The old playbook for multinational companies (MNCs) in China no
longer works.
Five years ago, MNCs could translate superior technology,
products, and management models into easy profits in the
world’s second-largest economy. Today, the competitive
landscape has shifted.
Geopolitics, tighter regulation and the rise of Chinese
champions have made operating in China more complex than at any
time in recent decades. China’s foreign direct investment
peaked at $344 billion in 2021 but swung to a record $168 billion
net outflow in 2024, the biggest exit since records began in 1990.
1
For MNCs, the question is no longer whether to stay or leave
– it’s about how to redefine their value and reset their
strategy in the fast-changing Chinese market.
Alvarez & Marsal’s China team has worked with companies
on these issues for years. Last year, Performance Improvement team
published “A Guide to Resetting MNCs’ China Strategy and
Operations,” outlining a framework for evaluating the path
forward.
To explore the implications, Managing Director and North Asia
Co-Head James Dubow discussed the challenges MNCs face
in China and strategies for navigating the market’s
transformation with Managing Director Jia Jin.
The following conversation has been edited for length and
clarity.
James Dubow: Today we’re tackling one of
the most challenging problems for MNCs in China – their
future their future strategy. This means deciding how to grow and
sometimes, whether to exit the market. We’re joined by Jia Jin,
who leads our digital practice and has been helping several MNCs
navigate these strategic crossroads in China.
Jia Jin, what are the biggest challenges you’re seeing for
MNCs in China?
Jia Jin: It’s completely different from
five years ago. Back then, almost all MNCs saw China as a huge
market, and they were desperate to expand their business there. But
now, the focus is not on growth, but on navigating a new set of
challenges.
These challenges fall into three areas. First, geopolitics:
US-China tensions and tariff uncertainty create constant
instability. Second, tighter regulation in both countries,
especially on data security. Third, and most importantly, the rise
of local rivals in critical sectors such as electric vehicles (EVs)
and consumer electronics.
The edge that MNCs once had is disappearing, making success much
harder to achieve today.
James Dubow: When MNCs approach us, do they
have clear ideas about what they want to do, or are they confused
about their options?
Jia Jin: That’s changed as well. A few
years ago, MNC clients sought advice on how to deepen their
presence in China. Now, they come to us for help with managing risk
and uncertainty as the operating environment grows more
complex.
We suggest they think through three dimensions:
- Identify the biggest challenge: Is it geopolitics, regulation,
or local competition? - Reassess China’s strategic value: What role should China
play in your global footprint now? - Define a new competitive edge: For companies that stay, how
will they compete against local players?
Adapting to China’s New Reality
James Dubow: I know you’re currently
working on a project in this area. What learnings have you and the
company gained from that experience?
Jia Jin: The project I’m on now faces
almost the exact same challenges. We’re advising a global
software services firm that was once a market leader, known for its
cutting-edge methodology. At its peak, it had nearly 3,000
employees in China and many success stories, including helping a
top Chinese tech company build its entire research and development
(R&D) system.
But over time, Chinese competitors not only learned this
methodology – they’re even applying it better. As a
result, the MNC’s China business came under greater pressure,
with both revenue and profitability in decline.
The management team came to us for help rethinking their China
strategy. We did a full analysis and identified five main
options:
- Do nothing and wait a year or two
- Shut down the China business
- Form a joint venture with a local partner
- Double down on investment to fund a turnaround
- Sell the business
After analyzing the firm’s strengths against the competitive
landscape and market trends, our recommendation was stark: either
sell the business or double down on a major turnaround to bring
performance back.
Ultimately, after discussions with their shareholders, they
chose to sell. However, like many MNCs, the client didn’t want
a complete exit, as China remains an attractive market. We
therefore proposed a carve-out sale: split off the underperforming
unit and sell it to a suitable local buyer, while retaining the
part of the business that leverages China’s talent to serve
global clients.
This way, they reduce their geopolitical exposure and address
the margin pressure from intense local competition, while avoiding
a full exit. A well-known Chinese investment firm is now preparing
to take over, and we’re supporting the process.
James Dubow: These are difficult decisions for
any company, especially those with substantial employees and
investments in China. MNC executives are probably sitting in Europe
or the U.S., and many have travelled less to China over the past
few years and may be less familiar with the market. How do you help
companies make these decisions, especially back at the home
office?
Jia Jin: This is exactly where our value lies.
Our on-the-ground presence and daily engagement with private equity
funds and companies give us the real-time intelligence that
overseas executives might lack. Having helped numerous MNCs through
the entire lifecycle in China, from entry to exit, we can offer
insights grounded in practical experience. This gives management
the confidence to make difficult but necessary decisions.
Leveraging China’s Innovation Ecosystem
James Dubow: Last night we had dinner with some
MNC executives in China. Some local management teams believe that
their global organizations would miss out if they don’t learn
from the innovation happening in China, specifically in technology,
manufacturing, healthcare, and other areas. From that perspective,
it would be important to be in this market to understand what’s
happening and learn.
Jia Jin: Exactly. While we all see challenges,
China remains indispensable – not just for revenue but for
tech access, talent and innovation. This trend is reflected in what
we call “China speed” – the incredible pace of
development in EVs, manufacturing, and artificial intelligence
(AI), where Chinese companies are leading the global market. Even
our client, while selling part of its China business, is retaining
some operations to leverage the country’s innovation ecosystem
and talent base. This isn’t a market you can simply
abandon.
James Dubow: On a personal note, you had a long
career at another major consultancy before joining A&M. What
have you learned from your different experiences?
Jia Jin: For me, it’s hard to define
A&M as just a consulting firm. Traditional consulting often
stops at telling you what to do. A&M’s ethos is about
getting it done. We have a hands-on, results-oriented approach.
Our interim management practice is a great example. When a
client is in crisis, we can step in as interim CEO or CFO to drive
a turnaround and deliver tangible financial improvements. We have
the capability not only to advise but to implement and execute.
James Dubow: How does that difference show up
in your digital transformation work?
Jia Jin: A&M’s DNA is closely tied to
the world of private equity, which means we are focused on driving
value with urgency. Our clients don’t want a two-year roadmap
in a 100-page deck; they expect to see five-page summaries
outlining actions, outcomes and timelines.
We adapt to different client needs – agile, pragmatic,
relentlessly focused on rapid, tangible improvements.
James Dubow: There’s no question that
Chinese market is experiencing significant change and disruption.
What parts of the economy are you seeing that are unique and
growing, with a lot of innovation and excitement happening?
Jia Jin: China’s innovation drive is
powered by a strong emphasis on education, a massive pool of
university graduates, and fierce domestic competition. It’s a
market where innovation is a prerequisite for survival, which has
created a powerful ecosystem for new ideas and technologies.
Even as MNCs diversify their supply chains, many are keeping
their R&D centers in China for this reason. We’re seeing it
not just in EVs and AI, but increasingly in areas like innovative
drugs. For any MNC, learning to effectively leverage this
innovation is key to optimizing its global strategy.
Footnotes
1 Bloomberg: China Has Record Foreign Investment Outflow
as $168 Billion Exit
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