News that Ford Motor has agreed to terms with Zhejiang Geely for the Chinese carmaker to acquire its Volvo Cars division is the latest example of the next wave of Chinese foreign investment. Manufacturers–mostly privately owned, not state enterprises–are increasingly looking for brands and technology to use as the foundation of a new generation of innovative and branded Chinese products for both domestic and global markets.
The first wave of Chinese foreign investment was led by the country’s huge state-owned enterprises, which aimed to secure critical natural resources such as oil and minerals and bought into basic industries that are capital intensive and need scale, such as steelmaking, shipbuilding, construction and telecom infrastructure.
Chinese companies say that their motivation for foreign direct investment is market access or a pre-emptive securing of access against potential protectionist barriers. Computer maker Lenovo ( LNVGY.PK – news – people ) and white-goods manufacturer Haier have made inroads into the markets of the developed world following acquisitions, most notably Lenovo’s of IBM’s PC business. However, the fast-growing domestic market makes international expansion and the acquisition of foreign distribution networks relatively less important to many Chinese manufacturers than it would have been for companies from other developing economies at a similar stage of industrial development.