By Denis Depoux

This year marks the fifth year that Roland Berger has published its annual "Foresight" series of reports. Since 2020, the Roland Berger China Industry Trend Report has garnered widespread acclaim from industry stakeholders. In the Foresight 2024 report, Roland Berger has thoughtfully incorporated in-depth articles addressing current trends in the Chinese market. These articles delve into discussions on Chinese enterprises expanding globally, industry digitalization, artificial intelligence, and more. The report places a significant emphasis on economic shifts and industry development, aiming to offer a plethora of insights and inspiration to professionals across various fields.

Hot Topics

Volatile World Order – What Does That Mean to Chinese Companies?

Despite the multifold of challenges, there are still structural opportunities in the global market for Chinese players. Chinese companies should prepare the new model containing more localization elements (e.g., diversified/regional supply chain, local brands, ecosystem, etc.) and try to become True Multinationals. Yet, Chinese companies must be more cautious with their globalization path by taking concrete actions to mitigate risks. Companies need to be agile to adapt their value chain positioning from OEM to supplier if/when needed and maximize impact by empowering Chinese and foreign technology cooperation and innovations. In the past decades, we have witnessed the successful development story of China. In this new era, we believe by leveraging China's economic power, technology innovation, cost advantage and rising international influence, Chinese companies will play a more significant role on the global economic stage.

How can Chinese consumer goods companies find breakthroughs in their ‘Going Global’ drive

After continuous growth in previous decades, China's consumer market (including consumer packaged goods, retail, and dining) has slowed down. In the past three years, this sector had stopped expansion or even met crisis due to the impact of COVID-19. On the contrary, the global market still has numerous opportunities to be tapped into. Against this backdrop, leading Chinese consumer companies will have to go global if they want to become larger and stronger. This article will focus on three common questions of their global expedition: "why go global", "where to play" and "how to enter". We wish to provide you with inspirations, lessons, and experiences to think about.

Win the Era of Involution through Operational Excellence

In 2023, the widely expected strong rebound of Chinese economy did not materialize. In the foreseeable future, "structural optimization" and "steady but not very fast growth" will remain the themes of China’s growth. Looking forward to 2024, after four years of volatile fluctuations and slow recovery, more companies have realized that they should no longer "wait" for the returns of market expansion dividend, insatiable downstream demand, and highflying prices. Instead, they should take a more proactive stance. On one hand, they will adjust their product portfolio to grasp the opportunities brought by the structural changes of their industries. On the other hand, they aggressively improve their operational performance by introducing more advanced, systematic, and scientific management approaches and technologies. That will help them to identify profitability improving opportunities in operations and occupy a better position in this increasingly fierce competitive market environment.

Chinese Fashion Industry’s Trends Driven by Digitalization

As one of the world's leaders, China's fashion industry is undergoing a new phase of change and development in the post COVID-19 era. Brands in this industry are facing many challenges, including moving production capacities to the Southeast Asia countries, the merging of niche market brands, and the intensifying of the domestic competition. To enhance their competencies, Chinese fashion companies must answer a series of crucial questions, such as how to upgrade and achieve breakthroughs, how to leverage the power of digitalization to maximize efficiency and reduce response latency, what the digitalization transformation's directions are. We will try to analyze the landscape for your consideration.

Sustainability Transition Gathering Strength to Make Steady Progress

In 2024, Chinese industries and companies are about to enter the "deep end" of sustainability transition. On the one hand, ESG and decarbonization requirements are gaining traction and will be embedded into business operation, supply chain management and industrial park development. On the other hand, the regulation still needs to be reinforced, and decarbonization technologies need to be more technically mature and economically viable, which will continue to fuel the sustainability boom in the mid- to long-term in China.

Towards the Industry-specific Intelligent Agent

As generative AI evolves from a general-purpose technology to a foundational technology which can be applied to many vertical domains, it will increasingly focus on creating value for various industries. In China, the generative sector has entered the stage of explosive growth, with nearly 500 enterprises entering the field since 2023. As we enter the dawn of the generative AI era, many applications have been developed to serve various vertical industries. We think for companies on the demand side, they should embrace it not only to simply follow the trend, but also sincerely grasp it as the biggest opportunity to improve efficiency, accelerate innovation and strengthen competitive position.

