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"The Internationalization of Ethnic Chinese Business
Firms from Southeast Asia: Strategies, Processes and Competitive Advantage(*)"
by Henry Wai-Chung Yeung
International Journal of Urban and Regional Research (March 1999)**
"The strongest overseas Chinese have huge
conglomerates with global reach. This is not some quaint ethnic sideshow; the Overseas
Chinese are increasingly the main event in Asian business today (Kraar, 1993: 87)."
INTRODUCTION
"The globalization of economic activities is a
relatively recent phenomenon. Since the 1960s, the global economy has become
increasingly interdependent and functionally integrated through cross-border flows
of capital, goods and people. The role of transnational corporations (TNCs) in these
cross-border activities is particularly important. The outward foreign direct
investment (FDI) stock of TNCs grew from a meagre US$129 billion in 1970 to US$1,146
billion in 1988 (UNCTAD, 1994: Table 1.8). By the end of 1995, there were some
39,000 TNCs in the world, which controlled more than 270,000 foreign affiliates. They had
a combined outward FDI stock of more than US$2.7 trillion (UNCTAD, 1996). The
outcomes of this accelerated process of globalization are manifested in the increasing
global interdependence of national economies and Triadization. In the former case,
the economic fortunes of countries are intertwined with the global shift of economic
activities (Dicken, 1998). In the latter, three distinct regions have emerged as the
leading centres of the global economy -- North America, western Europe and Asia
(Ohmae, 1985; 1995). In recent decades, Chinese business in Southeast Asia has
similarly undergone significant transformations. From petty traders and
emigrant workers in the early half of the twentieth century, the `Overseas Chinese'
and their business firms have emerged as one of the most important economic forces in many
Southeast Asian countries.(1) Today, the `Overseas Chinese' control some
80% of corporate assets and 160 of the 200 largest enterprises in Indonesia; 40-50%
of corporate assets in Malaysia; 90% of manufacturing and 50% of services in
Thailand (Wu and Duk, 1995; Weidenbaum and Hughes, 1996). In 1995, every
reported Indonesian billionaire was an ethnic Chinese. In Thailand, the `Overseas Chinese'
control the four largest private banks, of which Bangkok Bank is the largest and
most profitable in the region. In the Philippines, the `Overseas Chinese control
over one-third of the 1000 largest corporations. The World Bank estimates that the
combined economic output of the `Overseas Chinese' was about US$400 billion in
1991 and US$600 billion by 1996 (Weidenbaum and Hughes, 1996: 25). The
collective `funds' of the `Overseas Chinese' in the region (excluding Hong Kong and
Taiwan) are conservatively estimated at US$400 billion (Hodder, 1996: 3). With these
strong footholds in local industries and capital markets, many Chinese business
groups from Southeast Asia are increasingly establishing operations outside their
`home' countries. As such, these Chinese business firms have entered a new era of
their corporate development -- internationalization to establish and consolidate the
worldwide web of Chinese business (see also Kao, 1993). Internationalization is defined as
a process of cross-border operations when a business firm headquartered in one
country controls and influences the strategic decision-making of at least one
affiliate in another country. When a Chinese business firm from any Southeast Asian
country controls and operates at least one affiliate in another country within or
outside the region, it is defined as a transnational corporation (TNC)."
"Although the internationalization tendencies of
Chinese business firms are recent in origin, it is rather surprising to learn that
they remain relatively under-researched in at least two presumably very relevant strands
of literature: (1) the `third world multinationals' literature; (2) the `Overseas Chinese'
literature. The first strand of literature is dominated by economics and international
business studies (e.g. Kumar and McLeod, 1981; Lall, 1983; Wells, 1983; Khan, 1986;
Tolentino, 1993; Yeung, 1999a; Aggarwal, forthcoming)..."
