Multinational companies and China: What future? An Economist Intelligence Unit report Sponsored by: Multinational companies and China: What future? Contents Preface Executive summary Introduction Chapter 1: The big picture Hope, hype and reality Justified optimism? 10 12 Chapter 2: The consumption story 13 Chapter 3: The perils of success Is it enough One strategy, or two? Is it too much? Lacoste: Who’s your benchmark? 16 16 19 20 22 Chapter 4: Whose hubris? Suddenly uncertain 23 25 Chapter 5: The invisible hand Aiming high The real issue A non-standard approach At what price? High-speed trains: A series of unfortunate events Getting on with it 28 29 30 32 32 33 34 Chapter 6: Honour thy master The renminbi By other means Nissan: According to plan Investing in R&D 36 38 41 42 43 Chapter 7: Gearing up to play the game Overcoming the fear factor 44 46 Appendix: Survey results 48 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Preface Multinational companies and China: What future? is an Economist Intelligence Unit report, sponsored by CICC The EIU conducted the survey and interviews independently and wrote the report Gaddi Tam was responsible for layout The cover design is by Harry Harrison The findings and views expressed here are those of the EIU alone and not necessarily reflect the views of the sponsor Many interviewees for this report have asked to remain anonymous and we have respected their wishes We would like to thank all interviewees for their time and insights November 2011 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Executive summary W ith leading economies of the world in dire shape, China now has become a crucial engine of global growth—sooner than anyone had imagined While developed countries remain in a quagmire, China keeps roaring ahead While consumers elsewhere worry about their jobs and financial future, many in China are getting rich, and about to get even more so Beyond the headlines about China’s growing weight in the world—whether in purchasing power or otherwise—what does China now mean for multinational companies (MNCs; unless otherwise noted, this term refers to non-Chinese multinationals)? Are they backing up their talk about the importance of China with real investment? Are they being rewarded in return? Equally important, and not unrelated, what MNCs mean for China? Will they be allowed to realise their dreams? Or will they be held in check while local companies improve their capabilities? This report, Multinational companies and China: What future?, outlines where China currently fits on the agenda of MNCs and shows how global companies are recalibrating their China operations in reaction to new realities Its findings are based on a survey of 328 senior executives conducted in June and July 20111, as well as in-depth interviews with executives of major foreign multinational s, business scholars and market analysts Among the key findings: • Multinationals, large companies in particular, are clearly counting on China to deliver more Almost half (49%) of all the survey respondents said that the fallout from the global financial crisis has raised their companies’ expectations for China Among the larger companies (global revenues of more than US$5bn) the figure is 73% But not all companies are planning to invest more in order to increase returns Among the larger companies counting on China to deliver more, half are counting on existing operations to bring more growth © The Economist Intelligence Unit Limited 2011 The survey covered 328 companies from a range of industries The respondents came equally from companies headquartered in Europe, North America and AsiaPacific In terms of size, 55% had global revenues of more than US$500m, with 44% having more than US$1bn in revenues For more details see appendix Multinational companies and China: What future? Coming of age? Multinational companies in China, Economist Intelligence Unit, 2004 The demographic for the 2004 survey was similar to the 2011 survey, though nearly 70% of the 217 respondents in 2004 were from corporations with global revenues of US$1bn or more; in the 2011 survey, 44% of the 328 respondents had US$1bn in revenues or more Focusing only on the responses of companies with more than US$1bn in global revenues, the figure is still down in the 2011 survey—48% view the country as critical In compiling our list we examined Interbrand, S&P 100 Global, and S&P 500 companies to find those that disclosed their China revenues in their latest published annual reports or other reliable sources • While MNCs are bullish, there are signs they are hedging their bets The exuberance of consumer goods firms aside, China seems to have stalled, rather than risen, on MNCs’ agendas Among the respondents to our survey, the share reporting that their headquarters view China as “critical to global strategy” was 37% This is down from 53% reported in a similar survey conducted in 2004.2 But this does not mean that China is not an important market for many firms A further 33% of respondents said that while it is not critical, it is strategically important • Today, China is still a relatively small market for many multinationals, but this is expected to change quickly Analysis of the financial results of 70 MNCs3 showed that in 2010 only ten had China revenues that accounted for more than 20% of their global revenues For more than half, China accounted for less than 10% of global revenues Companies expect this to change Only 8% of our survey