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00:00Great timing right after Premier Li's speech. You were inside the plenary.
00:03He was really selling this idea of China Opportunity 2.0 instead of the China Shock 2.0.
00:09Do you agree with that?
00:11Well, first of all, I think it's very interesting to see Premier Li because I think in the last couple
00:16of years,
00:17I think you've been quite consistent around what he's saying.
00:19He wants an open market. He wants more multinationals to collaborate with China.
00:25I think that he also spent some time today talking about consumption in China and around how he sees a
00:31consumption revival in China as well.
00:35So I do think that he's touching all the right points.
00:37But obviously, he spent a lot of time talking about innovation in China, talking about technology in China and how
00:43that can be a force for good for the world.
00:46And one of the things that he's stressing was that, well, we all have growth problems, but innovation and China
00:51R&D and China inspiration can be part of a solution for the growth for the world.
00:57And I think that is a good way to actually position China in today's theme, especially here at Summer Davos.
01:03I remember you have previously mentioned how China's lead in autonomous driving, in robotics is undisputable, especially in the tech
01:12area.
01:12But some might dispute that, especially when it comes to the hardware side, the chip side.
01:16What would you say to that?
01:18Well, I think that right now, every country is thinking about themselves a little bit, right, around security, around resilience
01:24and all that.
01:24So it's natural that everyone's thinking a little bit around, well, you know, like I need my own industrial as
01:30well.
01:31I need my own industrial policy, my manufacturing.
01:35So the question then, therefore, is, well, China got its strength, but what does that mean for me?
01:40And one of the things that I've been saying is that I think, you know, China used to be a
01:45factory for the world.
01:46I think in the next days, China can be the factory for factories, right?
01:51Because every country wants to have our own factories, but China can be the factory that provides the factory for
01:57the rest of the world.
01:58So, you know, in some ways, I think China could be part of a solution to the industrial competitiveness of
02:04many countries around the world as they think about their own resilience.
02:08Well, I think many companies will want to be in China and will want to participate in that development story.
02:14But the risk, the geopolitical risk from global governments is there, right?
02:18The hit back from the U.S. government and being caught in the crosshairs.
02:22How should companies protect themselves in this environment?
02:26I see a lot of multinationals coming to China this year.
02:29In fact, you know, I've seen probably more multinational boards and CEOs and executives meeting in China that I've ever
02:36seen in my 25-year career at McKinsey.
02:39And why are they coming?
02:40I think they're coming to kind of see for themselves what's happening here.
02:44Why are they so competitive, right?
02:46And also, obviously, evaluating what's my China strategy.
02:50But to your point around the geopolitical risk, I think the bigger risk right now for companies in China is
02:57a competitive risk, right?
02:58Of course, there's geopolitics.
03:00Of course, there are challenges.
03:01But the fundamental question is, am I even good enough to compete in the Chinese market?
03:07And that, I think, is a much more difficult question.
03:10That's a good question, which I also want to ask about, because you look at the German automakers.
03:14They used to dominate this market, but now they are not able to compete with the Chinese up-and-coming
03:19domestic players.
03:21What is the new playbook to succeed for a foreign company in China?
03:25I think it's a million-dollar question, right?
03:28In every single category, multinationals are losing market share, especially to Chinese little competitors.
03:35In the last 10, 15 years, I think that you have seen Chinese companies in every category getting better, right?
03:43Getting better value for money, getting more innovative, and in some ways, moving at China's speed.
03:47I call that the multinational executives competing against Chinese entrepreneurs, right?
03:54The entrepreneurs have nothing to lose, right?
03:56They are all in.
03:58They make decisions quicker.
03:59They are moving faster.
04:00They're more aggressive.
04:01They have no hedge, right?
04:03The multinational is thinking around, well, like, where is China in my priorities, right?
04:08How do I want to invest in China and all that?
04:10So from a speed perspective, from an aggressiveness perspective, from an innovation perspective, they're a little bit behind.
04:17So I think for multinationals, the playbook is, how do you unleash the entrepreneurship within the corporate?
04:24Because that's the only way how you compete in China right now, in China's speed.
04:29So what is the best approach?
04:31Would you say it's to hire a local team or use a joint venture approach, or how should they come
04:36into China?
04:37Well, the most extreme version that we've seen recently, right, is a little bit how, you know, Starbucks and Burger
04:42King have been doing.
