It’s a good time to be leading a private enterprise in many sectors in China. We all know about the Internet and consumer electronics, but in many industrial sectors it is also the case. I can’t fully disaggregate how much of this is due to China’s new leadership pulling back some of the advantages state-owned enterprises possessed, and making it at the margin harder for multinationals, rather than this being an on-going trend that is reaching a tipping point.
Certainly in conversations with the heads of multinationals in China, the challenges of a) keeping track of all these focused private sector attackers and b) explaining to global headquarters that these guys are genuinely good at what they do, comes up more and more.
China is creating a new Mittelstand, that core of mid-sized industrial companies (often family-owned) that have been the backbone of the German economy for so many years. Few of these emerging Chinese players are multibillion dollar businesses yet, most have turnover in the hundreds of million or even tens of million, and are fast-growing. They are family-owned, often led by entrepreneurs just entering the midpoint of their career – they plan to be around for a long time.
They are tough competitors – those who survive the intense competition in China are good at whatever it is they focus on. They are competing against a myriad of other private companies, state owned enterprises and global giants. China may be the largest country market for their products worldwide, but it is also the most competitive.
What has changed in recent years? Growth in the domestic market is certainly one factor. Much improved ability to hire talent is for sure another as state-owned enterprises are seen as a less attractive career choice. Banks are finally starting to pay attention to private enterprises allowing them to access debt from the formal banking system for the first time, lowering costs. They have also become much smarter on IP, recognizing its importance and going abroad to buy or license what is needed.
It won’t be long before they get bolder on going international, organically expanding their sales network – southeast Asia, India and Africa are generally high on the list. Acquisitions in more mature economies are also on their list.
Watch out!
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