respondents said China is already their biggest market, but 17% expect it to become so in less than five years, while another 21% expect this to happen in 5-10 years • China’s consumption story is driving MNCs’ strategy The Chinese government’s drive to raise incomes and shift growth towards domestic consumption is likely to have a profound impact on most companies Among survey respondents, 58% said that this policy is the factor that will have the biggest impact on their China strategy, while 56% said that growth prospects for their industry was the key driver of their China strategy • One of the greatest challenges facing multinationals is achieving “China speed”, while maintaining a low profile Multinational companies tend to want to build more slowly and solidly than their local counterparts, but if they so in China their competitors are likely to fill the gaps Overall, 59% of our survey respondents remain focused on “improving penetration in wealthier coastal cities/southern region”, and only 33% of them are “currently moving into second- and third-tier cities” At the same time, companies worry about getting too far ahead of the local competition, lest they attract unwanted attention This could explain the seemingly low expectations of our survey respondents in terms of using acquisitions as a route to growth in China: only 20% chose acquisitions as the most important strategy for growth in China, while 63% chose organic growth and 46% said joint ventures • There are signs that multinationals’ traditional competitive advantages are beginning to erode in China It is often taken as fact that multinationals have superior technology and better brand management, and hold more appeal for talented workers There are signs that all of these advantages are beginning to erode in China Even among the large companies surveyed for this report (global revenues of more than US$5bn), only one-quarter felt they have superior technology or a stronger brand, with these figures even lower for the sample as a whole Human-resources consultancies report that local talent is increasingly gravitating towards mainland companies • China’s policies aimed at encouraging local innovation are causing a great deal of ill will among multinationals Among our survey respondents, 49% were concerned or very concerned that they would © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? be forced to give up their IP in exchange for market access Among big companies the figure was 52% While some of the more objectionable measures have been softened by the central government, executives still worry about local protectionism And 46% of respondents said that China’s regulatory environment and industrial policies were likely to have a big impact on their China strategy in the next five years • Multinationals need to reorganise to match the importance being placed on China Among large companies responding to our survey, only 8% said that their China CEO sits on the company board (for 45%, the China CEO reports into regional headquarters) However, 40% of large companies said that they had posted very senior executives to greater China, a move aimed at improving understanding of China and speeding decision making at headquarters • While planning how to win in China, multinationals are beginning to think how they can leverage their relationships there to compete elsewhere in the world While most arrangements seem to involve cooperative agreements with Chinese partners on the use of specific products in other markets, there are signs that this could be taken a step further to include joint ventures in third countries © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Introduction Throughout this report, unless otherwise noted, “MNCs” refers to non-Chinese multinational companies M any foreign multinational companies4 (MNCs) have long viewed China, with its 1.3bn people, as a dream market, with the emphasis on “dream” With leading economies of the world in dire shape, China now has also become a critical engine of global growth—sooner than anyone had imagined While developed countries remain in a quagmire, China keeps roaring ahead Consumers elsewhere worry about their jobs and financial future, but many in China are getting rich, and about to get even more so In many sectors, China is now an emerged, rather than an emerging, market It is the world’s largest market for cars, air conditioners and LCD-TVs, to name just a few products No doubt, China will soon be the greatest consumer of a whole host of other goods from medicines to designer handbags Beyond the headlines about China’s growing weight in the world—whether in purchasing power or otherwise—what does China now mean for MNCs? Are they backing up their talk about the importance of China with real investment? And are they being rewarded in return? Equally important, and not unrelated, what MNCs mean for China? Will they be allowed to realise their dreams? Or will they be held in check while local companies improve their capabilities? This report, Multinational companies and China: What future?, assesses where China currently fits on the agenda of MNCs, and discusses how some are recalibrating their China operations in reaction to new realities Its findings are based on a survey of 328 senior executives at non-Chinese multinationals conducted in June and July 2011, as well as in-depth interviews with executives of major foreign multinationals, business scholars and market analysts, and