accenture five reasons for the world to care

8/7/2019 Accenture Five Reasons for the World to Care

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Five reasons for the world to careabout Chinas new Five-Year ProgramBy Gong Li, Alison Kennedy and Andrew Sleigh


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Many multinationals CEOs are underincreasing pressure to demonstrate thatthey can tap the abundant opportunitiesin Chinawhether or not they have a

presence there already. With the releaseof Chinas 12th Five-Year Program, thosestill struggling to tackle such a dynamic,complex market have a fresh chance torethink their strategies. First though, theyhave to shed a few preconceptions.

Setting up shop in Chinas major cities,

a well-known luxury jewelry maker hasbeen unable to replicate the successit has enjoyed in most other countries.A big reason? Its stores are too small.Little stores make Chinese consumersfeel disrespected.1

Thats just one instance of howeasy it still is for foreign executivesto misunderstand China and itspeople. Not long ago, a brand-namesmartphone maker failed to get the

sales surge in China that it had enjoyedelsewhere. One of several problems:The phone was being packaged withmonthly subscription plans but mostChinese prefer to buy pay-as-you-gocharge cards.2

Just as Western executives think theyare starting to get to know China, thenation is evolving againand veryquickly. Despite all that is now knownabout the modern nationin spite of theextensive coverage of the 29th Olympiad

in Beijing in 2008 and all of the articlesabout growing consumer affluence inChinatheres still a large gap betweenthe realities of doing business there and

the outdated perceptions held by many

business leaders from overseas.

Now there is golden opportunityto narrow that gap. The centralgovernment is about to release its12th Five-Year Program, the documentthat will guide national policy through2015.3 Whereas the five-year plansof previous decades have been onlyof passing interest to businesses, thenew program marks a big departurein intent and implication. It is a

document that foreign businessexecutives must care about if theyare to participate fully in Chinas nextgrowth phase.

Although the document continues tohighlight the market reforms and theopening-up process begun severalplans ago, it does not accentuate theachievement of quantifiable grossdomestic product (GDP) growth rates.Instead, it strongly emphasizes therestructuring of Chinas economy,

targeting domestic demand, industryperformance, the urban-rural divide,the green economy, and regionaleconomic structures.


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The main themes of any Chinese

five-year plan are never a surprise.But the latest strategy has sparkeda lot of interest for many months.Historically, the five-year planningcycles have been used as guides forcentral government control. Overtime, they have become less aboutcontrol and more about guidancefor a fast-growth economy. Thus thedocument is now titled as a five-yearprogram or strategy rather than plan.But whatever the name, they continue

to influence the plans of Chinas manystate-owned enterprises (SOEs) suchas China Construction Bank and oiland petrochemicals giant Sinopec,and most of the countrys privatesector is attuned to the five-yearrhythm.

Now, for the first time, the programincludes input from outside of Chinawith formal consultation with theAsian Development Bank and throughmany informal channels.4 The reasonsfor the external inputs are simple:The global financial crisis and thecertainty of climate change haveconfronted Beijing policy-makers and

planners with the scale and scope

of their nations connections withthe rest of the world. And Chinaconfronts a range of social problemsas the gap widens between rich andpoor, and as urbanization challengespublic services across the country.

Previewed in October 2010, whenthe Fifth Plenum of the 17th CPCCentral Committee approved itsformulation, the 2011-2015 programsets out guidelines for balancing

rapid economic growth with factorsranging from individual incomegrowth and improved living standardsto environmental sustainability andgreater national competitivenessbeyond the countrys recognitionfor its prowess in low-costmanufacturing. Here are the fivethemes in the 12th Five-Year Programthat foreign business leaders mustreview as they take a fresh look atChina:

Why this program is different


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1. Rebalancing of the economyArguably the most pressing of Chinas concernsis its need to restore equilibrium along several

interrelated dimensions. After nearly two decadesof blazing export-led growth, the nation isanxious to stimulate domestic growthand iskeen to have the business sector help.


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The government is thinking interms of inclusive growthworkingto spread the benefits of Chinasexport successes among all itsregions and striving for sustainabledevelopment nationwide. The newFive-Year Program describes long-termmechanisms for encouraging domestic

consumption, optimizing investmentstructures, and accelerating newgrowth patterns driven jointly byconsumption, investment and exports.

