Expansion and growth are key drivers for any company’s strategy. One category of expansion and growth is geographic. Looking outside the USA market is important for long-term, sustainable growth plans. The USA accounted for 4.25% of 2020 global population and 24.4% of 2019 global GDP. Regardless of which measure you use, the majority of the world's consumers are not located in the USA. Thus, any growth-oriented company needs to be looking at global markets. A key question is how to best connect with, address and serve these markets.
Traditionally, companies treated their China strategy as a China-focused effort. Given changes in China’s trade and investment patterns, it is better to consider a China strategy more globally as a China-centered component. From China, it is possible to support a wide variety of countries that are not well served from a North American distribution base. China was the top trader for 128 of 190 countries as of the end of 2018.
If you look at China’s exports, you can see the diversity of countries in this graphic:
Visualization from OECD. Code: Blue – North America; Red – Asia; Purple – Europe; Yellow – Africa; Green – South America; Orange - Oceania
You can also see this connectivity if you look at either land, sea or air cargo routes from China’s major ports and airports. Looking at sea shipping, China has 11 (including Hong Kong) of the top 100 ports measured by UNCTAD’s Liner Shipping Connectivity Index. For comparison, the US has nine, Turkey and Japan have five each and no other nation has more than three.
Image from ChinaPower's interactive tool of the world's most connected ports.
China’s top 11 ports have an average connectivity measure of 60.6, which is higher than the top nine US ports average of 44.5 (the China average is also higher than the top US port of Los Angeles).
This connectedness is also reflected in schooling and the work place. At a recent business meeting in China, I met a Chinese businessman who had been to 35 of the 54 countries in Africa during his work career. Foreign languages other than English are routinely studied in universities. We routinely meet young Chinese professionals who have multi-year working experience in Central Asia, South Asia, Russia, the Middle East or Africa. Prior to COVID-19, millions of Chinese traveled each year to other parts of the world outside of their near neighbors in Asia.
China continues to build on its impressive international connectivity. In recent years, China has pushed for greater trade and investment cooperation, signing multiple trade and investment agreements. The recently signed RCEP (Regional Comprehensive Economic Partnership) agreement is expected to be ratified and come into force by the end of 2021. This will create a region of economic cooperation that has been compared to the US-Mexico-Canada Agreement (the successor to North American Free Trade Agreement) and the EU Customs Union, and will become the world’s largest trade bloc. The total RCEP countries' markets are 2.5 times the size of the EU and USMCA combined.
Another focus of China trade, investment and external affairs has been the Belt and Road Initiative (BRI). Starting in 2013, China now has more than sixty countries accounting for two-thirds of global population signed up to be part of BRI. The extent of global coverage can be seen in this map:
Map from the Council on Foreign Relations. Shaded countries are signatories to the BRI and are distinguished by color according to the year joined.
China continues to build out its land transport connections across the Eurasian landmass. In 2020, China transported 1.14 million containers to Europe alone across existing rail lines. China is investing $15 billion in new rail projects connecting China to ports in Europe.
If a company is interested in the 95% of consumers and customers outside the USA, China is a strategic pillar that should be part of any growth-oriented company’s overall plan. While not all roads are leading to Rome these days, a large percentage of global trade flows are leading to or from China. With a smart China-centered component to your global strategy, your company can have a share of the growth in these markets.
About PRI: PRI Management and Consulting helps companies thrive in China because we think like owners. With offices in each of China’s major economic super-regions, we help you develop growth strategies, hire and administer some of the world's best engineering talent, build your supply chains and sell your products and services to the world's fastest growing and biggest market.
To schedule your free consultation with PRI’s experienced team of consultants and managers, write to Jonathan Kendrick at jonathan.kendrick@priusa.com
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