China-based multinationals to lose out to domestic rivals as small cities drive growth as mainland economy slows
Multinationals will lose out to domestic firms with closer links to up-and-coming areas as mainland growth slows, says consultancy
Multinationals on the mainland will continue to lose out to domestic companies as the country enters a "new normal" period of economic slowdown, said management consultancy firm Bain & Company.
Local companies, typically led by entrepreneurs, were often more efficient at making decisions and - more importantly - had a stronger presence in smaller cities where most future growth would be located, said Michael Thorneman, head of Bain's Greater China office.
"On an aggregate level, multinationals are losing share, though there are individually some sectors where they're doing better," he told the on the sidelines of the World Economic Forum in the city of Dalian in Liaoning province, which ended on Friday.
This trend was likely to continue because multinationals generally faced slower growth in most industries, increased costs and greater volatility, Thorneman said.
"Multinationals have historically a stronger presence focused on higher-tier cities … but the growth is now increasingly in the lower-tier cities," he said.
According to the latest report by the China Society of Urban Studies, small- and medium-sized cities contributed about 57 per cent of the mainland's gross domestic product in 2013.
Thorneman said that local companies were typically driven by entrepreneurs so they were fast at making decisions.
By contrast, it took multinationals more time to innovate or issue new products because they had to coordinate their decisions with headquarters and regional stakeholders.
A survey of more than 440 member companies of the American Chamber of Commerce in China showed that over a third of them had no investment expansion plans for 2015 - the highest rate since the recession of 2009.
The survey, jointly issued earlier this year by Bain and the chamber, found that two out of five companies had reported comparable or lower revenues in 2014 compared with 2013.
Three out of five meanwhile had seen revenues hold steady or profit margins decline.
However, most sectors still offered attractive growth opportunities, Thorneman said. The mainland's ageing population would provide good opportunities for pharmaceutical companies and medical equipment businesses, he said.
Imports of high-quality food and health products, for example, were a promising growth market area because the nation's increasingly prosperous middle class were keen to invest in things that improved their lifestyles.
Other attractive growth areas included travel, which was developing very rapidly, while there was also great potential in fields such as financial services and wealth management, he said.
Amid continuing worries over the impact of the mainland's economic slowdown on consumer spending, Thorneman said he believed that strong growth in the online shopping market would help to drive growth in the future - but at a slower pace than in the past.
"In many ways China is at the leading edge - particularly when it comes to e-commerce and mobile commerce," he said.
Earlier this week Jane Penner, head of investor relations at mainland e-commerce giant Alibaba, told a press conference that the economic slowdown would slightly dent the company's online sales volume for the current quarter, sparking concerns about mainland consumption.
