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…
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
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.
‘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…)
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.
Thailand Ecommerce Market: Shooting For Success
At present, the Thai ecommerce market is valued at USD 3.5 billion. According to a Google Temasek study, Thailand’s e-commerce...
Aspire Set to Become First SME Neobank in Southeast Asia with US$32.5 Million Raise
The recent financing has been led by Mass-Mutual Ventures Southeast Asia with participation from Silicon Valley’s Arc Labs and existing...
How is Thailand Bringing Technology to the Table?
In Asia, a country like Thailand has taken the initiative to implement agricultural biotechnology in its industry. The country has...