"The second strand of literature, on the other hand,
is preoccupied with the `Overseas Chinese' in their domestic setting and their success in
establishing themselves in the host countries (e.g. Chen, 1976; Lim and Gosling, 1983;
Goldberg, 1985; Limlingan, 1986; Jesudason, 1989; Redding, 1990; Menkhoff, 1993; Chan and
Chiang, 1994; Brown, 1995; East Asia Analytical Unit, 1995; Hodder, 1996)... Against these
intellectual contexts, this paper aims to make a modest contribution to the literature by
offering a preliminary examination of the nature and organization of ethnic Chinese
business firms from Southeast Asia when they internationalize into foreign lands. It
focuses on their firm-specific strategies and processes of internationalization as well as
home-based competitive advantages in establishing themselves abroad. The underlying
argument is that the internationalization of ethnic Chinese business firms from Southeast
Asia can be explained by considering an amalgamation of multidimensional dynamic processes
and therefore cannot be narrowed down to any single factor. In explaining the
internationalization of these Chinese business firms, we need to pay as much attention to
their firm-specific strategies as to the changing global and regional contexts in which
these business firms are embedded and their strategies are implemented. More specifically,
some unique features of their internationalization strategies can be highlighted here: (1)
sectoral specialization through vertical integration; (2) diversification into unrelated
businesses; and (3) family ownership and management. These internationalization strategies
of Chinese business firms are prompted by increasing pressures from the accelerated
globalization of economic activities because (1) they face more competition from global
players domestically; (2) their home markets are becoming more saturated; (3) their
home-based competitive advantages dissipate quickly through deregulation and (4) their
family successors are more outward-looking in business practices and opportunity-seeking.
Together, it can be argued that through their international business activities, Chinese
business firms from Southeast Asia are becoming an increasingly important force in the
regional economy. In methodological terms, this paper is empirically based on several
existing case studies of major ethnic Chinese-controlled conglomerates from Southeast
Asia. This is a second-best solution as empirical materials on Chinese business firms in
Southeast Asia are relatively limited."
"Changing dynamics of Chinese business firms from
Southeast Asia"
"The emergence of ethnic Chinese business firms in
Southeast Asia is largely associated with the `Overseas Chinese Diaspora' in Indonesia,
Malaysia, Thailand, Singapore and, to a lesser extent, the Philippines (Lim and Gosling,
1983). It must be noted, however, that these ethnic Chinese business firms are generally
not the same firms as their predecessors a few decades ago."
"Within the Asia Pacific region, the `Overseas
Chinese' and their groups of business firms have made a notable head-start in the
internationalization of their diverse range of activities, particularly in recent decades.
Their dynamics are supported not only by the emergence of global TNCs per se, but also by
the changing market structures and institutional configurations in the home countries and
in the region. The opening of China since the late 1970s and the regionalization of
markets in North America and western Europe during the 1980s prompted and accelerated the
internationalization of Chinese business firms from Southeast Asia. Since the inauguration
of the open-door policy in China in 1979, China has experienced remarkable economic
growth..."
"Another important trend in the global economy is the
regionalization of markets in North America and western Europe (Levy, 1995). The formation
of the North American Free Trade Area (NAFTA) and the single European market in the early
1990s has created unprecedented opportunities for Chinese business firms from Southeast
Asia to tap into emerging regional markets and centres of technological innovations in the
West. As these emerging ethnic Chinese TNCs have consolidated their footholds in Asia,
they begin to penetrate markets in North America and western Europe through foreign
production and direct investment rather than trade (see case studies below). This
represents an important strategic move for Chinese business firms because in today's
interdependent global economy, it is no longer sufficient to rely on exports in order to
serve foreign markets... The establishment of transnational operations has become one of
the most important competitive strategies for these Chinese business firms to secure a
place in global competition. Why are Chinese business firms from Southeast Asia so
keen on engaging in cross-border operations? One of the key answers comes from the
changing institutional configurations in their `home' countries."
