2. A new environment

3. A small consumer market 0 500 1000 1500 2000 2500 ChinaBrazil Australia South Korea Italy UK 0 50 100 150 200 Cars, ‘000 units, left axis Life insurance, US$m, right axis 1998 Source: EIU, Swiss Re

4. A significant consumer market 0 500 1000 1500 2000 2500 3000 ChinaBrazil Australia South Korea Italy UK 0 50 100 150 200 250 Cars, ‘000 units, left axis Life insurance, US$m, right axis 2003 Source: EIU, Swiss Re

5. A large industrial market Source: WTO

6. An accessible market Much better hard infrastructure Sophisticated telecoms network Improved transport network Both internal and external Improved soft infrastructure Improved international connectivity Domestic economic reform WTO entry

7. MNCs go deeper Different FDI IT-related More than 60%of Taiwan’s IT production is made in China Capital-intensive industries Petrochemicals, semiconductor Service sectors Financial services, retail More FDI Source: EIU

8. MNCs are important to China Source: EIU

9. China is important to MNCs Source: EIU, Euromonitor, company reports, estimates.

10. MNC attitudes to China Reporting lines 55% have direct access to the global board China is….. …..“critical to global strategy” - 50% …..“strategically important” - 41% CEO visits in last year 80% said global CEO had visited at least once

11. The question of profitability MNCs are making money in China Car companies Amcham members But they are making more money from China Export base Global sourcing centre

12. Addressing the market

13. The competition Guanxi + Operating in grey areas + Official and unofficial protection + Access to cheap bank capital + Lack of corporate governance = PRICE!!

14. MNCs - brand and marketing Source: Nielsen Media Research

15. Going local Financing Borrowing from domestic banks Production Moving to cheaper areas inland Sales Increasing volumes to lower average costs Research and development Lower costs and local tastes

16. Mergers and acquisitions Buying out joint venture partners Traditional M&A Basic market access and expansion Stealing a march on foreign competition Eliminating local competition Acquiring new abilities Not mainstream yet Regulations, Corporate governance Price

17. Persistent headaches

18. China’s business environment Source: EIU

19. Infrastructure and distribution Over-burdened physical infrastructure Transport congestion Electricity shortages Lack of sophistication Poor integration of different transport modes Regulations on distribution The way forward The east coast is better Work around regulations Piggyback on chain stores

20. Regulation and corruption Regulation Central government restrictions Local government protectionism Red tape Corruption Serious problem for foreign businesses The way forward WTO opening Lobbying

21. Skills shortages Source: World Bank

22. Serious wage inflation Source: EIU, Hewitt Associates

23. Intellectual property theft Improving laws and regulations Inadequate enforcement An unavoidable cost Survival strategy: self-preservation

24. Corruption causes most concern Source: EIU

25. Conclusions China is coming of age for MNCs MNCs can build real business in China Operating issues are no longer decisive The biggest challenges are strategic There is a real need to think about China