TODAY’S NEWS. TOMORROW’S INSIGHTS.A daily newsletter from McKinsey & Company
Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities
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Challenges in China. European and American companies are gloomy about doing business in China, with US leaders expressing less optimism than they have in roughly 20 years, according to recent reports that included nearly 2,000 firms. About two-thirds of European companies reported having their business expansion plans in China frustrated by regulations (such as the country’s new data security rules) that are, according to business leaders, difficult to understand. Still, many Western companies remain willing to increase investment in China. [NYT]
Shrinking factory production. An official survey has found that manufacturing activity in China shrank for the fifth consecutive month in August, putting pressure on the country’s leaders to take steps to bolster the economy. China’s purchasing managers’ index averaged 49.7 in August, signaling that the sector contracted from the prior month. Slumping property values, softer demand for exports, and slower consumer spending have generated apprehension about the Chinese economy. [FT]
China or bust. For global companies, China’s skilled labor force, extensive supplier ecosystem, and fast-growing domestic markets have long acted as a magnet for manufacturers. As a result, complex, tightly integrated supply networks now link China with the rest of the world. But now, some of those companies are asking themselves whether the attractions that made so much strategic sense over the past 20 years still do—and what might come next, explain McKinsey senior partner Franck Le Deu and colleagues.
Supply chain strategies. Expert interviews and McKinsey analysis indicate that multinationals have evolved four basic archetypes for manufacturing in China. Each type can consider different strategies to enhance supply chain resilience. For companies that produce in China for China, increasing local sourcing and manufacturing could alleviate risks of supplier concentration. For others, it may make more sense to explore diversification. To see five key criteria to objectively assess the suitability of China—or any location—for manufacturing, visit our Operations Blog.
— Edited by Belinda Yu, editor, Atlanta
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