During FSG’s China 2020 workshop in Shanghai last month, more than 30 senior multinational executives across all industries gathered to share their insights on the world’s largest emerging market. A few key topics stood out as top areas of concern for multinationals operating in China.
1. Companies are increasingly concerned with fierce local competition
When senior multinational executives were asked to identify the most important theme for their mid-term strategy in the Chinese market, “Competitive China” was chosen by the most participants as a critical topic to which all companies should pay closer attention.
Even though Chinese firms are scattered along different levels of the development spectrum across industries, they have generally become much more competitive in moving up the value chain; some have even accelerated their growth tracks and are proactively seeking global expansion. Many Chinese firms enter the market by replicating their foreign counterparts’ products, but there is an emerging trend that they have begun to copy successful service models from multinationals, too. According to a few of our clients, the fact that local players are making products with 80 percent of their quality and 50 percent of their costs makes it extremely difficult to for multinationals to compete.
Therefore, decision makers at multinationals firms agree that mapping local industry rivals and adjusting go-to-market strategy based on regular competitive analysis is of significant value for profitable growth in China. On the other hand, ambitious and capable Chinese firms could potentially benefit multinationals too, as they become more trustworthy partners with cutting-edge technical expertise and a better strategic fit.
2. Multinationals are seeking to capitalize on China’s urbanization and mitigate risks in rising business costs
As one of China’s most comprehensive and fundamental reforms, urbanization is changing the country’s business landscape for good. Foreign companies, of course, are also eager to learn how urban policies will shape market dynamics for their respective industries in China; thus, nothing came as a surprise when urbanization and the rise of the middle class in the country were selected among the top three trends to monitor. Business costs for labor and raw materials are likely to increase in the next few years, as well, along with the progress of urban reforms.
The strategic focus for multinationals is now shifting to more in-depth analysis on the size and growth of China’s new wealth, so that better market segmentation and product design could be executed; more importantly, FSG also encourages companies to closely evaluate how urbanization is fostering industry clusters and boosting public infrastructure expenditures, which will have a huge impact on companies’ strategic planning in channel expansion, organizational decentralization, and talent mapping.
3. Increasing salesforce effectiveness and improving talent strategy are top priorities
Enhancing salesforce effectiveness appeared at the workshop as the most urgent management issue that multinationals are looking to tackle through 2020 and is directly linked to multinationals’ profitability. When multinationals are trying to improve their bottom lines in a vast market with great regional differences like China, how to ensure that internal capability development is closely aligned with external demand is a question of paramount importance, either through implementing commercial excellence programs to enhance internal productivity, or by adopting similar tactics on distribution partners to achieve indirect channel efficiency.
As China is regarded as one of the most competitive talent markets in the world, multinational executives have also expressed their concerns over high attrition levels among leadership roles and sales team in the country. As the Chinese market steps into a more sophisticated development phase, optimizing resource allocation in recruiting, training, and retaining talents will be critical for further expansion into lower-tier cities.
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FSG clients can access the full report on China 2020: Outlooks and Scenarios – Preparing Multinationals for China’s New Normal, via the client portal.