The Interpreneur survey: Understanding mid-market business trends in China
The OECD report forecasts that China’s GDP will grow by almost 5% in 2024, ranking it as the third highest among G20 countries over the next two years. With SMEs making up 60% of the SMEs and exports slated as one of the main contributors to the predicted growth, global business plays a key role in supporting China’s recovery in the wake of macroeconomic issues.
To understand how this landscape is affecting mid-market businesses, we recently surveyed 1,400 C-suite business leaders in 14 countries, in private sector companies earning up to £300m a year that have expanded internationally. We call these CEOs ‘interpreneurs’.
We have analysed the China-based data to better understand what drives Chinese business owners when expanding abroad.
Global business trends: Do Chinese business leaders believe more business will expand overseas in the next 12 months?
| Significantly increase | 36% |
| Moderately increase | 56% |
| No change | 8% |
Overseas business expansion is widely expected to increase
At 92%, China is one of the most optimistic countries out of those surveyed that world that global expansion is on the rise. The least optimistic country was Japan at 59%.
Which markets do Chinese businesses prefer to expand into?
| Which, if any, of the following regions or countries would you / your business considering expanding to? (Select all that apply) | |
|---|---|
| North America (e.g. USA, Canada, Mexico, etc) | 70% |
| Western Europe (e.g. Germany, France, UK, etc) | 55% |
| North Asia (e.g. China, Japan, Korea, etc) | 52% |
| South Asia (e.g. Thailand, Vietnam, Singapore, etc) | 47% |
| Australia/New Zealand | 38% |
| Eastern Europe (e.g. Poland, Hungary, Romania, etc) | 37% |
| South America (e.g. Brazil, Chile, Colombia, etc) | 30% |
| Middle East | 25% |
| Africa | 6% |
North America is China’s number-one choice for global expansion
Despite any political differences, the USA is China’s number one trade partner, with China exporting an average of $500 billion worth of goods there each year. These results suggest that 2024 and 2025 will likely be no different.
What is interesting is that Europe is the second choice above North Asia, historically taking second place behind North America. Does this mean that Europe could reengage with China after supply chain challenges reduced trade?
What makes a country more attractive to Chinese businesses looking to expand globally?
| Which, if any, of the following would make a country most attractive for international expansion? [Select up to five] | |
|---|---|
| Favorable trade agreements (e.g. free trade zones, diplomatic partnerships, or preferential tariff treatment) | 60% |
| Alignment with long-term growth strategy (e.g. regional investment into specific industries) | 54% |
| Skills and talent (e.g. availability of local talent and openness to skilled talent immigration) | 54% |
| Future economic growth prospects | 42% |
| Government support (e.g. grants, incubators, and mentorship programs) | 42% |
| Favorable tax policies | 29% |
| Geographic proximity to existing operations | 21% |
| Tech infrastructure and digitalisation | 19% |
| Transparent regulatory environment | 18% |
| Cultural and language similarity to existing operations | 18% |
Favourable trade agreements primary attractor for Chinese CEOs
Favourable trade agreements we the most important to Chinese respondents, almost three times as important to countries like Japan and Germany.
While a transparent regulatory environment is the least attractive to Chinese businesses (18%) , respondents were least interested in tech infrastructure and digitalisation (18%) against their global peers.
What motivates Chinese interpreneurs to expand internationally?
| What were the primary motivators for your business expanding internationally? [Select up to three] | |
|---|---|
| Market growth opportunities: Accessing new customer segments | 50% |
| Competitive advantage: Gaining a foothold in new markets before rivals | 38% |
| Government incentives in host country (including regulatory framework and tax incentives) | 38% |
| Talent acquisition: Recruiting skilled employees from a broader pool | 36% |
| Resourcing: Manufacturing, supply chain or other resourcing opportunities | 35% |
| Diversification: Reducing dependence on any single market | 32% |
| Cost optimization: Leveraging lower production/resource costs | 27% |
| Access to digital technologies and innovation | 17% |
| Existing personal network abroad | 13% |
Half (50%) of respondents said their business was primarily motivated to expand internationally by market growth opportunities: accessing new customer segments. 38% were motivated by the possibility of government incentives in the host country (including regulatory framework and tax incentives). 38% said competitive advantage: gaining a foothold in new markets before rivals motivated their business’s international expansion.
What benefits do Chinese firms see from global expansion?
According to the survey, 56% of respondents identified stronger strategic positioning and competitive advantage as the most significant benefit their business experienced following international expansion. Additionally, 48% noted enhanced brand awareness and reputation, 46% observed improved operational efficiency and cost savings, and 40% reported increased profitability.
What Are The Biggest International Expansion Challenges in 2024 According to Chinese Interpreneurs?
| Top 3 biggest challenges during international expansion process | |
|---|---|
| Managing economic volatility (e.g. currency fluctuations, inflation and or low growth) | 43% |
| Adapting logistics and supply chain issues (e.g. managing international shipping, distribution, and communication) | 42% |
| Finding the right local partners (e.g. building reliable and trustworthy relationships) | 40% |
Handling economic volatility a skill ambitious interpreneurs share
Countries that have a strong appetite for growth, like India, Nigeria and South Africa all joined China in believing economic volatility was a top three challenge to the international expansion process.