04:44You know, McDonald's did that earlier.
04:45You say, well, why don't I find a Chinese partner?
04:49You know, I can partner with them.
04:51I can unleash the management team, right?
04:54So I have a sort of PE approach, right, towards how do I get more ownership and more decision-making
05:01to the local team.
05:02That's an extreme version.
05:03But I don't think everyone has to do that.
05:05I do think that there are many structural ways and incentive ways and organizational ways that you can unleash that.
05:11But right now, what is very clear is that if you don't find another way to think about China's speed
05:18and China's competitiveness, you will lose relevance in China.
05:22And that, to me, is the biggest risk for multinationals.
05:25What do you think is the most misunderstood about China right now by global CEOs?
05:31No, I think the most understood right now is around China can be a force for good for your company,
05:38for the rest of the world.
05:40I think one of the things that is actually very interesting for me, right, is when companies come to China,
05:44they look at China's companies and look at what's going on here.
05:47You can go back home and be very amazed by what's happening here.
05:50And you can go back home and try to do what they do.
05:52But I think what people are underestimating is why don't we think about the Chinese as part of my operations,
05:59my supply chain, my lab for innovation, right?
06:03China as the lab for your global innovation, right, is a concept where in pharmaceutical world, people are doing a
06:08lot more, right?
06:0940% of global drugs today are actually, you know, from China, right?
06:13And so they are licensing out, right?
06:15Some companies right now, I just met, they can be very interesting, right?
06:18They actually think about their old R&D in China, but they then export that to what they do outside,
06:24right?
06:24China is not only exporting hard goods, but they're exporting IP, they're exporting methods, they're exporting, you know, different processes
06:33outside.
06:33That, I think, is a way of progress, right, for many multinationals that I think that they are under-leveraging
06:39today.
06:40Let's talk about the Chinese consumer because they are increasingly sophisticated, but they are less brand conscious, they are less
06:47loyal.
06:48How should global brands try to get Chinese people to spend?
06:53I think the Chinese consumer is one of the most interesting, fickle, challenging, but increasingly sophisticated customers.
07:00I don't think that they are not loyal, but I think they're very adventurous.
07:03I think that they are very eager to try new things.
07:06And I think that, you know, in China, because the market is so large, so many companies are very willing
07:12to give incentive for you to try them.
07:14So, in some ways, I do think that the multinationals in China, look, I think that this is actually the
07:20forefront of consumer behavior, right?
07:22I think this is actually where you get the customers who are very happy to be the first one to
07:27try, right?
07:27When EVs came out, Chinese consumers were like, okay, let me drive the first EV, right?
07:32You know, when the flip phones came out, like, let me try to get the free flow despite the crease.
07:36So, I do think that there's a market where, for multinationals, you try in China, there can be some insights
07:43and innovation that can leverage for the rest of the world.
07:46Because China's consumers, in many ways, are in some ways moving faster than any consumer group in the rest of
07:53the world at scale, right?
07:54And that is a great place to experiment, to try new things, to make some mistakes, recover, and do something
08:00new again.
08:01So, I do think that that is a nature, right, of China's consumer that could be very beneficial for multinationals.
08:07It's really exciting.
08:09Six months ago in Davos, you talked about how China's growth had exceeded expectations.
08:14Six months later, what's your assessment now?
08:18You know, if we sit here two years ago, right, we would be thinking around, you know, is China being
08:22more isolated, right?
08:24All this geopolitics and all that, right, you know, is China going to really slow down?
08:29We have seen export growing, we've seen more people coming to China, we've seen more companies collaborating in China right
08:36now.
08:36We've seen AI, more tokens being consumed outside.
08:40You know, we've seen now the physical AI, embodied AI, robots and all that, right, being really looked at as
08:46one of the best innovations coming out of China.
08:48So, I do think that, is it exceeding expectations?
08:51Well, it depends on what expectations were at the beginning, yeah, but I do think that right now, yeah, I
08:56do think that China is moving on at a moderate pace that, in some ways, is meeting expectations, I would
09:02say.
09:03And I think that we wish that consumption can grow more, I think it will, right?
09:07I think that you heard the Premier talk about this as well.
09:10I think there are all sorts of ways that a Chinese consumer is now coming back a little bit, you
09:15know, in a stable way, I call it the medium growth rate, which I think that we should all be
09:21comfortable with.
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