Implementation of the programfaces several concurrent challenges.For a start, the imbalance betweenprovincesespecially betweenthe western provinces and highlydeveloped coastal regions such as thePearl River Deltaremains stubbornly

large (see Figure 1). The westernprovinces are the least urbanized whilethe eastern has some of the highesturban population densities in China.Yet Beijing has a long track recordof regional development. Perhapsthe most prominent example is theWestern Development Plan, in placefor a decade. Although that plansoverarching objective has been toreduce povertyand it has helped todo sothe bulk of its expenditureshas been on large, capital-intensive

projects intended to lower the cost ofmaking the wests resources availableto the commercial and industrialeastern provinces, according to theOrganisation for Economic Co-operation and Development (OECD).5

The gap between rural and urbancategories is perhaps the moreworrying problem. In fact, the urban-rural income gap grew the widest in2009 since the country launched its

opening-up policy in 1978, accordingto state media (see Figure 2).6 In2009, urban per-capita income was$2,525 against rural per-capita netincome of $754, with urban incomesgrowing more than a percentage pointfaster, in real terms, than those in thecountryside. China Dailyreports thatgovernment researchers have warnedthat measures must be taken soon tonarrow the gap between rich and poorif China is to maintain stable growth.

So what does Chinas urge torebalance mean for Westernbusinesses? First and foremost, it callsfor executives to seek opportunitiesin domestic China, not only in termsof successfully tapping consumermarkets far inland, as automakers suchas Volkswagen and General Motors

Buick division have done, but in termsof inward investments. The companiesthat can invest in the potential of the900 million Chinese who dont live inthe eastern citiesthat can help bringattractive products and services tothose consumerswill be consonantwith the countrys 12th Five-YearProgram.

The rebalancing push also impliesa need for businesses to be very

pragmatic about expansion in China.The nation is simply too vast andtoo varied to enable companies thatmay already have a strong presencein coastal cities such as Shanghaiand Hong Kong to rapidly establishfacilities all over the country. Someobservers indicate that Chinese CEOsare already setting their strategies byindividual province, much as WesternCEOs set individual strategies tailoredto European countries. Foreign businessleaders should be following suit.

Overall, plenty of homework will beneeded to determine which provincesand lower-tier cities offer the bestopportunities, and to tailor approachesaccordingly (see "Properly understandand serve China's varied consumers"on page 16). If selling to consumersin Guangzhou differs starkly fromselling to shoppers in Shanghai, thedifferences are likely to be even starkerbetween western areas.


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Figure 2: The growing gap between rural and urban incomes worries policy-makers

Income gap between rural and urban

per capita disposable income of urban residents (Yuan)

per capita net income of rural households (Yuan)

Source: National Bureau of Statistics of China

20,000

15,000

10,000

5,000

0

1978

1980

1985

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Figure 1: Vast differences persist between Chinas regions

Source: National Bureau of Statistics of China: China Statistical Yearbook2009(mainland only)

East

Central

West

Northeast

2008 Statistics East Central West Northeast

Population(relative to national total)

36.7% 27.1% 27.9% 8.3%

Land Area(relative to national total)

9.5% 10.7% 71.5% 8.2%

GDP(relative to national total)

54.3% 19.3% 17.8% 8.6%

Export Value(relative to national total)

86.8% 4.1% 4.6% 4.4%

Urban Average Income(Yuan)

20,965.49 14,061.73 13,917.01 14,162.02

Rural Average Income(Yuan)

8,604.01 5,988.11 5,285.81 9,133.73


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2. Greening of the economyChina has long been frowned upon by othernations for not pulling its weight in terms of

environmental sustainability. But the nationsrecent actions belie those perceptions. Oneinteresting telltale sign : Chinese regulatorswithheld approval for Sichuan Tengzhong HeavyIndustrial Machines Co Ltd. to acquire fromGeneral Motors the environmentally challengedHummer sports utility vehicle brand.7


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The 12th Five-Year Programunderscores the fact that China isserious about building a resource-conscious and environmentallyfriendly society. The programsspecifics address proactive movesfor combating global climatechange, strengthening environmental

protections, and developing arecycling economy. Other aspectsspeak to resource conservation andmanagement, promoting faster waysof preventing and responding toenvironmental disasters, and findingbetter ways to support sustainabledevelopment.

