跨国公司在中国新市场环境下的致胜之道 Business success in the new China

BusinesssuccessinthenewChina

JULY2024

AUTHOR

DENISDEPOUX

SeniorPartner,GlobalManagingDirector

TheChinaCompetitionReadiness

Indexhelpsmultinationalcompanies

readjusttheirbusinessmodelsinChina

DAVIDBORN

SeniorManager

IsChinastillthemostimportantgrowthengineoftheglobaleconomy,asithasbeensincetheearly2000s,followingaseriesofeconomicreformsanditsaccessiontotheWTOin2001?Orisitafallingstar–justoneofmanyoptionsformultinationalslookingforsalesopportunities,suppliers,andproductionlocations?

WhatconsequencesdoestheanswertothisquestionhaveforthesuccessofyourbusinessinChina?

Attheendoflastyear,headlinesintheinternationalpresscastdoubtonChina'sfuturegrowthprospectsand,consequently,ontherationalebehindmany

multinationalcompanies'investmentsinthecountry.TheWallStreetJournalposedthequestion,"China's40-yearboomisover.Whatcomesnext?"CNNreported,

"China'seconomyisintrouble.Here'swhat'sgonewrong,"whiletheFinancialTimesqueried,"HowmuchworsecanChina'seconomicslowdownget?"atthebeginningofthisyear.

Normalization

TheChineseeconomyhasbeennormalizingforthelastdecade

EvolutionofChina'snominalGDPvalueandrealgrowthrate[RMBtn;%]

Theanswertothesequestionsrequirescompaniestounderstandthedifference

betweenthe"oldChinastory"andthe"newChinastory."Onlyifyouhaveaclear

viewofboththestructuralreasonsforChina'sboombetween1990and2008–theoldChinastory–andthecurrentgrowthnumbers–thenewChinastory–willyoubeabletodeveloptherightstrategyforyouroperationsinChina.Formost

multinationalcompanies,Chinaremainsexistential,asanoutletaswellasakeyblockofglobalsupplychains.

TheoldChinastoryandthenewChinastory

TheoldChinastorywithextraordinaryGDPgrowthratesof14.2%bothin1992and2007isover.Thissuccessstorywasdrivenbylowlaborcosts,laxenvironmental

regulation,highcapitalproductivity,massiveinfrastructureinvestment,andlimitedtotalfactorproductivity.

Since2010,China'sGDPgrowthhasbeenonapathofnormalization.Thistrend

continuedeventhroughtheerraticperiodsofthepandemicandcanbeviewedasthetypicaldevelopmenttrajectoryforamorematureeconomy.

10.6%

9.6%

7.8%7.4%

7.9%

7.0%

68.9

2015

6.9%

74.6

2016

7.0%

83.2

2017

Disrupted

byCovid

8.4%

6.8%

6.0%

5.2%

3.0%

2.2%

126.1

121.0

114.9

98.7

101.4

91.9

2019

2018

2021

2022

2023

2020

Highlights

Economicpressureanduncertainty:

ThroughQ1-Q42023,China'seconomic

recoveryremainedsoft(Q1:4.5%;Q2:6.3%;Q3:4.9%;Q4:5.2%)

·Exportswerenothelping(-5.3%)·Domesticdemandandconsumerconfidenceremainedsluggish

·Youthunemployment(ages16-24)wasworrying

Limitedgovernmentsupport:

Thegovernmentismorecautiousonmonetaryandfiscalpolicies,whileprovidingsomelimitedhelp

NormalizationoftheChineseeconomy:

·"Normalization"iscarryingonaftertheerraticmovementduringthepandemic·"Normalization"isanormalfactorfor

amorematureeconomy

64.4

59.3

53.9

48.8

41.2

2011

2012

2013

2014

2010

GrowthrateGDP

SourceNationalBureauofStatistics;Rol

andBerger

However,ifwecompareChina'sGDPgrowthin2023(5.2%)withthatoftheeuroarea(0.4%),theUS(2.5%),andtheworldeconomy(3.2%),Chinahasdemonstratedsolid

growth.TheIMFexpectsthisrobustgrowthratetocontinueoverthenexttwoyears,

forecastingaGDPgrowthrateof4.6%for2024,and4.1%for2025.ThesearemacroeconomicprospectstheUSandtheeuroareacanonlydreamof.

