At the 16th Annual Meeting of the New Champions (Summer Davos Forum) in Tianjin on June 24, National Business Daily (NBD) exclusively interviewed Karel Eloot, Senior Partner at McKinsey & Company.

Based on his nearly 20 years of work and life experience in China, Eloot stated that a localization strategy is crucial for foreign companies to establish themselves in China. This includes localizing production and decision-making, deeply integrating into the industrial ecosystem, and demonstrating a long-term commitment to the Chinese market.

Regarding China's business environment, he expressed his deep impression of Chinese enterprises' openness to exploring innovative ventures and the country's "ecosystem power."

Karel Eloot Photo/Zheng Yuhang NBD

Foreign Enterprises' Strategy in China: Aligning with China's Core Economic Strengths

NBD: You have helped many multinational companies expand their businesses in China and Asia. What do you believe are the key success factors for foreign enterprises in China? What lessons can be drawn from localization strategies?

Eloot: Undoubtedly, localization has consistently been fundamental for foreign companies to gain a foothold in the Chinese market over the years. Only by achieving localized production and decision-making can companies stand out in competition with local enterprises. Over the past two decades, the competitiveness of Chinese domestic companies has continuously increased, setting higher demands for foreign enterprises.

First, foreign companies need to build strong local management and decision-making capabilities. To succeed in the Chinese market, it's essential not only to bridge communication with local customers but also to deepen cooperative relationships. This means multinational corporations must deeply integrate into China's industrial ecosystem, precisely understand local consumer needs, and continuously refine their production layout, product R&D, and pricing strategies. In other words, only by truly becoming an organic part of China's social and business system can they firmly establish themselves in this market.

Furthermore, experience shows that multinational companies willing to make a long-term commitment to the Chinese market tend to achieve greater success. Through continuous investment, they can gain a deeper understanding of Chinese market rules and ultimately achieve deep integration with China's industrial ecosystem.

NBD: As the Chinese economy continues to develop, what adjustments do you think foreign enterprises need to make to better adapt?

Eloot: I have always believed that for foreign enterprises to gain a firm foothold and achieve long-term development in the Chinese market, the key lies in aligning with China's core economic strengths.

First, the Chinese market is vast. Foreign enterprises need to understand local customer needs and clearly define the core added value of their products or services.

Second, China has established a global leading edge in several cutting-edge industrial fields, such as biotechnology, electric vehicles, and battery R&D. If foreign enterprises can actively integrate into these advantageous industry tracks, they can not only obtain stable supply chain support by relying on mature industrial ecosystems but also significantly enhance market competitiveness by leveraging the collaborative competitive environment of upstream and downstream enterprises in the industrial chain.

Third, innovation and R&D are core drivers of enterprise development. Cutting-edge technologies represented by big data and artificial intelligence can not only significantly accelerate product R&D processes but also deeply empower supply chain management.

Finally, sustainable development has become an essential path for enterprises to achieve long-term prosperity. Foreign enterprises should actively practice this concept and explore the potential application of digital technologies in improving energy efficiency, among other areas.

Photo/website of World Economic Forum

In the next 5 to 10 years, Human-Machine Collaboration and Digital Twins will Drive Manufacturing Development

NBD: As a Belgian who has lived and worked in China for many years, could you share your observations on China's business and cultural environment in recent years?

Eloot: I have lived in China for nearly 20 years, and in recent years, the strong vitality of China's business ecosystem has deeply impressed me, especially the openness shown by Chinese enterprises in exploring innovative ventures.

As a simple example, when data analytics and the digital wave entered the industrial sector, Chinese enterprises adopted new technologies much faster than many other regions globally, with significant tangible results. Since 2018, we (McKinsey) and the World Economic Forum have been identifying manufacturing benchmark companies in digital and analytics globally, and 40% of the certified companies are in China. This data directly confirms the strong momentum of Chinese enterprises in the innovation track.

Another aspect that has deeply impressed me is China's "ecosystem power." Here, the sense of collaboration between companies, universities, and upstream and downstream entities in the supply chain is particularly prominent. This eco-friendly cooperation model has driven China's rapid rise and should be vigorously promoted globally, as it can bring companies from different regions together to learn from each other and achieve win-win results.

NBD: Could you share your unique observations on the Chinese market? What unique market opportunities and challenges do you see in China's metals and mining sectors?

Eloot: China has a long history of development in the metals and mining industry, having embarked on a global layout 20 or even 25 years ago. After long-term development, the industry has achieved significant advantages in mineral processing and production capacity, along with strong innovation and R&D capabilities.

From the perspective of development opportunities, over the past decade, we have seen rapid growth in the (Chinese) battery materials market, with deep cooperation between battery materials processing and battery manufacturing, building a strong supply and value chain that demonstrates a highly competitive industrial ecosystem.

However, the challenges are also significant. First, the industries mentioned above generally have very thin profit margins. Taking the steel industry as an example, companies need to continuously reduce costs and seek profitability and survival through cost reduction and efficiency improvement. Second, geopolitical uncertainties pose potential risks to raw material supply. Finally, sustainable transformation is also a key challenge. How to promote production towards green and low-carbon transformation has become a critical problem that urgently needs to be overcome.

NBD: In your opinion, how will China's position in global manufacturing change in the next 5 to 10 years? What are your predictions and suggestions for the future development of the Chinese market?

Eloot: China's economy currently accounts for over 18% of global GDP, and its manufacturing value added accounts for about 30% of the global total, laying a foundation for future development.

In the next 5 to 10 years, human-machine collaboration is likely to develop further. China's current industrial robot density has already surpassed most European countries, establishing a first-mover advantage in this field.

Additionally, as the physical world becomes deeply coupled with digital twin technology, enterprises will gain innovative tools to help Chinese companies develop innovations better and faster, and create more resilient supply chains.

The core growth logic still lies in the global extension of China's "ecosystem." The current consideration is: how can this be upgraded to a global ecosystem, fostering win-win cooperation and attracting stakeholders at a global level?