Industry Spotlight

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.

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.

For companies that rely on both local sourcing and local production in China, but only generate a small proportion of sales there, "Decouple & Strengthen" could be a promising strategy. Its basic principles are to actively address and implement the company's own decoupling measures, for example dual/multi-sourcing, nearshoring or, in the short term, building up inventories in the target markets while at the same time maintaining and strengthening the local sales market if there is growth potential. Cooperation partners can play an important role here in terms of the strategic implementation. Ultimately, the company's risk appetite and capital commitment will determine whether its production capacities are optimized for the local and global market, respectively.

For companies that source parts for their production process from China but neither produce nor generate sales there, a "China + 1" strategy is recommended. This involves adapting the value-creation process and making the supply chain more resilient, for example by sourcing raw materials or product components from at least one other market. The aim is thus to tap additional procurement potential. In the short term, it may make sense to build up inventories in target markets; in the long term, it will become possible to achieve savings due to capacity/inventory buffers. While diversifying procurement sources will be costly, alternative technologies can help to improve the efficiency of this process. In the future, it may be possible to generate additional added value through the digitalization of the supply chain and by exploiting the advantages of local procurement, such as sustainability aspects.

For companies that source parts for their domestic production process from China but only sell low volumes there, a regulated "phase-out" could make sense if they conclude that they are unable to prevail over the local competition, both now and in the future. This means phasing out the sales market in China and no longer investing there. However, this strategy is only recommended for a very small number of companies due to the importance of China for industrial companies, especially as a sales market. For companies that nevertheless choose this path, their new mission is to strengthen the business in other target markets. In this context, the developmental focus should be on "open" markets and alternative technologies. In terms of strategic supplier development, partnerships and dual/multi-sourcing options should be sought. If the framework conditions change in the future, the possibility of re-starting production operations in China could then be re-evaluated.