China is still number one for expanding firms

By George Reynolds and Guy Montague-Jones

- Last updated on GMT

China is still the number one location for manufacturers and
retailers looking to expand their businesses in an effort both to
tap into the fast growing China market and as a means of
establishing low-cost global manufacturing bases, according to a
new study by service consultants, Deloitte & Touche.

Despite product safety scares such as the tainted toothpaste saga and recent inflation concerns, relatively low labour costs and a booming consumer market continue to attract growing businesses. Over two-thirds of surveyed companies said they are likely or very likely to expand operations in China within the next five years. Growth in China's consumer market for cosmetics is expected to see very high levels, making expansion in China particularly tempting for cosmetics and personal care companies. Market intelligence firm TNS estimate that so long as China's economy remains on track, the market for cosmetics should grow by between 15 and 20 per cent over the next two years. From the 446 executives of manufacturing companies headquartered in 31 countries, the vast majority said they were looking at China as a retail market and manufacturing site. A total of 82 per cent said they planned to invest in production operations and 78 per plan to expand sales and distribution. Many of the executives questioned had already entered the Chinese market with 59 percent saying that their businesses had operations in China. Unsurprisingly, larger businesses with yearly revenues above a $1 billion are more likely to be operating in emerging markets, with three quarters with operations in China and about half in the remaining markets. Significant expansion in China was expected by 84 per cent of respondents. More than 80 percent of the executives expected their companies would invest in production operations in China, while roughly half anticipated an expansion of production activities in the other markets. Jane Lodge, UK Manufacturing Industry Leader at Deloitte, said China will remain at the forefront of operations for global manufacturers, but the events of this summer and the increasing cost pressures will increase the awareness of the risks of operating in emerging markets. "Until now, manufacturers have not always reviewed the risks holistically,"​ she said. "Success in emerging markets requires an intelligent approach to managing the risks and opportunities necessary to drive future growth, while avoiding risks that have no upside potential."​ In 2005, emerging markets accounted for more than half of world gross domestic product (GDP) measured at purchasing power parity, taking into account differences in the relative prices of goods and services. Their share of world exports is now 43 per cent, up from 20 per cent in 1970, and they consume more than half the world's energy, according to the study. A key finding of the study found that about one-quarter of the executives said their companies found it very difficult to attract qualified workers in China, India, Latin America, and Eastern Europe. Retention poses greater challenge in China, India, and Southeast Asia, where about one-third of the executives said retaining qualified workers was very difficult, the study found. However, despite these challenges and other risks, only 56 per cent of executives said their companies conduct a very rigorous risk assessment before entering an emerging market. Only 47 per cent of the executives said the individual risk assessments at their company were well integrated before they invested in an emerging market. Even among companies with more than $1 billion in annual revenues, just over half of the executives described their individual risk assessments as well integrated, according to the study.

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