CORPORATE FINANCIAL MANAGEMENT

CHINA’S NEXT GLOBAL GIANTS THE WORLD’S SECOND-LARGEST ECONOMY IS HOME TO A HOST OF PROMISING BUSINESSES THAT ARE LOOKING TO COMPETE IN THE GLOBAL MARKET. FAYE CHUA EXPLAINS

Chinese businesses have become household names and started to take a major chunk of the global market. The rise of names such as internet auction site Alibaba.com, PC vendor Lenovo and consumer electronics company already attest to this fact. Alibaba floated on the New York Stock Exchange in September, with its shares rising 38% to $93.89 above the initial asking price on the first day. As a Chinese business, this is something of a first. Jack Ma, its owner, now tops ’s Holdings, the manufacturer of The report, authored by The right recipe rich list, closely followed by London’s iconic taxis, for £11m Professor Andrew Atherton, for growth? Wang Jianlin and family of last year. deputy vice chancellor at The analysis drew out common Wanda, the real estate and Lancaster University, assesses characteristics among the 100 entertainment business. Looking to the future the likely next big global companies, including clear and Ten years ago, this growth The Association of Chartered players from China by taking coherent business strategies in China’s businesses would Certified Accountants’ (ACCA’s) a close look at how they got to and close performance not have seemed feasible. But report, China’s Next 100 Global where they are today and their monitoring. In-depth industry in recent years, the UK high Giants, which was published in future potential to compete knowledge, as well as an streets have been invested September, identifies China’s against established giants in awareness of customers’ needs, in, or bought out heavily, by next wave of global business China and other markets. also featured highly among Chinese business. Superdrug giants. It lists the 100 Our research shows that the 100 businesses. They have is Chinese-owned, as is one of companies that have the these Chinese companies’ built very strong foundations the UK’s prestigious high street potential to be the next Alibaba potential does not just relate in their own domestic market brands – House of Fraser. In or Lenovo by 2020. to their balance sheets; it also and, in some cases, taken a early April, Sanpower Group, These fast-growing Chinese relates to their growth. Their dominant position, which acts the Chinese conglomerate, businesses have the right mix future growth trajectories are as a solid launch pad for bought a massive 89% stake of characteristics to emerge based on sustained annual going global. in this UK department store. as global giants from across levels of growth during The analysis did not just look What this shows is just how different regions and a range 2008-2012. The majority of at revenue for the year; it also international Chinese business of sectors. They are also set to the top 100 companies we looked at revenue growth is now. China’s main fashion challenge global market share have identified have doubled during 2008-2012, as well house, Bosideng, has a over the next three to five in size and, in some cases, as domestic dominance and presence on fashionable South years, with companies such as quadrupled. They are clearly international presence. Molton Street in London’s film and record company Huayi doing something right, but Business models and strategy West End. Meanwhile, Chinese Brothers Media Corp – China’s the question remains about were also factors in scoring the automotive company equivalent of Warner Bros – how sustainable they can, companies for the purposes of bought Manganese Bronze among the top 100. and will, be. the research.

34 The Treasurer November 2014 www.treasurers.org/thetreasurer Top of the ACCA Next Global growth rates and are a strong business model as well of the economy in which they Giants list was Hengtong increasingly engaged in as financial innovation. All six operate. The list is not markedly Optic-Electric, an electronics international markets. have shown significant growth dominated by manufacturing company based in Suzhou. The ‘middle six’ – rates of between 24% and and production businesses; China’s growing banking sector Industrial , China CITIC 29% per year consistently technology, internet and also featured prominently in Bank, , over five years. service businesses are also the analysis. Other companies Shanghai Pudong Development well represented. named in the report included Bank, Hua Xia Bank and Ping Location, location, These types of businesses IT services provider iSoftStone An Bank – are critical to the location reflect the growing importance Holdings, video surveillance other businesses that have been The emerging 100 businesses of services and the internet products supplier Hangzhou identified as China’s next 100 are active in a variety of sectors in China. The broad range of Digital Technology global giants. This is because and are located across China. sectors indicates an increasingly Company, travel agency CTRIP they have tended to fund those Many have their headquarters diversified business base within and enamelled wire maker types of emerging enterprises in , Shanghai or the the country and points to the Zhejiang Shangfeng Industrial and they are dynamic funders coastal provinces of emergence of businesses Holdings Company. (See case of future economic growth. The Guangdong, Zhejiang and that are likely to compete on studies box, below.) ‘middle six’ banks are among Jiangsu, reflecting the extent design, innovation and service, the world’s 100 largest banks, of economic development as well as those specialising The ‘middle six’ banks so they are major financial in these parts of China. The in cost-efficient assembly Banks were examined as part institutions in their own right. overall geographical spread, and production. of the research, with the But while the ‘middle six’ have a however, is wider, with findings revealing that China’s growing international presence, businesses located in the west, The role of the ‘middle six’ banks are snapping they are yet to reach the size of north, east and southeast of professional at the heels of the state-owned China’s huge state banks. the country. Perhaps the challenge for behemoths. These rapidly Like the other businesses The diversity of the 100 organisations operating outside growing banks are already in the report, the ‘middle businesses does not simply China is how to conduct among the world’s largest. six’ banks share common relate to where they are business with these upcoming They are showing significant characteristics, including located, but also to the sectors global giants. International investors should also be keeping a keen eye on these big names. CASE STUDIES Finance professionals working in China have a iSoftStone Holdings is one of China’s Travel agency CTRIP offers a range massive role to play in the leading IT providers. It was founded in of services, including air flights, train strategy and future outlook 2001 in Beijing and is now listed on the tickets, hotel bookings, package tours and of China’s businesses. They New York Stock Exchange. The company’s corporate travel. It has grown between will be driving these companies revenue in 2012 was RMB2.434bn, which 20% and 30% each year over the past towards their continued equated to around $390m in July 2014. five years and now accounts for half of all growth and global aspirations. iSoftStone’s business activities include online travel business in China. There has Meanwhile, finance consulting, IT services and business been significant growth in tourist travel professionals working in other process outsourcing. By 2012, more than to countries outside China, so CTRIP has markets can make the trade a third (36%) of its revenue had come developed its offer in popular destinations and finance links necessary to from markets outside China. The US was for Chinese tourists, such as , ensure that business activities its largest market, followed by Europe Japan, Macau, Southeast Asia and are done ethically and and Japan. South Korea. sustainably across borders.

Hangzhou Hikvision Digital Technology Zhejiang Shangfeng Industrial Holdings To see China’s Next 100 Global Giants in full, is a global leader in the manufacture and manufactures wires, fans and related visit www.accaglobal.com/content/dam/acca/ global/PDF-technical/futures/pol-afa-cngg- supply of video surveillance equipment. equipment, including refrigeration and chinas-next.pdf It has an extensive global network of freezing equipment. The company has distributors and overseas branches in not yet developed a strong international Brazil, Italy and South Africa, as well as presence, but its sales are growing a global marketing network spread across in markets outside China. It supplies 13 countries. Around one-sixth of its products to Chinese companies that Faye Chua is head revenues come from markets outside are undertaking infrastructure projects of future research at ACCA China. The company claims to have more overseas and also acts as a subcontractor. than 1,000 staff in its R&D and technology Shangfeng’s annual revenue in 2012 was development departments. more than RMB2.5bn.

www.treasurers.org/thetreasurer November 2014 The Treasurer 35