Strategies mixed in China

08 December 2011

BEIJING: Multinational companies are taking a highly diverse approach as they seek to make progress in China, a new study shows.

The Economist Intelligence Unit, the insights provider, polled 328 executives from organisations based outside China, some 49% of which agreed the impact of the financial crisis elsewhere had raised their expectations for the country.

Despite this, while 21% of firms are boosting investment levels, 28% are "counting" on pre-existing operations to deliver results. Moreover, just 37% of businesses saw China as "critical" to their global strategy, off from 53% in 2004, but rising to 48% for larger companies.

Equally, the EIU's analysis of 70 major multinational corporations showed a modest ten drew more than 20% of worldwide revenues from China today, a list including Yum Brands, Cartier and Mead Johnson.

In seeming confirmation of this, 8% of the survey panel reported that China is already their biggest market. An additional 17% believed the fast-growing economy would assume such a status in the next five years, as did 21% when looking ten years ahead.

Increasing affluence should be one contributor to this trend, as the Economist Intelligence Unit predicted GDP per head would come in at almost $10,000 per year by 2015, versus $4,500 in 2010, with disposable income rising by 10% a year.

Some 58% of the sample said official efforts to enhance consumption were likely to have the most substantial impact on their strategy in China across the next five years, as did 56% for the wider prospects for their individual industry.

Competition from Chinese companies posted 43%, beating better infrastructure on 25% and urbanisation on 21%, with the EIU stating 1bn people, or 70% of the population, will live in China's cities by 2025.

In all, 59% of businesses will emphasise wealthy coastal cities and the south when expanding, as 33% target second and third tier cities, although larger players are more focused on the latter approach.

Among the primary obstacles in China at present is a lack of intellectual property protection, mentioned by 41% of executives. Rivalry from domestic firms hit 35%, whereas just 27% of participants said the same for other foreign firms.

For the big companies featured, 25% thought their strong brands offered a clear advantage, matching the score posted for possessing superior technological capabilities, the EIU added.

Data sourced from Economist Intelligence Unit; additional content by Warc staff