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MADE IN CHINA – THE CHANGING NATURE OF THE ALL TOO FAMILIAR LABEL

To say that the business world is keeping tabs on China would be a huge understatement. In late September Alibaba’s initial public offering made history with a value of $25bn, placing the company’s global value above more recognised and established names such as eBay and Amazon.

Alibaba is not an isolated case either, as ACCA’s new report: China’s next 100 global giants shows. Chinese companies are growing at a fast rate and have the potential to become major global players over the next few years. Some are already household names, such as Lenovo which has acquired IBM’s PC business and Haier – manufacturer of household goods such as fridges and freezers – has 10% of the world’s major appliances market.

A sign of the rapid growth we are seeing from China is in the CNN/ Fortune Global 500. In 2006 there was only 28 companies featured, and of those 28, none were in the top 10. Fast forward six years and the number has more than doubled to 73 and three were included in the top 10.

Faye Chua
Faye Chua

Perhaps one of the most startling findings was the diverse nature of the companies. Traditionally China has been viewed as a manufacturing powerhouse – textiles, consumer goods and electronics have long been associated with China. The range of companies that make up the list of 100 next global giants comes from sectors as diverse as chemicals, pharmaceuticals, business services, internet and information as well as electronics and computers and communication equipment.

The companies that make up the list were ranked on multiple criteria: size (measured by turnover); growth (in revenue); presence (domestic and international); and business model. The companies can be described as relatively large in terms of turnover. The average turnover is RMB4.75bn approximately equal to £450m or US$750m. However, their future growth trajectory would place them in the huge category, with many projected to have annual turnovers of RMB20bn (£2bn/ US$3bn) by 2017/2018. Some are achieving five-year annual growth rates of 30% or more.

As well as the diverse nature of the companies, the headquarter locations are equally diverse. Only 17are based in Beijing, a further seven are based in Shanghai and seven in Shenzhen and only a single company in Hong Kong. There is a wide geographical spread covering almost the entire nation. This range will be welcomed by the Chinese Government as they will be providing large numbers of employment opportunities outside of the traditional areas of wealth.

The point of this report is to not only assess and identify who the next big global players from China are going to be, but also to look at how they got to where they are now with the potential to compete against established giants in China and other markets.

It’s not just about their balance sheets, it’s about growth. These companies’ future growth trajectories are based on sustained annual levels of growth from 2008-2012. The majority of the top 100 companies we have identified have doubled in size and in some cases quadrupled. They are clearly doing something right.

The analysis in the report drew out common characteristics among the 100 companies, including clear and coherent business strategies and close performance monitoring. In-depth industry knowledge as well as an awareness of customers’ needs also featured highly amongst the 100 businesses.

The banking sector features quite prominently as well, identifying six up and coming Chinese banks that are showing significant growth rates and are increasingly engaged in international markets. These six banks were already in the top 100 biggest banks in the world but were not yet as large as China’s four major state-owned banks.

These six emerging banks are:

  • Industrial Banks
  • China CITIC Bank
  • China Minsheng Bank
  • Shanghai Pudong Development Bank
  • Hua Xia Bank
  • Ping An Bank

All six had strong business models and showed significant growth over a five year period, between 24% and 29% per year.

The biggest key to growth in companies is how quickly they grasp technology. It has advanced rapidly over the last few decades, and so it is the job of finance professionals to keep up-to-date with it and to use it to their full advantage. Without this ability, it’s very hard to enhance growth, regardless of what is on the balance sheet or how strong the business model and strategy is. Technology enhances growth so much so that it is now hard to imagine how companies became global giants before its advent.