Director of McKinsey, Asia, Dominic Barton led a McKinsey panel discussion on China. Much of the material presented drew on Jonathan Woetzel’s recently published book, Capitalist China.
After an overview of the factors that make China such a dynamic economic force, Barton presented a few business realities that refute the more pervasive myths about doing business in China:
| Myth |
Reality |
Foreign investors do not make money in China – it’s a long-term play
|
2/3 of multinational companies in China are profitable and meeting or exceeding their targets |
The market is in tier 1 and 2 cities
|
Tier 3 and rural markets are the bulk of the market and will have the fastest growth but are also the most price-sensitive
|
China’s advantage is only low-cost labor
|
Low-cost labor is just part of the story. Strong domestic players are emerging based on low capital cost and technology development-driven business models
|
You need a partner to get into the market
|
 |
While regulations or industry structure in some cases mandate a partnership, wholly owned structure is increasingly preferred by multinational companies |
|
Alliances, however, continue to be considered a critical strategic vehicle |
|
While the attendees appreciated the real opportunities available in China, many of them had practical questions about entering the market, such as where is the best location. “That’s a hard question to answer in general because generalizing about China can be a mistake,” said Richard Zhang, a partner in the Shanghai office. “Risks and opportunities are highly dependent on which sector you’re talking about.”
| Davos Panel - China |
James Hoge (host), editor
Foreign Affairs Magazine
Dominic Barton, director, Asia McKinsey & Company
Yibing Wu, partner
McKinsey & Company
Richard Zhang, partner
McKinsey & Company
|
Attendees also expressed interest in how to manage workers on the ground, including finding talented Chinese managers and retaining them. “There are enormous differences in retention rates between high quality, multinational corporations that really invest in developing Chinese staff and those that don’t,” said Yibing Wu, a partner in the Beijing office.
“Corporations should focus particularly on bringing Chinese staff into leadership positions in China. In these cases, loyalty is reciprocated and talented workers stay on board.”
