German Companies Confident with Chinese Market amid Challenges

German companies are confi- dent with the growing Chinese market and are aiming to further expand their business operations locally， according to a recent report by Euro Asia Consulting (EAC) and the German Chamber of Commerce in China (GCC).

The further expected growth in China is fueled by an increased demand from Chinese customers. 70 percent of the German companies interviewed expect a growing demand， either due to the Renminbi appreciation or overall growing economy and increasing wealth， said the study based on 30 German companies doing business in China.

However， they also realize that domestic competition will increase significantly， mainly due to a better access to foreign markets and technologies and improved domestic cost structures.

Domestic companies have gained in number and size and have also been able to significantly improve their product quality in the past.

“Local companies are getting better and better (often through trial and error) and also more innovative. They have managed to greatly improve their quality level already，” said a company representative of the chemical industry.

The Renminbi appreciation forces Chinese enterprises to become more competitive in an international comparison. “Made in China” can no longer only be competitive based on cost advantages due to rising prices abroad caused by the strengthening Renminbi.

Local companies can also benefit from the Renminbi appreciation by getting cheaper access to foreign technology as well as potential acquisition targets and international markets.

Investments of Chinese companies abroad will increase significantly to get more presence in and access to international markets as well as to acquire more technology and know-how.

“Local competitors have looked at a number of different technologies abroad and have applied them to their own processes afterwards，” said a company representative of the electrical industry.

Apart from the domestic competition， the foreign competition is also expected to increase in China. The interviewed company representatives expect growing foreign investments in the Chinese market. Many also see the market saturated to a certain extent already， said the report.

As such， the companies involved in the study agreed that they have to become both， more efficient and innovative in the future to stay competitive.

Being highly localized， many German companies in China have adjusted their China strategies to the local market and do therefore barely see any measures to be taken due to the past， present and future Renminbi appreciation. Due to the growing market in China however， many see the need to not only focus on the high-end market segments anymore， but rather move towards a broader mid-end market.

Most companies talked to in the survey are also strongly focusing on further increasing their market share in China. They all see a huge growth potential of the Chinese market， want to be a part of it and further profit from such development.

In order to realize such goals， a number of strategies measures have been introduced by the companies included in the survey. Such strategic measures include a variety of different attributes， covering aspects of local adaption， process improvements and expansion.

However， many enterprises talked to in the course of the study realized that in the past they have not always worked on constant improvement of their China strategy. For many years， the operations in China grew simply based on the significant economic growth in China. With rising operational costs described earlier however， those companies have in the past 2 – 3 years again focused on China as their major growth engine， the report said.

“We have been in this market for more than 10 years already， but didn’t really focus on actively growing until the last 3 years. Now we have a real strategy and are trying to achieve an annual growth of about 20 per cent，”said a company representative of the machinery industry:

However German companies are still confident of themselves with their identified specific advantages， such as high quality， service reliability， high brand image， technological know-how and innovation. Many German companies involved in this study still see themselves ahead of local competitors by at least 2 years and up to 10 years depending on the industry.

“China will gradually move away from its image of being a low-cost/ low-wage country， and will increasingly develop towards a country focusing on RD and innovation. Hence， over the long-term， China will catch up， for now however， made in Germany still wins，”said a company representative of the automotive industry.