Prospects for investment and Outbound M&A amid Accelerating Globalization Trends

The past year has been extremely challenging for China's investment market. Due to the weaker than-expected economic recovery and the crisis in the real estate market, which accounted for a considerable share of the Chinese economy, there were widespread concerns about the future across various industries as well as changes in some consumers' spending patterns. Geopolitical risks have posed threats to the capital market, especially the US dollar-denominated funds, across fundraising, investment and exiting. Meanwhile, from mature enterprises expanding overseas to born-global star t-ups, Chinese companies are building up their presence in the international market. Facing uncertainties, investors are proactively adjusting their strategies to adapt to the evolving competitive environment. We believe that China will remain on a positive trajectory in the long run, and its market will continue to attract multinational corporations as well as foster new start-ups. There is also vast growth potential in technology-driven productivity improvement and consumer spending. Considering the long-term growth prospects of the Chinese market and global investment opportunities brought by the outbound expansion of Chinese businesses and China-originated industrial chains, investment funds should sharpen their focus and rebuild core capabilities during the difficult times, to prepare themselves for future rebound opportunities. Below are Roland Berger's suggestions for different types of investment funds and capital market players in the year of 2024.

Global trends in next generation manufacturing and Chinese practices

In the past several decades, the trend of globalization has spurred the robust development of the manufacturing industry in emerging countries. Multinational companies have enhanced their competitiveness and achieved cost leadership by adopting strategies such as selecting low-cost countries, implementing lean management, and outsourcing supply chains. While globalized supply chains have effectively lowered costs, they have also complicated the structures for global manufacturing capabilities and supply chains. In recent years, the changes in the globalization trend have brought many challenges for existing global division of labor and manufacture footprint structure, forcing multinational companies to rebalance their manufacturing capacities. In 2020, Roland Berger launched the strategy of "Next Generation Manufacturing" strategy, which is based on six key trends in the global manufacturing industry", i.e., sustainability, industry disruption, localized value, customized manufacturing, societal and political sensitiveness, and digitalized connection.

Industry Trends

Automotive

Undeniably, in the "second half" of the automotive industry's intelligence transformation, the theme of China's automotive industry will remain the same: transformation and upgrading of the industry, business model innovation, industry landscape reshuffling and pursuit of efficiency excellence – they'll be the focuses of all industry participants in the next couple of years. In 2022, the Roland Berger automotive team predicted new milestone records in three key indexes: Chinese brands' market share, NEV penetration rate and the export volume of vehicles. In 2023, we directed our readers' attention towards "China's growing global influence under the new theme of global openness and win-win cooperation". Looking forward, we suggest the following strategic actions and core capabilities that different types of industry participants should take or obtain in 2024.

Civil Economics

Gone is the old trend of globalization due to the shockwaves brought by geopolitical conflicts, trade wars and COVID-19. After recent years' exploration, a new globalization structure is looming on the horizon. While China enters its new era of high-quality development, the country has drafted its moderate but ambitious macro-strategy and found theoretical breakthrough in its "high-quality development" concept. China is also more proactive in participating in global governance practices and is becoming a new driving force behind the new globalization. Roland Berger believes that new growth opportunities could be found in the re-allocation of global capital under the new structure, in the macro-competition for new resources defined by new theories, in the re-balancing of various industries' global distribution across the new world governance framework.

Consumer Goods & Retail

2023 was a challenging year for China's consumer goods and retail companies. The economic standstill immediately after the lift of lockdown measures at the start of 2023 shattered the dream of "a good new year start". The widely expected "revenge consumption" did not materialize. The growth rate of retail sales declined month after month, and the lukewarm data such as social financing and investment reflected a sluggish macro economy environment. Many consumer goods companies adopted a wait-and-see approach due to the slightly cold bodyfeel in 2023. Even the most aggressive players cautiously slowed down their expansion.

In terms of categories, gold, jewellery and hard luxury goods, which are not affected by inflation and have investment value, achieved rapid growth in 2023, becoming the highlight of China's retail consumption. However, other categories were facing strong headwinds. Leading brands managed to increase revenue by raising unit price, while the rest of the pack were still unable to find a solution to grow sales volume in this difficult time. In 2023, China's e-commerce platforms' global expansion evolved from winning specific foreign markets to operating locally in overseas market..

