AmCham Shanghai & Technomic Asia Survey Shows U.S. Companies Thrive in China
By Bruce Tompkins, Executive Director, Tompkins Supply Chain Consortium
 Financial Results
U.S. companies operating in China enjoyed a very strong year financially in 2010, and they are poised for even better results this year. Key business financial indicators of profitability, revenue growth and operating margins grew in 2010 – often significantly over the recession years of 2008 and 2009.
China remained a bright spot during the global recession that negatively impacted so many companies’ financial performances.
According to the AmCham Shanghai 2010-2011 China Business Report*, U.S. companies in China are thriving:
- 87 percent of companies report revenue growth in 2010 versus previous years;
- 79 percent of companies report that they are “very profitable” or “profitable” in 2010; and
- 61 percent of companies in China gained market share
All of these statistics point to a breakout year in financial performance for 2010 for U.S. companies taking advantage of business opportunities in China, as well as potential for growth in 2011.
Business Trade
What is the key to success in China? The highest performing companies continue to focus on competing in that country’s rapidly expanding domestic market. In addition, the trend of “in China for China” remains a strong point as the Asia market matures and becomes increasingly driven by explosive middle class growth and a widening consumer base. The AmCham Shanghai 2010-2011 Report indicates that:
- 55 percent of companies report producing goods or services “in China for the China market” as their primary strategy;
- 72 percent say they have designed or are designing unique products and services for sale in China;
- 58 percent report that they imported finished goods or parts from the U.S. into China to support their China operations; and
- The value of finished goods or parts/components imported from the U.S make up approximately 35 percent of China sales
 2011 China Forecasts
Looking at 2011 overall, most U.S. companies in China predict excellent revenue growth. Moreover, they are planning aggressive investment for their China business. Nearly nine in ten companies forecast a revenue increase for this year, and 80 percent of companies surveyed expect to increase investment in China above 2010 levels.
The China market is a top three priority for roughly two-thirds of U.S. companies, and the number one priority for 20 percent of them. Another indicator of the importance of the China market for U.S. companies: 41 percent expect to increase investment in China by more than 15 percent in 2011 – double that of the forecast for 2010.
Business Environment
Despite the strong financial performance of companies in China, it remains a challenging environment for U.S. business. Key challenges include:
1. Finding, hiring and retaining enough qualified staff. Human resources constraints are identified as a top operational challenge by 28 percent of companies.
2. Government policies contribute to a problematic regulatory environment. U.S. companies identify inconsistent regulatory interpretation, unclear regulations, a complex government bureaucracy, and a lack of transparency. A strong majority of companies believe the regulatory environment is “not changing” or is “deteriorating.”
3. U.S. companies are concerned about rising protectionism risks in China that potentially limit market access for U.S. products and services. Forty-eight percent of companies report perceiving a regulatory environment that favors local Chinese companies over foreign rivals.
4. A perennial issue for U.S. companies is concern over the protection and enforcement of intellectual property rights (IPR). Nearly 70 percent of companies report that IPR continues to be a “critically important” or “very important” issue, with a growing number feeling there has been little progress.
The China Business Climate
Important findings, quantified in AmCham Shanghai’s China Business Climate Indices, are used as an analytical tool to group companies in a way that is meaningful to business performance. The goal is to measure performance quantitatively, thereby offering a more accurate and objective analysis by which to assess the survey results against key sectors and industries.
Although U.S. companies are competing at a high level, opportunities and challenges in China vary by the market sector and industry in which they compete. The results of the China Business Climate Indices portion of the AmCham Report reveal that the services sector faces the most challenges compared to manufacturing and retail sectors, which are both relatively more successful and have a stronger positive outlook moving forward. The retail sector scores the strongest across all three indicators of Successful, Confident and Welcoming.
Successful, Confident and Welcoming companies share distinct traits: (1) all have significantly higher revenue (over US $10 million) on average, (2) and all tend to have higher market shares (over 10 percent in their industries). Local governments in China still treat larger foreign companies and larger foreign investments more favorably.
Viewed individually, there are important differences among Successful, Confident and Welcoming companies:
- Successful companies, on average, tend to be manufacturers, have been in China for more than 10 years, see China as their top investment priority, and earn more than 10 percent of their global revenue from China.
- Confident companies, on average, are more likely to have been in China for more than 10 years and prioritize a strategy of producing goods and services for the China market.
- Welcoming companies, on average, tend to command over a 10 percent market share.
U.S. companies are beginning to better understand China’s challenging business environment. Intense competition and the complexity of China’s many regional markets create obstacles. The market is further complicated by a business environment that is often bureaucratic and lacks transparency, and in some industries appears to favor local companies. These factors, among others, contribute to what some find to be a less welcoming environment.
Opportunities Outweigh Obstacles
One of the key findings of this year’s report is that while some U.S. companies do not necessarily consider China as welcoming a business environment as they would prefer, they are nonetheless quite confident in their future business in the country.
The results also indicate that U.S. companies, by and large, base their confidence in the China market much more heavily on fundamentals of market growth potential than they do on China’s shifting regulatory environment. U.S. companies in China have come to expect challenges, have weighed them against the opportunities, and have found a way to succeed in China despite the obstacles.
The China market offers significant and unique market opportunities for companies that are willing and able to deal with the challenges found in China.
* The survey was conducted by Technomic Asia, a Tompkins International company, for AmCham Shanghai.
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