Foreign firms mixed on China

30 May 2012

BEIJING: A majority of European companies remain upbeat about their prospects in China, but a fifth are considering shifting investment elsewhere due to business problems associated with this market.

The European Chamber of Commerce in China, the trade body, and Roland Berger, the consultancy, polled 557 executives, 74% of which agreed China was "increasingly important" to their business.

More specifically, 72% of corporations are now primarily present in China to supply goods and services for local customers, up from 60% in 2009. This indicates that firms are making a move beyond export-led strategies.

Additionally, 45% of the featured firms generate at least 11% of their global sales in China today, measured against the 30% logged in 2009.

Earnings before interest, tax and amortization also rose for 64% of enterprises. At 45% of consumer goods and services providers, profitability leapt by over 20%. This was the case for 26% of professional services firms and 20% of industrial groups.

Upon comparing margins with those around the world, 42% of interviewees reported China yielded a superior performance, and 29% reported that they matched worldwide figures.

Overall, 20% of contributors spent more than €250m in China in the last year, and 63% may undertake major new projects in the coming two years. A further 76% of respondents stated that China was among their top three current investment destinations.

In the next two years, 55% of organisations will "definitely" invest it marketing and sales, standing at 49% when discussing HR management and 43% regarding brand recognition, the top three scores in this area.

The main risks identified by European companies were a Chinese fiscal slowdown on 65%, increasing labour costs on 63% and a global economic crisis on 62%. Competition from privately-owned local rivals hit 48%, versus 36% for state-owned firms.

Some 23% of European players also believed their Chinese peers had strengthened governmental relations in the last two years, reaching 14% for brand recognition, 13% for marketing and sales, 12% for pricing and 6% for product quality.

Another 42% of the sample predicted official policies would discriminate against foreign firms in the next two years, and 48% concurred that regulatory barriers had resulted in "missed opportunities".

Indeed, 22% of multinationals are "considering" moving investments away from China due to rising labour costs in the Asian nation, and the "relative ease" of doing business in other markets.

"Let's not think that the decrease on FDI from Europe is completely due to the European crisis," Davide Cucino, president of the EU Chamber, said. "Probably there's also something related to the business environment."

Data sourced from European Chamber of Commerce in China/Business Week; additional content by Warc staff