They will have to focus on continually improving their competitiveness and devoting more resources to innovation as they pursue their strategies and plans in China.
NEW YORK (PRWEB) March 4, 2008
More specifically, companies that pursue China as both a growth market and a market for lower-cost labor and sources, and integrate these operationally, enjoy significantly higher profits than companies pursuing just one of those objectives. Companies that employ dual sourcing and sales strategies report an average profitability rate two-thirds higher than those focused on just one of those objectives (29.6 percent compared with 17.8 percent). Despite the returns that this approach can generate, only one out of four companies is able to combine a strong in-country market growth effort with their manufacturing and sourcing operations.
The first annual study, "China Manufacturing Competitiveness 2007-2008," found that while a stronger Chinese currency and rising wages were putting pressures on manufacturing margins, failures to deploy operational best practices and to fully leverage China as both a growth market and source of labor and products are also limiting profits.
"The manufacturing philosophy employed by many foreign multinationals in China in recent decades is in need of an overhaul," said Ronald Haddock, Vice President, Booz Allen. "China's changing cost and currency structure have shifted, forcing companies to rethink how they structure their Chinese operations and how they perceive China in their overall global strategy. At the same time, China is increasingly a major source of product and business model innovation. We're seeing globalization at work and China's role has changed."
More than half of the surveyed foreign-owned or foreign-invested companies manufacturing products in China believe that the country is losing its competitive edge in manufacturing to other low-cost nations. As a result, nearly one in five manufacturers surveyed has concrete plans to relocate or expand China operations to other countries, with Vietnam and India seen as the top alternatives to China.
Among the study's key findings:
"China's phenomenal economic growth and market reform story, together with a dynamic and challenging business environment, will continue to put pressure on manufacturing companies," said Brenda Foster, President, AmCham Shanghai. "They will have to focus on continually improving their competitiveness and devoting more resources to innovation as they pursue their strategies and plans in China."
Booz Allen and the American Chamber of Commerce Shanghai surveyed 66 of the largest foreign-owned or foreign-invested manufacturers in China, representing more than 10 percent of the 600 largest foreign-owned or foreign-invested manufacturers in China. Online survey questions, on-site visitations, and in-depth interview methods were all deployed. Of the companies surveyed, 81 percent were wholly owned by foreigners, 10 percent were joint ventures between multinationals and Chinese partners, and 9 percent were categorized as "other."
The manufacturers' industries included consumer, industrial, healthcare, and materials. The study was conducted between September and November of 2007. The countries of origin of these manufacturers included the United States, Japan, and several in Western Europe. Approximately 30 percent of the respondents have an additional major presence in China beyond their manufacturing footprints, including representative offices, regional or global headquarters, regional or global procurement centers, and regional or global R&D centers.
The full report, "China's Shifting Competitive Equation," is available for download at http://www.boozallen.com/china_manufacturing_2008.
About Booz Allen Hamilton
Booz Allen Hamilton has been at the forefront of management consulting for businesses and governments for more than 90 years. Providing consulting services in strategy, operations, organization and change, and information technology, Booz Allen is the one firm that helps clients solve their toughest problems, working by their side to help them achieve their missions. Booz Allen is committed to delivering results that endure.
With 19,000 employees on six continents, the firm generates annual sales of $4 billion. Booz Allen has been recognized as a consultant and an employer of choice. In 2008, for the fourth consecutive year, Fortune magazine named Booz Allen one of "The 100 Best Companies to Work For," and for the past nine years, Working Mother has ranked the firm among its "100 Best Companies for Working Mothers."
To learn more about the firm, visit the Booz Allen Web site at http://www.boozallen.com. To learn more about the best ideas in business, visit http://www.strategy-business.com, the Web site for strategy+business, a quarterly journal sponsored by Booz Allen.
About AmCham Shanghai: The Voice of American Business in China
AmCham Shanghai is the largest and fastest growing American Chamber in the Asia-Pacific region with more than 3,700 members, including 1,700 corporate members. The Chamber hosts more than 250 events each year and has 21 active industry committees. AmCham Shanghai's mission is to create a better business environment for U.S. companies and to help foster China's overall economic development. For more information on AmCham Shanghai, please visit http://www.amcham-shanghai.org.