other published reports on specific industries Multinationals’ future in China varies greatly depending on industry, company size and indeed on the individual company concerned But some general observations can be made First, companies are counting on China to deliver more But not all are planning to plough in more investment in the name of higher returns Almost half (49%) of all the survey respondents said that the fallout from the global © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? financial crisis has raised their companies’ expectation for China But while 21% are “investing more in China in the hope that it will make up for deteriorating markets elsewhere”, 28% are “counting on existing operations in China to deliver more of [their] global revenue” Larger companies (revenues of more than US$5bn) are more willing—and presumably able—to spend: 73% are counting on China to deliver more, but they are almost evenly split between investing more and counting on existing operations to deliver growth Counting on China How has the fallout from the global financial crisis affected your company’s expectation for China? Choose the one answer that best applies (% respondents) All respondents Big companies We are counting on our existing operations in China to deliver more of our global revenue 28 36 We are investing more in China in the hope that it will make up for deteriorating markets elsewhere 21 37 We are postponing further investment in China because of deterioration in our main markets We are repatriating more profits from China to shore up balance sheets at headquarters Our expectation has not changed 40 22 Source: Economist Intelligence Unit survey Yet China is not as crucial to foreign companies as may be expected, given widespread hype about its growth The share of respondents reporting that their headquarters views China as “critical to global strategy” was 37% in our 2011 survey, down from 53% reported in a similar survey conducted in 2004.5 Although the survey sample from 2004 had a higher percentage of larger companies, when we look only at the responses of companies with more than US$1bn in global revenues, the figure is still down in the 2011 Critical, or just important? From the perspective of your global headquarters, which statement best describes China? (% respondents) 2011 total 2011 big companies It is critical to global strategy 37 It is strategically important, but not critical It is on a par with other emerging markets 5.5 We are still exploring the market 13 1.4 It will be a niche market for us n.a 33 36 48 52.5 2004 total Coming of age? Multinational companies in China, Economist Intelligence Unit, 2004 The demographic for the 2004 survey was similar to the 2011 survey, though nearly 70% of the 217 respondents in 2004 were from corporations with global revenues of US$1bn or more; in the 2011 survey, 44% of the 328 respondents had US$1bn in revenues or more 40.6 Don’t know Source: Economist Intelligence Unit survey © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? survey—48% view the country as critical Still, that is a fairly large percentage of companies banking on China And even those for whom China is not critical view it as important Indeed, based on our qualitative interviews with multinational executives and service providers working with them, it seems that foreign companies that have so far only dipped their toes in China are seriously considering taking a headlong dive Many that had been to China and left in failure are now returning Even those that have been aggressively expanding in the country for years are recalibrating to seize the historic opportunity that China presents—those with valuable technology are trying to figure out how to so without losing their shirts At the same time China is presenting new opportunities in areas such as capital raising and research and development (R&D) But China from here on is going to become more difficult (not that it was ever easy) The post-crisis self-confidence of the Chinese government, companies and people is soaring to the point where it strikes many outsiders as hubristic Today, some foreign companies in China wonder how long they will be welcome While smaller foreign consumer-goods makers, retailers and lower-tech companies seem largely to fly below the radar, others feel they are being watched carefully China is making greater demands— especially on foreign companies with proprietary knowhow and cutting-edge technologies Competition is already brutal To build a winning business in China, foreign multinationals must now plan even more meticulously—as well as make tangible contributions to the host country’s continued economic development The image of China that emerges from this research is a country of outsized potential, boundless ambition and increasing complexity The relentless rise of the China market remains one of the most important global business stories today But how this story ends will not be the same for all MNCs That will depend on how well each company writes its own subplot © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Chapter 1: The big picture The role China now plays in the world economy is pivotal But its role in the global revenues of multinational companies is, for the moment, less so T he global financial crisis has undeniably raised China’s stature in the world Thanks to its ability to maintain near double-digit annual GDP growth through the tumult of 2008-09, China overtook Japan as the