Chinese market continues to serve up uncertainties that give cause for adaptation

Chinese companies are increasingly knocking on other countries' doors to invest.

While this is the predominant model at the moment, China hasn't taken its attention away from luring more investment into the country.

Many restrictions have been lifted, the latest of which were revealed in February this year.

Yet, there's a sense that if China is heading towards a more ODI (overseas direct investment from China) model, why is it that FDI (foreign direct investment into China) is still a relatively high priority? There are many explanations there.

But one observation is certain: while FDI into China remains attractive, foreign companies in China have no guarantees of an easy ride.

Old business models do not work in the current Chinese market?

When Korean firm Shinsegae entered the Chinese market in 1997, it set the goal of opening 1,000 E-mart discount retailing stores. By 2010, it only had 27 stores.

After twenty years in the country, South Korea's largest discount retailer might shut up shop in China in 2018, citing high costs, unfavourable locations, and a slump in the Chinese economy.

Those high costs probably apply to every other player in the market. Despite the occasional slump, the Chinese economy has been growing at phenomenal rates in the last twenty years. Unfavourable locations can be put down to poor strategic choices.

Hershey's, the biggest chocolate maker in North America, plans to cut 2,700 jobs globally, partially as a result of poor performance from its Chinese investments. Technology companies such as Seagate and Oracle are also closing some of their factories and facilities in China in order to stay focused.

The matter of fact is that exits and scale-backs from the second largest market in the world have become more common. Lurking behind the scenes is the fact that foreign companies in China have not adapted their business models to suit the current business climate.

Are they ready for a market that is growing at more than 6.5 per cent each year?

Are they ready for new market entrants that come in the thousands each year?

Are they aware that China is moving towards becoming an advanced developing country?

Are they aware of the changes in consumption patterns of the current demographic mixes?

Are they aware that their customers are becoming more sophisticated, whether they are businesses or individuals?

If the answer to any of these questions is no, then they will struggle in China, sooner or later.

All is not lost though, as China is a huge market that provides lots of untapped opportunities. Ikea, the furniture superstore for example, has been encouraged by its Chinese operations and is projected to open a mega mall each year for the next 8 years. It has only three so far.

Then there's AirAsia. The Malaysia-based low-cost airline is planning to enter the Chinese market, suggesting that China is one of the last untapped markets for budget airlines.

It seeks to do so through a joint venture with the government of Henan province and Everbright, a state-owned conglomerate.

To gain some political traction, the joint venture proposal was announced at the recent Belt and Road Forum in Beijing. Further, the company also suggests that it will consider using Comac C919, China's newly minted airplanes.

So, the red carpet is still there to welcome foreign companies into investing in China.

The prize is huge.

But the uncertainties are rife, even for the big multinationals and those that have been in China since the beginning of its open door policy.

Things in China do change within the blink of an eye. Adapting business models has never been more important.

Published on stuff.co.nz