Connect with us

China

Why Foreign Firms Struggle to Break Into China

In 2017, an analysis by Goldman Sachs found that while S&P 500 companies earned 30 percent of their revenues outside of the United States, China accounted for only 1 percent of their revenues.

Avatar

Published

on

For growth-starved Western entrepreneurs, the Chinese market is appealing. Think about it: Since 1995, China’s economy has grown by a factor of 18.5, from US$735 billion to US$13.6 trillion (excluding Hong Kong).

In terms of purchasing power parity, it is now the number one economy in the world.  

Trade wars are not even the biggest problem.

Accordingly, many foreign companies have gone out of their way to build supply chains within the country and go-to-market mechanisms in order to access its market. Across industries, American firms have invested more than US$276 billion in China since 1990.

In 2018, foreign direct investments from all countries flowing into China reached US$139 billion.

Despite these investments, only some Western companies have been able to make large inroads in the Middle Kingdom. For example, Coca-Cola, which has been in China for 40 years, now sells 140 million servings of soda in the country per day.

Since 2012, China has been General Motors’ largest retail sales market. Although sales have since slowed down, the Greater China region was Apple’s third-largest source of revenues in 2018. Buoyed by brisk sales and despite the existence of copycats, Lego is planning to open 80 new shops in China this year.

But putting these success stories aside, our new research shows that China remains an elusive market for most US businesses. In the S&P 500, a mere 41 companies generate 10 percent or more of their global revenues in China.

In 2017, an analysis by Goldman Sachs found that while S&P 500 companies earned 30 percent of their revenues outside of the United States, China accounted for only 1 percent of their revenues.

A proper trade agreement won’t be a panacea

Nonetheless, many Western business leaders are hoping for China and the US to reach a trade agreement as soon as possible. An underlying assumption is that the end of the trade war will create a kind of golden bridge for US companies to reach China’s one billion-plus consumers.

A proper trade agreement is unlikely to be the key to such riches. Our research shows that breaking into China is very difficult because of its intricate business landscape, one dominated by domestic mega firms operating in a tight matrix of political influence.

In particular, the Chinese Communist Party controls a lot more enterprises, directly or indirectly, than Westerners imagine. This creates severe hurdles for foreign firms that wish to do business there.

There are parallels to be drawn between China’s fast-growing conglomerates and the chaebol of South Korea and keiretsu in Japan. These large groups of companies are themselves embedded in sprawling, hierarchical businesses. Similarly, the affiliates and subsidiaries of Chinese mega firms are typically part of a network of cross-owned enterprises. The ownership structures, often opaque, represent high barriers to entry for foreign companies.

Adding to these difficulties, Chinese mega firms are unique in the degree of involvement of the government, be it at the national, provincial or municipal level, in corporate affairs. Rather than merely serving as a regulator, the state is itself a large business owner and plays a much greater coordination role than most Westerners…

Read More

INSEAD Knowledge is the expert opinion and management insights portal of INSEAD, The Business School for the World. Knowledge showcases the latest business thinking and views from award-winning faculty and global contributors

Continue Reading
Advertisement Load WordPress Sites in as fast as 37ms!
Comments

China

How China is using tourists to realise its geopolitical goals

Over the last two decades, the number of Chinese overseas travellers rose by over 25 times from 5.3 million in 1997 to 130 million in 2017, contributing an estimated US$250 billion to overseas economies

East Asia Forum

Published

on

Decades of astonishing economic growth have given China new tools for extending its influence abroad and achieving its political goals. Some of these tools are inducements, including Belt and Road Initiative projects and new development financial institutions.

(more…)

Continue Reading

Banking

How China’s role in global finance has changed radically

Within the space of just 15 years, China has gone from being the largest net lender to the world to now being a net borrower. The implications for the global economy, and China’s role within that economy, could be significant.

East Asia Forum

Published

on

‘If you owe the bank $1 million, you have a problem. But if you owe the bank $1 trillion, then the bank has a problem’. It’s an old gag, but it underscores an important point: the size of your borrowing or lending can have profound implications for your role in the world.

(more…)

Continue Reading

China

China’s new tech board is a rising STAR

On 9 August 2019, the 27 STAR-listed companies achieved a total market cap of 660 billion RMB (approximately US$93 billion) and together raised over 37 billion RMB (US$5.2 billion) in net funding from the initial public offering (IPO) after fees and expenses.

East Asia Forum

Published

on

China’s new tech board is a rising STAR 6 September 2019 On 13 June 2019, as part of its capital market reform, China officially launched the Science and Technology Innovation Board (STAR).

(more…)

Continue Reading

Most Read

Upcoming Events

Tue 22

34th International Conference on Dental and Oral Health

October 21 @ 9:00 am - October 22 @ 5:00 pm BMT
Nov 06

2nd World Congress on Pediatrics and Child care

November 6 @ 8:00 am - November 7 @ 7:00 pm BMT
Radisson Hotel Narita
Tomisato-shi
Nov 07

3rd World Congress On Gynecology, Obstetrics & Reproductive Health

November 7 @ 9:00 am - November 8 @ 4:00 pm BMT

Press Release

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 11,595 other subscribers

Trending