Significantly, the governmentannounced in November 2009 thatChina is committing to cut its carbon

intensity (a reduction in CO2 perunit of GDP) by up to 45 percentless than 2005 levels by 2020.8The nation also wants 8 percent ofits electricity needs to come fromrenewable resources by 2020. Andgroups such as the China EnergyGroupa think tank at the UnitedStates government's LawrenceBerkeley National Laboratorynotethat it is highly likely that the carbonintensity goal will indeed bring withit a [similarly] serious commitment

and effort on the part of the Chinesegovernment.9

In recent years, China has exhibitedplenty of enthusiasm for all thingsgreen. Aside from the governmentsrecognition of its obligations to theinternational community, there is alsothe recognition that green businessis good business. According to theUnited Nations, China already is outin front of Asias alternative energyinvestment trend, investing nearly$16 billion in green energy in 2008aboost of 18 percent over 2007.10The UN report claims that China hasbecome the world's second-largestwind-power market and the world'sbiggest photovoltaic manufacturer.

Chinas public sector is active.Just one example: State Grid Corpof China, the largest electricitytransmission company in the worldand the sole power provider for allbut five Chinese provinces on themainland, has pledged to invest $37billion in smart grid technologies.

Smart grid infrastructure is especiallyimportant in China: A large part ofthe nations wind-power capacitygoes unused because it cannotbe connected to the aging powersystem.11

The private sector is wading in. Auto-maker BYD, backed by renownedinvestor Warren Buffett, has inked atechnology-partnership agreementwith Daimler to develop electric

vehicles for Chinas domestic market.

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And financial-sector players are activeas green business stirs up capitalmarkets. At the end of 2009, ChinaLongyuan Power Group Corp, thenation's biggest wind-power producer,raised HK$20.1 billion in the world'ssecond-largest alternative energyinitial public offering since at least1999, according to data compiledby Bloomberg. And China HuanengGroup Corp, the country's largestpower producer, is in advanced talks

to buy half of U.S.-based powerutility InterGen for about $1.2 billion,according to reports.13

So what is the impact for foreignbusinesses? Some are already activeas China goes green. 3M China hasbeen producing eco-friendly productssince it began operating in Chinain 1984. Since 2000, the companyhas rolled out 98 projects under itsPollution Prevention Pays program,reducing an estimated 17,000 tonsof poisonous waste and saving thecompany $48.6 million.

Dozens of emblems of China's pushinto green technology are constructedwith materials and componentsfrom DuPont. DuPont provides eight

different components in Chinese-made solar panels. Its Kevlar fabric isused to make windmill blades lighterand more stable. The company'sGreater China operations broughtin about $2.1 billion in revenues in2008. Its solar materials businessgrew by 60 percent in 2009, while its

wind-energy business is growing atabout 40 percent year on year.14

The overseas companies that aremost closely aligned with the greendimension of the 12th Five-YearProgram will be those that think inholistic termsnot just about therevenues they can generate in Chinabut about the contributions they aremaking to the nations developmentparticularly in terms of technology

transfer and development of localexpertise. The world's top wind-energy companiesincluding Vestasfrom Denmark and Gamesa fromSpainhave made large investmentsin the Chinese market. Not long ago,Vestas made a savvy move, unveilinga new wind turbine tailored for Chinaand largely made in Chinathe firstmarket-specific turbine developed bythe company.15 Clearly, partnerships,and skills in partnership developmentand management, are hugely

important here.


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3. GlobalizationFor some time, Chinas rise as a world power hasbeen viewed with alarm in some circles and as a

welcome trend by many others. Both perspectiveshave been on display as the cash-rich Chinesegovernment has provided liquidity for othergovernments and for businesses worldwide.


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Those perspectives have been evidentas Chinese companies, hungry for rawmaterials such as copper, oil and ironore, have made major acquisitions asfar afield as Australia and Brazil. SOEsled the investment charge abroad,acquiring stakes in natural resourceand manufacturing companies in

more than 100 different countries in arecent 12-month period.

There is also a growing feeling withinChina that the United States wasweakened by the global economicdownturn while China, with a hugecurrent account surplus going intothe crisis, grew stronger.16 But thereis also a growing realization inside thecountry that its external connectionsfinancial, business-wise, societal and

environmentalare very important tothe nations future standing. And thereis more awareness that as the globaleconomy recovers, Chinese companieswill need to adjust to the reality thatother countries and enterprises maynot be as welcoming as beforeandthat they will face fierce competitionfor assets of all kinds.

As a consequence, Chinas goingout strategy, as it is called, isevolving. In contrast to the past 30

years of reforms, which have focusedexclusively on bringing foreign capitalinto the country, Chinas strategyfor the future may emphasize theintegration of that effort withstronger encouragement for the globalexpansion of Chinese companies.

