As we look to China, the old adage of “if you do not like the weather wait 5 minutes and it will change”, seems to apply as we continue to monitor China and follow its most recent announcements.
This will be the 1st of a 3 Part Series in which we analyze the current economic environment in China and provide examples of how successful Western companies are changing their China Business Strategies to ensure long-term growth. For the next 3 months, we will provide Case Studies and analysis which may be of assistance as you continue to update and adjust your strategic plans to China’s “New Normal” economic growth of 7-8%.
As we discussed in our March 2014 Newsletter, China’s economic slow-down after approximately 20 years of double-digit growth is driven by several factors (slowing of global economy, rising labor cost, strengthening of the RMB) etc. These factors have had the effect of increasing production costs and putting downward pressure on both exports and domestic margins.
Over the last 5 to 8 years, demographic trends have pushed up wages faster than productivity gains, forcing local managers to increase efficiency to regain these productivity gains. As evidence of this change, China’s Premier Li Keqiang suggested on Thursday, April 10th that a “7.5 % GDP goal may be missed as exports take an unexpected fall”.
Given this “New Normal”, Western companies are reevaluating their China Business Strategies and Execution practices, including their Cost Structures, Manufacturing and Production Footprint, Product Design (Good Enough), Human Resource management, Component Supply & Procurement, Logistics Strategies, Distribution Models and Localized Product & Branding. As an example, many Western companies are implementing even more aggressive training and retention practices to ensure they retain their most competent managers, in order to combat high turnover rates and ever increasing wages and position to the company for the next 3-5 years in China.
Since China is becoming the largest global market for many industries, Western companies must ensure their long-term growth potential. However, Business Plans established 5 to 10 years ago may not be appropriate given this new challenging environment.
As examples of how Western companies are addressing the current challenges in China, please find two Case Studies which focus on Rationalization and Improvement as well as Restructuring.
- Rationalization and Improvement of Manufacturing Operations for a US MNC with Multiple Subsidiaries in China
- Restructuring of a Major Multinational Company’s Manufacturing Subsidiary in China
These Case Studies will allow you to see how other companies continue to access their operations and then take action to continue to improve their operations and increase market share in China.
In mid-June, East West Associates will be conducting a webinar on Operational Assessment and Performance Improvement of China-based operations. Further details as to time and date will be provided in the next several weeks.