Is doing business in China still worth it?
Last year we brought you a breakdown of an infographic from the folks over at Bain & Company on how US companies view the business climate in China, and looking back things were certainly looking a lot more optimistic then.
In 2015 the Middle Kingdom posted its slowest economic growth in 25 years, with analysts projecting an even tougher year ahead in 2016.
The country is in the middle of an economic slowdown that has seen its stock market tumble and its manufacturing sector shrink at its fastest rate in three years.
Foreign companies doing business in China are feeling the squeeze themselves with noticeable challenges such as increasing labor rates, lower margins and a shortage of skilled workers.
Amongst all this turmoil, however, there is a still a shining light at the end of the tunnel, at least according to the newest a survey Bain & Company conducted in collaboration with AmCham China. The survey of more than 450 AmCham China member companies and its most telling points has been presented in another great infographic.
Join us as we breakdown the outlook of US companies doing business in China for 2016 in the infographic below...
- Growth in revenue is slipping y-o-y, margins are falling
This is certainly a worrying factor for many US companies in China with 55% of total respondents stating that their company saw growth in 2015. Margins are also lower than in 2014, with only 22% of respondents indicating higher margins in 2015.
- Services, tech, consumer and industrial on the up
Companies in the above industries saw rising revenue in 2015, with companies in the services sector at 65%, tech at 57%, consumer at 56% and industrial at 37%. Jump in revenue for the services and consumer sectors is definitely attributed to China's growing middle class, and their insatiable desire for foreign products and services. Companies in the tech sector have been flourishing over the past few years, especially thanks to China's new Free Trade Zones (FTZ) such as Qianhai, an area within Shenzhen that provides tax breaks for companies in this particular sector.
- US companies still facing a lot of challenges
The top 5 challenges include increasing labor rates, inconsistent regulations, obtaining required licenses, shortage of qualified employees and industry overcapacity. To be fair, China made inroads in 2015 to helping facilitate smoother, much more simplified procedures for company registration and annual compliance, obtaining work permits and encouraging investment.
Those looking to start a business in China should take note of the sectors that are experiencing a rise in revenue, and do their homework as to which areas in China the government is helping foreign companies to grow. These areas provide much needed support for individual foreign experts, so they are probably the most sound bet for starting a company, as the preferential policies in place concerning taxation, free rent and so on can help to counter some of the aforementioned challenges somewhat.
- Still optimistic about domestic market growth and profitability potential
Despite all of the challenges that foreign enterprises face in China, 69% of US companies are still optimistic about domestic market growth and just under 50% of them feel the same about their profit potential.
- Innovation, the light at the end of the tunnel...
9 out of 10 US companies believe that future growth of their companies in China is dependent on innovation, and they aren't the only ones. Guangzhou, the capital of Guangdong province, plans to double its fiscal expenditure on science and technology to incubate high-tech startups, seeking a new identity as an international hub of scientific and technological innovation.
- Pooling resources to innovate
37% of US companies have partnered with Chinese organizations or companies to foster innovation. Partnering with local companies is definitely helpful in building a solid foundation for innovation to flourish.
- Time to go digital
The increased uptake in smart devices in China has made digitizing customer-related activities an absolute must for anyone looking to do business on the mainland. 73% of US companies believe that it will go a long way to helping enhance their competitiveness in China, and with the likes of Tencent's WeChat setting the benchmarks for what is possible for business in today's Chinese society, moving their efforts online is certainly the way to go!