world’s second-largest economy in 2010 Before the global financial crisis erupted, Goldman Sachs had expected China to surpass the US as the world’s biggest economy around 2041 But now, the Wall Street bank projects that the Chinese economy will overtake that of the US by as early as 2027.6 The Economist Intelligence Unit (EIU) forecasts that on a purchasing power parity (PPP) basis it will so by 2017 China’s growth prospects look good in the short to medium term as well During 2012-15 the EIU forecasts China’s GDP to expand by an annual average of 8.4% That would be only marginally lower than the 9% growth expected in 2011 This dramatic reversal of fortunes between the West and the rest has transformed the way many MNCs look at China (as well as other large emerging markets, such as India and Brazil) Simply put, it is no longer seen as a major market for the future but a place to make big money now While it may not be crucial to all companies, China certainly ranks highly on the global agenda In addition to the 37% of survey respondents who said their headquarters viewed China as critical, another 33% viewed it as “strategically important, but not critical” (though this figure was also down from the 2004 survey, where 41% of respondents said this) Only 13% said they were “still exploring the market” The latest figures for foreign direct investment (FDI) also suggest rising interest Though in 2009, in the immediate aftermath of the global financial crisis, inward FDI dropped to US$114bn from US$175bn the year before, it bounced back to an estimated US$185bn in 2010 as crisis-stricken economies began to recover (It is worth noting that these figures may be inflated by private Chinese companies raising © The Economist Intelligence Unit Limited 2011 In terms of constant 2007 US dollars See Goldman Sachs, “The Long-Term Outlook for the BRICs and N-11 Post Crisis”, December 4th 2009 Appendix Survey results Multinational companies and China: What future? Appendix: Survey results Note: Percentages may not total 100 due to rounding or the selection of multiple answers Are you familiar with your company’s China strategy? (% respondents) Yes 100 How has the fallout from the global financial crisis affected your company’s expectation for China? Choose the one answer that best applies (% respondents) 37are counting on our existing operations in China to deliver more of our global revenue We We are investing more in China in the hope that it will make up for deteriorating markets elsewhere 21 We are postponing further investment in China because of deterioration in our main markets We are repatriating more profits from China to shore up balance sheets at headquarters Our expectation has not changed 28 40 From the perspective of your global headquarters, which statement best describes China? (% respondents) It is critical to global strategy 37 It is strategically important, but not critical 33 It is on a par with other emerging markets We are still exploring the market 13 It will be a niche market for us Don’t know 48 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results What is driving your company’s China strategy? Choose one (% respondents) Growth prospects for our industry in China 56 Belief that China’s unique characteristics (eg, population) will have a major impact on our industry 19 Need to serve our customers 10 Need to monitor Chinese competitors Falling revenues in other markets Other, please specify Not sure What is your company’s competitive advantage in China? (% respondents) Long experience in emerging markets/strong management 24 Superior/unique technology 23 Strong brand 16 Large resources 10 We don’t have an advantage but feel we need to be in China 19 Other, please specify Don’t know What are your company’s key assumptions for China over the coming years? Please indicate when you expect each of the following events to happen In less than years This year/has already happened In between and 10 years (% respondents) In between 10 and 20 years Growth will slow to more developed market rates (eg, 3-5%) 10 29 29 The renminbi will be made fully convertible 31 41 China will succeed in shifting its growth model away from exports and investment and toward domestic consumption 32 39 China will become our biggest market 17 Our major competitors globally will be Chinese 17 21 21 Developments in the China market will have a disruptive impact on our industry 14 18 19 © The Economist Intelligence Unit Limited 2011 17 21 11 16 11 15 37 19 13 Not in foreseeable future 35 36 49 Appendix Survey results Multinational companies and China: What future? Which of the following factors are likely to have the biggest impact on your China strategy in the next five years? Choose up to three (% respondents) China’s efforts to raise incomes and boost consumption 58 The regulatory environment/industrial policies (eg, indigenous innovation) 46 Competition from Chinese companies 43 Renminbi convertibility, if it happens 32 Improved infrastructure (as a result of stimulus spending) 25 Urbanisation 21 Other, please specify What you see as the major opportunities for your company in China in the medium term (ie, next five years)? Choose up to three (% respondents) Growing market for our products 76 Source of skills/talent 32 Source of low-cost production 31 Key market for our technology 27 Source of innovation for global products 22 Source of capital 19 What you see as the biggest operational obstacles standing in the way of seizing