Research On The Risks Of Chinese Firms Going Abroad

In recent years, with the boost of economic globalization and financialliberalization, the enterprise’s Outward Foreign Direct Investment(OFDI) whichtargets at optimizing resource allocation around the world develops rapidly and givesrise to the transfer of capital and other production factors crossing national borders.As for OFDI, it played a crucial role for developed countries in their developingstages and contributed a lot to their fortune making and social benefit as well aseconomic development and getting rid of constrains of resources and population bythe optimizing capital, technology and management in the worldwide. Nowadays,OFDI is no longer an exclusive right for developed countries, it becomes a majormeans for developing world to allocate resources and pursue the international divisionof labor. China not only lives as a resource-rich country but also appears asresource-poor country per person Especially during the initial period of theimplementation of open-up policy, on account of the way of extensive economicdevelopment at that time which leaded to the over consumption of resources and lowefficiency in energy consumption, resource is becoming a bottleneck in constraining anation’s economic development. Though existing as a nation of large population,China can not hold back the trend of aging problem, which makes it lose thecomparative advantage in competing with other countries. At the same time, somefinancial successful and competitive enterprises carry out “going out” policy activelyand quicken the pace of internationalization such as the various internationalinvestments and activities which include project contracting operations, resourcesacquisition, mergers and acquisitions and going public overseas. They make the bestuse of resources and take part in the market activities both in and abroad to the fullextent and achieve fruitful results as a result. During the30years of developmentunder the opening up policy, due to the enhance of amount of OFDI in Chineseenterprise, the regions and industries for foreign direct investment has been enlargedgreatly. The increase of OFDI has done a lot in promoting the continuous economicdevelopment, degree of economic openness and transformation of economic structure. Meanwhile, the international competence and image of Chinese enterprises has beenimproved remarkably. However, along with the rapid development in OFDI, the riskof foreign direct investment in other countries has become crucial and much moreobvious and even a major blocking factor that disturbs its development. Therefore, toreinforce risk control management in OFDI has been an unavoidable and key issue forChinese enterprise.The aim of this paper is to come up with corresponding countermeasures withregard to risk precaution mechanism construction for Chinese enterprises in OFDI bymeans of analyzing risk state home and abroad. In the dissertation, rank of risks hasbeen analyzed by constructing the risk quantification model for enterprises in OFDI.Besides, based on the study of foreign experience learning, corresponding risk controlstrategies have been presented from two aspects: the interior governance mechanismand exterior governance mechanism.There are7parts in the dissertation: firstly, the research background andsignificance, research status, purpose and method, structure of the dissertation, andinnovations are introduced. Secondly, the theoretical basis of Outward Foreign DirectInvestment are summarized, including the theories of investment risks and relatedresearch of Chinese and Western scholars. Thirdly, theoretical research on OFDI risksof Chinese enterprises is done. Then, it provides an empirical analysis for risks ofChinese enterprise OFDI. Further, the reference and learning from foreign countrieshas been presented according to the current situation and problems of OFDI ofChinese enterprises. What is more, it offers feasible countermeasures and suggestionof risk prevention mechanism from two angles: macro and micro perspective, in caseof risks that may encounter in OFDI activities. By related research and empiricalanalysis, the conclusion can be drew as follows:1. The forms of OFDI are varied, the sources of OFDI are complicated and thegeneral risk scale of OFDI is great for Chinese enterprise. Therefore, compared withinternal investment, the market environment that OFDI faces up to is much morecomplex.2. From the macro perspective, the construction of risk control mechanism works as the foundation environment to control the risks while investing. Owing to theweakness in dealing with the investing risk, Chinese enterprises are in need ofsupports from national level.3. The basic measure to control the OFDI risks is to strengthen the riskmanagement competence. As a main part in dealing with risks, enterprise’scompetence must be enhanced. It is the only way to improve the performance offoreign investment and lower the possibility of investment loss. To make the foreigndirect investment risk under control effectively, the enterprise could build its riskcontrol system from the perspectives of institution and corporate culture.The innovations of this dissertation list as follows:1. Based on the study of scholar’s research home and abroad, the definition ofoverseas foreign direct investment risk has been given wholly and specifically, whichis a possibility of difference between the actual benefit and anticipative benefit inforeign direct investment, or in other words, which is a possibility of reducing profitor giving rise to change in investment management and operation.2. In this dissertation, the risk assessment is optimized. There are many distinctiveconstructing methods in selecting index and measurement. Base on the statistics fromWORLD BANK and UNCTAD, and views of experts such as Robock、Bennett、Green、Bradley、Rummel and Heenan, the risk of OFDI is generally divided into twoparts: country risk and enterprise risk and eventually, a risk assessment system withdistinctive weight is formed here.3. In this dissertation, a F-AHP model is constructed. The use of model couldquantify risk and direct the investment behavior abroad in order to achieve the resultof anticipating risks、identifying risks、evaluating risks and controlling risks.4. The dissertation build a dynamic risk precaution mechanism from internalmicro perspective and external macro perspective to realize the mutual link andpromotion in corporate investment risk assessment and control.