"Economic development in Southeast Asia "
"...First, despite growth in domestic economies, the
lack of sizeable domestic markets free from state intervention and monopolistic domination
has hindered further growth of many Chinese business firms."
"Table 2 National contexts of Chinese business firms
from Southeast Asia
Country Growth and Market Potential
Indonesia * high growth since 1987
* weak domestic market
* many protected industries
Malaysia * high growth since 1987
* emerging domestic market
* some protected industries
Philippines * unstable growth since 1985
* weak domestic market
Singapore * high growth since 1987
* small domestic market
* large presence of foreign firms and government-linked
corporations
Thailand * high growth since 1987
* emerging domestic market
* some protected industries
Country Presence of Chinese Business
Indonesia * small Chinese population (^5% of total)
* long history of Chinese business
* presence in virtually all industries
Malaysia * large Chinese population (^30% of total)
* long history of Chinese business
* significant presence in property and financial sectors
Philippines * small Chinese population (^1.5% of total)
* recent history of Chinese business
* limited presence in industries
Singapore * large Chinese population (^78% of total)
* long history of Chinese business
* significant presence in commerce and property sectors
Thailand * significant Chinese population (^14% of total)
* long history of Chinese business significant presence in
commerce and industries
Country Policy towards Chinese Business
Indonesia * ethnic-biased pribumi policy
* political patronage with Suharto
Malaysia * ethnic-biased bumiputra policy
* New Economic Policy since 1969
* political patronage with Malays
Philippines * ethnic-biased industrial policy
* political patronage with Marcos
Singapore * no ethnic-biased policy
* strong role of the state and its institutions
Thailand * ethnic assimilation policy
* political and military patronage"
"Second, there has been a policy shift during the
1980s and 1990s towards a more open and competitive environment in Southeast Asia
(Yoshihara, 1994). Many more Southeast Asian countries have begun to pursue
export-oriented industrialization since the 1980s. As domestic markets are
increasingly open to foreign investment and privatization/deregulation policies are being
pursued, the monopolistic advantage and subsidies often enjoyed by some leading ethnic
Chinese-controlled conglomerates in these countries dissipate quickly."
"Third, and perhaps most importantly, anti-Chinese
sentiments remain strong and pervasive in the political cultures and public discourses of
many Southeast Asian countries (Table 2; also Yoshihara, 1994; Lim, 1996; Yeung, 1997a).
In much post-independence Southeast Asia, anti-foreign and anti-Chinese sentiment has been
important (Mackie, 1988; Yoshihara, 1988; 1994; McVey, 1992). .. Anti-Chinese sentiment
was rather deeply rooted in Indonesia and the Philippines (Robison, 1986; Mackie, 1988;
Suryadinata, 1988; Yoshihara, 1994)."
(*) This is a revised version of an earlier paper presented
at the Chinese Business in Southeast Asia Conference, Kuala Lumpur, 23-25 June 1997. I am
grateful to K.S. Jomo, Raj Brown, Terence Gomez, Jamie Mackie, Donald Nonini, Carl Trocki,
Souchou Yao and an anonymous IJURR referee for their insightful comments. Kris Olds and
Peter Dicken have also offered helpful suggestions on various occasions. Some of the
materials used in this paper are collected as part of an ongoing research project on the
regionalization of Singaporean firms funded by the National University of Singapore
(RP960045 and RP970013). All errors and mistakes, however, are my own responsibility.
(1) Notwithstanding the problematic nature of the term
`Overseas Chinese' (see Hodder, 1996), I am using it as an umbrella term to refer to those
residents in Southeast Asia having Chinese origins.
(2) This paper excludes the former Indo-Chinese countries
from its discussion of Southeast Asia.
(3) This observation, of course, may not valid for the next
few years because of the recent turmoil in Asian currency and stock markets.
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**COPYRIGHT 1999 Blackwell Publishers Ltd. and the Joint
Editors of IJURR |
