Established Chinese enterprises expanding overseas are often poorly prepared, lacking sufficient finances, capable management and strong branding, a study released yesterday has found.

Joint research by IBM's business unit and Shanghai's Fudan University concludes that even though many Chinese companies may prosper abroad within the next decade, most face serious risks as they lack a coherent expansion strategy.

The findings suggest several domestic companies, especially household appliance and electronic makers, are increasing in value but are unready to compete in mature markets such as the US and Europe. "Most Chinese companies remain small by global standards," says the report, based on dozens of interviews with company executives and experts.

"Many Chinese manufacturers still compete on low-cost labour and aggressive pricing, rather than on innovative, branded products and services with higher profit margins."

The report identified only 14 Chinese enterprises with annual revenues of more than $15bn, while the US has more than 10 times the number of companies with those sales.

“National champions” singled out as most likely to succeed in the near-term in developed markets include the main oil companies, telecommunications company Huawei, appliance manufacturers Haier and Galanz, auto parts company Wanxiang Group, and carmakers Chery and Geely.

Huawei and Haier already rely heavily on overseas demand. Computer maker Lenovo acquired IBM’s PC division, including its ThinkPad trademark, for $1.75bn in late 2004; the largest acquisition by a Chinese technology company to date.

Beijing is to consider relaxing rules on direct outward investment, which the Ministry of Commerce forecasts will grow about 22 per cent a year up to 2010. But China’s outward investment is only a small fraction of its inward foreign direct investment. "It's a tiny player,'" said Alan Beebe, China director for IBM's business arm and one of the report's authors.

Mr Beebe argued many companies were underinvesting in branding and R&D, failing to take advantage of opportunities to develop into world-class organisations.

He cited Hon Hai, Taiwanese electronics company, as being a good model. "Our recommendation is to decide whether you need to have a consumer brand," he said.

The report also mentioned the problems Chinese companies had in choosing and retaining executives to carry out overseas strategies.

Executives at some Chinese companies even posted their own relatives overseas, said Chee Hew, an IBM consultant and another report co-author.

"You have to find someone who knows China and knows the foreign market," she said. "Many companies don't have a clear strategy when they go out....it's rather opportunistic."(Source: Financial Times/By Andrew Yeh in Beijing)