At the same time period, there are
number of manufacturing companies of the western countries such as Germany, US, UK which
invest large amount of money for becoming automated and efficient (Blair, 2017.
MNCs of China clearly know that manufacturing of the organizations is the existing competitive
advantage. From last few years, there are number of people which states that manufacturing
model of the Chinese MNCs are big but they are not strong. For providing it shape, government
of China needs to upgrade their manufacturing models and strategies in this context. As
government developed thirteenth Five-Year Plan (2016-20) for creating the enhanced
contemporary manufacturing system that help the MNCs in this new environment of business
across the globe. For the purpose of conducting this change and uplifting the actual economy and
in this context MNCs are adopting the supply-side structural reforms. As they are creating the
new models by making changes in the traditional models, and this provides cost advantage to the
MNCs of China in the international market. In other words, this new modern system of
manufacturing builds innovative capabilities of the MNCs and also helps them in providing the

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quality services at the reasonable rice. It helps the MNCs of China in getting competitive
advantage over their competitors in the international market.
These manufacturing advantage is funded by the government of china, as government already
recognized that upgradation of the industry is the most important tool for future economy, and
because of this huge number of funds are arranged and number of strategies are framed. With the
help of following tools, MNCs of China ensure the manufacturing efficient in the global
markets-
 MNCs increase the frequency of the orders they place, and this helps them in ensuring the
continuous supply of the input products. There are number of factories which hold the
minimum quantities of the raw material, but still they are ready to place the orders at the
negotiable price by arranging more orders in frequent basis. By placing more orders on
the frequent basis, these MNCs do not face the issue of the low inventory and this also
helps them in developing the need of manufacturing more products. This approach can be
considered as the more expensive approach till the time MNCs get the advantage of the
reduced bulk shipping. This helps the organizations in saving the cost of carrying and
automatically provides the advantage of the cost (Wang & Wu, 2017.
 As maximum MNCs ensures outsourcing from the China, as it helps them in accessing
the cheap labour for their factories without providing training to their employees. As this
is deemed as the biggest cost advantage for the MNCs, and it helps them in ensuring the
strong manufacturing efficiency in their organizations. It must be noted that, wages in
China are low and this provide cost advantage to the organizations in their manufacturing
process (Resnick, 2018).
Above stated facts, clearly provides cost advantages to the MNCs of mainland china, as these
organizations use this cost advantage in developing the competitive advantage over its
competitors. In other words, these efficient techniques of the manufacturing process help the
organization in developing the competitive capability.
Differentiation & Brand Advantage
Government of China provide support to its MNCs in context of flourish them in the
international market and also ensure competitive capabilities for them in both developed and
developing economies. Government provides number of things such as access to the financial,
technical, human resource, etc. With the help of this support it becomes easier for organizations
to compete with their competitors in the international markets (Huang, 2003).
With this support, MNCs of China develop new capabilities for their firms, and these capabilities
are developed with the help of differentiation strategy and brand advantage. Differentiation is the
approach through which firms develop and market the new type of products for different type of
customer segments. In other words, it is the approach which helps the business in developing the
new product or any service which help them in providing different type of product and services

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to their customers. Differentiation strategy helps the MNCs in developing the competitive
advantage over their customers, and also gives them strong base of customers. It is generally a
way which is used by the organization from differentiating themselves from their competitors.
MNCs of China through differentiation show the differences and strengths of the products
manufactured by them while comparing with the products of the other manufacturers. MNCs
with the help of these strategies also focus on the niche market. Another strategy is the brand
advantage, which means, MNCs focusing on building the recognized brand. As customers are
ready to pay higher prices for the products if such products belong to the recognized brand, even
though such products holds the same quality and functions as other products. Brand recognition
is the most necessary strategy in the present business and it shows tremendous growth in the
consumer market such as food & beverages, clothing, mobile phones, and household goods.
However, it is necessary to understand that Chinese organizations do not hold good reputation in
the market in terms of the brand reputation, as there are few organizations of China only which
stand themselves in the list of brand (Child & Rodrigues, 2005 Gilmore & Dumont, 2003).
Above stated capabilities not only provide competitive advantage to the MNCs of mainland
China in developed and developing economies but also provide huge profitability to the
organizations.
Conclusion
After considering the above facts, it is clear that internationalization of the Chinese organizations
becomes the huge advantage for the global economy. As these organizations becomes important
threat for the other organizations (Wang & Wu, 2017). They show their strong presence in
number of economies which includes both developing and developed economies such as from
the neighbouring developing countries to the big markets of the western countries. Chinese
organizations mainly focus on boosting their domestic innovative capabilities, especially for
ensuring the success of internationalization. First competitive capability on which Chinese
organizations focus is innovation and R&D. It must be noted that, competitive cost is the most
important element of any innovation, and cost innovation is defined as the key innovation model.
Second competitive capability developed by Chinese MNCs is the manufacturing Efficiency &
physical Infrastructure. Chinese MNCs holds the massive manufacturing capabilities, and this
also helps the Chinese MNCs in ensuring the world-leading infrastructure and put this country at
the position which is different from the middle-income countries (Liu & Buck, 2009).
Third competitive capability is the differentiation and brand advantage strategy. MNCs of China
through differentiation show the differences and strengths of the products manufactured by them
while comparing with the products of the other manufacturers.

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