A ‘new normal’ for MNCs in China

While global travel restrictions, lockdowns and turbulent geopolitics have caused some leaders to put China on pause, international companies are well-equipped to re-ignite their position in China, matching the pre-pandemic period if they are willing to adapt to China's new normal.

China has changed significantly after the pandemic. The new normal is a new reality, driven by a number of factors that MNCs must negotiate if they expect to create momentum for their companies here. Approaching the Chinese market based on an unchanged strategy and pre-pandemic experiences that created results before may be risky today.?

I recommend leaders to deal with these apparent changes:

1. Chinese goods are often both cheaper and better

In 2002, everything foreign in China was automatically perceived as better across B2B and B2C. This is no longer the case. The competition is, across the board, more formidable than ever and continues to intensify thanks to local companies that are now on par with technology and overall quality. Some MNC leaders admit that the quality of local competitors is, in some areas, better than their imported goods.

In addition, local companies are almost always more competitive on price—that is very important in the current economic climate.

The most vivid example of this development can be found in the automotive industry, which has become dominated by local brands in just a few years. The scenario is already well described, also by global media, but some still need to realize that the trend is in no way limited to one industry alone.

Clearly, some MNCs still enjoy an unchallenged position thanks to superior products and the right China set-up. Yet most will benefit from considering where their differentiating competitive power lies today and possibly adjusting or innovating to compete against local companies that has significantly matured over the last few years.?

Although the challenges are palpable, there is good reason for MNCs to remain ambitious in China if they sync strategy and operations with the new normal.

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2. A new type of customer

Consumer behaviour, both within B2B and B2C, has changed significantly. The current economy and general uncertainty influence how much and at what price private individuals and companies consume. But that is far from the only change.

As in other countries, Chinese consumers' values, preferences, and hopes for the future are influenced by the years we have lived with the consequences of the global pandemic. This also influences China's new normal.?

In short, we are experiencing both a fragmentation of consumers into myriads of micro-segments—so-called Tribes—and a polarization in which several segments have directly conflicting preferences and interests.

It is already challenging some international companies, which used to define their target users borderlining stereotyping and in huge segments. MNCs must adjust when they shift from servicing a few very large segments to many small ones.

Fortunately, there has never been better data or more documented best practices from which MNCs can be inspired.

The evolution of personal values and behaviours represent significant potential for MNCs. The lockdown and economic slowdown led to a greater interest in values associated with international brands. We are witnessing an increased focus on life balance, self-realization, authenticity, and mental well-being. The new normal is also characterized by an increased focus on sustainability, environment, climate, and health—trends that should stimulate optimism and ingenuity abroad.

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3. In China for China

China has experienced a growing patriotic sentiment over the past years.

This newfound national sentiment and robust self-confidence are impossible to neglect, and they should influence how MNCs navigate the market.

The slogan "In China for China" is not new. However, an international focus on de-coupling and China+1 increases the need to clarify that MNCs are in China for more than a quick profit. Consumers and authorities want to seecommitment from foreign companies. At the same time, there is renewed attention on creating better conditions for international companies that invest in China.

Recently, international business leaders and politicians have been quoted saying that local authorities are listening to foreign needs more than before, signalling a renewed commitment to win-win, offering more flexible options for international investors.

These conditions may be favourable for MNCs that accept that their China operation and proposition must evolve to remain successful and that this evolution may also require new investments.

These are just three of several elements that characterize China's new normal. To create a complete perspective, it is a good idea to look further than that.?

I know that leading MNCs in China are all at the forefront of the new normal and are currently seeking to adapt to the realities.?Some MNCs face more favourable opportunities than others, but common to all is that they must know and understand China's new normal if they want to continue growing here.

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By Jacob Johansen, Shanghai

Principal at PwC Strategy&, China