Why China is a fertile investment ground for MNCs

At their booths in the fifth China International Import Expo in Shanghai earlier this month, many senior MNC executives told me that for their businesses, the advantage of scale is no longer a critical factor for success in China.

Strategies successful in other markets are likely to prove outdated in China as customized designs, independent decisions and digitalization are more important to stay competitive, they said.

Yet, many MNCs, especially the giants, continue to rely on scale to turn new ideas and attempts into big business volume. To that end, they resort to big-ticket investments in China as well as in other parts of the world. Emerging brands can't employ this strategy as it wouldn't suit them. Not that they can afford it.

For their part, domestic companies, particularly those from the retail sector, have adopted a trial and error approach, constantly drawing insights from consumer feedback, acting upon them to improve products, and accelerating new product launches, all to discover best-selling products.

Now, many foreign companies are emulating Chinese companies in this regard. They, too, are quick to adapt to the changing business environment in China. What's more, they are applying the lessons learned and the experiences gathered in China in other economies.

From the perspective of overall consumption power, China's long-term rapid economic growth has created a new middle-income group with strong purchasing power, while new technologies have developed rapidly in the background. Take e-commerce. China is leading digital innovation globally.

China will continue to be key to this process of evolution. It is the most promising market for foreign businesses in their global market layout. This is particularly true for high-end manufacturing, trade in services and consumer goods industries.

Meantime, there have been several major changes in certain markets. Consumers' shopping patterns have evolved in lockstep with their concepts and notions of lifestyle. Chinese shoppers' interactions with brands have also gone digital. The value they are looking for in brands or products is more diversified now. Emerging local brands have, well, emerged as powerful competitors to MNCs, posing stiff challenges to the latter's operations in China and, arguably, elsewhere.

For instance, many young Chinese brands are shining in the soft drinks and beauty markets. Using digital means, they are gathering more accurate consumer insights and then launching popular products. Thus, they have gradually gained a foothold in categories hitherto dominated by the likes of Coca-Cola, Starbucks, Unilever and L'Oreal.

This trend could sound a wake-up call for MNCs, pushing them to learn how a new brand could create high growth in a mature market.

Another point they might ponder in the near term is how global companies could achieve better growth in China in an increasingly complex global geopolitical and macroeconomic environment.

China has several things going for it: a complete industrial system, a lucrative market, social stability, positive long-term economic fundamentals, fast-growing 5G technology — there's already talk of 6G in the air — events like the annual CIIE, which serves as a platform for high-level opening-up, and the smooth operations of China-Europe freight train services.

Given all these positives, MNCs in China might focus more on how to better mitigate the impact of external risks in this market in the months and years ahead.

While stressing the promotion of high-level opening-up, a report submitted to the 20th National Congress of the Communist Party of China stated the country will accelerate efforts to foster a new pattern of development with focus on the domestic economy and positive interplay between domestic and international economic flows.

To pursue its goals, the government has continued to expand opening-up, build up a favorable business environment, increase the protection for intellectual property rights and foster innovation in recent years.

Moreover, the 14th Five-Year Plan (2021-25) and the Long-Range Objectives through the Year 2035 highlight further opening-up for win-win cooperation, and will also provide a fertile ground for MNCs to continue to invest in China.