Nevertheless,ChinaisnowmarkedlylaggingbehindthegrowthofotherSoutheastAsiancountrieslikeVietnam,India,thePhilippines,andIndonesia.

Thereisnoneedfortoomuchpessimism,however.China'sgrowthprospectsforthenearfutureindicateresilienceamiddivergence:aslowbutsteadygrowthpathin

thefuture.

RealGDPgrowth(WorldEconomic

2.52.71.9

202320242025

UnitedStates

Inspiteofadialbeitonalow

fficultyear,Chinastilldemonstratedsolidgrowth,erbase

projectionsbyregion

Outlookupdate,April2024)[%]

EconomicgrowthprospectsofselectedAsiancountries

India

Vietnam

6.5

5.0

5.8

2023

2024

2025

7.8

8.6

6.5

202320242025

5.66.26.2

0.40.81.5

202320242025

Euroarea

2.5

2023

2.7

2024

1.9

2025

202320242025

China

5.24.64.1

MiddleEastandCentralAsia

3.2

2

20

Lat

St

·T

·A

s

·G

2023

GDPgrowth[%]

3.23.2

20242025

World

ActualForecast

SourceIMF

.32.02.5

2320242025

tinAmericaandheCaribbean

3.43.84.0

202320242025

Sub-SaharanAfrica

5.65.24.9

202320242025

Emerging&developingAsia

Philippines2023202420255.05.05.1

Indonesia202320242025

eadybutslow:resilienceamiddivergence

heworldeconomyisexpectedtogrow3.2%during2024and2025

slightaccelerationforadvancedeconomieswillbeoffsetbyamodestlowdowninemergingmarketanddevelopingeconomies

lobalinflationisforecasttodeclinesteadily

Thesenumberssuggestthatthesensationalismoftheinternationalfinancialpressmentionedatthebeginningofthisarticlemightbesomewhatpremature.

Formultinationalcompanies,Chinaremainssimplytoobigtoignore.

China'sfundamentaleconomicdataareresilientandwillberesilientinthenear

future.IndustrialclustersthatstillmakeChinathefactoryoftheworldarerobust,

andhavemodernizedthankstothemassiveadditionofcapacity–duringtheCovidperiod-atthehighestleveloftechnologytoserveglobalexports.Thecountry's

industrialmodernizationwillnecessarilyimplyalow-carbontransition,presentingsignificantopportunitiesforleadingcompaniesinthissector.Moreover,thereis

substantialuntappedconsumptionpotentialinChina,fueledbyarapidlyexpandingmiddleclassandongoingurbanization.

However,thispotentialmustbeweighedagainst:

•Escalatinguncertaintiesstemmingfromglobaleconomicrisksandgeopoliticaltensions.

•SluggishdomesticdemandwithinChina,whichstimulatesariseincompetitionfromdomesticChinesecompaniesthatovertimearechallengingthe

technologyandqualityleadershipofmultinationals,athomeandonexportmarkets.

"OurChina Competition ReadinessIndex andthecorrespondingoffer ofaChinaPowerHourwith

RolandBerger assistclientsin navigatingand optimizingtheirbusinessstrategiesinChina."

DENISDEPOUX

SeniorPartner,GlobalManagingDirector

•PoliticalriskswithinChina,arisingfromafailingtacitcontractbetweenthe

authoritiesandtheParty:Socialunrestmightnotbeontheagenda,butrisingunemploymentandsocialtensionsmaycreatepolicyvolatilityandreinforceunpredictability,quiteanewfeatureoftheChineseeconomy.

Whatshouldmultinationalsdo?

MultinationalsmustadapttotheambivalenceofthisnewChina–ahugemarket

withstrongeconomicfundamentalsontheonehandandaneweraofuncertaintiesontheother–bya)evolvingtheirbusinessmodelstoalignwithachangingmarketenvironmentandb)mitigatingrisksassociatedwithincreasinguncertainties.

Consequently,twofundamentalquestionsarise:

•IsyourbusinessstillsuitableforthecurrentstagesofChina'seconomicdevelopment?

•IsChina'spositioninyourglobalsupplychainresilienttoemerginggeopoliticalandeconomictrends?

RolandBerger'sChinaCompetitionReadinessIndex

Toanswerthesetwoquestions,andassistcompaniesinadaptingtheirbusiness

modelsandcomprehendingnewrisks,RolandBergerhascreatedtheChina

CompetitionReadinessIndex.Thisindexhelpsyouunderstandtheresilienceofyourexistingbusinessandoperatingmodel,andidentifyyourexposuretoeconomic

slowdownsandgeopoliticalrisks.

