Question;

Students are required to write a report on one of the following topics:
– ¡°The Role of the State in the internationalisation of Chinese firms¡±,
– ¡°The Impact of Globalisation on the Australian labour force¡± or
– “The enforcement of commercial contracts across borders”.

This assessment exercise is to be completed individually, and must be submitted via Gradebook.

Format / Expectations:
This assignment is to be completed in the form of a report.
This report must be prepared using 1? line spacing in Times New Roman 12 font.
The report is to be 1,500 words in length. The word limit excludes the executive summary and the list of references.
All resources used in your report must be dated no earlier than 2008 and no undated resources may be used.The Harvard system of referencing is to be used

Answer;

Executive Summary

The report is divided into three main sections namely introduction, findings, and conclusions based on the primary aim of the study topic. The introduction section outlines general definition of the term internalization. It also mentions how the process has become significant in China. The section also outlines the primary aim of the study. The findings section provides detailed brief history of internalization in china the section provides detailed evidence on how the state has contributed in ensuring that firms based in china benefits for the process of internalization. It also provides evidence on how the firms have gained from the process in African market. The conclusion section provides a brief summary on the findings. The section confirms that the state has played instrumental role in ensuring its firms have accessed opportunities in international markets.

Introduction                                                        

Internalization is generally be defined as the growth achieved by state by crossing an established national boundary (Tirole, 2009).In recent years, firms based in Chinese economy have taken initiative of investing beyond in international boundaries particular in Africa. Additionally, the outward economic expansion is realized in many part of the globe. Statistics reveals that the country has managed to attract massive amount of foreign direct investments. Moreover, it is evident that China has also achieved exclusive outward foreign direct investment. The outstanding achievement has made the country rank high in the world; the initiative is highly contributed by the fact that Chinese firms have expanded their corporate strategies of participating directly in international markets. The paper will focus on examining the striking feature present in the Chinese internalization.

Theoretical Background

Forsgren (2013), perceived that firms become multinational upon acquiring a high level of cost of efficiency compared to the market. Additionally, internalization focuses on coordinating interdependent economic activities located in distinct nations. Firms take keen attention to invest beyond national boundaries to attain the internalization advantage. Apparently, business owners create firm that can efficiently manage transactions related to assets. Thus, company owners establish appropriate strategies of avoiding costs associated with small-numbers bargaining, uncertainty and opportunism. The assessment indicated that the process of internalization involving many nations could be highly essential in controlling transactional cost. According to international theory, a firm generates advantage by internalizing transactions of marketing. The theory further stipulates that internalization provided firms with favorable assets transactions compared to firms operating in a similar market (Ikenberry & Mastanduno, 2013).

The history of internalization of China can be traced back in 1970s. Mao Zedong took initiative of legitimizing contacts between foreign counties such as Canada and the United States in the early 1970’s. Factor such as fluctuating international politics and strategic balance were the major concern for country. In the early 1980s, the Chinese economy was determined by global exchanges. People made use opportunity of transnational exchanging that provided ore benefits. However, the country faced imminent challenge posed by capabilities of foreign language. Other factors such as became capital, Cultural Revolution, posed major contribution to the challenges of Chinese transnational trade.

As years progressed, China became a subject to capitalism that provided a channel for export initiative. The tertiary institutions of the country became a battleground for revolutionary and reactionary ideologies. They provided channels for managerial, technological, and personal exchange. The component of comparative advantage of China became imminent in the Chinese economy. The institute provided learners with ideology that transformed the people of China to major in transnational business transactions. In due time, china started becoming a serious contender in global transactions that was reinforced by political change and economic growth.

The country embarked on shifting to the international system form an autarkic relationship. Subsequently, in the contemporary period, several sectors of China have become increasingly internationalized. In the early 1990s, Chia had surpassed developed countries such as Japan and the United States in terms of internalization (Zweig, 2002 as cited in Katada, & Solís, 2008).
Roles of the Chinese Government in Internalization

Apparently, internalization of Republic of China can be view as key event in the twentieth century. The late twentieth century marked the end of the Cold war and communist that dominated in Europe. The end of the economic turmoil highly contributed to China’s process of internalization. To mention, the count progressed in expanding its exports whose outcome highly affected consumers, manufacturers, and importer around the globe.

A critical research reveals that gradual and shift from market to planned economy contributed to economic success. The expansion of Chinese internalization became significant to the growth of SMEs and MNCs. Through expansion of internalization, the country has experienced increased interaction between the government and small firms (Fu, 2012). In the early 1993, the CPC put effort to establish socialist market economic system. The primary aim of establishing the socialist market was to reform the management of foreign exchange. The new system was set to guide China to adopt market-based system through standard foreign exchange market and floating exchange rate.

