China continues to be a significant market for multinational corporations (MNCs) in the current year. Executives are optimistic about the potential for growth in consumption, despite facing various challenges such as geopolitical risks and competition from local competitors.
According to data from Bain & Co, China accounted for approximately 15 percent of the global revenue for 200 of the largest multinational corporations from Japan, Europe, and the US in 2022. China played a significant role in the success of Tesla, Mercedes-Benz, and the Japanese cosmetics brand Shiseido, contributing between 22 and 37 percent of their revenue.
“Taking a longer term perspective on China is crucial, rather than getting caught up in short-term fluctuations,” stated Bruno Lannes, partner at Bain’s Shanghai office. China’s economy is projected to maintain its growth trajectory, solidifying its position as a significant contributor to the global revenues of multinational corporations operating within its borders.
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The International Monetary Fund has projected that China’s economy will experience a growth rate of 5.4 per cent in 2023. This is a significant improvement compared to the 3 per cent growth rate in 2022, which was hindered by restrictions and partial lockdowns implemented as part of the government’s zero-Covid policy. Market forecasts compiled by Bloomberg suggest that the momentum may slow to 4.5 per cent in 2024. Despite piecemeal stimulus measures, corporate executives and consumers remain pessimistic about the prospects of growth.
According to Bain, China continues to hold the top spot as the largest market for various industries including food and beverages, automotives, textiles and apparels, chemicals and chemical products, iron and steel, and consumer electronics.
Alfredo Montufar-Helu, head of the China Centre for Economics and Business at The Conference Board, a global non-profit think tank, expressed the view that China continues to be appealing to foreign companies, despite macro volatilities.
“There is a growing conversation among business leaders about the importance of protecting their operations in China. This is not only due to China’s role as a major market for their products and services, but also because of its crucial position in their global supply chains, thanks to its efficient industrial ecosystem,” he explained.
According to him, foreign companies are placing a high importance on diversifying their supply chains as they aim to solidify their presence in China. Several multinational corporations are focusing on localising their operations in China, while also establishing new manufacturing centres in other regions to cater to global needs.
“According to the speaker, many multinational corporations from other countries are dedicated to the Chinese market and are actively working to enhance the stability of their operations in the face of economic and geopolitical uncertainties,” he stated.
According to Yang Jing, the director of China corporate research at Fitch Ratings, multinational corporations (MNCs) in the automotive and electric vehicle (EV) industries are expanding their supply chains beyond China. This strategic move is aimed at mitigating the risks associated with sanctions and geopolitical uncertainties that could potentially disrupt manufacturing.
Exploring developing economies beyond China for sourcing, manufacturing, and investments could pose risks for Chinese suppliers, according to experts. At the same time, these developments could offer promising prospects for local companies that excel in technology and have a competitive edge in terms of costs.
“In a recent statement, an industry expert suggested that foreign MNCs should explore the possibility of collaborating with local suppliers in the EV supply chain. This could potentially lead to these key partners being added to their list of suppliers, outside of China,” she stated.
“According to Yang, there could be potential collaborations between Chinese and foreign carmakers and suppliers in 2024. These collaborations may involve production outsourcing, technology licencing, joint ventures, and alliances in ecosystem services,” reported Yang. “There is a higher probability of mergers and acquisitions occurring between well-funded industry leaders and innovative start-ups in the EV supply chain.”
In the coming year, foreign auto and EV makers are likely to face increased competition from domestic players. These local companies have the ability to introduce new products at competitive prices and are also embracing autonomous driving systems at a faster pace. Despite the challenges, there are still opportunities for multinational corporations (MNCs) to maintain their market shares in China. One such opportunity is through the establishment of joint ventures or engaging in mergers and acquisitions.
“China continues to hold significant importance for multinational corporations. According to Bain’s Lannes, companies that are well-prepared, possess updated knowledge, conduct objective risk assessment, and implement sound competitive strategies can take advantage of the abundant opportunities available in the Chinese market.”