Bangkok--12 Apr--Grant Thornton
But worries start to show in China about domestic competitiveness and availability of capital to continue expansion
Nearly one in five businesses in the survey now imports from Mainland China
Thai business leaders concerned about negative impact on their business caused by the economic growth in China
Results show China businesses surging ahead in 2006
The results of the first independent survey of business owners in Mainland China show that business owners are among the most confident in the world about the local economy with an optimism balance* of +79% (see figure 1). Only three countries out of thirty surveyed — India, Ireland and South Africa — were more optimistic. And when asked about prospects for growth in turnover in 2006, Mainland China topped the table with a balance of +86%. This made it the most optimistic country in the survey.
Other key international economic indicators show that the ‘economic miracle’ in Mainland China is not just for large enterprises but has penetrated deep into the economic infrastructure — with mid-sized businesses performing exceptionally well on a range of indices:
medium-sized businesses in Mainland China are bullish about export prospects for the year ahead. The survey balance of +26% was one of the highest among the thirty countries surveyed
employment outlook is very healthy with 49% of respondents forecasting an increase in their workforce
the surge in investment is set to continue — with 58% intending to invest more in buildings and 53% in plant and machinery
the results show that 40% of mid-sized businesses in Mainland China export — which is already near the EU (European Union), NAFTA (US, Canada and Mexico) and global averages. However, the percentage with more than a quarter of their turnover in exports is 45% - much lower than in the EU, for example — demonstrating the opportunity that exists for these companies within their own geographical boundaries
however, businesses felt more constrained in their ability to raise prices, with 16% expecting to do so this year — well below the average for companies in NAFTA and the EU.
Said, Gabriel Azedo, Divisional Director, Asia Pacific, Grant Thornton International: "Our survey demonstrates that the economic miracle that Mainland China is experiencing is not only benefiting large enterprises but is trickling through to medium-sized companies. The survey, the first of its kind, shows that Mainland Chinese business owners are very positive about the economic prospects for the country but there is concern about constraints impacting the ability to grow their business. Who knows, this may be the first sign that Mainland China may not have the ability to meet the widely expected goal of it becoming the world’s largest economy by 2050.”
But there are problems beneath the surface
Despite the optimism, however, business owners in Mainland China have significant worries about constraints on their businesses continuing to expand (see figure 2):
a high proportion of mid-size businesses in Mainland China are clearly worried about a wide range of factors and are among the most concerned in the world about constraints to expansion
in a listing of thirty countries, Mainland China comes 4th in the table citing ‘cost of finance’ as a constraint to business expansion, 2nd for ‘shortage of working capital’, 5th for ‘shortage of long-term finance’ and 9th for ‘availability of skilled workforce’
39% of business owners were worried about ‘cost of finance’ as a constraint to business expansion, 39% about ‘shortage of working capital’, 32% about ‘shortage of long-term finance’ and 37% about the ‘availability of skilled workforce’
in addition, 34% were worried about regulation and red tape and nearly half (44%) about shortages of orders and reduced demand (particularly due to increased domestic competition.
International engagement with Mainland China
The survey asked the owners of businesses around the world what the impact of the ‘Chinese economic boom’ had been on their businesses. Business owners from a group of twelve countries felt they were largely unaffected, mostly from Europe; and the majority (thirteen countries) felt that they had experienced increased business as a
result. Thailand respondents reported the highest level of negative impact from the ‘Chinese economic boom’, significantly more negative than many neighbouring countries, including Singapore, Malaysia and the Philippines, all who claim to be receiving increased business from the boom.
Peter Walker, Partner, Grant Thornton Thailand, suggested: "The survey indicates that Thailand business leaders need to put more effort into their China strategy. While the survey shows that more Thai leaders see China as an opportunity, rather than as a threat, a large number say that their business has decreased as a direct result of China’s growth. It is clear that China is not going to go away, so Thai businesses need to assess their competitive competencies in light of China’s strengths and weaknesses.”
When asked whether Mainland China was an opportunity or a threat for their businesses, 35% of the surveyed Thai business owners and leaders responded that China was an opportunity, compared with only 22% citing it as a threat. The main message for Thailand is one of identifying and focusing on the opportunities to balance the perceived negative impact.
International Trade with Mainland China
Mainland China’s growing importance in international trade is demonstrated by the fact that nearly one-in-five businesses in the global survey now import from Mainland China. Worldwide, some 14% of businesses in the survey also export to Mainland China. In Taiwan, the US, Germany and Italy, this rises to 20% of all respondents. This ranks Mainland China fourth as the top export destination in the survey — compared with sixth in 2003.
The survey also revealed that one in ten businesses worldwide had outsourced operations to another country. Hong Kong topped the outsourcing table (26% of businesses) followed by the US (18%). The leading destination for outsourcing anywhere in the world was Mainland China — with a third (31%) of respondents already transferring or planning to transfer some operations. India was next (27%). Less than 4% percent of survey respondents are considering Thailand as a destination for outsourced operations.
Peter Walker concluded that, “Thailand as a nation and Thai companies individually need to seriously consider their position in relationship to Mainland China and the current economic boom. Thailand does have some competitive advantages in several areas and these can drive a more positive approach, considering export, alliance and outsourcing opportunities. Examples include medical services, education, tropical agricultural products and tourism. At Grant Thornton, we recommend that Thai companies include a specific consideration for China in their revised strategic plans.”
Notes to editors
* The ‘balance’ is the difference between the proportion of businesses indicating optimism and those indicating pessimism, or between those indicating an increase and those indicating a decrease
The Grant Thornton International Business Owners Survey (IBOS) was carried out among more than 7,000 owners of medium-sized businesses from 30 countries/territories during Q4 2005. IBOS began in 2002 and builds on the European Business Survey (EBS) which Grant Thornton ran from 1993 to 2001. The research was conducted by Experian Business Strategies Limited and Harris Interactive. To find out more about IBOS and to obtain copies of IBOS supplements, as well as the global report, please visit www.grantthorntonibos.com .
The research included Mainland China for the first time. The ground-breaking survey of 300 business owners required approval from the Chinese Government and was conducted in Q4 2005 across a wide selection of industries.
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Grant Thornton Thailand is well recognized by the business community as one of the leading professional service firms in Thailand and has been in Thailand since 1991. Our services include IT and business consulting, outsourced accounting and payroll, external and internal auditing services, domestic and international tax planning, corporate finance advisory, restructuring and reorganization, market entry strategy, executive recruitment, succession and remuneration planning. To learn more about our firm, please visit our web site www.gt-thai.com .
For further information please contact:
In Bangkok:
Peter Walker or Khun , Grant Thornton Thailand
Tel: 02-654-3330 or [email protected]
In London:
Nan Williams or Paul Donlon, Grant Thornton International Press Office.
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