Innovation drives MNCs in nation

Foreign firms swear by local market on reforms, opening-up, nimble COVID measures

There was a time, not too long ago, when all that multinational corporations had to do to succeed in China was employ a simple, time-tested formula: Bring in bestselling products, popularize them, make profits, build local factories, expand or enhance the product portfolio, throw in some value-added services, and, maybe, even hire local CEOs, in order to reach more consumers in lower-tier cities.

Well, MNCs now realize that formula will no longer suffice, experts said. So, MNCs ranging from established manufacturers to renowned energy giants are altering their China strategies with newfound zeal.

For instance, by the end of May, as many as 848 MNCs had their regional headquarters set up in Shanghai. Despite recent COVID lockdowns, the megacity remains the proud home to 512 foreign-funded research and development centers, the Shanghai Municipal Commission of Commerce said.

Reasons abound for MNCs' focus on China, experts said. For one, China is the world's second-largest economy (GDP: $17.7 trillion at the annual average exchange rate in 2021). For another, it is humongous in terms of sheer geographical spread and population.

Add to that factors like rising disposable incomes that stoke consumption upgrade, huge demographic segments of consumers, future growth prospects, economic resilience amid the COVID-19 pandemic and game-changing multilateral, regional and bilateral trade agreements, and it becomes easy to understand why MNCs are furiously developing China-specific strategies, experts said.

The current COVID-induced downward pressure and disruptions to industrial and supply chains notwithstanding, China has been trying to make the most of the brightening dynamic in its market.

For instance, over and above reforms and higher-level opening-up, there are proactive consultations with business leaders; thrust on high-tech, innovation and digitalization; efforts to reform the World Trade Organization for a just and fair multilateral trading system; and a host of other fiscal and monetary tweaks from time to time－all to ensure MNCs receive a level playing field in China.

Denis Depoux, managing director of Roland Berger, a global consultancy, said China will remain an attractive market, a superior industrial cluster and an increasingly efficient innovation hub for most MNCs.

What is more, the China market increasingly demonstrates distinct characteristics, particularly in consumption patterns, technology and evolution of business formats.

In response, MNCs in China are betting big on localization, engagement with various stakeholders, increased investments and emerging business models, Depoux said.

Agreed Nathan Stoner, vice-president of the United States-based power solutions provider Cummins Inc and chairman of Cummins China. Stoner said Cummins' presence in China is critical to the company's growth globally. China continues to be the largest end-market by volume in many of its application markets, and one of the fastest developing markets for new energy like hydrogen.

"More recently, we have been following the focus on the promotion of technological innovation, environmental sustainability, and closer cross-border collaboration," Stoner said. "We will start operations at our expanded East Asia R&D center in Wuhan, Hubei province, in the third quarter of this year, with $150 million investment to incubate new technologies."

Cummins is building its China headquarters for new power business in Shanghai. Upon completion, it will house a hydrogen technical center and fuel cell assembly operations.