Chinese mid-market companies expect improving fortunes

21 November 2017 5 min. read
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Chinese mid-market firms are relatively positive about future growth, with the majority expecting to see increases of more than 6% in the coming year. Companies, while keen to hire in general, are predominantly looking for part-time staff when they plan to hire. Meanwhile, focus on supply chain efficiencies is deemed key to boosting productivity.

China has become a focal point of economic interest in recent years. Its shift from an investment-led to a consumption-led economy caused a rocky start to 2016, while relative growth has fallen in recent years to around 6.7% in 2016. The country is looking to the future, investing in a new silk-road, while transforming its energy generation increasingly in favour of renewables. Concerns remain, however, around rising state debt, as well as political posturing centred on international trade relations.

The middle-market segment of the Chinese economy remains a key driver in the country’s growth story. To better understand the current trends in the mid-market, EY released a report titled ‘Can shifting sands be a solid foundation for growth? How Chinese businesses are driving their growth agenda,’ which surveyed 2,340 C-suite executives in the revenue range of between $1 million and $3 billion.

Mid market growth projections

Mid-market growth

The Chinese mid-market is relatively positive about revenue growth for the coming year, relative to the global average – although starker differences are noted between the bottom and top ends. In terms of companies that expect to see growth of 6-10%, Chinese respondents lead the global average by 11%, at 44% and 33% respectively. They were also more positive in the 11-15% range, at 18% expecting growth of that degree in the coming year, compared to 16% of the global average.

The top end is considerably more restricted in terms of positivity, relative to the global average – 1% in China expect growth of more than 16%, compared to 15% of the global average. Meanwhile, at the bottom end, those expecting negative growth indicated concern, at 8% of Chinese respondents vs. 5% for the rest.

In terms of business strategy for the segment, overseas expansion remains on the cards. The belt and road project  is seeing considerable investment, while various projects in Africa are also seeing activity from Chinese businesses.

Hiring plans

Employment shift

Chinese mid-market firms are relatively more likely to invest in staff than their global counterparts, although the focus is predominantly on part-time staff, at 24% of respondents, vs. 13% for the global average. Hiring more full-time staff is somewhat lower than the global average, at 22% vs. 28%. Overall, however, respondents say that they are keen to invest, with 19% saying that they will keep staffing numbers the same, compared to 33% for the global average.

The country’s large population combined with its focus on tertiary education means that respondents are generally not as concerned about access to talent compared to the global average, at 9% vs. 15%. Demographic shifts are noted as a concern, however, with the country facing an ageing population. Demographic changes were said by 46% of respondents to be the most disruptive change to the region’s market.

Shift toward productivity

Productivity gains

The slow-down in GDP has urged business leaders to identify ways of improving business productivity. In terms of the most highly ranked moves to improve the region’s productivity, supply chain efficiencies stood at number one (38% of Chinese respondents), followed by global respondents (22%) at number 2. Improving the organisational culture followed, at 27% of Chinese respondents vs. 18% of global respondents. Economies of scale and technology were both deemed of lower importance than global respondents, at 13% vs. 16% and 10% vs. 24% respectively.

Innovation is one way forward for the region, about which Terence Ho, the consulting firm’s mainland China Growth Markets Leader, remarked, “Expanded innovation capabilities in China will enable production of higher value products and services allowing more Chinese employees to work in higher income roles, thus increasing the potential for greater consumption and so completing the virtuous circle to higher national growth.”