How Chinese companies can build for the future

The Chinese economy is recovering. Leading global financial institutions expect China’s GDP to grow 5.24% in 2023, slightly higher than the government target of 5%. This is a significant improvement from the 3% GDP growth in 2022.

However, as China opens up after three grueling pandemic years, the macroeconomic context in which countries operate has changed. The basis for achieving short-term performance and building competitive advantage in business has altered. Growth, which accounts for 60-70% of shareholder returns in the medium term, has plateaued in traditional markets. The biggest opportunities now lie with tech-enabled players, who are growing at 10 times the rate of their traditional counterparts.

Given this complex business environment, CEOs of Chinese firms are asking can they build for the future? Firms need a blueprint for short-term performance and medium-term advantage which can balance both cost pressures and a growth agenda. This blueprint must be tailored to strategically sequence business priorities with the right mix of short-term performance and medium-term capability build.

According to BCG research, companies typically undertake a four-step journey towards becoming future-built. Before they get digital transformation right, they are stagnating and usually create limited business value. As emerging companies, they achieve greater success in programmatic transformation but are unable to scale their efforts effectively across the organization. On the third step, companies are scaling and can deliver multiple waves of successful digital transformation – pivoting to innovation-led growth. In the final stage, future-built companies are able to continuously innovate at the leading edge of disruption via systematic build of necessary capabilities at scale.

Across a wide distribution of future-readiness companies, only 6% of companies demonstrate advanced maturity. This select group of leading companies is winning in a world defined by digital engagement, embedded artificial intelligence (AI), and low-emissions products, processes, and supply chains. Chinese companies need to take stock and accelerate their efforts to become future-built.

Through empirical research, interviews, region and sector-specific assessments, BCG has been able to identify the six attributes that distinguish future-built companies from the rest. These attributes are endemic to these outliers and enable them to move into new high-growth markets that are beyond the reach of less-capable players:

Integrating sustainability and social impact goals, building trust and transparency among stakeholders. Leaders need to develop an authentic purpose to create value for people, for society and for the planet – not just investors.

Attracting, retaining, and developing world-class talent. Chinese companies that have acquired a people advantage are seen to encourage employees to set meaningful, challenging goals. Employees thrive in a high-performance culture as they are given greater autonomy. Generous rewards coupled with a nurturing environment further fosters growth.

The prerequisites of building resilience include the capacity to combat exogenous risks, anticipate shocks, absorb the impact, adapt to recover critical functionality, and reimagine the business in altered circumstances. Additionally, Chinese companies also place emphasis on revisiting their strategic positioning regularly and catching a rising trend in order to build resilience.

One that reimagines outcomes and builds new business models. Advanced companies implement continuous customer feedback loops that power rapid iteration and constantly explore new technologies to push the boundaries of innovation. They emphasize an entrepreneurial culture that promotes a fail-fast-learn mindset.

Enabling fast, automated, and secure operations. A robust approach to making data available and defining a value-optimizing pathway to modular, scalable technology is critical.

Chinese companies should invest in building strong digital foundations to access the benefits of AI. As companies increase in digital maturity, they should adopt a digital-first mindset versus a traditional IT-led approach to technology.

There is an emerging polarization in China with scaling/future-built companies leading across all six attributes, while stagnating/emerging companies are lagging. On several attributes such as leadership with a purpose, agility and resilience, tech and AI, Chinese companies are doing better than the global average. On the flip side, stagnant/emerging companies have a significant distance to cover both in absolute and relative terms.

Building sustained competitive advantage in an ever-changing world is only getting harder for businesses. The convergence of powerful macroeconomic forces, technological disruption, and shifting market dynamics is widening the gap between flourishing and foundering companies. Chinese companies looking to get ahead of the pack should identify where they are currently on the four-step journey to becoming future-built and accordingly prioritize acquiring the six attributes shared above. It is time for firms to act in the present to build for the future.