Accenture already sees evidence of ashift toward different deal structuressuch as joint ventures and alliancesand a similar but more subtle andgradual shift in industry focus from

primary industries such as resourcesto more deals in secondary marketssuch as manufacturing and tertiaryareas such as services. One quiterecent example: Zoomlion, a leadingconstruction equipment maker,purchased Italys CIFA, a maker ofconcrete production equipment.17

The Zoomlion deal was moresophisticated than had been typicalof Chinese companies up to then:First, it involved a consortiumapproach with investors that includedinvestment banks. Second, it involvedcomplementary geographic coverageand product ranges with rapidly

expanding sales and service networksin most major markets worldwide. Andit also adhered to practices such asretaining CIFAs management team andworkforce.

Accenture-sponsored research fromthe Economist Intelligence Unit in2010 indicates that these days, only27 percent of the Chinese executiveswho said they were definitely or likelyto make an overseas investment said

they would do so through outrightacquisition. Nearly 30 percentindicated that they would prefer tostrike joint ventures and a further 18percent expressed a preference foralliances.18

There is also growing evidence ofa more collaborative approach byChinese companies as they go abroad.For example, PetroChina and RoyalDutch Shell have jointly purchasedAustralias Arrow Energywhich

produces natural gas from coalbedsin a deal worth approximately$3 billion.19 Such deals may wellbe more common going forward.However, Chinese companies arelearning that the global merger-and-acquisition world can be rough: BrightFood Group, the food conglomerateowned by the Shanghai municipalgovernment, failed in its bid to buyAustralian sugar giant CSR in 2010.20

So how should foreign businesses

respond to Chinas emerging ideasabout going out? In the first place,they must be aware that those ideasare changing. Then they should thinkabout how they need to adapt tomatch the opportunities presentedby those changes. Chinese outboundinvestment is not going to stop, butit will not be the same as it was fiveyears ago. So it is better for overseasbusiness leaders to think about howto work with the Chinese and embrace

the opportunity rather than to resist it.

Beyond that, a key role for foreigncompanies will be to provide objectiveguidance to Chinese companies thatare going out. To date, Chinasglobally minded executives havetended to rely largely on investmentbanks for key inputs. But as theygain some scars from their ventures

overseas, they are starting to see valuein independent inputs from advisorswith broader perspectives of businessoperations all across the multipolarworld.


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4. UrbanizationThe steady exodus of workers from the countryto metropolitan areas is turning into a torrent.

Levels of urbanization in China have risen from20 percent in 1978 to almost 46 percent in 2008with an urban population of 600 million. Duringthe 30-year industrialization process, 420 millionfarmers left their hometowns and settled in urbanareasa scale and speed rarely seen elsewhere.21


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The Chinese government is takingthe pressures of urbanization veryseriously. The 12th Five-Year Programemphasizes modernization in ruralareassuch as improvement andexpansion of infrastructureas wellas improvement management ofurban patterns of life and work. The

announcements to date describeefforts to promote the developmentof modern agriculture and to find newways to boost farmers incomes.

The challenges are beyond theexperience of any Western governmentleaders. In the next three decades,the number of China's urban residentsis expected to grow by 360 millionpeoplemore than the currentpopulations of the United States and

Japan combined.

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The implications for the nationsstabilityeconomic as well associetalare enormous. The ChinaEnergy Group calculates thathousehold energy use roughly doubleswith urbanization. So the energyneeded to support Chinas urbandevelopment policy is expected to keepgrowing through 2020, in contrast todeveloped countries that have alreadyachieved high rates of urbanization.23

The urbanization surge also has ahave-vs.-have-not edge to it: Peoplewhose parents were born in thecountryside and those whose parentswere born in urban areas have verydifferent rights. By 2005, 39 percentof urban dwellers were not registeredlocally through China's hukouregistration system, and so had fewerrights due to hukou'srestrictive policy,notably in the areas of pensions,health care, and education. They had

little opportunity to work for thegovernment or for SOEs, according tothe OECD.

That said, the hukouregistrationsystem, dating back to the 1950s, isup for debate at the highest politicallevels. On February 28, 2010, PremierWen Jiabao said during a Webcastthat China would advance hukoureform. The communiqu about the12th Five-Year Program reinforced the

governments commitment to broaderreforms in providing social securityand health care. Pilot programsare already under way in morethan 10 cities, including Shanghai,Shenzhen and Guangzhou, wherelocal authorities have begun to grantpermanent residency and access tosocial welfare to nonlocals workingand living in their cities.24

Leading economists hold up Chinas

urbanization as its opportunity tosignificantly rebalance the economyin several dimensions. The populationmigration also presents foreignbusinesses with many opportunitiesmost that are obvious and othersless so. The construction industryand affiliated infrastructure sectorshave huge markets in the making;the financial services companies thatfinance their projects are perfectlypositioned too. There are clear roles forbusinesses that specialize in complex

integration. And there are openingsfor companies that can help blunt theenvironmental impact of urbanizationon such a scale. Siemens is in theforefront of the overseas organizationsin this area as it promotes sustainableurban development.25


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5. InnovationChina is clearly eager to move up the value chain,and sees investment in innovation as a key way to

do so.26

The OECD reports that resources devotedto science and technology have expanded rapidlyand China now ranks among the top countries intotal research and development (R&D) spendingand number of researchers.


