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China is coming of age as an important market for multinational companies, and the process is changing the business opportunities and strategies of companies that do business in many countries.
This is the conclusion of a research report released yesterday by the Economist Intelligence Unit (EIU), an information service arm of the Economist Group.
The research surveyed 217 senior executives in multinational operations in China from all major industries including automobiles, finance, logistics, pharmaceuticals, retail and telecommunications, in March and April this year.
It found that multinationals are currently operating in a much different business environment in China, compared with the late 1990s.
Most foreign companies came to China then believing it was a huge market with 1.3 billion consumers, but were disappointed, said Robin Bew, EIU's chief economist.
"But now, the country is indeed a huge consumer market, with 100 million people having purchasing power, and is a potentially big business to business market."
Multinationals have been increasing sales volume and improving profitability in their Chinese operations, he said.
Meanwhile, an improved infrastructure and policy environment made the big overseas companies more accessible to the market.
As a huge, demanding market, more and more foreign companies are viewing China as a strategic country for their global development, said Paul Cavey, EIU's chief China economist.
The research shows that more than half of those surveyed believe Chinese market is key to their global strategy, and 41 per cent think China is of strategic importance to them. The report also found that multinationals are facing great challenges in China.
In the 1990s, competition was rare in many business fields, but today it is becoming more intense.
Large businesses, medium and small-scale companies from Europe and the United States, firms from other Asian markets, and even China's firms are competing for a share in the market.
Market shares owned by multinationals are decreasing in many sectors, such as the auto industry and automobile manufacturing, because of the rapid growth of local firms, Cavey said, though he admitted that multinationals might have monopolized the market in a few fields.
However, multinationals have found ways to deal with intense competition. They use their strengths in brand building and marketing, and lower their operation costs through comprehensive localization, mergers and acquisitions of local firms and brands.
Mergers and acquisitions have greatly increased during the past two years, and will be a more feasible way for multinationals, the report concluded.
(China Daily June 4, 2004)
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