Australia’s approach to Chinese investment is unsustainable

Posted on April 19, 2013

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Dr Zhang, right, with La Trobe School of Business Head, Professor Tim Marjoribanks and visiting Xinhua Press Group journalist.

New study highlights critical issues: Dr Zhang, right, with La Trobe Department of Management Head, Professor Tim Marjoribanks and visiting Chinese journalist Ms Xueyun Zhang

La Trobe University research into Chinese multinationals operating in Australia warns that Australia’s approach to Chinese investment is unsustainable in the long-term.

The one-year study found that many Chinese multinationals, particularly in the resource sector, were plagued by delays, cost overruns, the productivity of local workers, as well as public resentment.

It said given negative community perceptions around Chinese investment, many Chinese multinationals have worked hard to build a positive image, changing their operational models to fit with Australian requirements, particularly occupational health and safety legislation and environmental regulations.

The study has been reported in the influential Chinese business publication, Training Magazine, owned by the Xinhua Daily Press Group, China’s largest news group.

It was carried out by Dr Mike Zhang, Professor Timothy Bartram and Professor PeterDowling from the Department of Management in the La Trobe Business School with support from the Australia-China Council.

With some 600 Chinese multinational enterprise corporate or representative offices inAustralia, China is now the third largest source country, after the US and the UK, for approved proposed investment in Australia.

‘Although the growth of Chinese investment has aroused much public debate, few studies have been conducted on Chinese Multinationals in Australia,’ says Dr Zhang.

From left, Chinese journalist Ms Xueyun Zhang with Professors Bartram and Dowling

From left, Chinese journalist Ms Xueyun Zhang with Professors Bartram and Dowling

Special scrutiny

The researchers say Chinese managers told them Chinese state-owned enterprises in Australia were singled out for special scrutiny and that obtaining government permits and approvals usually resulted in long delays and cost overruns for projects.

They quote one manager who said many Chinese firms had overestimated Australian infrastructure and underestimated Australian labour costs, which made it difficult for investors to earn a reasonable profit.

Australian public resentment towards Chinese investment had also negatively influenced the organisational commitment of some local employees, despite the fact they received generous pay packages.

Changing operational models

The study indicates negative perceptions of Chinese investment was not supported by the facts.It says Chinese investment has been well managed, meets the requirements of Australian legislation and regulations, and that many Chinese multinationals have worked hard to build a positive corporate image.

One Chinese manager told the researchers: ‘In the beginning, we were confident that we could use our successful Chinese business model in Australia. However, we soon found it was impossible to do this and we now follow the Australian business system and rely on local managers and employees for our operations.’

Another said his company had decided to give priority to building a good company image in Australia by enhancing its reputation for sound social performance.

Chinese enterprises were also ‘vexed’ by managing people, both their own expatriates and local employees. A lack of competent expatriates was an ‘Achilles’ heel for many Chinese firms operating in Australia, the study found.

Many Chinese expatriates had little knowledge about the local political and social environment, including regulations, procedures, conventions and customs, the researchers say. Yet most Chinese firms were reluctant to pay for local advisers.

The La Trobe team points out that research on Western multinationals shows expatriate adjustment was crucial for expatriation success.

Labour  problems

‘However, many Chinese multinationals have not realised this. They usually do not support their expatriates bringing families, and their pay packages are usually much lower than that of host country nationals working at the same level,’ they report.

The research also touches on a controversial topic: Australia’s restrictions on Chinese multinationals bringing in their own labour.

Some managers said while their pay for local workers was very generous, they were disappointed this had not led to ‘any sense of belonging and organisational commitment’.

One said that even if projects were plagued by delays, local employees still left work ontime, took vacations and asked for bonuses.

‘Only Chinese expatriates voluntarily work overtime given project delays,’ he said.

The researchers stress that with Chinese investment now a key issue between the two countries, all these issues required careful and sensitive management.