Much of the debate at Davos last week focused on how multinationals should rebuild their growth strategies in response to the varying economic dynamics and rates of development experienced across the globe.
Whilst the outlook is a good for the UK, USA and Japan, concern over Europe’s need for economic reform remains – with some provocative commentators even questioning whether the region should be reclassified as an emerging market. Hopes for the newly named ‘MINT’ group (Mexico, Indonesia, Nigeria and Turkey) have got off to a rocky start, dashed by political instability in Turkey and deficit issues in Indonesia. Belief in the BRIC economies is waning, as Brazil and India tackle massive deficits and investors fear the Chinese gold rush is over – as highlighted by The Economist’s cover story this week, ‘China loses its allure’.
There is no doubt that for global companies, making China (and many other parts of Asia) work, is not easy. The Economist points to a range of issues, not least rising costs, and references companies leaving (including Best Buy and Yahoo) and those (such as IBM) that face declining revenues. And, of course, the economy is slowing, having reached 7.7% last year.
But there are many stories of continuing success, not least at RSM, where we are seeing near double digit growth in Asia-Pacific. This is driven to a large extent by China where, following a June merger last year to create Ruihua China CPAs, the country’s third largest accounting based network is part of RSM.
The run-away growth rates of the last 30 years, instigated by Deng Xiaoping’s reforms, may become consigned to the history books but China is entering a new, arguably more sustainable, phase of growth. The big picture is one of great optimism. In China services are now bigger than manufacturing, middle class wealth and expenditure is growing, and the government’s revolutionary Third Plenum outlined last November set the stage for a slew of economic reforms that will provide incredible business opportunities for western multinationals to sell their ‘know-how’. As Jim O’Neill highlighted in The Daily Telegraph this weekend, China eclipsed Japan to become the world’s second largest economy – bigger than France, Germany and Italy combined – by the end of 2013. That‘s two years earlier than he had expected.
China is looking west more than ever before. Outbound growth, including through M&A and strategic acquisitions, is on the rise. So too is the demand for western education. According to the Huron Report, published during Davos week, Britain is now the favoured country for the secondary education of wealthy Chinese, with the US in second position. The implications are that, in time, we could see a significant increase in Chinese executives with strategic positions in western organisations. That is very exciting.
China is a long-term game. It’s more complex and tougher than before. But optimism about the country should not be waning and the allure should not be lost.