Cooperation trumps competition for win-win
Foreign, domestic companies find new ways to shine together as market dynamics change
Decades ago, multinational corporations operating in China employed a simple, two-step formula to manage their businesses: introduce products that proved successful elsewhere already; and use local factories to produce goods for domestic clients.
That sufficed. The vast size of the Chinese market ensured sales revenues were impressive. Success in that sense helped catapult many China-based MNC executives to top corporate echelons. Some even landed in the corner suite of their global headquarters.
Well, all that has become history, thanks to the current complex business landscape. Subdued global investment sentiment, heightened concern over geopolitics and the imperative of technological advancement have all compelled MNCs to revise their China strategy. To stay competitive, many of them are swearing by innovative steps and collaborations with a diverse range of partners. Oftentimes, that is the only way to identify and harness new growth opportunities.
Consequently, long-standing competitors have turned into strategic business partners. Take German automotive giants BMW and Mercedes for example. Late last year, they announced a 50:50 joint venture to develop a charging network in China, the largest market for both of them. Such a course of action was almost unavoidable for them if they had to accelerate efforts toward vehicle electrification.
The proposed JV will seek to establish at least 1,000 high-power charging stations equipped with some 7,000 charging piles by the end of 2026.
The US-based Johnson Controls International Plc is another example. It recently forged a JV with Tianjin Emagin Technology Co Ltd, a Tianjin-headquartered maglev high-speed rotating machinery manufacturer, to focus on driving innovation and energy efficiency in the heating, ventilation and air conditioning, or HVAC, industry.
“This cooperation is not only a new move for us to deepen our investment in China, but also highlights Johnson Controls’ determination to continue to serve the local market and contribute to China’s sustainability,” said Anu Rathninde, president of Johnson Controls Asia-Pacific.
Rathninde also said the two sides will rely on their expertise and integrate their resources in technology innovation, operating systems, talent and more to further enhance the business development, product integration and innovation capabilities, providing global customers with more value-added products and services, and achieving win-win cooperation.
The HVAC industry shares the goals of energy saving and carbon reduction. The application of magnetic levitation technology is an important reform in improving energy efficiency, he said.
These corporate moves highlight the evolving business dynamics in China where cooperation is increasingly favored over competition in the pursuit of mutual growth. The ability to adapt to new market realities is paramount, said Zhang Liqun, a researcher at the Development Research Center of the State Council.
To understand those new realities, a look at China’s high-end industries like electronics and electrical equipment would help.
These industries are expanding their global footprint. China’s new energy industries like photovoltaics are already world leaders, said Zhao Ping, dean of the academy at the China Council for the Promotion of International Trade.
China is the world’s largest manufacturing country whose output accounts for nearly 30 percent of the global total. It ranked first for 14 consecutive years, according to the Ministry of Industry and Information Technology.
Another reality is the persistent decline in global foreign direct investment in 2023 after a comparably strong performance in 2022. FDI in China, in terms of actual use, fell 8 percent year-on-year to 1.13 trillion yuan ($157.07 billion) in 2023. Yet, it remained at a historically elevated level, data from the Ministry of Commerce showed.
Zhu Bing, director of the department at the Commerce Ministry’s foreign investment administration, said it is normal for the scale of foreign investment to fluctuate. There are various reasons for this, including both economic and non-economic factors.
The commerce official listed several factors, including the impact of the COVID-19 pandemic, that might have caused a lag in investment data, bearing in mind the long cycle of investors’ investment decisions, geopolitics and the overall shrinkage in the scale of FDI globally, which fell to $1.3 trillion in 2022, down about 12 percent from 2021, according to data from the United Nations Conference on Trade and Development.
“We welcome multinational companies and small and medium-sized enterprises from overseas to invest in China,” Zhu said, adding the cooperation between these businesses and domestic ones is an important new way for foreign investment to enter the Chinese market.
Emphasizing China’s economic strengths and its crucial role in global industrial and supply chains, Zhang Wei, vice-president of the Beijing-based Chinese Academy of International Trade and Economic Cooperation, said that as China continues to progress with its high-level opening-up policies, there are increasing business prospects for foreign companies, particularly in the realms of high-end manufacturing, digital transformation and decarbonization.
The National Bureau of Statistics announced in mid-January that China’s GDP grew 5.2 percent yearon-year to a new high of 126.06 trillion yuan in 2023. The country’s growth not only outpaces the estimated global growth of 3 percent, but also ranks top among major economies.
“Looking at the numbers, if you look at the size of the Chinese economy, the ‘next China’ will be China. That is still the largest market in the Asia-Pacific region and even with growth of around 5 percent, the growth of China will be bigger than the whole markets of India and Indonesia combined,” said Morten Wierod, president of the electrification business area and a member of the group executive committee of ABB Ltd, a Switzerland-based technology company.
Wierod said that ABB will spend more than $100 million on research and development of its electrification business in China over the next three years. The group also leverages China as a hub for exporting its products to various regions, including Asia, the Middle East, Latin America and a number of European markets.
“China is at the forefront of digital innovation and application; which is why, I find it consistently intriguing to visit and witness the rapid changes since my last visit,” he said. “I made three trips to China last year (2023), and I anticipate making at least as many this year because the pace of development in China is so rapid that staying away for too long would mean missing out on significant advancements.”
Similar views were expressed by Chen Xudong, chairman of IBM China. “As China continues to accelerate industrial upgrading and promote high-standard opening-up, I believe the country has ample policy space to counter economic downturn pressures and explore new growth opportunities in sectors like new energy, artificial intelligence and low-carbon industries.”
With the government creating more favorable conditions to promote high-standard opening-up and improve business environment, sustaining such openness will prove a win-win for homegrown companies as well as MNCs, Chen said.
China’s high-tech industries attracted 423.34 billion yuan in FDI last year, accounting for more than 37 percent of the country’s total utilized FDI, Commerce Ministry data showed.
Although overall FDI in China plummeted in 2023, that from certain countries rose. France’s FDI in China rose 84 percent year-on-year, the United Kingdom’s jumped 81 percent, the Netherlands’ rose 31.5 percent, Switzerland’s increased by more than 21 percent and Australia’s by 17 percent.
With the global economic landscape showing signs of finding stability against odds, there is high chance still for overall FDI in China to rise, both in terms of scale and composition. This transformation is anticipated to be driven by continuous enhancements in China’s business environment, said Gao Lingyun, a researcher at the Institute of World Economics and Politics, which is part of the Beijingbased Chinese Academy of Social Sciences.
He emphasized that the growing recognition of China’s vast market and its robust industrial networks will likely play a pivotal role in refining foreign investment strategies. Technology-intensive green products will notably shape MNCs’ investment focus in the years ahead and contribute to China’s exports.
Echoing that sentiment, Yin Zheng, executive vice-president of China and East Asia operations, Schneider Electric SE, a French MNC specializing in energy management, said the company will keep strengthening its “China Hub” strategy in all aspects, including talent, innovation, supply chain and ecosystem this year.
“As China has intensified its focus on high-quality development and embraced the ‘dual carbon goals’ in recent years, there has been a notable increase in demand from Chinese consumers for digital solutions and environmentally friendly products,” he said.