The Internationalization Process of Chinese enterprise in Africa

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1. Introductio

1.1 A brief overview

China's ODI relates to economic determinants that include the market seeking motive， the risk factor， and the resources seeking motive， esp. in Africa.This article aims to analyze the behavior of the company- China Railway Construction Corporation Limited （“CRCC”） in internationalization and post-entry strategies in Africa， it consists of three main parts. First， the social and business environment in Africa as the environment for CRCC is discussed. Then， the internationalization process of CRCC into the African market is shown， along with the evaluation of strategies used and assessment of the performance that are based on the institutional framework. And finally， recommendations are provided for the company's further operation in Africa.

1.2 Projects that CRCC have done in Africa

CRCC has business all over the world， and the table below shows the main projects that operated in Africa.

Data source：

2. Environment analysis

Two reports are introduced to demonstrate the good development of Africa， and some bad situation would be mentioned later on.

First comes the world FDI report. According the report， FDI inflows to Africa grew to $50 billion in 2012， which increased 5% over the previous year. The increase in FDI inflows flows to North Africa， Central Africa and East Africa， while West Africa and Southern Africa were faced with declines. To be specific， investor increased investment in North Africa， as FDI flows rose by 35 per cent to $11.5 billion in 2012. Across the subregion， FDI was increased in Morocco and Tunisia， but FDI was decreased in Algeria and the Sudan. In contrast， investments in West Africa declined to $16.8 billion by 5%， this is mainly caused by the decreasing flows to Nigeria. At the same time， Liberia and Mauritania both experienced a great increase in inward FDI flows. Second one is the report entitled " Economic progress and the potential in Africa”， which was issued by the famous McKinsey global institute in 2010. The report appraised the economic growth in Africa in recent years and made optimistic forecast of the future development in Africa. Africa has become one of the areas that can bring the highest return on investment in the world， and the rate of return reached to surprisingly 60% higher on average than China， India， Vietnam and other Asian countries. African GDP grew by an annual rate of 4.9% from 2000 to 2008， the GDP tends to increase to $1 trillion from now to 2020. Some countries perform quite well， to be specific， the economic growth rate reaches to 6.9% by Nigeria and 10% by Angola. In terms of the labor force， Africa's labor force is expected to be 1.1 billion people by 2040. In terms of the number of middle class family， the number would reaches 60 million in 2015， according to the economist in 2012.

However， there are some facts that restrain the smooth development. West Africa is faced with unstable political situation， which is the most serious problem that restrains the development in that area. Most of the countries were least-developed with the least growth rate in Africa and rely heavily on international development aid. From the perspective of industry， industrial structure in these countries are imbalanced with a single economic （crops or minerals） as the economic pillar， and they are fragile in manufacturing industry. In terms of traffic infrastructure， the foundation is weak and they are not able to do projects by themselves， which seriously hinder the regional integration and regional economic development. In addition， all forms of investment are low in Africa and hence inadequate for the attainment of the poverty reduction in the continent .

3. The internationalized process into the African market of CRCC

3.1 The internationalized process into the African market

CRCC was found in 2007， but it participate in the internationalization process as early as in 2008 when it undertook the Libyan coastal railway and north-south railway project. CRCC has wholly-owned subsidy such as CRCC East Africa Company to participate in projects. CRCC has cost advantages in high-speed railway， this is cost strategy. In the future， CRCC would participate in the establishment of high-speed railway research center in Africa， as the cooperate-level strategies.

3.2 Evaluation of the internalization strategies used

So far， CRCC uses mainly the cost strategy to compete with foreign railway construction companies. This strategy can work sometimes， but not all the cases. Cooperate-level strategies like the establishment of high-speed railway research center in Africa is a good way to show chinese enterprises’ ability in doing research and building high-speed railways， which could in turn attract more contracts with CRCC.

4. CRCC’s performance in africa- based on the institutional framework

4.1Formal institutions

First， the stable political situations have guaranteed the economic development in many countries， on the contrary， unstable situations like social turmoil would bring great loss and harm the national economy. CRCC benefit from Chinese friendly diplomatic policies with Africa， which aims to help promote African economy. Second， as western countries trapped into financial crisis and are still recovering from it， African countries come to realized that the development mode from west are not effective all the time. China’s rapid development has shown that Africa should develop their own development ways and it is possible to be rich countries. African countries start to develop cooperation relationships by themselves independently， and CRCC can seize the chance to develop relations with local government. Besides， some free trade area are forming in Africa， such as The Economic Community of West Africa States （ECOWAS） ， which is also a chance for CRCC to reduce cost. Third， Chinese government have may bilateral agreements with African countries， which aims to encourage trade and cooperation in investment， and some refers to prevent tax avoidance. These agreements provide the legal platform for CRCC to further develop his business in Africa.

4.2Informal institutions

Informal institutions concern behavior are morally right and wrong， and what is important and not within a society， usually form as norms， cultures and ethics. CRCC has comprehensive system concerns with social responsibility that covers environmental protection， charity affairs and some rescue actions. Sub-Saharan Africa faces significant challenges in dealing with ground water pollution， and CRCC can do something for this in the construction area. Another example is that in April 2014， one building collapsed in Tanzania. CRCC East Africa Company organized the rescue action and won respect from local residents and the government. In 2014， Chinese prime minister LiKeqiang announced an aid of 10 million USD to protect African wild animals and plants during his visit in Africa. CRCC knows it should respect different cultures.

5. Recommendations for CRCC

To better perform its future operations in Africa， some suggestions are given to CRCC.

To improve their current performance， CRCC should emphasize the static strategies. First， CRCC should realize that Chinese enterprises are losing price advantages over Some other railway construction enterprise， so CRCC should develop good relationships with local governments as well as suppliers so as to lower the price. Second， CRCC should learn to do good job in marketing， some work conditions should be improved， and adequate survey should be conducted in African market to seize opportunities. Third， CRCC should try to cooperate and combine with other Chinese construction enterprises， as to solve the funding issue and make use of complementary advantages in some professional fields. Last， carry out the localization strategy， as to develop new markets and optimize the allocation of resources.

To expand further to other markets， CRCC should focus on the cultivation of its brand and brand is based on high quality of the project， as cheap price will no longer be the premium. Besides， CRCC should strengthen the construction of management， personnel and technology in the long term， which are behind advanced western countries. Second， since some African countries are not stable or just stable for the moment， CRCC should analyze the situation with the long run and keep balance between risks and profits. Third， introduce Chinese standard into African markets， as to make the investment more convenient and dissolve the excess domestic production capacity.

References

[1] Yin-Wong Cheung， Jakob de Haan， Xingwang Qian & Shu Yu. China's Outward Direct Investment in Africa. Review of International Economics， 2012，（2）.

[2]UNITED NATIONSCONFERENCE ON TRADE AND DEVELOPMENT. World Investment Report 2013： Global Value Chains： Investment and Trade for Development. 2013.

[3]John C. Anyanwu. Promoting of Investment in Africa. African Development Review， 2006，（1）.

[4]Blackwell Publishing Ltd. Africa Research Bulletin： Economic， Financial and Technical Series， 2003，（5）.

[5]David K. W.Kreamer & Brent W.Usher，. Sub-Saharan African Ground Water Protection―Building on International Experience. Groundwater， 2009，（2）.