Challenges remain in China

25 October 2011

BEIJING: Brand owners are facing big obstacles to success in China but remain committed to the country due to the vast business opportunities it presents, a study has found.

The US–China Business Council, a trade body with members such as FedEx, General Electric, Procter & Gamble and Visa, polled 240 major US companies active in the world's most populous nation, finding that 80% of firms enjoyed double-digit revenue growth in China in 2010.

Within this group, 20% posted gains of over 40%.

An additional 60% of organisations also reported that Chinese profit margins beat their global equivalent in the same period.

Another 88% of respondents believed sales would rise in 2011, and 91% were optimistic about the next five years on this measure. For 94% of businesses, China is in their top five strategic priorities, including 23% handing it the number one position.

In all, 93% of the featured operators worked in China to serve the domestic market, 43% used it as an export hub for countries other than the US, and 27% as a centre to make goods sold in America.

"The China market is increasingly important to US companies, the US economy, and American jobs," said John Frisbie, the USCBC's president. "At the same time, companies face real challenges ... and have significant concerns about their ability to compete on a level playing field."

Upon discussing the pitfalls of trading in China, human resources constituted the most widely-cited issue. A 62% majority of corporations experienced wage rises last year, and retaining talent was also a common problem.

Protectionism was the second-biggest challenge, shown by factors like the inconsistent application of standards and licensing, mentioned by more than 50% of the sample, to market access barriers and government pressure to favour local firms, on around 30% each.

Overall, 72% of US players directly competed with Chinese state-owned enterprises. Within this group, 60% of American brand owners "suspected" the government was giving subsidies or other tangible benefits to state-owned rivals, and 36% had "concrete" proof.

Moreover, 38% of US companies thought non-state owned enterprises received similar assistance. In a not unrelated concern, 93% of contributors outlined worries linked to intellectual property protection.

Although 56% of the panel agreed things improved at least modestly in this area last year, 41% revealed anxiety covering the same matter impacted the products they made in China, while 40% had limited their R&D activity as a result, and 34% restricted the products they sold locally.

Some 57% of participants were uneasy about the Chinese government's "indigenous innovation" policy, which gives preferential procurement treatment to companies with intellectual property registered in China.

Data sourced from US–China Business Council; additional content by Warc staff