The government indicated its commitment in transforming the convertible CNY into convertible currency that would enhance international transactions. The program reached climax in 1994 where the Chinese government enacted the inter-bank foreign exchange market in Shanghai. The reforms helped firms based in China to benefit from securities investment. The foreign investment of the country grew by a margin of 10.67. In addition, the strategy has guided China acquire a significant foreign exchange reserves in recent years (Zhang & Chan, 2011).

In the late 1970’s, the OFDI of China did not exist. Thus, overseas investments were only conducted through government sponsored assistance projects. The Chinese State Council took initiative of passing a legislation in 1979 that would have granted state owned companies to seek opportunities overseas. The significant political transition marked the starting point of sustained economic growth and emerging outward foreign direct investment. The initiative has further seen China record notable growth on the Chinese OFDI for the past three decades.

Initially, the growth of the Chinese OFDI benefitted only some types of corporate businesses. In the mid-1980s, the Chinese government initiated the process of liberalization to allow more types of companies. In 1992, the Chinese government incorporated the internalization of enterprises based in China. The strategy posed a significant impact on private Chinese enterprises where they became active in investing overseas. The move prompted majority of OFDI to seek overseas investment in Hong Kong. Chinese investors acquired a speculation that sock markets and real estate would have provided interesting returns.

A critical review on the state contribution to internalization of Chinese firms indicates that the government majored in improving political system. To elaborate, the Chinese OFDI was highly influenced long tradition of central planning and political control. The assessment points out why state-owned enterprises pre-dominate the Chinese OFDI. However, the state-owned enterprises were useful in the sense that they became valuable Chinese foreign policy instruments. Moreover, the government play critical role in determining roles attributed by FDI activities. To be specific, the state took initiative of outlining international and domestic motives for the OFDI of China. First, the government urges Chinese companies to consider investing overseas in order to access new markets. The motive further stipulates that the move would be ideal in the sense that industrial capacity of the country currently surpasses the domestic demand. The second motive indicates that the state intends to use the FDI as way of securing supply of natural resources. The state has also considered using the OFDI to evade import quotas. Lastly, the state has indicated the motive of pursing political goal by reviewing the Chinese OFDI.

The state formulated the Go out policy to improve the procedures of OFDI. The policy is firmly in the sense that it provides tax incentives direct and indirect subsidies, and, cheap loans to the firms. In addition, the policy provide Chinese firm with various types of host country. However, Chinese investor grows concerned on whether the state is committed to streamline the flows of OFDI. The central concern is that the policy selectively provides benefits to domestic firms that the state acquire interest (Dijk, 2009).

Exhibit of Chinese Internalization

Currently, the Chinese OFDI primarily targets nearby nations based n Asia despite the fact African countries have become increasingly essential to Chinese firms. The intensity of OFDI in Africa became imminent in 1900s. Statistic reveals that the Chinese firms increased their interest in Africa by 900 by 2006. Furthermore, the statistics reveals that the Chinese firms elevated the FDI stock from $ 54 million in 1992 to US $ 1,250 million in 2006.For the last two decades, Chinese enterprises have increased eleven times in African. The stock of the Chinese FDI has equally increased by 23 times in less than two decades ago.

Further research reveals that Chinese presence in Africa is highly noticeable by 2000. The oil investment of china grabs a lion share compared to academic and public. On the other hand, the OFDI of China dominates in the entire sectors Zambia is a reliable exhibit where Chinese firms have established their stake since the country attained its independence.

More is evidence of Chinese interest in Africa is the collaboration established between the government of Namibia and Chinese firm identified as China National Overseas Engineering Corporation. The two parties established a joint venture initiative where the company expressed its commitment in investing in Angolan construction industry (Guerrero & Manji, 2008).

Conclusion        

The paper has focuses on examining various ways in which the Chinese government has helped its firms in benefiting for the process of internalization. China stated implementing the process of internalization in early 1970s. The process began through reviewing political polices that would enable its firms link easily in foreign economies. The state has shown its commitment by providing incentives such as favorable foreign exchange transactions and establishing good political and economic relationships with target nations. Consequently, the Chinese firms have established reliable markets in target countries especially in Asia and Africa. The report has provided a number exhibit confirming significant successes the Chinese firms have achieved by investing in African economy. In conclusion, the report confirms that the state has played a vital role in ensuring its firms achieve maximum benefits by investing beyond its national boundary.

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