How real are the opportunities for multinationals in China?

Many multinationals continue to see the China market as a major contributor to their global growth over the medium term. With the rising capabilities and competitiveness of local Chinese players, however, how real are the opportunities for multinationals in China? This chapter begins by reviewing the evidence on the performance of multinationals versus their local competitors in the Chinese market. The chapter then analyzes the changing strategies and evolution of sources of competitive advantage of both Chinese companies and multinationals competing in China. It compares the differential success of these competing groups in accessing the “country-specific advantages” available in China. The chapter also examines the evidence on “catch-up” by Chinese companies in building their own firm-specific advantages. This includes an analysis of internal investment and learning by Chinese companies with the aim of building new capabilities, improving their absorptive capacity, and accessing strategic assets through foreign partnerships and cross-border acquisitions. The chapter then examines the changing role of Chinese companies in global value chains. This leads the chapter to address the question of whether, in addition to narrowing the capability gaps with multinationals, Chinese companies have also developed new and distinctive dynamic capabilities and sources of competitive advantage. The chapter concludes by examining how multinationals have responded to increased competition from local players in China and the options open to multinationals as they seek to secure future opportunities in China in the face of a rapidly changing market environment.