Looking forward to 2024, a consensus has been reached: we're now entering the era of competing for a stable market. Consumer goods and retail companies will have to ditch their wait-and-see attitude sooner or later to look for long-term growth opportunities. Brands must refine their products and services to provide better "function value for money" through more accurate consumer insights and meeting their needs more effectively. In the meantime, they will also proactively create their "fun value for money" and "taste value for money" to win a bigger share of consumer's pocket. During the economic downturn, consumers are expected to be more interested in entertaining or rewarding themselves and satisfying their own emotional needs. In 2024, leading brands will have unprecedented opportunities to expand their market share. With this article, we will share our 10 cents of worth on how businesses can buck the downward trend and grasp opportunities in times of crisis.

Industrial Products & Services

In 2023, Chinese manufacturing companies demonstrated surprisingly strong resilience and firm resolutions: for example, in the fields of domestically made semiconductor manufacturing equipment and renewable energy equipment, Chinese companies had significant progress by closely following the trends of green manufacturing and smart upgrading. At the same time, they have proactively responded to the challenges brought by global geopolitical and trading tensions by accelerating the expansion of their overseas production bases, redefining the future of China's manufacturing industry.

However, these companies still have two big challenges to overcome: the increasingly intense domestic competition and the rising of foreign market entry barriers. They will have to make responses through four actions. In product upgrading, they'll need to focus on technology innovation and understanding foreign markets' needs, especially in the high-tech field, so as to enhance their competitiveness. In internal capability building, they must improve efficiency, cut cost, ensure quality consistency, as well as improve the flexibility and reliability of their supply chains. At the same time, they should actively expand in overseas markets and build global supply chain networks to lower risk and grow share in foreign markets. We believe these are the only choices for Chinese manufacturing industry to go forward.

Looking forward to 2024, Roland Berger believe Chinese industrial product and service companies should adopt the growth mindset of "adopting forward-looking strategies, upgrading products, strengthening internal capabilities and building external networks". We expect Chinese companies to be led by such strategies to overcome challenges and grasp opportunities to inject new momentum into the prosperity of Chinese manufacturing industry as well as promote the advancement of global industries.

Chemicals & Materials

In 2023, the global geopolitical tension continued while the world economy recovered slowly. Domestically, the chemical and materials industry's major downstream industries, such as real estate and infrastructure sectors, had much smaller investment and hence weak demands. In the export market, the backlash against globalization created more and higher trade barriers, adding pressure to export revenue. China's chemical and materials industry had a tough year in 2023, most companies were under the weather.

Looking forward to 2024, there will still be much uncertainty in the global political and economic landscape. In the short-term, "stabilizing growth" will be the theme for the industry. But at the same time, chemical companies should still keep their eyes on the long term: take transformative actions, including pursuring operational excellence, promoting R&D and facilitating green development so as to build their competitiveness in the new global competitive environment.

Energy

In 2023, the world finally accelerated its recovery from the COVID-19 pandemic, but the development was deeply influenced by the VUCA environment. The rebound was under expectation; multiple geopolitical conflicts have intensified – it is increasingly hard to build consensus against the backdrop of global clashes. However, the imperative of taking actions to contain climate change, which was once a "tragedy of the commons" topic, has become one of the very few agreements that the global community can still agree upon. The industry of energy transition and renewable energy generation is offering the biggest certainty among the highly uncertain world. China has the world's largest installed generation capacity of renewable energies as well as the largest renewable energy industry chain, leading other countries in various aspects, such as scale, capital, cost and technologies. However, the most important task of China's energy industry participants in 2024 is to leverage these advantages into their own competitive edges, and win the market in the new year.

Technology & Internet

The technology industry has been the most robust and innovative "engine" of China's economy, continuously powering the growth and development of other industries. For 2024, we expect four major trends in this sector: digitalization transformation to further power the growth of various industries, generative AI to become more customized and integrate deeper with specific industries, Chinese companies' overseas expansion to enter the "second half", and the sophistication of China's self-developed technology ecosystem to create growth opportunities.

Pharma & Healthcare

2023 was the first recovery year of the post-COVID era. China's healthcare industry has experienced significant cyclical fluctuations. In 2024, the industry will continue to focus on "improving quality, ensuring supply, controlling costs and correcting deviations". There will be intensive competition in both existing and emerging markets, reshaping the foundation and value systems of the industry into a more rational status.