Yilin Liao, Operations Manager for Renoir South East Asia
Organisations around the world choose to have business operations in China, taking advantage of competitive costs and perhaps tapping into the enormous Chinese market. However, rapid change in the Chinese business environment is making these dealings increasingly challenging.
After a growth spurt at the start of the millennium, China’s national productivity growth is currently at a 16-year low. It from 5.2% in 2014 to 3.3% in dropped 2015. Although increasing slowly, China’s labour productivity (a measure based on the value added by each employee) is compared to other startlingly low countries – around a tenth that of Japan’s.
In order to reverse this trend, the Chinese government is implementing what it calls supply-side reform. Its latest policy blueprint, the 13th Five-Year, reveals that the government agenda is shifting Plan from a demand-driven growth model to one based on private consumption and services.
Many see the reform as a positive turning point, changing the focus from quantity to quality to encourage the economy to move from investment led to productivity-led. However the transition will inevitably pose risks to foreign organisations with operations in China.
It’s likely that the government will keep issuing policies and incentives that favour companies that can continue increasing output and value in the face of rising costs. Weaker competitors may be sacrificed in the name of overall profitability.
There are two other important factors that will inevitably have an impact on any organisation with operations in China:
1. The working age population is shrinking rapidly The number of working age people in China fell by 4.9 million last year.
2. Cheap Chinese labour will soon become a thing of the past Wages increased by more than 60% in between 2011 and 2015 and the government is encouraging further income increases to spur private spending.
To succeed in China, companies will need to look at their staff as talent with potential for development rather than simply labour. They will also need to reassess their input-output ratio and determine ways to increase efficiency.
As well as challenges, the changing face of China will provide a new set of opportunities for businesses that are operating there. Making productivity improvement a top priority and taking a systematic approach to achieving it will be crucial to capitalising on those opportunities.
If you’re keen to boost the productivity of your operations in China, or elsewhere in the world, why not book a Renoir to identify specific ways Analysis you can adapt to make the most of the opportunities available?
We’re experienced in implementing successful productivity improvement projects, using an effective management control system as the engine to generate sustainable behavioural change. We can develop a bespoke solution based on your needs and implement it working closely with your staff.
Contact Renoir Group to get started.
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