Challenges face foreign firms in China

17 February 2012

BEIJING: Foreign companies are tackling a range of issues from intensifying competition to rising prices and restrictive regulations as they seek to advance in China, a survey of US corporations has found.

The American Chamber of Commerce in Shanghai, the industry body, polled over 300 US firms trading in China, and found that 51% agreed the country was one of their top three priorities.

Overall, 80% of the featured companies enjoyed revenue growth in 2011, down from 87% the previous year. Another 78% were "profitable" or "very profitable", largely flat year on year.

An additional 51% of organisations reported that operating margins expanded last year, versus 66% concurring with this statement 12 months earlier.

More broadly, 72% of brand owners increased their investment in China in 2011 and 77% will do so in 2012. Some 67% of companies also saw faster growth in China during 2011 than was the case worldwide.

Localisation strategies are gaining prominence to further such trends, with 71% of businesses either currently designing unique products for China or are planning to, and 58% prioritising this "made in China for China" model.

Similarly, 80% of firms wanted to hire more Chinese staff, and 56% revealed that the majority of their domestic management team is made up of people born in the country.

Elsewhere, 62% of enterprises imported parts or finished goods from the US to support their operations in the world's most populous nation.

Less positively, corporate sentiment declined on three key metrics: success, confidence about the future and whether the rapidly-growing economy provided a "welcoming environment".

Rising costs were perceived as the greatest business challenge of last year, ahead of human resources problems and increasing competition from local and multinational rivals.

Equally, 71% of interviewees stated the regulatory situation had deteriorated or shown no change, up from 63% last year. Bureaucracy, inconsistency and a lack of governmental transparency were the other main issues.

Kenneth Jarrett, chair of the American Chamber of Commerce in Shanghai, said: "It is clear that US companies in China have come to expect challenges, have weighed them against the opportunities and have found a way to succeed in China despite them."

Data sourced from the American Chamber of Commerce in Shanghai; additional content by Warc staff