Theindexcoverssevenkeyaspects:businessmodel,supplychain,innovation/R&D,marketing&sales,people,data&IT,andorganization&ownership.Eachaspect

addressescriticalissuesthroughkeyquestions.Theresultisadiagnosisandthein-depthanalysisnecessaryfordevelopingfutureplansandrecommendations.

Throughthisdiagnosis,multinationalcompaniescanimplementvariousmeasurestostrengthentheirresilienceandcompetitiveness.Fromasystematicperspective,wedistinguishbetweenfourstrategicoptionsforcompanies:exit,de-coupling,

de-risking,anddoublingdown,eachsuitedtodifferentsituationsandcontexts.

FormostmultinationalcompaniesoperatingintheChinesemarket,de-riskinganddoublingdownarelikelytobetheappropriatestrategiesforthefuture.Andwhile

seeminglycontradictory,theycanco-existatdifferentlevelsofthebusinessmodel.

De-riskinginvolvesadjustingthebusinessmodel,diversifyingthesupplychain,

strengtheningintellectualproperty(IP)protection,andreducingexposuretorisksbyestablishingstrongshieldsthroughpartnerships.More"Chineseskininthegame"–throughlocalfinancing,localdecisionmaking,localownership-isanewapproach,whichmakesde-riskingcompatiblewithdoublingdown!

"Since2010, China'sGDPgrowthhasbeenon apathofnormalization.This

canbeviewedas thetypical developmenttrajectoryfora

moremature

economy."

DAVIDBORN

SeniorManager

Doublingdownentailsincreasingselectiveinvestmentstocopewiththesingular

Chinesemarketsandlocalcompetition,enhancinglocalizationefforts,particularlytappingintotheChineseinnovationecosystem,butalsoadjustingtoincreasingly

differentiatednormsandstandards,adoptingmoredirect-to-consumerapproaches,andgainingfullcommandoftheChinesedigitalecosystem.

Herearesomenoteworthyusecasesofleadingmultinationalcompaniesadjusting

theirChinastrategiesbyintegratingde-risking,withdoublingdownbeingmentioned:

Aleadinggloballifesciencescompanylaunchedanambitious"8080Localization

Plan"thataimstohave80%offutureproductsalesinChinamanufacturedlocally.Additionally,80%oftheentiresupplychainandsourcingactivitieswillalsobebasedinChina.

AglobalautomotivesupplierimplementedrobustIPprotectionmeasuresaspartofitsstrategytolocalizeitssupplychaininChina.Bysafeguardingintellectual

propertythroughoutitsoperations,thecompanystrengthensitscompetitiveedgeandmitigatesrisksassociatedwithtechnologytransfer.

Aleadingchemicalcompany,adoptedcomprehensivemeasurestomanageriskswithinitsChinasupplychain.Thisincludesaddressingenvironmental,social,and

governance(ESG)factors,intellectualpropertyrights(IPR),compliancestandards,qualitycontrol,andservicereliability.Thecompany'sproactiveapproachenhancestrustwithstakeholdersandsupportssustainablegrowthintheChinesemarket.

Theseexamplesdemonstratehowmultinationalcorporationsarestrategicallycombiningde-riskingmeasures,suchaslocalizingmanufacturingandsupply

chains,withdoublingdownactions,includingIPprotectionandcomprehensiveriskmanagement,tooptimizetheiroperationsandcapitalizeonopportunitiesinChina'sevolvingmarketlandscape.

WhatcanRolandBergeroffer?

OurChinaCompetitionReadinessIndexandthecorrespondingofferofaChinaPowerHourwithRolandBergerassistclientsinnavigatingandoptimizingtheirbusinessstrategiesinChina:

ChinaCompetitionReadinessIndex

Utilizingourdiagnostictool,weassessyourcompany'sreadinessandresilienceintheChinesemarketacrossvariousdimensions.

ChinaPowerHour

ThisinteractivesessionallowsustocollaboratecloselywithclientstounderstandtheirspecificchallengesandopportunitiesinChina.

Contactus

ifyou'reinterested.

ChinaBusinessImprovementPlan

Basedonourfindings,wedevelopatailoredplanthatmayinclude:

•Supplychainde-riskingstrategiestominimizevulnerabilities.

•