Corporate Governance of Chinese Multinational Corporations

Economic globalization has become one of the most fundamental characteristics associated with the evolving world economy, in which multinational corporations (MNCs) are viewed as an important driving force of global economic integration by their overseas investment and strategic adjustment.

This chapter analyzes the evolution of Alibaba Group’s corporate governance and the choices that the company has made regarding its overseas investments. First, key events in the development of Alibaba Group provide a summary of the company’s situation to form a preliminary understanding of the evolution of its strategic-organizational structure-corporate governance model. Equity changes in the parent company, the composition of the board of directors, and the evolution of control-rights are also analysed, demonstrating the company’s pathway to successful governance. Finally, Alibaba Group’s international development strategy and foreign entry mode choices are reviewed and subjected to analysis, along with the challenges faced by Alibaba Group as it grapples with complex transnational governance issues.

For automobile companies in the process of internationalization through cross-border mergers and acquisitions, how to carry out governance is a hot topic and worthy of study. This case study considers the situation faced by Geely, a top-10 private company in China’s auto industry. Through research into the background and process of Geely’s acquisition of Volvo, the company explores and analyzes pre- and post-acquisition governance and board executive decision-making during Geely’s acquisition of Volvo. As part of its internationalization strategy, and following years of preparation and careful stakeholder governance, Geely Automobile acquired 100% of the shares in Volvo, which was owned by Ford Motor Company. This set the scene for more innovative transnational governance. Through interest management, executive governance, board governance, and parent–subsidiary relationship governance, Geely facilitated the successful integration of its acquisition, and made a success of its ownership of Volvo. Of all aspects, stakeholder governance was the main manifestation of the effectiveness of its internationalization strategy. The establishment of an international operations team and new board of directors, changes in the decision-making procedures of the board of directors, and the establishment of the “Volvo-Geely Dialogue and Cooperation Committee” were all such innovations. The transnational governance mechanisms established by Geely had improved the strong–strong cooperation between Geely and Volvo, and had shown how “snake can dance with elephant.”

This case study explores how to deal with issues that arise when multinational companies enter overseas markets, and how to adjust to them, through an analysis of Jin Jiang Hotels’ acquisition of Interstate Hotels & Resorts and an analysis of their corporate governance after the acquisition, focusing on the role of governance itself. With the development of China’s hotel industry and the deepening internationalization of Chinese enterprises, Chinese companies are working to determine how they can successfully complete overseas M&A transactions. Companies are realizing that in the process of internationalization, in an unfamiliar environment that includes differences in the system and culture, enterprises must be fully prepared and prudent when investing overseas. The successful internationalization process of many companies confirms this. This case analyzes how Jin Jiang Hotels’ cross-border acquisition of Interstate Hotels & Resorts came about, and how it was completed in 2010. In doing so, the case shows how problems encountered in transnational governance may be overcome. In-depth analysis offers valuable reference for other companies planning to invest overseas.

The formation of corporate transnational governance capability is an important issue in the field of transnational governance. However, existing research lacks a theoretical framework or model for the formation of transnational governance capabilities of enterprises in emerging economies. This case study examines the process of internationalization of Lenovo Group, identifying, analyzing, and summarizing changes in its transnational governance capability. Specifically, the case study develops four stages of the development of Lenovo’s transnational governance capability, suggesting a typical evolutionary process of corporate internationalization: (1) the basic stage; (2) the transition stage; (3) Conflict stage; and (4) Formation stage.

This case explores the mechanism of equity governance model when multinational companies enter overseas markets. It does this by analyzing seven investment projects carried out by WISCO in five countries. This case introduces these projects and sorts through the equity scenarios of each, clarifying the relationship between equity setting and national institutional support, and establishing the parameters of the Wugang (Wugang is short for Wuhan Iron and Steel Corporation) model. Lastly, the scientific nature of the Wugang model is analyzed from the perspective of institutional theory.

As Chinese companies continue to internationalize, more and more enterprises are going global to put into play transnational operations. This has led to transnational governance becoming an increasingly important topic, especially in the process of establishing overseas operations. Faced with an unfamiliar environment, involving institutional cultural differences companies need to consider carefully overseas investment and management. Many have experienced failure in these aspects in particular. This case considers the China Ping An Insurance Group acquisition of Fortis Investment Group in 2007, ultimately leading to a loss of nearly RMB 24 billion for Ping An. An analysis of events leading up to this result help us in efforts to identify problems and causes of this failure of transnational governance, with a view to providing valuable insight for other multinational Chinese companies setting out on their overseas investment adventures.

How a state-owned engineering machinery company conducts transnational governance when internationalizing through transnational acquisition is a topic worth probing. This case study focuses on Zoomlion, one of the leading enterprises of engineering machinery industry in China. Beginning with the background and process of Zoomlion’s acquisition of Italian Compagnia Italiana Forme Acciaio (CIFA), the case study then takes a close look at the acquisition, specifically the transnational governance mechanisms of the stakeholders during acquisition and the governance of board of directors, top management team and parent–subsidiary relationship following the acquisition. Zoomlion successfully achieved 100% acquisition of CIFA in 2008, through appropriate stakeholder governance. Zoomlion’s innovative transnational governance also brought about changes to its own corporate governance structure as well as progress in its internationalization. Zoomlion succeeded in post acquisition integration, through governance of stakeholders, top management team, board of directors and parent–subsidiary relationship, and all parties harnessing the resulting synergy. Of all the governance efforts, the governance of co-investors was a key embodiment of Zoomlion’s capability as an international company. Among Zoomlion’s typical transnational governance tools are corporate restructuring in CIFA, and approaches in the parent–subsidiary relationship governance as the “1/2/3 promise,” “three-person group,” and “synergy office.” Zoomlion’s acquisition of CIFA also instigated changes in the corporate structure of Zoomlion. The transnational governance approaches adopted during and after the acquisition produced a win–win outcome for Zoomlion and CIFA.

In the process of internationalization of enterprises in the construction machinery industry through cross-border mergers and acquisitions, how to conduct cross-border governance is a hot issue worth studying. This case takes Sany Heavy Industry, a leading enterprise in China’s construction machinery industry, as the research object, and studies the background and process of Sany Heavy Industry’s acquisition of Putzmeister, as well as the transnational governance mechanisms such as stakeholder governance in the acquisition process, subsidiary governance after the acquisition, parent company governance, and parent–ubsidiary relationship governance. Sany Heavy Industry, promoted by its internationalization strategy, after years of preparation and good stakeholder governance, successfully acquired 100% equity of Putzmeister. The adjustment of Putzmeister’s and Sany Heavy Industry’s governance structure, together with the appropriate governance of the parent–subsidiary relationship, have achieved a successful integration of Putzmeister, achieving mutual benefit and a win–win outcome.

In the past 10 years, Chinese FDI has experienced rapid expansion. However, they have also encountered many difficulties, particularly with respect to institutional barriers and corporate governance. In response to the call for strengthening transnational governance and facilitating the high-quality of transnational operations, this book systematically sorts out the transnational governance, investment, and operations of Chinese companies by selecting eight typical Chinese MNCs across various industries.