China Daily丨Multinationals Need to Change With the Times

Updated 2015-08-11
By Edward Tse丨China Daily

By now, everyone has heard of China’s “new normal”. It refers to a slowdown in the country’s economic growth rate from double digits, which lasted for more than two decades, to around 7 percent in the past few years.

Media reports have stated that the “golden age” for multinational companies in China is now over. Moreover, surveys by foreign chambers of commerce, including those from the United States and the European Union, show that many of these companies complain of unfair competition, a lack of respect for intellectual property rights and corruption in China.

Yet there is another more interesting view that the country is moving from a “rising tide” to “pockets of opportunities”. When China’s GDP was growing at about 10 percent per annum in the 1990s, multinational companies saw huge opportunities here.

That was a period when the tide was rising and the boats in the water were riding high. For many multinational companies, they were good times. But with the “new normal”, many believe the tide is starting to turn, with fewer opportunities on the horizon.

Even so, there are still “pockets” of growth in the Chinese economy, particularly for companies that produce quality products and services. It is impossible to simply view the country through a “new normal” prism. This would not provide a true picture of the economic reality.

Of course, China is not ideal for every company – overcapacity will continue to be an issue in certain sectors, and this will take some time to correct.

For some multinational firms, the road ahead may be difficult. Those in joint ventures with State-owned enterprises may become disillusioned by a lack of innovation and commercial sense when dealing with their Chinese partners. In others cases, local governments may not be 100 percent in sync with the central government, creating confusion for companies.

But there are still a range of sectors that multinationals can exploit, and while growth across different industries will vary, demand patterns will eventually emerge.

At the same time, customers and competitors are likely to change dramatically, so maintaining the status quo will not be an option. These changes will also bring risks as new rivals and business models, coupled with government policies, threaten the dominance of multinational companies.

This is a mixed picture, but given China’s size, speed of growth and resilience, the odds are in the country’s favor. For multinationals, they need to examine what it means to do business in China and understand the country’s culture. Without a full appreciation of the “China Context”, which by definition evolves, they will miss the boat.

Unfortunately, many companies view the country as just another “emerging market”. They simply pursue the cookie cutter approach – cutting and pasting their global model and using it here to do business. Sometimes, this is successful, but more often than not it fails.

They simply do not understand that the Chinese market is far more complicated and diverse than what they are used to.

While many multinational companies have been talking about “localization” for the past decade or so, the great majority of them are still treating local managers as mere “operators” rather than leaders. Until they are accepted at a senior level in multinational companies, the business environment for them will be challenging.

The author is CEO of Gao Feng Advisory Company. He is author of The China Strategy (2010) and the newly released China’s Disruptors.