The Most Attractive Markets: Understanding China’s Market Potential
Corporate growth strategies typically include some combination of deepening existing market penetration and new product and market development. New market entry through acquisitions, greenfield investment, joint venture or other forms are considered generally to be the most controllable ways to drive business growth. And, many emerging markets, such as Brazil, India, Argentina, with their growing middle-classes are attractive targets for these growth strategies.
With the ever-increasing complexity underlying trade openness, regulatory, and tax systems, among other factors globally, identifying the best target markets for a specific company remains part science, part art. Market attractiveness assessments cover demand, value chain, competition, innovation, regulatory environment, barriers to entry, risks, and security issues, among other critical measures. Companies also rely on composite metrics to compare markets across several dimensions simultaneously during the early stage of analysis preceding detailed analyses. One such metric is the Market Potential Index (MPI) published by Michigan State University.
In 2017, China was the most attractive market in the world for the fourth consecutive year.
- The MPI is a composite indicator assessing a country’s market potential across eight dimensions: market size, intensity, growth rate, consumption capacity, receptivity, commercial infrastructure, economic freedom and country risk. Each dimension is based on several indicators. For example, market size is based on the size of the urban population and the volume of electricity consumption whereas GNI per capita and private consumption serve as proxies for market intensity.
- According to the MPI, in 2017, China was the most attractive market in the world for the fourth consecutive year. Hong Kong, India, Canada, and Japan also made the top 5.
- Many countries in the top of the ranking are developed European countries. Brazil has steadily fallen in the ranking according to market attractiveness, dropping from 11th in 2010 to 35th in 2017.
Several key metrics commonly used in market attractiveness assessments, highlight China as an example of how the metrics provide insight for business analysts. China has been a popular target of market attractiveness studies for more than two decades, with companies timing entry, level of investment, and market strategies to coincide with regulatory and market growth expectations.
Opportunities. China’s enormous market size and related market growth potential are key factors in its attractiveness. While market growth is gradually cooling, the Chinese economy is still among the top 10 fastest growing economies worldwide. Over the last five years, China’s real GDP grew at an average annual rate of 7.2 percent.
Weaknesses and obstacles. Limited internet access along with low market intensity and receptivity as well as living standards remain persistent challenges for China. Restrictions on economic freedom frequently reach headlines as well based on constraints on the flow of investment capital and the financial sector’s dependence on and susceptibility to government control and interference, according to the Heritage Foundation.
- Only 53 percent of the population in China has Internet access. In addition, international Internet bandwidth is among the lowest in the world, trailing behind countries such as Liberia, Iran, Namibia, and India.
- In addition, China’s market receptivity — e.g. openness — approximated by its foreign trade as a share of GDP is among the lowest in the world.
- Living standards in the country are also still low despite rapid economic growth, with a per capita income lower than Russia, Mexico, and Argentina.