China continues to present many opportunities for Multinationals (MNCs); and MNCs continue to play a key role in the development of China’s economy. A perusal of today’s headlines might incline a casual reader to think that MNCs are becoming increasingly sidelined in an ever more confident China, but the truth is in fact much more nuanced than this. In fact, given China’s ambitious and visionary program of policy reforms announced in 2013, in many ways China’s need for insights, technology and know-how from outside its boundaries has deepened across numerous sectors. The growth rate of China’s economy may be declining as it matures, but in absolute terms it is still significant and the world’s top multinationals remain attracted by the opportunities arising from increased consumer spending, urbanisation and infrastructure development. Conducting successful business in the world’s 2nd largest economy is however increasingly challenging. Competition, from both international and domestic players, remains fierce; the rise of e-commerce and the sophisticated Chinese consumer are challenging established business models; attracting, developing and retaining talent is more critical than ever. Added to these is tougher enforcement and a higher emphasis on compliance in an already complex regulatory environment. These challenges and the increasing significance of China to global corporates’ results have resulted in an increased focus by multinationals on innovation, efficiency and the bottom-line. The CEOs of the multinationals we spoke to point out the need to be flexible and prepared to adapt in the market, in particular as they expand inland. They emphasise innovation and differentiation as they face higher competition from Chinese domestic players who have rapidly moved up the value chain, have been quick to embrace e-commerce, and are increasingly becoming global. They note how internal control, compliance and corporate governance have had to step up to a new level. As China progresses through its next stage of reform, new opportunities and challenges will emerge, both for multinationals investing in China and for Chinese domestic companies investing overseas. The companies that succeed will be those that have a clear direction and strategy, and an ability to implement and adapt. |  The increasing significance of China to global corporates’ results have resulted in an increased focus by multinationals on innovation, efficiency and the bottom-line.
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Our report highlights the strategic importance of the China market for multinationals and the actions being taken by several leading companies to grasp the opportunities and respond to the challenges. Key themes include: · A still growing, but more complex China: The speed of change in China is phenomenal. The result is that today’s China is a more complex China. Key challenges include rising costs, talent shortage, and a plethora of regulations. · New business models are disrupting multinationals: Leading Chinese companies are not just competing with multinationals but even beating them at their own game. What has changed? CEOs point to how local competitors are exploiting disruptive innovations, such as e-commerce, digital media, and big data, in order capture market share or create new markets entirely. · Selling to China’s many cities is not as easy as it looks: Few countries are urbanizing as fast as China. However, CEOs must be pragmatic about the challenges of selling to China’s many third- and fourth-tier cities. · China in the world: It is no longer enough to simply claim a presence in China. Executive teams must ask “why are we in China? Are we here to serve China, or are we here to serve the world?”. And, having made a decision, they need to execute at a global level, not just local. That means head offices must make sure they are on top of today’s China. · Finding new efficiencies in a slower China: Economic growth has slowed, but costs remain high. Organisational structures are overly complex after a decade of booming growth. MNCs must exploit their first-mover advantage in areas such as shared services, human resources, or R&D.
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