European companies are seeking to become less dependent on China, the dominant Asian market – without rashly squandering opportunities in what remains an important production and sales country. Especially for the manufacturing industry, this situation calls for new strategies and sure instincts – in terms of investments, technologies, structures, sales markets, and global value creation. Dr. Ralf Sauter, partner and industry expert at Horváth, identifies five potential scenarios and derives corresponding strategies to enable industrial companies to increase their resilience.
1. Expansion of Quality & Innovation Leadership
For companies that view China solely as a sales market but are dependent on the country due to the high proportion of sales generated there, the best way to achieve long-term success is to strive for quality and innovation leadership. In order to differentiate their offerings from competitor products and make them irreplaceable in the long term, a significant edge in terms of knowledge and technology must be built up. This will require further investments in products and services, for example by expanding the portfolio to include additional services. Despite higher expenditure, investing in the areas of quality and innovation is a more promising approach than solely expanding local procurement and production.
2. Embrace the Dual Circle
Companies that rely on both local procurement and local production in China, and generate a high proportion of their sales there, should pursue a "dual-circle strategy". In this way, they can continue to successfully exploit sales potential in the future. In the internal, local cycle, building a knowledge and technology advantage over competitors through targeted investments, as described in the first strategy, makes sense. At the same time, in a second cycle, companies should address global target markets, in particular by agreeing and implementing dual/multi-source and nearshoring options and looking for collaboration partners. Although this two-pronged approach involves a great deal of time and expense, it is indispensable in terms of serving the sales market in China in the best possible way, while simultaneously further expanding the company's position in the global market.