Therefore, the CEO and board members of most companies in the world are thinking about a question: How should we know China in such a decoupled world?
All multinational companies should correct their views on this matter in order to formulate development strategies and capital agendas. To achieve this, we need to have a business-oriented overall perspective, so we want to propose a strategic framework with China as the consideration. We will analyze it from three angles, make suggestions and make the best use of it.
Market prospect: China is the growth engine.
In the post-COVID-19 era, China is the only big market that has recovered, and it can be said that it is the only growth engine in the world today. Three of the top ten shopping centers in the world are in China; China's beer consumption market is larger than that of the United States and Germany; Before the epidemic, China accounted for one-third of global luxury goods sales, and this proportion will only increase after the epidemic. In addition, in the report released by the World Bank, China is also one of the top ten economies with improved business environment in the world.
China market is too big to be ignored, and it can bring substantial growth to any multinational company.
China is also a world leader in business model innovation and smart market strategy. For example, new concepts of marketing and product development, such as live broadcast marketing and key opinion consumer (KOC), are worth learning in other countries. The cooperation between electric vehicle industry and charging infrastructure platform is another example of business model innovation, and China is also far ahead in this field.
Science and technology perspective: China is
Digital global power
According to the latest estimate, China's annual investment in R&D is about 530 billion US dollars, which has increased by 13 times in the past 20 years, and its investment is only lower than that of the United States. China has continuously invested in this field, focusing on the development of artificial intelligence, digitalization, space exploration and high-end manufacturing, and has become a strong competitor in global scientific and technological competition.
According to the 2020 artificial intelligence report released by Boston Consulting Group and Massachusetts Institute of Technology, China is ahead of its western counterparts in the application of artificial intelligence. This is because China has a huge digital ecosystem, and they also participate in relevant local platforms, so they can rapidly expand their scale.
Manufacturing perspective: China is
Role evolution in supply chain
It is of strategic significance to think about China comprehensively from these three angles. Next, we will share three modules to help multinational companies integrate China into the global strategic framework while reducing any related risks.
"In China, for China" strategy;
Realizing China in China
In terms of market size and growth potential, China is too big and important to be ignored. From this point of view, geopolitical "decoupling" does not mean quitting China. On the contrary, multinational companies should intensify their efforts to make full use of the growth potential of China's domestic market. From the manufacturing point of view, the company should ensure that it can expand the local supply chain when necessary, and actively use value-added production to meet domestic demand in an effective way.
Multinational companies must become smarter, because they will compete more fiercely with increasingly digital and rapidly expanding local companies. Local teams need to be close to the market, understand the latest development, and draw inspiration from China's emerging innovative business model. They need to establish local design centers and cooperate with local digital companies to keep up with the pace of new development and better provide unique solutions for local consumers who are in constant demand. In order to achieve this, multinational companies need to build strong local teams and improve their own strength. In addition, its business in China must give people a sense of localization and be connected with consumers and innovation ecosystem.
However, it should be pointed out that the strategy of "in China, for China" will also face a series of difficulties. A localization team with only a few foreigners may bring challenges to the control, management and integration of the company. The company should send a mature and experienced foreign leader, make good use of his "chairman and mentor" resume, and make a clear global rotation plan for the company's early global talents and local talents, which will help to create a more inclusive and cooperative culture.
In addition, the CEO and the board of directors should set up a local advisory committee to deal with China's business. Recently, several western brands (such as NBA and luxury goods supplier Coach) have been severely criticized by local social media for their positions, which is worth learning from.
Other countries: actively learn from China.
From the market point of view, China can provide many things for other countries in the world, especially in innovating business models, product development concepts and trying to subdivide new departments and categories.
China local marketers develop products very quickly, with the mentality of giving priority to mobile. Here is a bold example of product development, which is Nestle's peelable banana ice cream. The product was first developed in China market, and its concept was subsequently successfully exported to other regions. Many western retailers are actively learning from the omni-channel architecture and implementation mode of China local e-commerce pioneers such as Taobao and JD.COM.
Because China's data privacy requirements are relatively mild, and the ecosystem of digital innovation is very strong, companies can try new digital business models in China, improve them, and then push them to the world. BMW started its initial garage project in China from Munich, Germany, in order to get in touch with emerging innovative technologies such as electrification and automation in a more advanced ecosystem.
From the manufacturing point of view, China is a place suitable for manufacturing high-end precision parts, and it also provides competitive price benchmarks for value chain parts in many industries.
It is worth noting that not everything done in China can be directly or completely exported to other places due to intellectual property rights, technology or security considerations. For sensitive intellectual property issues, it may be necessary to explore the possibility of dual development and adopt the strategy of China plus one (that is, to reduce the risk of manufacturing business in China by establishing parallel factories in Southeast Asian countries such as Viet Nam).
Introducing China: Taking advantage of global advantages
Strengthen business in China.
The perspective of market and manufacturing attracts people's attention to an important field related to environment, society and corporate governance, which may be more complicated in the operation of western multinational companies. Multinational companies can learn from the best practices in the world and absorb professional knowledge in environmental, social and corporate governance, so as to catch up in this field and expand their business in China.
This has been verified many times. For example, the recycling and sustainable development practice in the West is effective, while the local packaging industry in China is drawing inspiration from this best practice and conducting similar experiments. In addition, China is also facing the problems of aging population and increasing household debt. Multinational companies can bring the experience and achievements of other developed countries to China and promote them locally.
There is another place in China that is worth learning from the world, and that is intellectual property protection and related measures. China's local processing procedures and governance framework can learn from and introduce advanced practices from other parts of the world, and develop innovation while protecting intellectual property rights.
China's market is too huge and active, and it can provide many important benefits, which can't be ignored by the CEO or board of directors of any multinational company. They need to believe in a business-oriented framework in order to observe and understand China in this complex world and maximize their interests. It should be relatively independent of the geopolitical climate. In the words of China philosopher Sun Tzu, there is opportunity in chaos.
Fan Shihua, managing director and senior partner of Boston Consulting Group, is the global director of Henderson Institute under the Group. Akhil Puri is a partner and director of Boston Consulting Group. Shamein Prasanta is associate dean and professor of international business and strategy at China Europe International Business School.
Author: Fran? OIS· CANDRON, Aqeel Puri, Shameen Prasantan
Translator: Qin Weiqi
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