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Benelux Companies in South China Compared with the Rest

June 28, 2018

Benelux Companies in South China Compared with the Rest

June 28, 2018

Moore Stephens Consulting, our partner in Shanghai, performs the Sino Benelux Business Survey every year. This year the survey was done in collaboration with the Benelux Chamber of Commerce, the embassy of the kingdom of Belgium, the embassy of the kingdom of the Netherlands, and the grand duchy of Luxembourg. The questions asked in the Sino Benelux Business Survey 2018 were questions to Benelux companies active within China to investigate the impact of the changes of the Chinese economy. 1421 Consulting Group received the raw data of the companies based in South China and China overall. In this article we want to present this data to you and share our interpretations how Benelux companies in South China fared in 2017.

 

Benelux Companies in South China

Approximately 166 companies have participated in the survey, of which 93% are directly coming from the Benelux-countries. Based on revenue within China, most companies that participated in the survey were  SMEs. Most of the companies are focused on the B2B market, and have been active within China on average for 12.6 years. The sector most companies operate in are mostly industrial sectors with services and sales of goods. South China’s Guangdong province represents 21% of the respondents.

Industrial Sectors and Size by Revenue

First, we want to show you how the Benelux companies in South China and China overall compare industry wise. The most prominent industries Benelux companies are active in are industrial goods, consumer goods, industrial services and materials. Both in Guangdong and China these are represented quite equally.

Graph 1: Industrial Sectors

Besides industrial sectors, also size by revenue is quite similar for Benelux companies both in the whole of China and South China. The majority are small medium enterprises, however some larger companies are active as well.

Graph 2: Size by Revenue

Revenue Growth and Profit Percentages

The industries and company size of Benelux companies in South China and China overall are comparable. However, the first major difference between companies in South China and China overall is in the revenue growth of 2016-2017. Where 88% of the Benelux companies in China had revenue growth, this was only achieved by 78% of the companies in South China. In other words, 22% of the companies in South China did not grow in revenue. Since revenue growth is a key indicator of business success, this is quite worrying.

Graph 3: Revenue Growth 2016-2017

Looking further at the profit as percentage to revenue growth, it luckily shows that 91% of the South China-based companies were breaking even or were profitable. The amount of companies that were break-even was substantially higher in South China compared to the rest of China. With 35% of the companies in the South of China breaking-even and 23% of the companies in the rest of China breaking-even. This might be explained due to the amount of companies having no revenue growth in the year before. Another explanation is that South China is known for its manufacturing industry. The salaries of Chinese workers have been rising steadily over the past decades and this has had a huge impact on the costs of these manufacturers.

Graph 4: Profit as Percentage of Revenue

Future Outlook

While Benelux companies in South China had less revenue growth and were substantially more often just breaking even, the outlook on the nearby future is positive. 94% of all Benelux companies expect revenue growth in 2018. However, in South China more Benelux companies are expecting over 20% revenue growth compared to the rest of China, as can be seen in Graph 5 below. 33% of the Benelux companies in South China expect that their revenue will grow tremendously next year compared to only 19% in the whole of China.

Graph 5: Expected Revenue Growth for 2018

A very interesting statistic is that 72% of the Benelux companies in South China expect their profitability to be driven by revenue growth alone. Compared to the companies in the rest of China, this is only 43%. An often heard complaint from companies that manufacture their products in South China, is that the rising salaries make it difficult to be competitive. These rising labour costs have made cutting costs a necessity. It seems cost cutting has been done a lot in South China in last few years and this cannot be done any further.

Graph 6: Profitability Drivers

Benelux companies based in South China perform differently than companies located in the rest of China. The industrial focus and company size are comparable, however Benelux companies in South China had less revenue growth in 2018 and were more often operating at break-even level. Cutting costs also does not seem to be an option anymore for these companies. The future outlook is very positive though, and if the companies realize the prospected growth numbers the future is bright! Many of the companies that have stayed in China and continue to flourish, do so because they adapt to the ever-changing market. 1421 Consulting is the ideal partner to make sure your strategy is adapted to the Chinese market, whether you are already based in China or planning to enter. If you would like to set-up a free consultation meeting, please reach out to: info@1421.consulting.

What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.