Chinese companies building global presence

22 June 2010

BEIJING: Companies that are based in China but which are able to compete on the global stage are "slowly but surely emerging", a study has argued.

According to a report from Credit Suisse, the investment bank, the Chinese population will grow in size to 1.35 billion people this year, a potential audience too big for major corporations to ignore.

The purchasing power of shoppers in China is also increasing at a "very rapid pace", with per capita GDP set to experience an uptick from $2,300 ($1,560; €1,866) in 2007 to $34,500 by 2050.

At present, however, comparatively lower incomes make China particularly attractive, as skilled factory workers for foreign joint ventures earn an average of just $858 a month.

This total declines to $200 a month for unskilled staff, and means manufacturing goods in China for the local and overseas market is very cost-effective.

"Western companies with sizeable Chinese operations are as a consequence benefiting and posting strong sales and profit growth in China," said Reto Hess, an analyst at Credit Suisse.

More broadly, while multinationals have long enjoyed advantages linked to their greater know-how in a range of competencies, Hess suggested this situation is about to change.

"For a long time, the market structure in China was quite simple. Domestic companies mainly focused on cheap low quality products, while Western companies targeted the premium segment," he said.

"Credit Suisse expects the international competitiveness of Chinese companies to continue to increase, as result of improving product quality, overcapacity on the Chinese market … and buildup of distribution networks."

Huawei, the Chinese telecoms equipment giant, has been gaining ground on established rivals like Ericsson, Nokia Siemens and Alcatel-Lucent in the recent past.

"Communications is … playing an increasingly central role in the daily lives of consumers around the world," said Kevin Zhang, vice president of global marketing at Huawei.

"Growth is being driven by aspirations for robust yet affordable basic connectivity in fast-growing emerging markets, coupled with demand for mobile broadband services in developed markets."

Huawai is diversifying its output by producing mobile handsets for different providers, such as the Pulse and Tap devices created for T-Mobile which were sold in Europe and the US respectively.

It estimates that the number of people using mobile broadband will climb to three billion in the next five years, with the amount of traffic generated in this way rising 2,000 times over.

"We believe a $150 smartphone with iPhone-like user experience could be the key to unlocking the promise of ubiquitous mobile broadband," said Zhang.

Alongside expanding its reach in nations like Australia and India, Huawei is also working with MediaCom, Clearwire and GlobeNet in North America and NTTDocomo and Softbank in Japan.

Elsewhere, China's first private equity fund to support media owners was launched earlier this week, with an initial $2bn set aside to invest.

China Media Capital is backed by firms like the Shanghai Media Group and the China Construction Bank, and aims to help companies "go global", according to its president, Lui Ruigang.

"CMC will finance selected media companies to help them grow, restructure and merge," he added.

Data sourced from Credit Suisse, Wall Street Journal, CRI English; additional content by Warc staff