43% said that one of the biggest challenges faced by businesses during international expansion was managing economic volatility (e.g. currency fluctuations, inflation and or low growth).
Other significant challenges were:
- Adapting logistics and supply chain issues (e.g. managing international shipping, distribution, and communication)- 42%
- Finding the right local partners (e.g. building reliable and trustworthy relationships)- 40%
- Navigating global tax regulation (e.g. transfer pricing, double taxation, VAT)- 39%
Risk: What do Chinese CEOs think are the biggest risks to global business expansion in 2024?
How much of a risk do the following pose to your business’s international expansion or planned international expansion?
| Escalating geopolitical tensions and instability | Disruptive risk | 6% |
| Significant risk | 16% | |
| Moderate risk | 41% | |
| Minimal risk | 35% | |
| No risk | 2% | |
| Not Sure / Not applicable | 0% | |
| Economic slowdown or recession | Disruptive risk | 4% |
| Significant risk | 26% | |
| Moderate risk | 42% | |
| Minimal risk | 24% | |
| No risk | 4% | |
| Not Sure / Not applicable | 0% | |
| Financial market and foreign exchange volatility | Disruptive risk | 9% |
| Significant risk | 22% | |
| Moderate risk | 36% | |
| Minimal risk | 25% | |
| No risk | 8% | |
| Not Sure / Not applicable | 0% | |
| Cybersecurity threats and data breaches | Disruptive risk | 7% |
| Significant risk | 12% | |
| Moderate risk | 42% | |
| Minimal risk | 27% | |
| No risk | 12% | |
| Not Sure / Not applicable | 0% | |
| Talent shortages and skilled labour gaps | Disruptive risk | 4% |
| Significant risk | 26% | |
| Moderate risk | 28% | |
| Minimal risk | 32% | |
| No risk | 10% | |
| Not Sure / Not applicable | 0% | |
| Technological disruption from AI and new technologies | Disruptive risk | 2% |
| Significant risk | 14% | |
| Moderate risk | 31% | |
| Minimal risk | 40% | |
| No risk | 13% | |
| Not Sure / Not applicable | 0% | |
| Environmental disruption and extreme weather | Disruptive risk | 3% |
| Significant risk | 17% | |
| Moderate risk | 23% | |
| Minimal risk | 51% | |
| No risk | 6% | |
| Not Sure / Not applicable | 0% |
Financial market biggest risk to Chinese businesses
31% of respondents felt financial market and foreign exchange volatility pose a disruptive or significant risk to their business’s international expansion or planned expansion.
China was the least concerned with escalating geopolitical tensions globally. Additionally, environmental disruption is also less of a concern to the country.
Private Equity vs Venture Capital: Which is the preferred international expansion funding source for Chinese businesses?
| Venture capital or private equity | 62% |
| Capital markets (i.e. IPO) | 51% |
| Private investors (including HNWIs) | 48% |
| Employee equity schemes | 40% |
| Management buyout | 34% |
| Government funding | 27% |
| Debt | 15% |
| Crowdfunding | 9% |
| Venture capital or private equity | 62% |
Venture capital funding mid-market Chinese firms’ international expansion
62% of respondents said that their business is likely to consider or have used venture capital or private equity to grow internationally. 51% reported using/ considering capital markets (i.e. IPO) for international expansion.
Other common sources of growth capital were:
- Private investors (including HNWIs)- 48%
- Employee equity schemes- 40%
- Management buyout- 34%
Understanding global tax: Is the C-suite ready for a global tax threshold?
| How confident are you in your understanding of the global international tax rules (for example transfer pricing, VAT) that govern multinational businesses? | |
|---|---|
| Extremely confident: I have a deep understanding of global tax rules and their implications for multinational businesses | 46% |
| Confident: I have a good grasp of key principles and can navigate common scenarios, but may seek external guidance for complex situations | 52% |
| Not very confident: My understanding of global tax rules is limited, and I rely heavily on external advisors for guidance and analysis | 2% |
Chinese CEOs confident about global taxation skills
Chinese CEOs were in the highest of all respondents when considering their ability to understand global tax rules. They scored 98% confidence, with almost half extremely confident in understanding global tax rules is an optimistic picture.
The growing importance of ESG for Chinese investors and interpreneurs
| We do / would prioritise ESG | 64% |
| We do / would value ESG, but it wouldn’t be our top priority | 23% |
| We do / would consider ESG practices but if only if they don’t interfere with our other priorities | 13% |
China number one country placing ESG as a priority
Almost two-thirds of the Chinese business leaders prioritise ESG when expanding internationally, over 4 times the score of the lowest country, Spain. This could be tied in with China’s ambitious plans to be carbon neutral by 2060.
The benefits of AI in international business operations
| To what extent do you agree or disagree with the following statement: ‘I feel prepared to harness the benefits of AI in global business operations within the next two years? | |
|---|---|
| Strongly agree | 54% |
| Somewhat agree | 37% |
| Neither agree nor disagree | 9% |
Chinese businesses confident about the use of AI in global operations
No respondents from the US, Brazil, China, Mexico or Nigeria said they felt unprepared and China was in the top 5 most confident countries.
