China and Western Multinationals - End of the Gold Rush?

Are the good old days over? Is the gold rush of multinationals into China at its end?I think this is a very useful leader article in The Economist which ought to be part of the research notes for aspiring BUSS4 students looking at China.

The evidence supporting a view that the best opportunities for investing in China are gone is quite compelling:

• Costs in China are rising
• Economic growth is slowing as China attempts to rebalance its economy away from reliance on infrastructure spending
• Recruiting the right people is tougher and wages are rising (the end of the "demographic dividend")
• The Chinese government is getting tougher on multinationals in terms of regulation
• A crackdown on public sector corruption is hitting sales of some Western luxury brands
• Local competition is becoming much more intense, based as much on quality as on cost

We've seen lots of examples of the above in our BUSS4 China blog and the article mentions some of our favourite case studies including Huawei, Alibaba, Lenovo, Xiaomi, Yum! Brands and GSK.

What should the response be by Western multinationals?

The leader article suggests three approaches for the multinationals who decide to stay in China:

• Focus on improved productivity rather than sheer scale
• Get a tighter control on costs and operations, particularly compliance with increasingly stringent legislation
• Expand the management footprint away from the Eastern seaboard of China. The country is vast and complex - it cannot be managed from a single office in Shanghai or Beijing!