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The 12th Five-Year Program puts thespotlight on a necessary economicrestructuring. The intent is to upgradeChinas manufacturing sector,accelerate the growth of the servicesector, build a modern energy industry,expand what the government callsthe informatization of industry,

and develop strategic emergingindustries.

The plan also calls for greater progressin both science and technology.Yet despite the numbers describingabsolute R&D spending, R&D intensityin China still lags behind othermajor countries, with gross R&Dexpenditures amounting to almost 1.5percent of GDP in 2007 (see Figure 3).

Some of the right seeds are being

sown, though. Data from the WorldIntellectual Property Office showsthat nearly 8,000 applications filedunder the Patent Cooperation Treatycame from China in 2009, an increaseof 29.7 percent over 2008.27 Chinareplaced France as the fifth-largestsource of applicants globally behindthe United States, Japan, Germany andSouth Korea. Chinas State IntellectualProperty Office notes that thesefigures show that a growing number

of Chinese companies are now eyeingoverseas markets and recognize theimportance of intellectual propertyprotection.

At the same time, more Chinesecorporations are striving to move upthe value chain. Zoomlion is a case inpoint. To begin with, the constructionequipment maker is successfullybuilding an intellectual-propertyportfolio. The manufacturer has nowdeveloped more than 460 products

with full intellectual property rightsin 13 categories, including concretemachinery, mobile cranes, hoistingmachinery, road machinery, pilefoundation machinery, earthworkingmachinery, environmental andsanitation machinery, special vehiclesand fire-fighting equipment. Inparallel, the company devotes 5percent of revenues to R&D. Itsemphasis on innovation is apparentin its cooperation with the Changsha

Research Institute of ConstructionMachinery, a national science andtechnology institution with morethan 3,000 professionals.28 And it hasadded a services arm: a leasing financeoperation.

Realistically, though, China stillhas quite a way to go in terms ofinnovation. Addressing the third CEORoundtable of Chinese and ForeignMultinational Corporations in late2009, Cheng Siwei, former vice-

chairman of the National People'sCongress Standing Committee, urgedChinese CEOs to invest in innovationto quickly climb the value chain. He

Gross domestic expenditure on R&D as a percentage of GDP by country(2007 or latest year available)

Source: UNESCO Institute for Statistics estimates, August 2010.

Argentina

India

South Africa

Brazil

Russia

China

UK

France

Germany

United States

Japan

Israel

0.5

0.8

0.9

1.1

1.1

1.4

1.8

2

2.5

2.7

3.4

4.8

noted that a reason for the disparitybetween Chinese companies andleading multinationals is the failureof mainland businesses to invest ininnovation.29

Foreign business leaders have manyopportunities to help China move

up the value curve from producereconomy toward knowledgeeconomy. Not least are their ownefforts to seed R&D activity locally.That is what chemicals giant Bayer isdoing with its 100 million investmentin a global R&D center in Beijing.30Similarly, BASF is opening its newAsia Technical Center in Shanghai tosupport R&D on chemicals for theconstruction industry in the AsiaPacific region.31

Others, such as ExxonMobil andSaudi Aramco, have built partnershipswith Sinopec, Chinas largest oilrefiner, to expand an oil refinery inthe southeast province of Fujian toprocess 12 million tons of crude ayear. Together, ExxonMobils advancedtechnologies and Aramcos crude oilsupplies are helping restructure Chinaspetrochemical industry and upgradingits technology.32

Aside from the more obvious ways inwhich Western companies can helpto accelerate the pace of innovationin Chinasuch as setting up R&Dfacilities therethey can also extendthe horizons of technology transferinitiatives. Efforts could range fromdeveloping specialized trainingprograms for Chinese engineers andscientists to forging relationships withtechnical, scientific and academicinstitutes in China. One other wayto think about innovation: tapping

directly into Chinese consumers forideas. Because young Chinese inparticular are assertive users of newtechnologies, companies selling tothem can develop fast feedback loopsto accelerate and improve productdevelopment.

