Joe Ngai

Opinion | 5 critical shifts Chinese firms need to make to be successful

The formula for success has fundamentally changed and the strategies that led to success in the past decade will not ensure the same outcome again

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Shoppers walk by a reflected art installation at an outdoor luxury shopping mall in Beijing on June 5. Local companies will need to learn how to build truly global companies, stop depending on “one-hit wonders” and start really understanding their customers. Photo: AP

Joe Ngai

Published: 4:30pm, 12 Jun 2024Updated: 7:01pm, 12 Jun 2024

As China’s economy continues to grow at around 5 per cent – after 5.2 per cent last year – and contribute to almost one-third of global growth, it is increasingly clear there is no substitute for the scale of this market.

When I wrote early last year that “the next China is still China”, I could have followed that up with, “but succeeding will be more difficult than before”.

Capital markets seem to agree. Despite a recent rally, Chinese indices have been hovering at levels reached a decade ago, a stark contrast to the new heights achieved by markets in India, Japan and the United States.

Recent conversations with Chinese CEOs and entrepreneurs indicate a lack of confidence in the short to medium term and very conservative projections on growth and profitability. This begs the question: how much longer will businesses struggle in China, and are investors justified in their pessimism?

One thing is clear: the formula for success in China has fundamentally changed. The strategies that led to success over the past decade will not ensure the same outcomes again. Consequently, there are five critical shifts that businesses in China will need to make that will determine their fortunes in the next decade.

First, companies will need to strengthen their fundamentals to generate more sustainable growth with better returns on capital. On average, Chinese businesses generate a return on equity that is four percentage points lower than European companies, and seven percentage points lower than US companies, according to McKinsey analysis.