these opportunities? Choose up to three (% respondents) Lack of intellectual property (IP) protection 41 Competition from domestic companies 35 Unpredictable nature of Chinese government 32 Discrimination against foreign companies 31 Corruption 28 Competition from other foreign companies 27 Lack of legal protection in general 23 Lack of available local talent 14 Risk of trade and economic disputes between China and other countries 11 Lack of autonomy to make the right decisions for the China market 50 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results How has the autonomy given to the China operations of your company by headquarters changed in the past three years? (% respondents) It has increased 36 It has decreased No change 55 10 Would you say that the views of headquarters and the views of the China operation are in alignment with regard to your China strategy? (% respondents) Yes 73 No 12 Don’t know 15 10a What impact has this misalignment had on your operations? Choose all that apply (% respondents) We have lost opportunities because we were not flexible in our thinking 45 Global decisions (eg, divestiture of product lines) were not the right ones for China 45 We have lost opportunities because decisions could not be made quickly enough 39 We have lost opportunities because we could not get the investment required 21 Our products not meet local market needs 18 Key executives have quit in frustration 13 Other, please specify 10b What are the key areas in which views are misaligned? Choose up to three (% respondents) The need to move quickly 32 The need to be innovative in our business structures in China (eg, accept minority stakes in JVs) 29 The need to adapt product/pricing to local market conditions 24 Need for long-term investment 21 The threat posed by local competitors 21 Risk assessment 18 Returns on investment 13 View of China’s potential 11 Resources for investment 11 © The Economist Intelligence Unit Limited 2011 51 Appendix Survey results Multinational companies and China: What future? 11 Which of the following growth strategies will be most important to your company’s expansion plans in China? Choose up to two (% respondents) Organic growth 63 Joint ventures 46 Acquisitions of Chinese companies 20 Acquisitions of foreign competitors’ operations We are not planning to expand Don’t know 12 How will your company expand geographically in China? Choose the one answer that best describes your situation (% respondents) We will focus on improving penetration in wealthier coastal cities/southern region 59 We are currently moving into second and third-tier cities 33 We already have a substantial market in second and third-tier cities and are moving on to fourth tier and beyond 13 Is your company planning to issue bonds in Renminbi? (% respondents) Yes, our parent company is planning to so in Hong Kong Yes, our parent company is planning to so in China Yes, our China subsidiary is planning to so in Hong Kong Yes, our China subsidiary is planning to so in China 11 No, we have no plans to so 76 Don’t know 15 14 Please rate how likely your company would be to the following in the next five years Rate on a scale of to 5, where = Highly likely and = Not likely at all Not likely at all Highly likely (% respondents) Raise bonds in Renminbi 10 11 70 Pursue a secondary listing on the Shanghai Stock Exchange (if permitted) 11 11 70 List China subsidiary on a mainland stock exchange (if permitted) 10 14 68 List China subsidiary on the Hong Kong stock exchange 11 13 67 Sell a stake in your company to a Chinese competitor 14 16 61 Sell a stake in your company to a minority investor as a means of raising capital and gaining local expertise (eg, Chinese private equity or financial institution) 10 21 17 51 Acquire a Chinese company 11 52 23 25 18 24 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results 15 Does the lack of capital account convertibility of the Renminbi have an adverse effect on your China strategy? (% respondents) Yes 26 No 51 Not sure 23 15a Please indicate your level of agreement with the following statements Rate on a scale of to 5, where = Strongly agree and = Strongly disagree Strongly disagree Strongly agree (% respondents) Repatriation of funds remains difficult, making us more conservative in our push into China 35 33 21 We still need to rely on more open financial centres such as Hong Kong or Singapore to run regional finances 35 35 Lack of convertibility is preventing us from moving our Asia headquarters to China 21 23 21 21 18 17 16 How will the Reminbi’s appreciation affect your China strategy? Choose all that apply (% respondents) We see more opportunity to export to China 30 We are planning to source more materials/components locally 23 We are shifting some production to other countries 15 We are undergoing a major cost-cutting exercise 14 We see no major impact 41 17 Which initiatives is your company undertaking to try to integrate China more closely into global operations? Choose all that apply (% respondents) Senior executives from headquarters are travelling to China more frequently 58 We are putting senior Chinese staff onto our global talent development programme and are bringing more Chinese staff to positions at headquarters 29 We have moved very senior global executives to China/the region 22 We have appointed executives from China to our global board 15 We’re moving or have moved our Asia Pacific headquarters to China 13 We have moved global headquarters of some divisions to China Our efforts are minimal—we send senior executives to China a few times a year 33 © The Economist Intelligence Unit Limited 2011 53 Appendix Survey results Multinational companies and China: What future? 