Figure 3: R&D spending of major countries


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Five ideas to bear in mind nowForeign businesses that succeed in the new Chinawill need to adopt markedly different mindsets

than those of their forebears. These ideas meritconsideration:


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Think nationalcontribution, notshareholder distributionMore than ever, foreign companiesmust be seen to be contributing toChinanot just taking. That has

been important so far, but it assumesmuch more importance under the 12thFive-Year Program. Whats needed isa marked shift in mindset toward thelong-term concerns of Chinas marketsas well as Chinese customers, withless emphasis on quarterly reportsgeared to shareholders concerns.The companies that can demonstratetheir long-term commitment tohelping China resolve its toughestissuesclosing the east-west gap,

coping with the urbanization surge,moving up the value chain, greeningthe economywill find it easier tosecure resources and handle local andnational regulations. For example,Vestas, the Danish wind-powercompany, is building up a strong valuechain in China that can fully supportthe construction of wind turbinesfrom its factories there. Every year,Vestas, which has been in China forabout 25 years, improves its Chinesesourcing capabilities, aiming to have

100 percent Chinese-made contentbefore long. In other words, it is notnecessary to have Siemens century-long legacy in China to be viewed asthe next best thing to being a Chinesecompany.33

Dont wait for theProgram to beoperational

The 12th Five-Year Program isexpected to be published formallyin the spring of 2011, but enoughis known now about its centralideas to enable businesses to actnow. One of the best moves forforeign businesses will be to positionthemselves in networks of relevantlocal relationships so they can tap thenew opportunities depicted by theProgram. Trusted local partners canbest scrutinize the fine print to deducewhich specific activities, which regionsand which industry sectors are likely tobenefit most from Beijings guidelines.It will also help to have the rightrelationships with government officials

who understand the rhythms andsubtleties of the five-year programningcycles. And it will be useful to knowwhich Chinese companiesSOEs andprivatewill make the best allies onin-country ventures since some will bebetter placed than others to benefitunder the new Program.

Focus on two planningcycles at the same timeFew foreign businesses are familiarwith detailed five-year programminghorizons, let alone organized towork easily with them. But betterresults in China may depend on yourplanning groups ability to keep twoplanning calendars in sync at all times:your organizations conventional

one-year strategic planning cyclesas well as the Chinese cadence.In any environment, the strategicdirection of a company is vulnerableto tomorrows uncertainties. Bydeveloping potential scenarios of howthe Chinese governments plans willimpact the business, executives cantranslate relevant trends and eventsinto competitive advantage and buildrobust, futureproof strategies.

Properly understandand serve Chinas variedcustomersTheres still a tendency among someforeign business leaders to thinkof China as a nation of 1.3 billionconsumers rather than as a myriadof market subsets that can be just asdifferent from one another as those inthe United States or Europe. And therecan be an unfortunate inclination to

treat Chinese customersbusinessesas well as consumersas poorrelations who are grateful to receiveoutdated products.

These days, nothing could be furtherfrom the truth. Chinese customers arebecoming very discriminatingandmuch more confident in declaring theirlikes and dislikes. They have strongideas about brandsincluding overseasbrandsand their requirements aremore complex than many Westerners

imagine, as the stories at the startof this paper indicate. At the sametime, they are becoming bolder aboutChinese producers competitiveness

in many dimensions. Low-value andpoorly differentiated products andservices are of little interest to Chinesecustomers; these days, they have anabundance of homegrown offerings tochoose from.

To properly serve Chinas disparate

markets, it is essential to deeplyunderstand their make-up andmomentum. Data is key to winningChinas future. Analytics tools andtechniques that can acceleratecustomer segmentation efforts will beinvaluable, as will advanced customerrelationship management systems.34The supply chains needed to movegoods far inland in China will beespecially complexintraprovincetrade is far more labyrinthine than

within Europe, for instanceso thatis another area where good analyticsmethods, tools and practices willadd real value. Similarly with talentmanagement: Imagine the human-resources task of sourcing, hiring andretaining the talent needed to providethe levels of customer service thatChinas consumers now demandand which tens of millions of newconsumers will be expecting.

