Multinational companies revisit growth targets for China

Thirty C-level executives gathered in Shanghai for FSG’s China 2020 workshop last month to discuss FSG’s mid-term view on the Chinese market. The half-day event covered the ten most important themes that multinationals should monitor closely in the years leading to 2020 and beyond, as well as cross-industry best practices on effective B2B and B2C distribution management and insight into the opportunities that China’s urbanization roadmap will offer FSG’s clientele.

The major achievement of the workshop was in reconfirming that there was alignment among multinational decision-makers that an essential change must be made to their China 2020 game plans.  With the increasing difficulty in managing profitable growth in the market, all agreed that it will be crucial to upgrade their strategic plans and increase the effectiveness of their resource allocation as they approach China’s new reality.

Below are three key takeaways from the discussion.

1. Multinationals are trying to ‘balance the bullishness’ for China

Companies have realized that the Chinese market has inevitably entered a phase of slower expansion. Compared to last year’s polling results, where 55 percent of clients expected revenue growth in 2014 to be more than 11 percent, only 30 percent of the respondents this year said they are aiming at surpassing that level for 2015.

This should by no means be a surprise. According to our survey, under China’s managed economic slowdown (a gradual shift away from the prosperous investment activities that helped fuel the country’s rise to the second largest economy in the world) an increasing number of multinationals are expressing a moderate anticipation for their sales targets.  For instance, the percentage of respondents who expect a mid-range growth target of 6 to 10 percent has hiked from 7 percent in 2014, to 29 percent this year.

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2. Companies are still fairly confident in their investment returns on the Chinese market

As our clients revisit their market expansion plans for China through 2020, a vast majority of them believe that the country still boasts enormous amount of untapped business opportunities, even though China’s “New Normal” promises a lower level of overall GDP growth and has led to reduced levels of multinational revenue growth expectations for 2015. In fact, 67 percent of the workshop’s participants indicated their intention to increase investment in China by an average annual growth rate of more than 11 percent by 2020.

Out of the three economic scenarios that FSG built for China 2020, 92 percent of the respondents placed their bet on the “base case” scenario, where market growth is indeed slowing, but where steady economic expansion will still take place during China’s gradual economic rebalancing. Not a single senior executive present at the workshop believed a serious Chinese financial disruption would be more likely. 

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3. Fine-tuning your China 2020 strategy will help manage profitable market expansion

To conclude, I want to reiterate something that I shared with the attendees of our workshop in Shanghai: There is no denying that China is unlikely to continue its aggressive economic expansion trajectory seen in the past few years. However, given the sheer size of the Chinese market, no multinational can afford to overlook an average annual GDP growth rate of 6.2 percent in the next five to six years.

With urbanization and innovation playing progressively critical roles in guiding the country into a new era, multinationals are already experiencing challenges, including the rapidly rising business costs brought by urban reforms and the intensified levels of competition against upgraded, local rivals. With that said, the key strategic focus for improving bottom lines in a more sophisticated Chinese market eventually comes down to product localization, channel effectiveness and, most importantly, always staying ahead of China’s emerging market trends from online business channels to more advanced R&D models.


To learn more about FSG’s events, research, and suite of information services on China, Asia-Pacific, or the rest of the world’s emerging markets, visit our website.

FSG clients can always access our latest research, including our work on China Urbanization and City-Cluster Monthly Monitors, via the client portal.

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