Daqin Railway Overseas Investment Strategy

Daqin Railway Overseas Investment Strategy

Daqin Railway as China’s first double-line electronic heavy duty railway for coal transportation and one of the largest coal transportation strategic enterprise, mainly undertakes coal products delivery from Shan Xi province, Inner Mongolia to other provinces inside of China. It started operations back to 1992 and has undertook over 100 million tons of coals transportation by 1995. Over the years, there has been rapid and vast expansion on its delivery capacity and up to now, it has reached ist maximum capacity on China market.

While considering overseas expansion, one may need to take into consideration of Daqin’s major service and products, government relationship and local market enviroments.

Colombia is strategically located in South America both geographically and politically. It boasts of rich natural resources of coal, oil and diamonds, ranked in the first place in Latin America. It has strong trade relationship with China. China is the largest trade partner of Colombia, only second to the US. China sees Colombia as the gate to entry Latin America.

To answer the question in the first place, I would like to recommend Daqin to use FDI (Foreign Direct Investment) to expand its business in Colombia in south America.

We are using SWOT analysis as way of reasoning for Daqin’s overseas strategy. Firstly, the Company is strongest in terms of coal and other bulk goods tranportation. If the Company enters Colombia market, it has rich experiences setting up and operating such services locally, which is indeed the most important criteria in terms of supplier capability. Secondly, Daqin does have setbacks due to long distance between China and Colombia. However, this can be made up by local direct investment. Hiring local employees and operating local branches can cut down overseas operation overhead cost. Thirdly, on opportunity, China and Colombia are embracing the best time in terms of national relationships. This actually provides an ideal politics environment for Daqin’s local investment there. As reported by media, China government is planning to build a road in Colombia to connect Atlantic Ocean and Pacific Ocean to replace Panama Canal. The project can definitely enhance the transactions between the two nations and stregthen their relationship. Most importantly, the main road will be equipped with full length of railway, planned to be as long as 220 kilometers and constructed by China Railway Group. The project was funded by China Development Bank which gurantees the both payment and delivery in time. Meanwhile, China and Colombia also had some discussion around building up another railway of 790 kilometers which brings about huge opportunity. On the other hand, Colombia is a country rich in natural resources especially coals. This surely will bring to Daqin endless market demands. These elements in all prove the location advantages when doing a business in certain area. For a firm to go into investing in foreign country and run business in a very large scale, the location has to be offering very attractive benefits. Here in this case, Colombia is the location with sound natural resources and friendly politics environment. Last, I have not identify major threats to Daqin Railway from local or competitors from neighbour countries.