How much are multinational companies dependent on China?
Report on Wednesday said, the ambitious Starbucks is continuously expanding in China, but customers staying in Starbucks not leaving is a major obstacle of expanding in China – “Customers love these shops too much, they sit there for hour after hour, and sometimes without buying any coffee at all.” In fact, although these multinational companies have amazing rate of expanding in China, looking at the sales numbers comparing with total global sales, China is still relatively a small market, this probably has little to do with customers staying in the shop for too long.
As of 2010, Starbucks has 459 stores in China, but the average Chinese consumer drink coffee three times a year. To buy a cup of 12 ounce caramel macchiato, consumers in Easter China need to work 1.3 hours, consumers in Western China and central parts of China need to work 1.6 and 1.9 hours. Starbucks has 10.71 billion dollars in total revenues in 2010, but revenue in China is only 358 million, only 3.3% of the global revenues.
Just how dependent are multinational companies on the Chinese market? Would they be brought to their knees without the Chinese market? We found many companies’ annual reports, the data may disappoint many people – in fact, Chinese market isn’t very important to the majority of multinational companies. Carrefour supermarket which are now everywhere in China still has main revenue in France. In 2011 the Chinese market revenue of 8.169 billion euros is less than 10 percent of its global revenue. Even Coca-Cola can be seen almost anywhere in the world, it’s revenue in China only accounted for about 7% of its total revenue. Amongst the most common multinational companies, perhaps only KFC under Yum! Brands would have a hard time leaving Chinese market – KFC’s revenue in China is 49.8% of its total, almost half of its share.
The Economist Intelligence Unite (EIU) released at the end of the investigation report also supports this conclusion. The Economist’s report shows that the global financial crisis in multinational companies, especially large multinational companies are more dependent on the Chinese market in order to bring in more revenue. But for most of the multinationals China is still a relatively small market. This report is based on a survey of 328 non-Chinese multinational senior management, and in-depth interviews with large foreign multinational executives, business academics and market analysts. In this survey, only 8% of respondents believe that China is their biggest market, 17 percent of companies expect China to become its biggest market within five years, and another 21% of the companies believe that this situation will occur within 5-10 years.
70 multinational companies surveyed, only 10 companies have more than 20 percent of its global revenue from China last year, including Mead Johnson, Cartier, BHP Billiton, Yum, Advanced Micro Devices, etc. and half of the above companies have less than 10% income coming from China.
The survey also shows that, although multinational companies are still optimistic about China, there are signs of global distribution of their investments, in order to balance their overall strategic layout. Among all respondents, 37% think China is essential to their global strategy, however the 2004 survey showed 53%. Another 33% of respondents believed that the Chinese market, though not to have crucial role, but also has important strategic significance. This number also declined from 2004 survey’s 41%.