At the end of the BRIC era, Chinese companies will focus on driving productivity to stay competitive in 2014, McKinsey Director Gordon Orr said in a recent essay.
According to Orr, “all major input costs” are set to grow in the Middle Kingdom, while intense competition and overcapacity will make it hard to pass price increases onto customers.
“China’s solution? Higher productivity. Companies will adopt global best practices from wherever they can be found, which explains why recent international field trips of Chinese executives have taken on a much more serious, substantive tone,” said Orr.
Especially for companies where labour is now the fastest-growing cost, a sustained edge in productivity may make all the difference, Orr added. “And in industry after industry, companies will feel the disruptive impact of technology, which will help them generate more from less and potentially spawn entirely new business models.”
The challenge China has to face in that context is finding the right balance between rationalization and job growth. “Expect the Chinese government’s rhetoric and focus to shift from economic growth to job creation,” said Orr. “The paradox of rising input costs (including wages), the productivity push, and technological disruption is that they collectively undermine job growth, at the very time China needs more jobs. Millions and millions of them.”
Finally, Orr also declared the end of the BRIC era. “When the acronym came into common use, a decade ago, the BRIC countries—Brazil, Russia, India, and China—contributed roughly 20 per cent of global economic growth,” he explained. “Although China was already the heavyweight, it did not yet dominate: in 2004, the country contributed 13 per cent of global growth in gross domestic product, while Brazil, Russia, and India combined contributed nine per cent, with similar growth rates.
“Compare that with the experience of the past two years. China accounted for 26 per cent of global economic growth in 2012 and for 29 per cent in 2013. The collective share of Brazil, Russia, and India has shrunk to just seven per cent. It’s time to let BRIC sink.”
Meanwhile, US company ACT Research and China’s State Information Centre (SIC) said demand for commercial transport equipment in China is growing moderately again.