How MNCs are adapting to China in times of crisis - 2009 - Solidiance
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Transcript of How MNCs are adapting to China in times of crisis - 2009 - Solidiance
Different shades of
grayHow international companies are adapting to
China’s economic crisisJuly 2009
Different Shades of GrayHow international companies are adapting to China’s economic crisis
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In recent weeks, Solidiance met over 30 businessleaders, representing Fortune 1000 companies in China.During informal discussions, they shared some of theirviews on company performance, business and growth.The following article summarizes trends and providesexamples of how companies are dealing with thecurrent challenge.
The global economy is facing a severe downturn. Thesituation in the US and Europe is bleak and no oneexpects a fast recovery. Everyone seems to agree thatthe turnaround will happen first in Asia and since Japanis not looking any better than its Western counter parts,pressure is mounting on China.
The current international financial
crisis, despite its severe impact on
China's economy, also brings
opportunities for small and large
corporations.
Chinese President, Hu Jintao ”“
Different Shades of GrayHow international companies are adapting to China’s economic crisis
Only three companies we spoke with mentioned thattheir turnover is growing or that they expected to growthis year. A few companies were maintaining theirfigures and the large majority of businesses werecontracting up to 50% year-on-year.
Most companies reduced stock levels and stoppedbuying for several months. Companies are orderingagain, but priorities for some customers have shifted.Suppliers reported that their customers were prioritizingvery short lead times over getting the lowest price.
So, how is business?
Which industries*?
It is challenging for me to compete on
lead time, when some of my materials
need to be imported. My customers
would rather get their material within a
week and pay a 3 - 5% premium than to
commit to a 6 to 8 week delivery time.
They fear the market could have
crashed by then…
”
“
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Which industries*?
- the good:
Healthcare and food are leading the pack, as well ascompanies directly benefiting from the governmentspending plan i.e. telecom with 3G standard andinfrastructure construction
- the bad
Chemicals, raw materials such as coal and steel, servicecompanies, manufacturers of machinery, automotivesupply and in general export dependent businesses
- the ugly
Logistics companies, ship building, hospitality/hotels
(*The list represents industries we covered in ourdiscussions)
”
Different Shades of GrayHow international companies are adapting to China’s economic crisis
Roughly 670 billion USD has been earmarked forconstruction, coal, machinery and equipmentmanufacturing and some other key industries.Nevertheless, the stimulus is only reaching a fewinternational companies: only 4 of the 28 companies wespoke with reported that they are feeling the impact.
Companies that either directly participate ingovernment tenders for large investment projects orsupply equipment for these projects are seeing asignificant impact.
A good example is a heavy machinery companysupplying Chinese construction material manufacturers.The model works well: Chinese construction companiesare winning government contracts and use thesecontracts as guarantees for bank loans. The current
Is the government stimulus plan helping you?
As much as 45 % of my current revenue
is from such projects..
”In two weeks I sold more than in the last
four months…
”““
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contracts as guarantees for bank loans. The currentliberal lending policy allows Chinese companies now tobuy on credit previously unaffordable internationalequipment.
But not all of the construction industry is booming again– spending and credits are limited to governmentprojects and companies depending on the privateconstruction sector are left out.
”
How is that impacting employment?
One growing company mentioned a special “China deal” where they negotiated with HQ to give staff a moderate salary increasewhile the rest of global salaries remain frozen. This is a rare exception. Most companies trimmed bonus schemes and at bestkept their old salaries. A widely used measure to curb cost has been salary reductions across the board, ranging from 10% to50% (!). International companies have critically reviewed expat packages and sent staff packing - in one case from 30+ to under10 expats within a few weeks.
At the same time, though, few office staff have been laid off. Companies rather reduce working hours and payments, in somecases sending people on unpaid leave. There is a great deal of uncertainty on when business will pick up again and everyone stillremembers shortages of qualified staff just a few months ago.
Different Shades of GrayHow international companies are adapting to China’s economic crisis
How are employees reacting?
After some 20 years of fast and steady growth, this isthe first economic crisis China’s younger generation isfacing. And the reaction is surprisingly rational -considering a generation of job hoppers used to fastpromotions and regular salary increases. Employeesrecognize the economic crisis and are widely acceptingtemporary salary cuts.
Which strategy to fight the crisis?
One of our best performers left the
company half a year ago but has now
asked to come back to their old position
and salary…we are very happy to have
her back
”“
“
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Most companies have frozen their overall expansionplans and introduced cost cutting measures, i.e. nohiring of new staff, reduced salaries and expensebudgets. Several companies mentioned that they areusing the crisis to critically review staff performanceespecially since bargaining power has switched fromemployee to employer. The most drastic example is acompany that permanently reduced salaries by 30+%
But not everyone is trying to hide before the storm -two companies mentioned their aggressive expansionstrategy. Despite weak performance in their other keymarkets in Europe, Japan and the US, both companieshave invested in planning and set aside significantbudgets to grow their business and market positionover the next two years.
Now is the time to reduce our high
salaries. When business improves again,
we will offer significant increases but
then coming from a lower, competitive
base
”We have a green light. Distribution is the
bottleneck for our domestic growth and
now is the time to win over some of our
key distributors. We are also currently
reviewing M&A options
“”
“
Different Shades of GrayHow international companies are adapting to China’s economic crisis
Solidiance is a marketing and innovation strategy consulting firm with focus on growth in Asia Pacific. We are devoted to working side-by-side with ourclients to outpace the competition, close gaps in growth and deliver breakthroughs in performance and profitability. Our Asia focus provides ourclients with a better understanding of intrinsic regional issues.
To subscribe to further white papers and to learn more about Solidiance please visit: www.solidiance.com
Heiko is responsible for Solidiance’s China operation and has
spent his last nine years in Greater China, participating in the
country’s rapid development as an economic powerhouse.
Heiko started his career in Asia working for a manufacturing
joint-venture in South Korea before moving back to
Germany. He then spent time in a German consulting firm
focusing on organizational restructuring. Prior to Solidiance,
he led the China operation of an international management
consulting company with four offices in China where he
advised international companies on market entry and growth
strategies. Heiko has presented China topics at more than 25
Heiko Bugs - Director
There are no real alternatives to Asia
when looking for large growth markets.
Companies that seized opportunities and
positioned themselves well during the
Asian financial crisis 1997, benefited
from a decade of unparalleled growth.
“
Suite 17-01High Street Center1 North Bridge RoadSingapore 179094Tel: +65 6408 8208
Singapore
Suite 801Hong Kong Plaza283 Huaihai Road CentralShanghai 200021Tel: +86 21 5168 8905
China
Suite 32-05Interchange 21399 Sukhumvit Road Bangkok 10110Tel: +66 (0)2 660 3638
Thailand
strategies. Heiko has presented China topics at more than 25
international conferences and has been focusing for the last
five years on the rapidly developing economic relationship
between India and China and its global strategic impact.
Heiko studied Economics and Information Technology in
Germany and holds a MBA (Honors) from Rutgers, The State
University of New Jersey.
It will be interesting to see who wins this
time
Heiko Bugs - Solidiance ”
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