How Does China'S Economy Enter The "New Normal" Enterprise?

We are entering the "new normal" with high labor costs, low growth rate, intensified competition and demographic changes.

Some see this as a challenge and others regard it as an opportunity.

By combining China led innovation and efficient value chain, successful enterprises can take advantage of this new environment to grasp the opportunities brought by China and establish global leadership.

Back in 2010, China's ultra high speed growth was the world's leading edge: the expected GDP growth rate was at least 10%.

However, at that time, China's impression was still a "world factory", relying on low labor costs and fast-growing consumer groups, rather than innovation.

Since 2012, China's economic growth has slowed down, and GDP growth has dropped below 7% in 2015. Under pressure, enterprises have to start thinking about the "new normal" of the economy, such as diminishing returns on capital, shrinking the resources of cheap labor and declining productivity (see chart 1).

On the other hand, the new normal also includes more brutal competition.

China began to "go out".

What is not yet concerned is that China is increasingly relying on innovation driven development mode: from millet, Tencent, Alibaba, Dajiang innovation and Baidu and other advanced technology companies to more than 1500 science and technology incubators distributed around China, and then to the rapidly growing supply of manufacturing robots.

The competition pattern has changed quietly. If the enterprise wants to accurately position the future, it needs to focus on the following four key links.

Focus 1: become a "ruthless competitor".

Growth in the new normal is not as easy as it used to be.

On the basis of maintaining operational efficiency and mastering local consumers, it is also necessary to have a "ruthless competitor" consciousness.

Compared with Western standards, China also maintains a low cost business model, but is rapidly modernizing. For example, China already has the largest retail e-commerce market in the world.

"Relentless" means to cultivate a light asset supply chain, which focuses on the nuances and needs of local consumers, and can also evolve with the growth of the middle class and the process of urbanization.

Existing companies must have a sense of competition and challenge their existing models. Otherwise, the future will be at stake.

Focus 2: seize the wave of innovation in China.

Supporting China's innovation engine is not just technology.

A key policy in the government's growth plan is "mass entrepreneurship and innovation."

Two projects of "global innovation research" and "China's best innovation enterprise selection" clearly show the great progress China has made in the past five years (see chart 2):

China's knowledge and technology achievements have reached the top three in the world.

China has surpassed more than 40 countries in terms of human capital and information and communication infrastructure.

The number of creative products in China ranks twenty-fifth in the world, and business maturity ranks seventeenth in the world.

Enterprises can rely on innovative industries vigorously promoted by the government to grasp this wave of innovation.

These innovative industries include cars and robots, pportation, new materials and biotechnology.

Another key point is that enterprises should cultivate innovative networks that can support consumers and pform companies, so as to enhance their creativity and competitiveness.

Focus 3: grasp the uniqueness of China and master localization expertise.

In the next few years, China's unique demographic structure will make it an innovative incubator: life is becoming richer, and the middle class population will reach 50% by 2020, the largest in the world.

Markets; highly consistent consumer groups; and densely populated urban populations.

These features provide a fast learning environment that can test many advanced business opportunities, including autopilot, energy solutions and urban distribution logistics (see Figure 3).

Focus 4: prepare for a global influence China.

China has always been concerned about the development of other countries and regions in the world, learning the best practices and working with leaders.

Today, almost all industrial enterprises in China have launched products that are more favored by local consumers and priced at reasonable prices, which pose a challenge to those leading industries.

With the proposal of the "one belt and one way" initiative, China has adjusted the focus of the "going global" strategy, not only to make the manufacturing industry in the value chain go out, but also to become an international leader in many industrial sectors (see chart 4).

In recent years, Wanda has entered the sports and entertainment industry. Music regards itself as a role of a connector that affects consumers. When Haier acquired general electric business and established strategic cooperative relations with it, it is leading China to the next stage of the global stage.

The challenges faced by multinationals may not be their development in China, but how to protect their share in the local market without being eroded by China's emerging global leaders.