Get noticed for beingaligned with the ProgramIt is one thing to build businessinitiatives on the back of the 12thFive-Year Program; it is another to benoticed for it. So it will be crucial foryour marketing teams to engage withthe publication of the Program and tobuild campaigns around subsequentmilestones. Media, analyst andinvestor activities are just part of whata creative team can do to demonstrate

how your company is helping thenation to deliver in keeping withits declared directions. One caveat:Such initiatives presume that yourorganization has a recognized brand inChina. Many foreign business leadersare alarmed to learn that while theircorporations brands may be householdnames across much of the world, theymay not be at all familiar in Chinaespecially in the inland provinces.In such cases, whats needed is a

reappraisal of brand awareness in theproposed new markets, whether theyare geographic or industrial.


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Things are moving at breakneck pace in Chinanot just in terms of economic muscle but in termsof national confidence and expectations. Whatvisitors experience today is a world away from thenation that started opening up its borders morethan three decades ago.

In a sense, the 12th Five-Year Program

heralds the opening of another set ofbordersmental borders that have ledforeign business leaders to cling tooutdated preconceptions of China forfar too long. The five planks laid out inthis paper merit immediate attention.The overseas businesses that grasp thevast new opportunities will have a legup on those that decide to wait and see.

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1 Three Dumb Things Foreign Companies DoIn China, Forbes.com, Dec 1, 2009, http://www.forbes.com/2009/12/01/china-three-mistakes-leadership-managing-marketing.html

2 How Apple And iPhone Blew It In China,Forbes.com, Nov 6, 2009, http://www.forbes.com/2009/11/06/iphone-apple-china-leadership-managing-failure.html

3 Chinas new five-year program is at oddswith itself, The Economist, Oct 21, 2010,http://www.economist.com/node/17314578

4 ADB SUPPORTS PRC IN PREPARING FORFIVE-YEAR PROGRAM, Asian DevelopmentBank press release, 19 January 2010

5 OECD Economic SurveysChina, Volume2010/6, February 2010

6 Urban-rural income gap widest sinceopening-up, China Daily, March 2,2010, http://www.chinadaily.com.cn/bizchina/2010-03/02/content_9524530.htm

7 Analysts: Hummer deal fated to fail,China Daily, March 1, 2010, http://www.chinadaily.com.cn/bizchina/2010-03/01/content_9517339.htm

8 China targets massive 40-45% carboncut, China Daily, Nov 27, 2009, http://www.chinadaily.com.cn/china/2009-11/27/content_9060284.htm

9 Statement of the China Energy Group,Lawrence Berkeley National Laboratoryon Chinas Recently-Announced CarbonIntensity Target, China Energy Group, 15December 2009, http://china.lbl.gov/news/statement-china-energy-group-lawrence-berkeley-national-laboratory-chinas-recently-announced-c

10 UNEP: China Becomes Asia's GreenEconomy Giant, China Sourcing News, June8, 2009, http://www.chinasourcingnews.com/2009/06/08/071388-unep-china-becomes-asias-green-economy-giant

11 IBM invests in China's smart power,China Daily, March 5, 2010, http://www.chinadaily.com.cn/bizchina/2010-03/05/content_9545926.htm

12 BYD, Daimler to Form Electric-Car Venturein China, Bloomberg.com, March 1, 2010,http://www.bloomberg.com/apps/news?pid=20601100&sid=ahT7P50FtSBg

13 China Huaneng Group May AcquireInterGen, New York Times, Aug 18,2010, http://dealbook.blogs.nytimes.com/2010/08/18/china-huaneng-group-

may-acquire-intergen/

14 Greener China Business Awards," http://images.businessweek.com/ss/09/05/0514_green_china_awardees/7.htm

15 Made in China, Made for China: VestasIntroduces New V60-850 kW WindTurbine, Vestas press release, April 16,2009, http://www.vestas.com/files//Filer/EN/Press_releases/Local/2009/CH_090416_LPR_UK_01.pdf

16 Facing up to China, The Economist, Feb 4,2010, http://www.economist.com/opinion/displaystory.cfm?story_id=15452821

17 Zoomlion "turned" to be the world'sleading manufacturer of concretemachinery, company press release,October 21, 2008, http://www.zoomlion.com/english/news/bigtopic/2008-10/bigtopic-4477.html

18 "A brave new world: The climate forChinese M&A abroad", EconomistIntelligence Unit and Accenture, March

2010, http://www.eiu.com/siteinfo.asp?info_name=eiu_The_climate_for_Chinese_MandA_abroad

19 Shell and PetroChina complete ArrowEnergy acquisition, Shell press release,Aug 23, 2010, http://www.shell.com/home/content/media/news_and_media_releases/2010/arrow_acquisition_complete_240810.html

