Adapting to a Post-COVID-19 World

The need for MNCs in China to adopt a portfolio-like mindset  

Adaption has long been integral to the success and longevity of any business. Yet, for multinational corporations (MNCs) in China, adapting to a post-COVID-19 world—in addition to the existing challenges of a slowing economy, maturing markets and disruptive technologies or market entrants—is no easy feat. Combine this with increasing directives or expectations from head office or shareholders, and some C-suite executives in China might be feeling the pinch. But as the country progresses in its united front to eradicate the virus, the prospects of an orderly return to growth improve daily. Norbert Meyring, head of Multinational Clients and Mark Harrison, partner, Deal Advisory, KPMG, argue that the potential rewards for getting it right in China remain of such amplitude that to not put serious effort into assessing the potential growth or cost-saving options—and then executing a practical strategy—would be remiss.

As COVID-19 has now spread globally, MNCs’ head offices are becoming even more focussed on cash and profitability. It is anticipated that they will adopt strategies to address underperforming parts of their business portfolio and potentially to raise cash through sales of non-core assets.

So what are the characteristics of the most successful MNCs in China? It boils down to three things:

  • A higher degree of autonomy for the China operations as a unit;
  • A recognition that competing on costs with local players may in some cases be futile; and
  • A clear understanding between the overseas head office and the China operations as to the operational environment and requirements for business success in China.

Typically, the operational focus for MNCs in China is now not just about growth, but profits (or even damage control) as well. There is less headroom to justify balance sheet losses at the cost of building market share.

Unfortunately, no one-size-fits-all solution exists to counter the challenges each MNC might be facing. But regardless of any perceived source of woe, an initial high-level assessment can help shed light on the current business scenario and outcomes.

Realistically, if your China operations are struggling in any way, there are four routes to consider: 1) a ‘fix’ strategy; 2) a joint venture (JV) partner; 3) selling the business; or 4) closing the business.

While such options may initially sound fairly rudimentary, the respective scenarios may be intrinsically different and more complex than even one or two years ago. A fix strategy, for example, may entail new products (along with various intellectual property (IP) issues) or a shift to services, supply-chain diversification or re-shoring, or formulating new operating models and factoring in digitalisation, licensing, outsourcing or omnichannel considerations.

Likewise, aligning with a JV partner, or selling or closing the business also have a host of respective complexities that must be weighed against one another when assessing the options. Liquidation, of course, is a last resort and not a favoured option given the protracted process and reputational damage, which could impede the future feasibility of the MNC’s efforts to re-enter the China market.

However, to help mitigate any such adverse scenarios—and indeed to improve prospects in terms of business profitabilityapplying a portfolio mindset to your China operations can be highly beneficial. By grouping or categorising the various operations, processes, assets or services (potential or otherwise) of the business, it becomes easier to stand back and assess what’s critical and what’s not. Knowing which levers to pull back on or ramp up, or which to add or remove, requires a portfolio-like dashboard that covers the full business scope to be clarified.

Below are three brief case studies that exemplify just some of a multitude of strategies MNCs have taken as they adapt to the business terrain in China.

Case study A: Turnaround of a building/industrial equipment manufacturer

A building or industrial equipment manufacturer was facing declining sales, as it struggled to compete with very thin margins and local players putting out some very good products. The manufacturer’s own product was globalised to extremely high standards, and it encountered difficulties selling into lower-tier markets. It had also become entirely reliant on agents, with no visibility into their channel. The manufacturer needed a transformational strategy; a whole re-design of their commercial key performance indicators (KPIs) was formulated, with a practical roadmap that enabled them to shift course and offer high-value-added after-sales services, reduce spending, increase monitoring and ramp up localised research and development (R&D). While some reticence to the plan from local management was apparent (given the perception that acceptance may constitute admission of historical inattention), the head office was quick to accept the new strategy immediately upon seeing the review. This business subsequently turned around its sales markedly.


  1. Management rotation can bring fresh perspectives and need not be an admission of failure. A more regulated service time for private sector expatriates can help reduce barriers to change. Conversely, a robust, transparent handover plan will help ensure continuity where required.
  2. Products need to be localised. The gap between MNCs and local players has narrowed; relying on brand alone or overseas origin as a differentiator is no longer enough. Localised R&D for products/services suited to the various China markets is key.

Case study B: Packaging manufacturer teams up with local entity in partnership of equals

A general-packaging manufacturer was struggling for growth as, despite having a very good factory, they had high manufacturing costs and were overly reliant on MNC clients. To amend this situation, a suitable potential local JV partner company was found, based around sensible manufacturing, customer base, and IP alliances. Unlike many cases regarding JV arrangements in the wider market historically, this arrangement encapsulated a partnership of equals, with complementary strengths and weaknesses, and culminated in profitable outcomes.


  1. Be honest about strengths and weaknesses. Going it alone or dismissing full recognition as an equal to a potential partner could cost dearly.
  2. Within the greater corporate structure, think like a business owner for your China operations. What might not be customary for a MNC does not mean certain initiatives might not be applicable or necessary in China.
  3. Collate all necessary data and options and deliver to head office to ensure they have a solid understanding of what’s happening in China, rather than gloss over potential structural issues or wait for directives from overseas.

Case study C: Retailer underperforming due to changing market

A retailer that had initially done well in the sector missed a couple of key trends: the shift from department stores to malls, and the need to establish a stronger position in online sales. Given their struggles, they began broad discounting, which eroded brand image and made it difficult to recover. Despite fairly rapid successive changes in management, the issues compounded. Ultimately, a vendor due diligence was initiated to sell the China operations (where the due diligence report can be shared with all potential investors, on a reliance basis, making the process simpler and less disruptive). The business was sold and is still operating, although with significant downsizing and restructuring.


  1. Monitor and spot changes early, but most importantly, act quickly. The business could have been saved, and it relates to autonomygiving local management the power to make the required decisions. It is likely the industry trends were spotted to a degree, but management at head office was resistant to change and/or was not fully abreast of the rapid changes in the industry in China.
  2. Know when to cut your losses.

As shown in the above case studies, adopting a portfolio-like mindset can be highly beneficial when assessing your optimal business options.

Upon applying an initial high-level assessment of your business and adopting a portfolio-like approach, the following steps can then be taken:

  1. Assess your current portfolio versus future opportunities: for example, evolving consumer trends, ageing population, digitalisation, government policies and new regions such as the Greater Bay Area.
  2. Identify the non-core or under-performing businesses/units within your portfolio: bearing in mind whether they are cash-generative or part of a global supply chain and thus still important.
  3. Understand the root causes of the under-performance: it might be a fast-changing market—revising costs, poor agents, government policy, to name but a few—but full understanding is needed before acting.
  4. Think about messaging: exiting China is not advisable; reinvesting where you have competitive advantage and can differentiate (or inject IP), or reducing capital investment (i.e. move to services), is preferable.

Future opportunities, trends, and/or new markets can then be gauged against the various aspects of your operations to provide solid rationale, reduce risk, and facilitate optimal adjustments or transformation – in essence to bolster your capacity and ability to adapt successfully.

KPMG China is based in 23 offices across 21 cities and regions with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.