Strengthening Commitment to China

March 11, 2009 · Filed Under Countries

90 percent of multinational corporations (MNC) remain committed to China despite rising costs, declining rates of domestic growth and decreased demand for Chinese exports. Almost 50 percent even plan China to become their major production site. Important criteria are a huge domestic market (65 percent), existing supply structures (41 percent) and investments already made (32 percent). Although China has also been hit by the global crisis, many entrepreneurs now see an opportunity to optimize their processes and to introduce quality standards. The enormous potential for growth increasingly attracts companies not yet operating in China. These are the findings of the study “China Manufacturing Competitiveness 2008-2009″, conducted by the management consulting firm Booz & Company and the American Chambers of Commerce in Shanghai. 108 international enterprises were surveyed for the study.

From a “global factory” to a growth and innovation site

Brenda Foster, President of the American Chamber in Shanghai, said, “China’s focus on meeting global manufacturing needs and trade benchmarks in spite of the economic downturn has led to remarkable changes among manufacturers, both in technological improvements and in their market opportunities, domestically and abroad.” Continued Foster, “We’re seeing a deeper commitment among multinationals to make China the focus of their Asian presence.”

Still many restrictions

The study points out some alarming findings: recruiting reliable and qualified staff remains to be a problem for 60 percent of the persons surveyed. Payroll costs continue to rise despite the recession: managers still earn an average 9.6 percent more than last year, with their qualifications rising, too. 84 percent want Chinese policy-makers to keep corporate taxes low. A stable currency is ranking second on the list, required by 83 percent. 81 percent say that reliability and government support are essential. There is an urgent need for a better protection of intellectual property rights.

Successful dual strategy

Success lies in China’s duality: The most successful MNCs harness the dual opportunities of China as a source of exports as well as a huge domestic market, compared to their competitors whose narrower objectives were typically either taking advantage of labor advantages on a limited scale or only importing products into China’s growing domestic market. A dual strategy – pursued by 57 percent of respondents, up from 47 percent a year ago – integrates both sales and sourcing strategies. The study also found that key opportunities for MNCs in bolstering the soft domestic market include expanding product and service offerings to meet middle- and local-market demand.

Study methodology

Using a combination of online surveys, on-site visits, and in-depth interviews, the American Chamber of Commerce in Shanghai and Booz & Company surveyed 108 manufacturing companies doing business in China about their perceptions of China as both a sales market and production center for domestic distribution and exports. Of the companies surveyed, 82 percent were wholly owned by foreigners, 11 percent were joint ventures between multinationals and Chinese partners, and 7 percent were categorized as “other.”

The manufacturers’ industries included consumer, industrial, healthcare, and materials. About 40 percent of the respondents have an additional major presence in China beyond their manufacturing footprints, including representative offices, regional or global headquarters, regional or global procurement centers, and regional or global research and development centers.

Tags: Booz & Company, China