People are the fundamental heart of our business, and a big part of my role as CEO is spending time travelling to meet, and work alongside, our growing network of member firms. My most recent trip was to Beijing, to attend our annual RSM World conference, along with over 250 RSM delegates and guests from around the world.
China is home to a thriving community of mega businesses, but it also offers opportunities to foreign middle market companies that are looking to expand their footprint or launch in new markets. As a network we pride ourselves on having the local knowledge our clients need to succeed and a growing number of these clients see their future in China. This is why it is so important to me that we understand the risks and rewards that the Chinese market holds and continue to grow our Chinese offering and footprint.
One of the primary opportunities for middle market companies lies in China’s growing middle class consumers. The Chinese economy is in transition, with the traditional pillars of mining and manufacturing beginning to slow as the country becomes wealthier. Indeed, China’s current Five Year Plan was approved in March of this year and outlines China’s planned move away from exports and resources. China’s middle class is estimated at a half a billion people and with the Chinese retail sector achieving 11.3% growth in 2015, the stage is set for middle market companies with the right product or service to capture the attention of the Chinese consumer.
However, for those businesses looking to gain market entry in China in this period of transition, there are a number of risks. The days of double digit economic growth in this market are very much over and the business environment in China has moved on significantly since the first multinational firms opened shop.
Chinese attitudes towards foreign businesses have evolved in recent years. Business conditions, which once favoured foreign enterprises, have changed and the Chinese state now restricts foreign businesses’ market access to bolster the competitive position of home-grown enterprises. Another important factor is China’s corporate debt. At around $17.8 trillion, it is twice the size of the USA’s and the world’s largest. This debt has slowed fixed capital investment and limited the number of commercial opportunities for foreign suppliers of goods.
There are both risks and rewards to operating as a foreign business in China. As the economy pivots, the unfamiliar sectors of service-related trade and consumer products will provide a host of opportunities for foreign middle market businesses. These businesses will be able to express their competitive advantage in a burgeoning marketplace. Yet, diving into an unfamiliar marketplace requires local expertise from advisers you can trust.
During the conference we heard first-hand from some of our clients who are based in China and doing business overseas and those from around the globe, whose foreign enterprises we are helping to support and grow in this fascinating land of opportunity.
Click here to read about the challenges foregin middle market companies face in China.