Roland Berger Strategy Consultants: Western China offers promising business opportunities for foreign companies
Shanghai, January 2010: Boom-land China offers foreign companies enormous opportunities – not only in the flourishing East but also in the economically weaker West of the People's Republic. This has been confirmed by a study of the Chinese government's "Go West" strategy, conducted by Roland Berger Strategy Consultants and commissioned by Germany's Federal Ministry of Economics.
"The western provinces still lag behind the dynamic East of China. But this catch-up potential is precisely why they offer considerable opportunities to foreign companies," says the study's author Thilo Zelt. With its "Go West" strategy, the Chinese government has aimed to direct some of the economic boom into the country's less prosperous western regions. So far, the "Go West" strategy has not yet achieved its targets. While the western provinces make up as much as 69% of China's surface area and 28% of its population, they can still only claim 19% of GDP, 14% of foreign direct investment, 6% of foreign companies, and 4% of exports. "The "Go West" strategy must therefore be continued as a matter of urgency," says the Roland Berger expert.
Attractiveness of Chinese western provinces varies
The western provinces offer clear opportunities along with a set of challenges. The goal of Roland Berger Strategy Consultants' benchmarking of the provinces and the 13 most substantial cities in western China was to evaluate the attractiveness for doing business in the region based on various location factors. As a result, a group of three clearly “leading” provinces (“Stars”) was revealed: Chongqing, Shaanxi and Sichuan. A second group (“Fast Followers”) includes the autonomous region Inner Mongolia as well as the southern border provinces Yunnan and Guangxi. According to the city comparison, the most important ones were in the provinces that also ranked at the top of the province benchmarking results: Xi'an in Shaanxi and Chengdu in Sichuan. Surprisingly, compared to the province perspective, the evaluation of Yunnan's capital Kunming was very positive.
"Most foreign enterprises in western China are clustered around Shaanxi, Sichuan and Chonqing. Companies that are considering expanding to the West generally want to follow those already there since they see proven models, proper infrastructure, local government support, large populations, skilled labor and soft factors like having an expat community and international schools," says Jennifer Wilson, one of the study's contributors. "For pioneers, however, there are promising opportunities in the more remote northern provinces of western China based on the strong economic development there in recent years."
Opportunities in consumer goods and related industries
Western China is gradually catching up since its economy is growing more or less as fast as in the rest of the country, with even stronger growth in some areas. In the cities, growth has been accompanied by rising incomes and higher consumer spending. In addition, urbanization rates in the West are increasingly coming into line with those in the East. This factor alone means that an additional USD 33 bn in disposable income could be available for consumption. Enterprises less oriented to consumer markets are more likely to succeed by expanding existing or developing new production centers in industries that directly interface with the consumer goods sector, such as retailing and logistics.
Promising opportunities also exist in engineered products and industrial systems, as well as in the energy and utilities sector. For the automotive industry, for example, the city of Chongqing and the province of Sichuan were cited as good places to do business. Finally, the substantial problems facing western China in terms of environmental pollution are opening doors to the green-tech industry. "But to exploit the opportunities in western China, German – and by extension other foreign - companies need to have a precise understanding of the market and the "Go West" strategy being pursued by the Chinese government," stresses Thilo Zelt.
"The western provinces still lag behind the dynamic East of China. But this catch-up potential is precisely why they offer considerable opportunities to foreign companies," says the study's author Thilo Zelt. With its "Go West" strategy, the Chinese government has aimed to direct some of the economic boom into the country's less prosperous western regions. So far, the "Go West" strategy has not yet achieved its targets. While the western provinces make up as much as 69% of China's surface area and 28% of its population, they can still only claim 19% of GDP, 14% of foreign direct investment, 6% of foreign companies, and 4% of exports. "The "Go West" strategy must therefore be continued as a matter of urgency," says the Roland Berger expert.
Attractiveness of Chinese western provinces varies
The western provinces offer clear opportunities along with a set of challenges. The goal of Roland Berger Strategy Consultants' benchmarking of the provinces and the 13 most substantial cities in western China was to evaluate the attractiveness for doing business in the region based on various location factors. As a result, a group of three clearly “leading” provinces (“Stars”) was revealed: Chongqing, Shaanxi and Sichuan. A second group (“Fast Followers”) includes the autonomous region Inner Mongolia as well as the southern border provinces Yunnan and Guangxi. According to the city comparison, the most important ones were in the provinces that also ranked at the top of the province benchmarking results: Xi'an in Shaanxi and Chengdu in Sichuan. Surprisingly, compared to the province perspective, the evaluation of Yunnan's capital Kunming was very positive.
"Most foreign enterprises in western China are clustered around Shaanxi, Sichuan and Chonqing. Companies that are considering expanding to the West generally want to follow those already there since they see proven models, proper infrastructure, local government support, large populations, skilled labor and soft factors like having an expat community and international schools," says Jennifer Wilson, one of the study's contributors. "For pioneers, however, there are promising opportunities in the more remote northern provinces of western China based on the strong economic development there in recent years."
Opportunities in consumer goods and related industries
Western China is gradually catching up since its economy is growing more or less as fast as in the rest of the country, with even stronger growth in some areas. In the cities, growth has been accompanied by rising incomes and higher consumer spending. In addition, urbanization rates in the West are increasingly coming into line with those in the East. This factor alone means that an additional USD 33 bn in disposable income could be available for consumption. Enterprises less oriented to consumer markets are more likely to succeed by expanding existing or developing new production centers in industries that directly interface with the consumer goods sector, such as retailing and logistics.
Promising opportunities also exist in engineered products and industrial systems, as well as in the energy and utilities sector. For the automotive industry, for example, the city of Chongqing and the province of Sichuan were cited as good places to do business. Finally, the substantial problems facing western China in terms of environmental pollution are opening doors to the green-tech industry. "But to exploit the opportunities in western China, German – and by extension other foreign - companies need to have a precise understanding of the market and the "Go West" strategy being pursued by the Chinese government," stresses Thilo Zelt.
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