20 Court Deals Blow to Bright Food's CSRHopes, Wall Street Journal, April 23, 2010,http://online.wsj.com/article/SB10001424052748703709804575201402986678646.html

21 Background, restraints, and global meaningof urbanization, by Dr. Qiu Baoxing,Vice-Minister, the Ministry of Housing andUrban-Rural Development, 2007

22 Growth fueled by urban investment,China Daily, Feb 25, 2010, http://www.chinadaily.com.cn/thinktank/2010-02/25/content_9500314.htm

23 Statement of the China Energy Group,Lawrence Berkeley National Laboratoryon Chinas Recently-Announced CarbonIntensity Target, China Energy Group,

15 December 2009, http://china.lbl.gov/news/statement-china-energy-group-awrenceberkeley-national-laboratory-chinasrecently-announced-c

24 Speed up reform of household registration,say newspapers, China Daily, March 2,2010, http://www.chinadaily.com.cn/china/2010-03/02/content_9522102.htm

25 Siemens committed to sustainable urbandevelopment in northeast China, SiemensChina press release, 12 June 2009, http://cn.siemens.com/cms/cn/English/press/presscontent/Pages/20090612.aspx

26 China: Moving Up The Value Chain,Outlook Journal, Accenture, September2006, http://www.accenture.com/Global/Research_and_Insights/Outlook/By_Issue/Y2006/ChinaValueChain.htm

27 Nation's international patent numberssurge, China Daily, Sept 29, 2010, http://www.chinadaily.com.cn/cndy/2010-09/29/content_11361979.htm

28 http://zoomlion.com/english/news/2008-

12/media-eyes-4715.html

29 Roundtable CEOs told to invest ininnovation, China Daily, Nov 26, 2009,http://www.chinadaily.com.cn/cndy/2009-11/26/content_9052401.htm

30 Bayer Schering Pharma to invest 100million Euro in China to build a global R&Dcenter," Bayer press release, Feb 12, 2009,http://www.bayerchina.com.cn/scripts/pages/en/news_centre/readnews.php?id=cc776ca08a4b8bdc093e65f57277e3c8

31 BASF opens new Asia Technical Center for

construction chemicals industry, BASFnews release, March 18, 2009, http://www.asiapacific.basf.com/apw/AP/GChina/en_GB/portal/show-content/content/inn/slo_news.pdf/20090318EB_lab_opening

32 Sinopec, Fujian Province, Ex xonMobiland Saudi Aramco Sign Contractson Fujian Refining and Ethylene,eChinaChem.com , March 7, 2007,http://www.echinachem.com/EN/News/0906/20096201601307341049.shtml

33 "Siemens in China," Siemens corporatewebsite, http://finance.siemens.com/financialservices/cn/en/About_Us/Siemens_in_China/Pages/Siemens_in_China.aspx

34 Competing on Analytics: The New Scienceof Winning, http://origin.www.accenture.com/NR/rdonlyres/163BE0D3-ECD5-4169-B4FA-DA0F937BE758/0/CoABrochure.pdf; http://www.amazon.com/Competing-Analytics-New-Science-Winning/dp/1422103323

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About the Authors

Gong Li

Gong Li is the chairman of AccentureGreater China, leading a team ofmore than 5,000 people. With morethan 20 years of cross-industrybusiness consulting experience,

Mr. Li has collaborated with clientsin government and a variety ofindustries, including electronics,high tech, energy, petrochemicals,financial services and consumerproducts. Based in Shanghai, Mr. Lihas extensive experience working withChinese state-owned enterprises onvarious programs, including corporaterestructuring, process transformationand commercialization.

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Alison Kennedy

Alison Kennedy is the managingdirector for Strategy Consulting atAccenture Greater China. Based inBeijing, the focus of her work is insupporting Chinese clients to growtheir business internationally andsupporting multinational clientsto grow their business in China. Inaddition, Ms. Kennedy is also the headof Management Consulting in financialservices across the Asia Pacific region.Ms. Kennedy has specific functionalexperience and specialization in areasincluding merger and acquisition(both pre- and post-merger activities),geographic expansion, growthand innovation and business andorganization design.

[email protected]

Andrew Sleigh

Andrew Sleigh is a senior manager inAccentures Corporate Strategy group.He is located in Beijing where hefocuses on assisting clients with theirmerger and acquisition activities. Priorto this role, Mr. Sleigh was the Chinalead for the Accenture Institute forHigh Performance and has authorednumerous articles on Chinas uniqueoperating environment.

[email protected]

ACC10-0904 / 02-1321

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