Building the Global Enterprise: Where China Fits Now

China's foreign capital consumption reached $5.1 billion in January 2007.

Accenture undertook a study to understand the opportunities and challenges for multinationals doing business in China, and the country's importance to their future strategies for high performance.

In partnership with the China Supply Chain Council, Accenture surveyed 238 senior executives of multinational companies in Europe and North America as well as more than a hundred China-based executives of multinationals.

Respondents were drawn from diverse industries, including energy, retail, automotive, pharmaceutical, transportation, food and government. They represented organizations of varying annual revenues from less than $50 million up to more than $10 billion.

Almost one-third of the companies earn from 20 percent to more than 50 percent of their revenues in China while almost two-thirds have either a wholly owned subsidiary or a joint-venture operation in China. Twenty-nine percent of the sample companies has been operational in China for more than 10 years.

The main conclusions of the research showed that:

• Executives understand the importance of establishing a global footprint as part of their overall business strategy but are struggling to achieve the right operations footprint.
  
  
• China is viewed as the most important emerging market.
  
  
• Market entry in China is achieved mainly through investment in new assets, as well as mergers and acquisitions.
  
  
• The objective of making China a critical part of a global operating strategy is to leverage cost advantages and to be ready for growth in demand as China's population becomes more affluent.
  
  
• Building a Chinese business is not easy as it is marked by particular challenges with acquiring and retaining skilled employees, coping with supply chain inefficiencies, and identifying the right partners.
  
  
• It is imperative for organizations that intend to operate in China to understand where those challenges are greatest—and vital that they employ risk-mitigation strategies accordingly.

In analyzing the key points emerging from the research, Accenture found that:

• Multinational companies continue to be bullish about China and will continue to increase their investments in the next seven years.
  
  
• Manufacturing, logistics and distribution will continue to attract investment from multinationals and the Chinese government, with the government's most recent five-year plan showing that it recognizes the transportation infrastructure challenge.
  
  
• The three most important success factors for doing business in China are good product segmentation, superior quality and branding.
  
  
• The biggest challenges are identifying good partners, dealing with bureaucracy and coping with credit risk.
  
  
• There will be a move to outsource logistics functions to overcome the inefficiencies caused by the poor infrastructure and the heavy regulations imposed by national, regional and local authorities. Third-party logistics providers will play a larger role and many of these are Chinese.

Jamie Bolton is an Accenture executive partner who is responsible for the company's North Asia Supply Chain Management practice. With 15 years of experience, he has worked with many leading global and Asian companies across a variety of industries to improve their performance through supply chain mastery. Most recently, his work has focused on integrating multinational companies in China through global sourcing and operations strategy development and execution.

Philip Kwa is a senior manager in the Accenture Supply Chain Management service line. He teams with clients across industries to improve their performance through a broad range of services, including logistics management and strategy, supply chain planning, and supply chain training.

Michael Tse is a partner in the Accenture Supply Chain Management service line and leads the Supply Chain Strategy practice in North Asia. He collaborates with companies across industries to enhance their performance through supply chain mastery. His work with clients spans a broad range of strategy development and implementation issues involving global, pan-Asia Pacific and China supply chains.