China the most powerful growth engine for new global companies

World to see boom in big firms

By YU RAN | 2013-11-07 | China Daily

Report: Nation to be ‘engine’for companies

An additional 7,000 companies globally are expected to become large enterprises with revenues of more than $1 billion by 2025, with 70 percent of them likely to be based in emerging regions, especially China, a report has said.

The new report on the shifting global business landscape, which was released by the McKinsey Global Institute on Wednesday in Shanghai, said that many more large companies will develop in emerging cities and countries from the current 8,000 large companies worldwide, 75 percent of which are based in developed regions.

China is without a doubt the most powerful growth engine for new global companies, and now is the time for forward-thinking cities to build their reputations among Chinese business leaders, the report said.

The survey found that one-third of large companies are now headquartered in only 20 cities globally while three in 10 large Chinese companies are based either in Beijing or Shanghai. However, there might be more than 300 cities in China hosting at least one large company by 2025.

“Many city officials are focused on luring corporate headquarters, but it is actually relatively rare for companies to move their head offices,” said Elsie Chang, an MGI senior research fellow.

Chang added that the more promising opportunity lies in attracting foreign subsidiaries as thousands of global companies are expanding into new markets.

For instance, opening more plants in China to make products tailored specifically to local buyers is the stated goal of PPG Industries Inc, a major global coatings and specialty products company, in the next three to five years.

“China is a very important market for PPG, being the second-largest market among 70 countries, while we have plans to continue to invest in China as our business grows and we want to apply our best technology to help our customers,” said Mike Horton, PPG’s president for the Asia-Pacific region.

With more than 30 plants in the Asia-Pacific region, 14 of which are on the Chinese mainland, PPG plans to develop its Chinese market step by step to become a major manufacturer and seller in the country.

“We are planning to find and work with more high-standard factories to manufacture what we sell in China instead of importing products from overseas to meet the increasing demand within the country,” said Horton.

The number of large companies based in emerging regions is poised to far more than triple by 2025, rising from around 2,200 today to about 7,000 in 2025. This reflects rising incomes and growing local market opportunities in these regions, as well as the fact that local companies are expanding, maturing, and reconfiguring through mergers or acquisitions, the MGI report said.

About 280 up-and-coming cities in emerging economies could host the headquarters of a large company for the first time, becoming new hubs in global industry networks, it added.

“The world’s competitive landscape will be transformed over the next 10 to 15 years by the rise of a formidable new breed of large emerging-market companies,” said Jonathan Woetzel, a director at MGI and one of the report’s authors.

Woetzel added that the long-established dominance of Western multinationals is about to be challenged.

In addition, China will also see more small and medium-sized companies becoming large ones as the number of large companies in China is expected to increase from 800 to more than 3,400 by 2025, the report said.

Some private business owners in China are already pursuing the goal of transforming the scale of their companies from small and medium-sized to large.

For example, the effects of the growing e-commerce industry are bringing impressive results to some sectors.

Zhejiang Duoying Jewelry Co Ltd, which closed its physical shop and registered an online shop in 2012, saw its gross profit grow to 30 million yuan ($4.88 million) in 2012, twice the amount posted in 2011.

“The peak period of export trading ended in 2011 with a sharp decrease of over 30 percent on annual output from 2008 while the amount of orders also declined nearly 40 percent,” said Zeng Hongqi, the general manager of Zhejiang Duoying Jewelry.

Zeng added that he aims to boost his company’s profits with gradual annual growth and upgraded branding, going from the current mid-market clients to high-end customers in 10 years.

In particular, more focus will be placed on the services sector in China, as Shenzhen and Nanjing are developing as hubs for non-State controlled, medium-sized companies with a higher share of global revenue from services companies than other leading emerging-region cities such as Mumbai, India, and Sao Paulo, Brazil, said the report.

 

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