Report: China market too large to ignore

McKinsey underlines strategy change for MNCs ‘looking for growth’ in nation

Multinational companies that have benefited from China’s leapfrogging growth over the past decades while facilitating the country’s economic development should reconfigure their China strategies to take advantage of significant opportunities existing in the Chinese market and address challenges, said global consulting firm McKinsey in a report released on Tuesday.

China’s economic and market size is too large for many multinational companies to ignore, wrote McKinsey experts in the report.

The consultancy has calculated that China’s GDP may grow between 2 and 5 percent annually over the next 10 years, depending on which scenarios prove accurate. Even under the 2 percent forecast, China’s additional GDP over the 2021-30 period will be larger than India’s total GDP in 2021. If 5 percent growth is realized, China’s additional GDP will be as large as India, Japan and Indonesia combined in 2021.

“As global investors and corporations look for growth, everyone is wondering — Where is the next China? Our view is that if you are looking for growth, the answer is simple — the next China is China,” said Joe Ngai, chairman of McKinsey Greater China.

China’s continued urbanization and expansion of the middle-income group have implied opportunities for multinational companies from the industries of biopharmaceuticals, consumer health and entertainment, wrote McKinsey’s latest report.

Meanwhile, China’s industrial transition will present multinational companies with opportunities concerning power, agriculture, transportation and construction, said the report.

Multinational companies from industries such as cars, luxury goods and industrial equipment should by no means overlook the Chinese market which already represents 25 to 40 percent of their global revenues, according to McKinsey.

It should also be noted that China is becoming a global major in innovation, especially in terms of artificial intelligence, advanced connectivity and space technology, McKinsey experts said.

Domestic companies have been making huge progress in technological innovation. Between 2017 and 2021, research and development spending made by the largest 136 technology companies measured by market cap grew three times as quickly as that of the 129 Fortune 500 companies disclosing comparable data. Most Chinese companies’ R&D expenditure has been directed to next-generation products and services, according to the report.

In a 2021 McKinsey study surveying executives at local and multinational companies, 62 percent of respondents called China’s development environment and capability already at least as good as those at the best global development centers, or likely to be in five years.

The business landscape has been changing in China. As discovered by McKinsey, Chinese domestic companies specializing in portable electronics, groceries and 5G infrastructure have gained 20 to 40 percent of market share over the past decade.

“Local competition is fiercer than ever,” said Nick Leung, senior partner of McKinsey &Co.

“As Chinese companies grow, more and more are competing regionally and globally. Multinational companies will have to make bold changes in how they operate,” he said.

Multinational companies can update their China strategies in six major areas — capital and ownership, supply chains, innovation, branding and talent, as well as technology and data, said McKinsey experts.

Kweilin Ellingrud, McKinsey senior partner and director of the McKinsey Global Institute, also suggests that multinational companies keep a close eye on China’s policies regarding sustainability, technology and income distribution.

(Web editor: Zhong Wenxing, Liang Jun)