2016 Is To Be "The Year Of Foreign Enterprises"

摘要: For the past few days, the Chinese government has signaled twice that foreign enterprises were welcome to do business here in China. At the same time, foreign enterprises should also be alert to the changes and opportunities in the Chinese market and move accordingly. My prediction is that 2016 will be the year of foreign enterprises.

(Chinese Version)

In 2014, an article titled “A Year of Foreign Enterprises in China” was widely-circulated on the Internet. The articles suggested that most foreign enterprises left China because they either refused to abide by the security rules of the Chinese government or because of the fierce competition from their Chinese counterparts.

As a matter of fact, in 2014, Adobe closed its China office, Microsoft also closed its Nokia smartphone factories based in Beijing and Dongguan. Rumor even had it that the Chinese government had stopped purchasing devices from Cisco. There was a time when all the foreign enterprises were plagued by imaginary fears.

However, if we see things from the global economic aspect, we may easily find out that openness and sharing are the mainstream of this era, and that China is certainly not going to cut itself off from the outside world again. So it is to be expected that China is going to be increasingly open and free in the future.

For the past few days, the Chinese government has signaled twice that foreign enterprises were welcome to do business here in China. At the same time, foreign enterprises should also be alert to the changes and opportunities in the Chinese market and move accordingly. My prediction is that 2016 will be the year of foreign enterprises.

Two signals

During the Second World Internet Conference held in the eastern town of Wuzhen, Zhejiang province on December 16th, 2015, China’s President Xi Jinping vowed that: “China’s door would stay open to foreign enterprises. Chinese government’s policies towards foreign enterprises will never change, Chinese government’s protection of foreign enterprises will never change, and that Chinese government’s support over foreign enterprises will never change. So long as they abide by China's laws, we warmly welcome enterprises and business startups from all countries to invest and do business in China.”

As a matter of fact, China, as the second largest economy in the world, has the largest base of Internet users. It is the needs of over 700 million Internet users together, the increasing demand for quality life and service from the burgeoning middle class and the participation of foreign enterprises that contribute to the miracle in the Chinese Internet industry.

During the annual Central Economic Working Conference held on December 18th, 2015, principles such as improving foreign investment environment, safeguarding interests of foreign enterprises, protecting intellectual property rights and treating Chinese and foreign enterprises equally were again pointed out.

As we all know, the role of the annual Central Economic Working Conference is to sum up and analyze the economic development of the past year and make preparations for the economic development in the next year. Now that the above principles have already been listed as one of the goals of the Chinese government, the Chinese government is promising to the world that it will protect the legitimate rights of foreign enterprises and ensure global economic integration.

The signal of the above two promises is quite clear: foreign enterprises is to develop rapidly in 2016.

Foreign enterprises should renew their understandings of China

Actually, the most challenging problem for foreign enterprises isn’t to abide by the China’s law, but to adapt themselves to the rapid change in the Chinese market.

China’s economy boomed owing to the reform and opening up policy and the introduction of foreign capitals. At first, foreign enterprises loved setting up their global manufacturing centers in China due to the low labor cost here.

However, with the adjustment of Chinese industries and economy structure, foreign enterprises began to lag behind. Based on the rapid development of the Internet industry and Internet technologies, China has gradually been transformed from a manufacturing giant to a consuming giant. It is also Internet companies that accelerate such transfer.

Therefore, it is high time foreign enterprises shifted their positioning towards the Chinese market. They shouldn’t simply set up manufacturing centers in China, but also local research and development centers.

US-China Chamber of Commerce also pointed out in the 2015 China Business Climate Survey Report that foreign enterprises should be able to adapt to the constant changes and new challenges in the Chinese market with the reform of China’s economic structure and the transfer to sustainable development model. Statistics suggest that one thirds of American enterprises made half their profit in China out of local design, R&D and customized services.

World leading tech giants are also cashing in in R&D sector. For example, Dell Inc established a terminal solution R&D center specially for Chinese consumers. IBM and Microsoft also allied with some Chinese companies to co-develop cloud computing and artificial intelligence technologies.

As a matter of fact, it is high time that foreign enterprises should renew their understandings of China.