18 How does your company manage China at the board level? Choose all that apply (% respondents) Our company has a China specific plan that is reviewed and approved by the board annually 43 Our company treats China the same as any other emerging market, with the CEO reporting into a regional head 39 Our company has independent directors/a China advisory committee to oversee and support our operations in China 16 Our company has external board members with China experience and/or board members that live in Greater China 14 Our China CEO sits on the global board 13 Don’t know 14 19 Please indicate the degree of concern at your company regarding the following Rate on a scale of to 5, where = Very concerned and = Not at all concerned Not at all concerned Very concerned (% respondents) A major crisis in the Chinese economy 18 25 Major social unrest in China 13 31 31 29 China’s bilateral relations with your company’s home country 25 Protectionism in your company’s home country 12 15 28 32 15 27 27 41 23 24 23 32 13 23 23 16 30 China’s proposed foreign investment review board 18 Being forced to give our IP in return for market access 26 16 22 32 Protectionism in China at the provincial/local level 17 24 31 Protectionism in China at the national level 19 19 26 Human rights incidents such as the detention of foreign executives 10 22 China’s lack of press and internet freedom 12 20 28 11 14 20 How would you describe the competitive strengths of domestic Chinese companies in your sector? Choose the one that best applies (% respondents) Chinese competitors in our industry are already a serious threat to our business in China 26 Chinese competitors in our industry are already a serious threat to our business globally 15 Chinese competitors in our industry will be a threat to us globally in five years time 20 Chinese competitors in our industry are not a threat 22 Chinese competitors in our industry are the same as other competitors 17 54 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results 20a If Chinese companies in your industry are a threat to your company globally, what you believe have been the most important factors in their competitive strength? Rate on a scale of to 5, where = Very important and = Not important (% respondents) Very important Entrepreneurial drive 24 35 Not important 24 16 Cost advantage 35 35 24 Government support (eg, low-cost financing) 35 33 They have absorbed technology from foreign partners in China 29 They have developed competing technology 23 40 27 19 36 21 21 How has the overseas expansion of Chinese companies affected your company? Choose all that apply (% respondents) Chinese companies have driven down prices in other markets 30 Chinese companies have become competitors for acquisition targets 23 Our partners in China have become our competitors in other markets 14 No impact 42 Other, please specify 22 Has your company changed its China strategy in response to the overseas expansion of Chinese competitors? (% respondents) Yes 24 No 68 Don’t know © The Economist Intelligence Unit Limited 2011 55 Appendix Survey results Multinational companies and China: What future? In which country is your company headquartered? (% respondents) US 29 Germany India Singapore UK Hong Kong Canada Netherlands Australia 3 China France Switzerland Spain Italy 2 Japan Malaysia Philippines Denmark Ireland Thailand Austria Belgium Cyprus New Zealand Poland Portugal Sweden Taiwan In which region is your company headquartered? (% respondents) North America 33 Western Europe 33 Asia-Pacific 33 Eastern Europe 56 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results In which country are you personally located? (% respondents) US 17 China 16 India Singapore UK Germany Canada Hong Kong Australia Italy Malaysia Spain France 2 Switzerland Philippines Ireland Japan Poland Portugal Thailand Czech Republic Denmark Hungary Indonesia Vietnam In which region/country are you personally located? (% respondents) Asia-Pacific excluding China 35 Western Europe 26 North America 21 China 16 Eastern Europe © The Economist Intelligence Unit Limited 2011 57 Appendix Survey results Multinational companies and China: What future? How long has your company been in China? (% respondents) 10 years 36 What is your primary industry? (% respondents) Manufacturing 14 IT and technology 13 Professional services 13 Financial services 12 Healthcare, pharmaceuticals and biotechnology Chemicals Construction and real estate Consumer goods Education Automotive Energy and natural resources Transportation, travel and tourism Telecommunications Aerospace/Defence Entertainment, media and publishing Retailing Logistics and distribution Agriculture and agribusiness Government/Public sector What are your organisation's global annual revenues in US dollars? (% respondents) $500m or less 45 $500m to $1bn 12 $1bn to $5bn 15 $5bn to $10bn 12 $10bn or more 17 58 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Appendix Survey results Which of the following best describes your title? (% respondents) Board member CEO/President/Managing director 24 CFO/Treasurer/Comptroller CIO/Technology director Other C-level executive SVP/VP/Director 18 Head of business unit Head of department 10 Manager 14 Other What are your main functional roles? Choose up to three (% respondents) Strategy and business development 46 General management 45 Marketing and sales 25 Finance 24 Operations and production 16 IT 11 R&D Risk Customer service Information and research Human resources Legal Supply-chain management Procurement Other © The Economist Intelligence Unit Limited 2011 59 Appendix Survey results 60 Multinational companies and China: What future? © The Economist Intelligence Unit Limited 2011 Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out herein Cover image - Harry Harrison LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: london@eiu.com NEW YORK 750 Third Avenue 5th Floor New York, NY 10017, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com GENEVA Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 9347 E-mail: geneva@eiu.com [...]