Despite strong growth optimism, regulatory concerns and rising costs are impacting upon European companies’ investment plans

China is becoming an increasingly important strategic market for European companies, but a significant proportion may shift investments away from China’s increasingly costly marketplace to other countries due to increased market pressures and missed opportunities caused by market access and regulatory barriers, according to the Business Confidence Survey 2012 released today by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

As the largest contributor to current global growth, China’s importance for European companies has increased to an unparalleled level. Revenue generated from Chinese operations now comprises more than 10% of worldwide revenue for half of the respondent companies, representing an increase of 50% from 2009, and 64%of European companies reported EBIT growth over the last year in China. With numerous indicators in the Survey pointing to a maturing marketplace, the top 3 areas in which private Chinese companies are perceived to be most competitive are pricing, marketing and sales and brand recognition, suggesting that competition is becoming fiercer in traditional business areas. However, state-owned companies are deemed most competitive in governmental relations, an area which is improving from an already strong base.

This maturing marketplace is, however, not mirrored by corresponding developments in the regulatory environment, which continues to be perceived as being discriminatory against foreign companies. Due to market access and regulatory barriers, 48% of European companies report missing out on business opportunities, with 64% of these estimating the value of these missed opportunities to represent 10-50% of revenue. 22% of respondents admitted that they are considering shifting investment from China to other markets.

Davide Cucino, President of the European Chamber commented, “We are happy to report that European companies are continuing to invest and create jobs in China, but the lack of reform of the regulatory environment is worrying and has a disproportionate impact on foreign business as well as on the domestic private sector. There are indications from this survey that as reform continues to stall and costs rise, a previously reliable stream of FDI may slow and planned investments may be shifted to other emerging markets.”

Watson Liu, Vice President of Roland Berger Strategy Consultants Greater China, said, “European industry is facing increased competition in China from both international and domestic competitors. In particular, vast improvements have been seen from local competitors in brand recognition, marketing and sales capability, and product quality. In order for European companies to stay competitive in China, they need to seek to understand what local clients and consumers demand and continue to differentiate their products and services. To that end, this report is designed to help European businesses gain insights that support their strategic planning and tactical decision-making."

The European Chamber Business Confidence Survey 2012 is again produced in partnership with Roland Berger Strategy Consultants and was compiled with the input from over 550 European companies operating in China.