This is also why I am pessimistic about Google’s return to the Chinese market. As is well known, Google left China soon after its entry. Since it refused to adapt to the Chinese market, it has already missed the golden opportunities in the Chinese market. So I don’t expect it to make big after it returns.

Traditional Internet companies, however, are endeavoring to understand the Chinese market and cashing in continuously.

For example, HP furthered its business in China by establishing a joint venture along with UNIS. So foreign Internet companies are still quite enthusiastic about the Chinese market.

The boundary of security is to be expanded

Ren Zhengfei, the founder of Huawei Technology, has always been advocating openness in various scenarios. For him, openness is the driving force of any kinds of advance. “Huawei is in strong support of China’s globalization. Although made-in-China products are widely-used by the Western people, they might still doubt if these products are safe or not. Chinese people should also be able to use products made by foreign companies and test if they are really safe or not. Fundamentally, however, nothing is absolutely safe in the Internet world,” he told the media once.

The more open, the safer; the more enclosed, the more dangerous. As a matter of fact, openness should be the foundation for Chinese companies to go abroad.

While Chinese enterprises are keeping going abroad, the world be being more open to China. In this case, China is also expected to become more open when establishing its own security system.

To some degree, it could be really hard to tell exactly if a company is a Chinese or foreign one.

For example, Lenovo acquired IBM’s computer business in 2004, Motorola’s mobile business in 2014, and IBM’s x86 server business recently. Today, Lenovo’s global business has already been benefiting its business in the Chinese market. So it is hard to tell if Lenovo is a Chinese company, or a foreign one.

This is also true for Alibaba, one of the most popular icons of China. In 2015, Alibaba Cloud is rapidly expanding its business abroad, and has already established data centers in North America, Middle East, Japan and even Europe. In a sense, it has already become useless to make clear if Alibaba is a Chinese or a foreign company.

What about the Chinese divisions of transnational enterprises? Dell Technology is certainly a case in point. The company has already established an entire business chain in China, from innovation incubator to R&D, from local procurement to local manufacturing. Dell has become pretty much localized here in China.

In conclusion, openness is changing the very structure of the Chinese market. In the near future, the difference between Chinese companies and foreign ones will be no longer that clear. What’s really important is to provide the best services for consumers. Openness, however, is going to gradually expand the boundary of the security.

Full and open competition is to benefit Chinese brands

It is an undisputable fact that the growth rate of China’s economy has slowed down. Yet, the Chinese government seems to be quite well-prepared for such change. Economic downturn might not be that bad, since there is always the other side of the story.

Liu Qiangdong, the founder of JD, once suggested that the next decade would be the best time for Chinese brands to rise and prosper. After some research, he found that most Japanese brands rose when the growth of Japanese economy slowed down, while South Korean brands such as Samsung also began to rise when the economic growth rate of South Korea slowed down.

How come? When the economy grows at high speed, the goal of most enterprises is to expand and make profit; when the economic growth rate slows down, they tend to focus more attention on R&D, improving user experience and their services.

At this period, China should stay open its door to the world and encourage foreign enterprises to enter the Chinese market, which could also be a good thing for Chinese brands.

For example, Dell’s fast development in China can encourage Chinese enterprises to focus more attention on R&D and developing their own key technologies.

On the one hand, Chinese brands are in dire need of competition from foreign companies who owns the best technology;

On the other hand, full and open competition will help Chinese companies to broaden their horizons. Such competition enables the rapidly-developing Chinese Internet companies to be better prepared before going abroad.

In other words, if foreign companies are facing great restrictions in the Chinese market, Chinese companies will not benefit at all. For example, Chinese smartphone makers have never expected that they would face so much difficulty in the Indian market because they are lacking in a potent enough competitor in China.

To wrap up, the signal of the Chinese government is quite clear: China is welcome to foreign enterprises. China needs foreign enterprises, and China is a huge market for them. While China should become securer by embracing openness, foreign enterprises should also be willing to renew their understandings of China. Only those that best meet the needs of Chinese consumers can they get fully localized in China.

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[The article is published and edited with authorization from the author @Zheng Kai, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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