Attracted by its large market, exploding demand and cheap labor, China has been a good location for western companies looking to expand their business. However, uncertainty regarding Chinese economic growth, rising labor costs and the emergence of new markets may threaten China’s role as the world’s most competitive manufacturing location. Arthur D. Little’s (ADL) new viewpoint, “Why invest in China now?”, identifies and analyzes the key trends and success factors for this investment.
“In spite of the changed circumstances and challenges, companies are still confident about China’s future and the continuation of its positive development,” says Antoine Doyon, Associate Director, Arthur D. Little Greater China. “Changes do not inevitably mean a threat, but on the contrary can be the starting point for new business opportunities and enhanced future perspectives.”
Recently ADL conducted a survey in which 9 out of 10 participants stated that, even with the challenges in China, they plan to increase their investments. However, ADL observes fundamental changes in companies’ investment strategies:
1. Drivers for investment: Increase in market reach and market share remain essential drivers
2. Domains of investment: In addition to the traditional domains of investment (e.g. Manufacturing/Plant capacity), companies are also planning to increase investments in Product & Service Innovation and R&D
3. Regional focus of investments: Companies’ plans to increase their Greater China market reach is driven by several factors e.g. the increase in available income and demand in these cities, higher future GDP growth rates and lower labor costs
For companies to continue benefiting from the ongoing success story of China, challenges and risks need to be addressed. Whereas cultural differences are no longer considered a serious problem, companies now fear a drop in demand, rising labor costs and difficulties in hiring/retaining talents. Intellectual Property rights infringements are still a major concern as local courts remain biased and favor local firms over outsiders.
In the future we can expect to see many more innovations originating in China, or being developed specifically for the Greater Chinese market. This is due to advantages including lower development cost and proximity to the manufacturing base and suppliers, the market and the consumers.
The full report can be downloaded at
www.adl.com/Why_invest_in_China_now