... of China s consumers, Economist Intelligence Unit, 2010 9 “The China Greentech Report 2011”, The China Greentech Initiative, 2011 15 Multinational companies and China: What future? Chapter 3: The perils of success Now that the mythical China consumer has materialised, companies could struggle to keep pace with rising demand They also worry that too much success will attract unwanted attention M any multinationals... foreign companies operating in China, pointing particularly to the issues of forced technology transfer and unfair publicprocurement systems 29 Multinational companies and China: What future? 13 www.amchamchina.org/ businessclimate2011 14 www.europeanchamber com.cn 15 www.cjcci.biz/public_html/ whitepaper/2011 between American and Chinese companies1 3 The European Union Chamber of Commerce in China strikes... opportunity Competition from domestic companies, by contrast, ranks second behind IP protection as the biggest threat, and it ranks first among respondents based in China © The Economist Intelligence Unit Limited 2011 25 Multinational companies and China: What future? Sizing up the competition What is your company’s competitive advantage in China? (% respondents) All responents Big companies Long experience in... Unit Limited 2011 11 China s Local Champions”, Booz & Co, 2011 23 Multinational companies and China: What future? Getting in the way What do you see as the biggest operational obstacles standing in the way of seizing opportunities in China? Choose up to three (% respondents) Respondents based in China Lack of intellectual property (IP) protection 35 Competition from domestic companies 35 Unpredictable... Intelligence Unit Limited 2011 Multinational companies and China: What future? High-speed trains: A series of unfortunate events Events surrounding the development of China s high-speed railways illustrate multinational companies worst fears: that China will use technology and skills learned from them to compete against them in the global marketplace At the turn of this century, multinationals such as Germany’s.. .Multinational companies and China: What future? money through offshore companies and then repatriating the funds back to China as FDI It is estimated by Dealogic that such funds accounted for US$36bn in the 18 months to end-June 2011.) Surveys by foreign chambers of commerce have for several years pointed out that the bulk of investment is now focused on China s domestic market, and our own... stage Still, executives think that China s efforts to boost consumption, and the uncertain regulatory environment (discussed in the next chapter), will have a bigger impact than local competition on their China strategy in the next five years © The Economist Intelligence Unit Limited 2011 27 Multinational companies and China: What future? Chapter 5: The invisible hand China s use of protectionism as a... it is Chinese companies ability to drive down prices that has fuelled market growth in these industries in the first instance 28 © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Aiming high • Quantum physics • Developmental and reproductive science Sectors in which China hopes to take leadership From the Medium and Long-term Plan for Science and Technology... Intelligence Unit Limited 2011 Multinational companies and China: What future? and to be a more sophisticated regulator But the fact remains that China s law does allow it to consider non-competition issues, such as security of supply and its own industrial policies, in making its rulings China has recently shown signs that it will allow purchases in relatively high-profile local companies albeit with conditions... financial crisis “No matter what the official policy is, MNCs will be handicapped by this patriotism,” he says A non-standard approach 21 For an account of China s standards development efforts, see Dieter Ernst, Indigenous Innovation and Globalization, the challenge for China s Standardization Strategy, UC Institute on Global Conflict and Cooperation and the EastWest Center, June 2011 China s efforts to develop ... © The Economist Intelligence Unit Limited 2011 Multinational companies and China: What future? Preface Multinational companies and China: What future? is an Economist Intelligence Unit report,... Multinational companies and China: What future? Introduction Throughout this report, unless otherwise noted, “MNCs” refers to non-Chinese multinational companies M any foreign multinational companies4 ... 2011 Multinational companies and China: What future? survey—48% view the country as critical Still, that is a fairly large percentage of companies banking on China And even those for whom China