Business leaders bullish about China

Jul 20 2006 by Brian Amble Print This Article

Business leaders across the world view the expansion of the Chinese market as one of their biggest business opportunities and expect sales to China to be worth an average of 14 per cent of their global revenues by 2009.

New research from management consultancy, Hay Group, reveals that global executives are bullish about their prospects in China, with more than eight out of 10 directors viewing China as an overall business opportunity rather than a threat and half viewing China as the greatest opportunity facing their business.

The Waking Up To China report, based on interviews with major business leaders across Western Europe, North America and Asia Pacific, also found that the U.S. is perceived by seven out of 10 global executives as being best placed to succeed in China.

U.S. business leaders also forecast the fastest sales growth, expecting the proportion of their global sales accounted for by China to nearly triple over the next three years, with revenues from China accounting for 14 per cent of revenue - equivalent to £905 billion a year.

The UK, Japan, South Korea and Australia and also seen as well placed to benefit from China, while Italy and France are both perceived as being poorly placed to respond to the opportunity.

Asia Pacific business leaders see the greatest opportunities, with executives forecasting that 16 per cent of their business revenues will come from China by 2009.

Those in Western European also see China as a key market, forecasting that China sales will rise from five per cent to 12 per cent of their global revenue by 2009, equivalent to £2,568 billion a year. But despite the size of the potential market, fewer than half (47 per cent) of global companies have established operations in China, although a further 22 per cent said they are planning to set up shop within the next five years.

The largest barrier to expansion in China is perceived to be cultural and language differences, while three-quarters of the executives surveyed believe that Western companies need to develop whole new ways of operating in order to succeed in China.

China's business environment also poses barriers to trade

But China's business environment also poses barriers to trade, with poor protection of intellectual property (IP) top of the blacklist – more than half (55 per cent) of companies expect Chinese IP infringements to threaten their business within the next five years.

Corporate governance is a further key concern, with China's complex legal system, unequal treatment of foreign and domestic firms, perceived corruption and excessive bureaucracy identified as the greatest local barriers to success in China.

Meanwhile, despite acknowledging the size of the opportunity China represents, a quarter of all global companies – and 40 per cent of those in the UK – still have no China strategy. In contrast, just 15 per cent of companies in Asia Pacific lack a strategy to invest and do business in China

Deborah Allday, Associate Director, Hay Group, described China as "quite simply the greatest market on earth".

"But with a quarter of global companies lacking a China strategy, whether they have the capability to make this happen remains to be seen. Global business leaders should put China top of the business agenda now, if they are not to lose out on sales to China and be threatened in their home market by leaner Chinese competitors," she said. Business leaders in Asia Pacific economies are particularly concerned about their emerging neighbour, the report found, with a fifth citing China as the greatest threat currently facing their business.

In contrast, Western European business are more sanguine, expecting Chinese competitors to control just seven per cent of the EU market by 2009 (equivalent to £1,513 billion a year).

U.S. leaders are even more confident, predicting that Chinese companies will control only three per cent of their home market by 2009, an increase of just 50 per cent.

"There is a widespread belief amongst business leaders that China will only pose a threat to the most low value goods and services," Deborah Allday said.

"They are very much mistaken. Chinese companies are scaling the value chain with great speed. Companies should beware of leaving their home goal unprotected. World business leaders underestimate Chinese business acumen and ambition at their peril."