Why MNCs should consider a city-clustering approach to China

In the second part of our two-part series we explain why you might want to consider a city-clustering strategy in your approach toward China, and introduce FSG’s urbanization-based market prioritization tool, which can help inform your resource allocation and channel strategy in China. You can find part one here.

China must urbanize to sustain growth

As China’s economy slows, it must transition to a consumer-based, services-orientated economy. To that end, the government has embarked on an ambitious urbanization drive to move tens of millions of farmers from the countryside to the cities over the coming years.

China is taking a city clustering approach

The government’s plan calls for the optimal distribution and coordinated development of cities of varied sizes along two horizontal and three vertical corridors, spanning the breadth and width of China. Along these corridors will be city clusters, known as Cheng Shi Qun in Chinese. In total these clusters will cover just over one-quarter of the country, encompassing 81% of the economy and 95% of its industrial production.

To provide jobs for all the rural migrants moving to the cities, the government is promoting industrial clusters with the rationale that industry clustering drives economies of scale and enables the development of advanced supply chains.

Why should MNCs consider a city-clustering approach?

Companies who familiarize themselves with China’s urbanization program and adopt a clustering strategy of their own will benefit from additional scale and a more efficient use of assets. Given China’s size, attractive cities are often widely dispersed, requiring a considerable use of resources and complicated supply chains to serve them effectively.

By focusing on clusters rather than cities, MNCs may find that there are a number of attractive cities within a cluster that they are able to serve from a smaller number of locations. Companies can target these cost-effectively with their existing resources, requiring a less complex supply chain and fewer partners.

FSG’s urbanization-based market prioritization approach

Companies that do decide to pursue a city-cluster approach will likely benefit from a forward-looking framework that enables them to assess which clusters are expected to offer the most attractive opportunities over the coming years.

In our recently released report “The Future of Chinese Urbanization,” FSG evaluated the cities included in China’s urbanization plan and developed forecasts for each across nine indicators that were chosen based on their perceived level of usefulness in determining market size and attractiveness. A tool and framework included in the report allows companies to take a forward-looking approach in identifying cities and clusters of most value to their business.

The tool not only provides companies with a way to determine the general level of opportunity, but also a visual framework that can be used to consider how urban concentration relates to business fit (i.e., the economics of distribution, supply chain, production, and sourcing).

Companies can use the visual framework to help inform their decision-making process in terms of market prioritization and channel strategy:

  • A cluster that scores highly and has a large concentration of attractive cities within it suggests a sizeable opportunity that could be easily accessed directly
  • A cluster with a small number of attractive cities within it may be better accessed indirectly by working with distribution partners


When considering a suitable framework to use in their China strategies, MNCs may find that aligning with the government’s city-clustering plan offers them a more rationalized approach in terms of increasing efficiency by better using existing resources.

Once MNCs have decided to use a city-clustering approach, they should consider using FSG’s urbanization-based market prioritization tool to enable their decision-making process in terms of resource allocation and channel strategy.

Clients can access the full report on FrontierView hereNot a client? You can purchase The Future of Chinese Urbanization report on our online store, or contact us to learn more.

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